UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q





[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the quarterly period ended March 31, 2010





OR





[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
transition period from ____ to ____





Commission
file number 001-32649





COGDELL
SPENCER INC.


(Exact
name of registrant as specified in its charter)





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


(704)
940-2900


(Registrant's
telephone number, including area code)





N/A


(Former
name, former address and former fiscal year, if changed since last
report)





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 [X]   No [ ]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, 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    [ ]    NO   [
]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filed, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act (Check one):


Large
accelerated filer [ ]      Accelerated filer
[X]          Non-accelerated
filer [ ]        Smaller reporting
company [ ].


(Do not
check if a smaller reporting company)








Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act).  [ ] Yes  [X] No





Indicate
the number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date: 42,805,033 shares of common stock, par value
$.01 per share, outstanding as of May 3, 2010.








TABLE
OF CONTENTS


PagePART I
              FINANCIAL
      INFORMATIONItem 1
              Financial
      Statements
              1Item 2
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              19Item
      3
              Quantitative
      and Qualitative Disclosures about Market Risk
              33Item 4
              Controls
      and Procedures
              33PART II
              OTHER
      INFORMATIONItem 1
              Legal
      Proceedings
              33Item 1A
              Risk
      Factors
              33Item 2
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              34Item 3
              Defaults
      Upon Senior Securities
              34Item 4
              Removed
      and Reversed
              34Item 5
              Other
      Information
              34Item 6
              Exhibits
              34 SIGNATURES
              
              35





PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





COGDELL
SPENCER INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except per share amounts)


(unaudited)


March
      31, 2010
            
            
            December
      31, 2009AssetsReal
      estate properties:Land
            
            $
            33,139
            
            
            $
            33,139Buildings
      and improvements
            
            
            548,911
            
            
            
            527,985Less:
      Accumulated depreciation
            
            
            (99,544
            )
            
            
            (93,247
            )Net
      operating real estate properties
            
            
            482,506
            
            
            
            467,877Construction
      in progress
            
            
            29,401
            
            
            
            43,338Net
      real estate properties
            
            
            511,907
            
            
            
            511,215Cash
      and cash equivalents
            
            
            18,544
            
            
            
            25,914Restricted
      cash
            
            
            3,215
            
            
            
            3,060Tenant
      and accounts receivable, net of allowance of $2,702 in 2010 and $2,817 in
      2009
            
            
            11,502
            
            
            
            12,993Goodwill
            
            
            108,683
            
            
            
            108,683Trade
      names and trademarks
            
            
            41,240
            
            
            
            41,240Intangible
      assets, net of accumulated amortization of $44,870 in 2010 and $43,313 in
      2009
            
            
            20,185
            
            
            
            21,742Other
      assets
            
            
            24,724
            
            
            
            25,599Other
      assets - held for sale
            
            
            2,243
            
            
            
            2,217Total
      assets
            
            $
            742,243
            
            
            $
            752,663Liabilities
      and equityMortgage
      notes payable
            
            $
            286,295
            
            
            $
            280,892Revolving
      credit facility
            
            
            80,000
            
            
            
            80,000Term
      loan
            
            
            50,000
            
            
            
            50,000Accounts
      payable
            
            
            9,838
            
            
            
            15,293Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            5,353
            
            
            
            13,189Deferred
      income taxes
            
            
            15,688
            
            
            
            15,993Other
      liabilities
            
            
            47,879
            
            
            
            47,312Other
      liabilities - held for sale
            
            
            2,206
            
            
            
            2,204Total
      liabilities
            
            
            497,259
            
            
            
            504,883Commitments
      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, 42,793 and 42,729
      sharesissued
      and outstanding in 2010 and 2009, respectively
            
            
            428
            
            
            
            427Additional
      paid-in capital
            
            
            370,951
            
            
            
            370,593Accumulated
      other comprehensive loss
            
            
            (2,868
            )
            
            
            (1,861
            )Accumulated
      deficit
            
            
            (165,314
            )
            
            
            (164,321
            )Total
      Cogdell Spencer Inc. stockholders' equity
            
            
            203,197
            
            
            
            204,838Noncontrolling
      interests:Real
      estate partnerships
            
            
            4,437
            
            
            
            5,220Operating
      partnership
            
            
            37,350
            
            
            
            37,722Total
      noncontrolling interests
            
            
            41,787
            
            
            
            42,942Total
      equity
            
            
            244,984
            
            
            
            247,780Total
      liabilities and equity
            
            $
            742,243
            
            
            $
            752,663See
      notes to condensed consolidated financial statements.


1


COGDELL
SPENCER INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(In
thousands, except per share amounts)


(unaudited)


For
      the Three Months EndedMarch
      31, 2010
            
            March
      31, 2009Revenues:Rental
      revenue
            
            $
            21,245
            
            $
            19,577Design-Build
      contract revenue and other sales
            
            
            35,436
            
            
            46,390Property
      management and other fees
            
            
            818
            
            
            850Development
      management and other income
            
            
            103
            
            
            2,799Total
      revenues
            
            
            57,602
            
            
            69,616Expenses:Property
      operating and management
            
            
            8,198
            
            
            7,865Design-Build
      contracts and development management
            
            
            24,619
            
            
            40,165Selling,
      general, and administrative
            
            
            5,820
            
            
            6,667Depreciation
      and amortization
            
            
            8,085
            
            
            10,076Impairment
      charges
            
            
            -
            
            
            120,920Total
      expenses
            
            
            46,722
            
            
            185,693Income
      (loss) from continuing operations before other income (expense)
      and
              income
      tax benefit (expense)
            
            
            10,880
            
            
            (116,077
            )Other
      income (expense):Interest
      and other income
            
            
            160
            
            
            155Interest
      expense
            
            
            (5,089
            )
            
            (5,991
            )Interest
      rate derivative expense
            
            
            (15
            )
            
            -Equity
      in earnings of unconsolidated real estate partnerships
            
            
            3
            
            
            6Total
      other income (expense)
            
            
            (4,941
            )
            
            (5,830
            )Income
      (loss) from continuing operations before income tax benefit
      (expense)
            
            
            5,939
            
            
            (121,907
            )Income
      tax benefit (expense)
            
            
            (1,726
            )
            
            19,626Net
      income (loss) from continuing operations
            
            
            4,213
            
            
            (102,281
            )Loss
      from discontinued operations
            
            
            (18
            )
            
            (43
            )Net
      income (loss)
            
            
            4,195
            
            
            (102,324
            )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
            
            
            (311
            )
            
            (92
            )Operating
      partnership
            
            
            (598
            )
            
            32,198Net
      income (loss) attributable to Cogdell Spencer Inc.
            
            $
            3,286
            
            $
            (70,218
            )Per
      share data - basic and diluted:Income
      (loss) from continuing operations attributable to Cogdell Spencer
      Inc.
            
            $
            0.08
            
            $
            (3.90
            )Income
      (loss) from discontinued operations attributable to Cogdell Spencer
      Inc.
            
            
            (0.00
            )
            
            (0.00
            )Net
      income (loss) per share attributable to Cogdell Spencer
    Inc.
            
            $
            0.08
            
            $
            (3.90
            )Weighted
      average common shares - basic and diluted
            
            
            42,768
            
            
            17,995Net
      income (loss) attributable to Cogdell Spencer Inc.:Income
      (loss) from continuing operations, net of tax
            
            $
            3,301
            
            $
            (70,189
            )Discontinued
      operations
            
            
            (15
            )
            
            (29
            )Net
      income (loss) attributable to Cogdell Spencer Inc.
            
            $
            3,286
            
            $
            (70,218
            )See
      notes to condensed consolidated financial statements.


2


COGDELL
SPENCER INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(In
thousands)


(unaudited)


Cogdell
      Spencer Inc. StockholdersAccumulated
              
              
              
              
              
              Noncontrolling
              
              NoncontrollingOther
              
              
              
              Additional
              
              Interests
      in
              
              Interests
      inTotal
              
              
              Comprehensive
              
              
              Accumulated
              
              
              Comprehensive
              
              Common
              
              Paid-in
              
              Operating
              
              Real
      EstateEquity
              
              
              Income
      (Loss)
              
              
              Deficit
              
              
              Loss
              
              Stock
              
              Capital
              
              Partnership
              
              PartnershipsBalance
      at December 31, 2009
              
              $
              247,780
              
              
              
              
              
              $
              (164,321
              )
              
              $
              (1,861
              )
              $
              427
              
              $
              370,593
              
              $
              37,722
              
              $
              5,220Comprehensive
      income:Net
      income
              
              
              4,195
              
              
              $
              4,195
              
              
              
              3,286
              
              
              
              -
              
              
              -
              
              
              -
              
              
              598
              
              
              311Unealized
      loss on interest rate swaps,net
      of tax
              
              
              (1,464
              )
              
              
              (1,464
              )
              
              
              -
              
              
              
              (1,002
              )
              
              -
              
              
              -
              
              
              (184
              )
              
              (278
              )Comprehensive
      income
              
              
              2,731
              
              
              $
              2,731
              
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Conversion
      of operating partnership unitsto
      commonstock
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              (5
              )
              
              -
              
              
              158
              
              
              (153
              )
              
              -Restricted
      stock and LTIP unit grants
              
              
              333
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              1
              
              
              200
              
              
              132
              
              
              -Dividends
      and distributions
              
              
              (5,860
              )
              
              
              
              
              
              
              (4,279
              )
              
              
              -
              
              
              -
              
              
              -
              
              
              (765
              )
              
              (816
              )Balance
      at March 31, 2010
              
              $
              244,984
              
              
              
              
              
              
              $
              (165,314
              )
              
              $
              (2,868
              )
              $
              428
              
              $
              370,951
              
              $
              37,350
              
              $
              4,437
  See
      notes to condensed consolidated financial
statements.


3


COGDELL
SPENCER INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


(In
thousands)


(unaudited)


Cogdell
      Spencer Inc. StockholdersAccumulated
              
              
              
              
              
              Noncontrolling
              
              NoncontrollingOther
              
              
              
              Additional
              
              Interests
      in
              
              Interests
      inTotal
              
              
              Comprehensive
              
              
              Accumulated
              
              
              Comprehensive
              
              Common
              
              Paid-in
              
              Operating
              
              Real
      EstateEquity
              
              
              Loss
              
              
              Deficit
              
              
              Loss
              
              Stock
              
              Capital
              
              Partnership
              
              PartnershipsBalance
      at December 31, 2008
              
              $
              282,994
              
              
              
              
              
              $
              (77,438
              )
              
              $
              (5,106
              )
              $
              177
              
              $
              275,380
              
              $
              85,324
              
              $
              4,657Comprehensive
      loss:Net
      income (loss)
              
              
              (102,324
              )
              
              $
              (102,324
              )
              
              
              (70,218
              )
              
              
              -
              
              
              -
              
              
              -
              
              
              (32,198
              )
              
              92Urealized
      gain on interest rate swaps,net
      of tax
              
              
              (164
              )
              
              
              (164
              )
              
              
              -
              
              
              
              (236
              )
              
              -
              
              
              -
              
              
              (108
              )
              
              180Comprehensive
      loss
              
              
              (102,488
              )
              
              $
              (102,488
              )Conversion
      of operating partnership unitsto
      common stock
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              (464
              )
              
              18
              
              
              17,496
              
              
              (17,050
              )
              
              -Restricted
      stock and LTIP unit grants
              
              
              817
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              -
              
              
              79
              
              
              738
              
              
              -Amorization
      of restricted stock grants
              
              
              25
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              -
              
              
              16
              
              
              9
              
              
              -Dividends
      and distributions
              
              
              (6,337
              )
              
              
              
              
              
              
              (4,386
              )
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,680
              )
              
              (271
              )Balance
      at March 31, 2009
              
              $
              175,011
              
              
              
              
              
              
              $
              (152,042
              )
              
              $
              (5,806
              )
              $
              195
              
              $
              292,971
              
              $
              35,035
              
              $
              4,658
  See
      notes to condensed consolidated financial
statements.


4


COGDELL
SPENCER INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
thousands)


(unaudited)


For
      the Three Months EndedMarch
      31, 2010
              
              
              March
      31, 2009Operating
      activities:Net income (loss)
              
              $
              4,195
              
              
              $
              (102,324
              )Adjustments to reconcile net loss to cashprovided by operating activities:Depreciation
      and amortization (including amounts in discontinued
      operations)
              
              
              8,083
              
              
              
              10,111Amortization
      of acquired above market leases and acquired below market
                leases,
      net (including amounts in discontinued operations)
              
              
              (110
              )
              
              
              (131
              )Straight-line
      rental revenue
              
              
              (221
              )
              
              
              (118
              )Amortization
      of deferred finance costs and debt premium
              
              
              392
              
              
              
              423Provision
      for bad debts
              
              
              (116
              )
              
              
              10Deferred
      income taxes
              
              
              (311
              )
              
              
              (19,572
              )Deferred
      tax expense on intersegment profits
              
              
              (165
              )
              
              
              (94
              )Equity-based
      compensation
              
              
              260
              
              
              
              842Equity
      in earnings of unconsolidated real estate partnerships
              
              
              (3
              )
              
              
              (6
              )Change
      in fair value of interest rate swap agreements
              
              
              (274
              )
              
              
              -Interest
      rate derivative expense
              
              
              15
              
              
              
              -Impairment
      of goodwill, trade names and trademarks and intangible
    assets
              
              
              -
              
              
              
              120,920Changes
      in operating assets and liabilities:Tenant
      and accounts receivable and other assets
              
              
              1,695
              
              
              
              7,109Accounts
      payable and other liabilities
              
              
              (2,836
              )
              
              
              (17,123
              )Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              (7,836
              )
              
              
              2,098Net
      cash provided by operating activities
              
              
              2,768
              
              
              
              2,145Investing
      activities:Investment
      in real estate properties
              
              
              (9,393
              )
              
              
              (7,048
              )Proceeds from sales-type capital lease
              
              
              76
              
              
              
              76Purchase of corporate property, plant and
      equipment
              
              
              (126
              )
              
              
              (1,020
              )Distributions received from unconsolidated real estate
      partnerships
              
              
              4
              
              
              
              5Decrease (increase) in restricted cash
              
              
              (155
              )
              
              
              278Net
      cash used in investing activities
              
              
              (9,594
              )
              
              
              (7,709
              )Financing
      activities:Proceeds
      from mortgage notes payable
              
              
              6,424
              
              
              
              3,309Repayments of mortgage notes payable
              
              
              (1,031
              )
              
              
              (997
              )Repayments to revolving credit facility
              
              
              -
              
              
              
              (12,500
              )Dividends and distributions
              
              
              (5,041
              )
              
              
              (6,022
              )Distributions to noncontrolling interests in real estate
      partnerships
              
              
              (816
              )
              
              
              (271
              )Payment of financing costs
              
              
              (80
              )
              
              
              (223
              )Net
      cash used in financing activities
              
              
              (544
              )
              
              
              (16,704
              )Decrease
      in cash and cash equivalents
              
              
              (7,370
              )
              
              
              (22,268
              )Balance at beginning of period
              
              
              25,914
              
              
              
              34,668Balance
      at end of period
              
              $
              18,544
              
              
              $
              12,400Supplemental
      disclosure of cash flow information:Cash paid for interest, net of capitalized interest
              
              $
              5,289
              
              
              $
              5,503Cash paid for income taxes
              
              $
              73
              
              
              $
              1Non-cash
      investing and financing activities:Investment in real estate properties included in accounts payable and
      otherliabilities
              
              $
              1,916
              
              
              $
              898Accrued dividends and distributions
              
              
              5,057
              
              
              
              6,088Operating Partnership Units converted into common stock
              
              
              158
              
              
              
              17,514See
      notes to condensed consolidated financial statements.


5
 COGDELL
SPENCER INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)


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 condensed 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 condensed consolidated financial statements include the
Company’s accounts, its wholly-owned subsidiaries, as well as the Operating
Partnership and its subsidiaries. The condensed 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 condensed consolidated financial
statements in accordance with the GAAP. All significant intercompany balances
and transactions have been eliminated in consolidation.




Interim
Financial Statements




The
condensed consolidated financial statements for the three months ended March 31,
2010 and 2009 are unaudited, but include all adjustments, consisting of normal
recurring adjustments that, in the opinion of management, are necessary for a
fair presentation of the Company’s financial position, results of operations,
changes in equity and cash flows for such periods. Operating results for the
three months ended March 31, 2010 and 2009 are not necessarily indicative of
results that may be expected for any other interim period or for the full fiscal
years of 2010 or 2009 or any other future period.  These condensed
consolidated financial statements do not include all disclosures required by
GAAP for annual consolidated financial statements.  The Company’s
audited consolidated financial statements are contained in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009 and should be read in
conjunction with these interim financial statements.




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.




6


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 March 31, 2010, the Company had bank cash balances of
$19.0 million in excess of FDIC insured limits.




Two
customers accounted for more than 10% of tenant and accounts receivable at March
31, 2010 and one customer accounted for more than 10% of tenant and accounts
receivable at March 31, 2009.




Two
customers accounted for more than 10% of revenue for the three months ended
March 31, 2010, and one customer accounted for more than 10% of revenue for the
three months ended March 31, 2009.




Fair
Value


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.




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 March 31,
2010, the carrying amount and estimated fair value of debt was $416.2 million
and $407.9 million, respectively.  The Harbison Medical Office
Building mortgage included in Other liabilities – held for sale in the
accompanying condensed consolidated financial statements in this Form 10-Q has a
$2.1 million carrying value and $2.2 million estimated fair value as of March
31, 2010.
  See
Note 9 of the accompanying condensed consolidated financial statements in this
Form 10-Q regarding the fair value of the Company’s interest rate swap
agreements.


Reclassification




During
2009, the Company reclassified the Harbison Medical Office Building, a
wholly-owned real estate property, as discontinued operations and is currently
actively marketing the property for sale.  The Company expects to sell
this property 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 Loss from discontinued
operations in the consolidated statement of operations for the three months
ended March 31, 2010 and 2009.  The asset is part of the Property
Operations segment.




7


Recent
Accounting Pronouncements




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 adoption of this
standard had no impact on the Company’s balance sheet, statement of operations,
or changes in equity on March 31, 2010.
  In
January 2010, the FASB issued an accounting standard, codified in ASC 810,
Consolidation, which provides additional clarification regarding noncontrolling
interest decrease-in-ownership provisions and expands the disclosures required
upon deconsolidation of a subsidiary.  The adoption of this standard
had no impact on the Company’s balance sheet, statement of operations, or
changes in equity on March 31, 2010.
  In
January 2010, the FASB issued an accounting standard, codified in ASC 820, Fair
Value Measurements and Disclosures, which adds new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate disclosures about
purchases, sales, issuances and settlements relating to Level 3
measurements.  The standard, with the exception of the additional
Level 3 disclosures, is effective for interim and annual reporting periods
beginning after November 15, 2009.  The adoption of this standard had
no impact on the Company’s balance sheet, statement of operations, or changes in
equity on March 31, 2010.  Requirements related to additional Level 3
disclosures will be effective for fiscal years beginning after December 15,
2010.  The Company is still evaluating the effect of this standard on
the Company’s balance sheet, statement of operations, or changes in
equity.
  In
February 2010, the FASB issued additional guidance, codified in ASC 855,
Subsequent Events, which includes, among other things, an exemption for SEC
filers from the requirement to disclose the date through which subsequent events
have been evaluated.  The disclosure has been removed from Note
2.


3.
            Investments
      in Real Estate Partnerships




As of
March 31, 2010, 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, has  no assets or liabilities, and is 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 is 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 is 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 is 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 is 40.0% owned by the
      Company;
 ·
                    Cogdell
      Health Campus MOB, LP, a Pennsylvania limited partnership, founded in
      2006, owns one medical office building, and is 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 is 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 is 34.5% owned by the
      Company.
 8
 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 condensed 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 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. 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.
 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):
 March
      31, 2010
                  
                  
                  December
      31, 2009Financial
      position:Total
      assets
                  
                  $
                  54,970
                  
                  
                  $
                  54,725Total
      liabilities
                  
                  
                  48,564
                  
                  
                  
                  48,672Member's
      equity
                  
                  
                  6,406
                  
                  
                  
                  6,053
  For
      the Three Months EndedMarch
      31, 2010
                  
                  
                  March
      31, 2009Results
      of operations:Total
      revenues
                  
                  $
                  3,129
                  
                  
                  $
                  3,068Operating
      and general and administrative
      expenses
                  
                  
                  1,462
                  
                  
                  
                  1,376Net
      income
                  
                  
                  272
                  
                  
                  
                  235
 
 4.
                    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 involve 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.
  9
 The
following tables represent the segment information for the three months ended
March 31, 2010 (in thousands):
 
 Property
                        Operations
                      
                      
                      Design-Build
                        and
                        Development
                      
                      
                      Intersegment
      Eliminations
                      
                      
                      Unallocated
                        and
      Other
                      
                      
                      TotalRevenues:Rental
      revenue
                      
                      $
                      21,268
                      
                      
                      $
                      -
                      
                      
                      $
                      (23
                      )
                      
                      $
                      -
                      
                      
                      $
                      21,245Design-Build
      contract revenue and other sales
                      
                      
                      -
                      
                      
                      
                      39,200
                      
                      
                      
                      (3,764
                      )
                      
                      
                      -
                      
                      
                      
                      35,436Property
      management and other fees
                      
                      
                      818
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      818Development
      management and other income
                      
                      
                      -
                      
                      
                      
                      886
                      
                      
                      
                      (783
                      )
                      
                      
                      -
                      
                      
                      
                      103Total
      revenues
                      
                      
                      22,086
                      
                      
                      
                      40,086
                      
                      
                      
                      (4,570
                      )
                      
                      
                      -
                      
                      
                      
                      57,602Certain
      operating expenses:Property
      operating and management
                      
                      
                      8,198
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      8,198Design-Build
      contracts and development management
                      
                      
                      -
                      
                      
                      
                      28,648
                      
                      
                      
                      (4,029
                      )
                      
                      
                      -
                      
                      
                      
                      24,619Selling,
      general, and administrative
                      
                      
                      -
                      
                      
                      
                      3,889
                      
                      
                      
                      (23
                      )
                      
                      
                      -
                      
                      
                      
                      3,866Total
      certain operating expenses
                      
                      
                      8,198
                      
                      
                      
                      32,537
                      
                      
                      
                      (4,052
                      )
                      
                      
                      -
                      
                      
                      
                      36,68313,888
                      
                      
                      
                      7,549
                      
                      
                      
                      (518
                      )
                      
                      
                      -
                      
                      
                      
                      20,919Interest
      and other income
                      
                      
                      146
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      11
                      
                      
                      
                      160Corporate
      general and administrative expenses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,954
                      )
                      
                      
                      (1,954
                      )Interest
      expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (5,089
                      )
                      
                      
                      (5,089
                      )Interest
      rate derivative expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (15
                      )
                      
                      
                      (15
                      )Provision
      for income taxes applicable to funds fromoperations
      modified
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,965
                      )
                      
                      
                      (1,965
                      )Non-real
      estate related depreciation and amortization
                      
                      
                      -
                      
                      
                      
                      (219
                      )
                      
                      
                      -
                      
                      
                      
                      (60
                      )
                      
                      
                      (279
                      )Earnings
      from unconsolidated real estate partnerships,before
      real estate
                        related depreciationand
      amortization
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6Noncontrolling
      interests in real estate partnerships, beforereal
      estate related
                        depreciation and amortization
                      
                      
                      (616
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (616
                      )Discontinued
      operations
                      
                      
                      16
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (34
                      )
                      
                      
                      (18
                      )Funds
      from operations modified (FFOM)
                      
                      
                      13,440
                      
                      
                      
                      7,333
                      
                      
                      
                      (518
                      )
                      
                      
                      (9,106
                      )
                      
                      
                      11,149Amortization
      of intangibles related to purchaseaccounting,
      net of income tax benefit
                      
                      
                      (42
                      )
                      
                      
                      (570
                      )
                      
                      
                      -
                      
                      
                      
                      239
                      
                      
                      
                      (373
                      )Funds
      from operations (FFO)
                      
                      
                      13,398
                      
                      
                      
                      6,763
                      
                      
                      
                      (518
                      )
                      
                      
                      (8,867
                      )
                      
                      
                      10,776Real
      estate related depreciation and amortization
                      
                      
                      (7,197
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,197
                      )Noncontrolling
      interests in real estate partnerships, beforereal
      estate related
                        depreciation and amortization
                      
                      
                      616
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      616Net
      income (loss)
                      
                      
                      6,817
                      
                      
                      
                      6,763
                      
                      
                      
                      (518
                      )
                      
                      
                      (8,867
                      )
                      
                      
                      4,195Net
      loss attributable to the noncontrolling interest in:Real
      estate partnerships
                      
                      
                      (311
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (311
                      )Operating
      partnership
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (598
                      )
                      
                      
                      (598
                      )Net
      income (loss) attributable to Cogdell Spencer Inc.
                      
                      $
                      6,506
                      
                      
                      $
                      6,763
                      
                      
                      $
                      (518
                      )
                      
                      $
                      (9,465
                      )
                      
                      $
                      3,286Total
      assets
                      
                      $
                      554,138
                      
                      
                      $
                      187,710
                      
                      
                      $
                      -
                      
                      
                      $
                      395
                      
                      
                      $
                      742,243
 
 10
 
 The
following tables represent the segment information for the three months ended
March 31, 2009 (in thousands):
  Property
                        Operations
                      
                      
                      Design-Build
                        and
                        Development
                      
                      
                      Intersegment
      Eliminations
                      
                      
                      Unallocated
                        and
      Other
                      
                      
                      TotalRevenues:Rental
      revenue
                      
                      $
                      19,600
                      
                      
                      $
                      -
                      
                      
                      $
                      (23
                      )
                      
                      $
                      -
                      
                      
                      $
                      19,577Design-Build
      contract revenue and other sales
                      
                      
                      -
                      
                      
                      
                      51,161
                      
                      
                      
                      (4,771
                      )
                      
                      
                      -
                      
                      
                      
                      46,390Property
      management and other fees
                      
                      
                      850
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      850Development
      management and other income
                      
                      
                      -
                      
                      
                      
                      3,634
                      
                      
                      
                      (835
                      )
                      
                      
                      -
                      
                      
                      
                      2,799Total
      revenues
                      
                      
                      20,450
                      
                      
                      
                      54,795
                      
                      
                      
                      (5,629
                      )
                      
                      
                      -
                      
                      
                      
                      69,616Certain
      operating expenses:Property
      operating and management
                      
                      
                      7,865
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,865Design-Build
      contracts and development management
                      
                      
                      -
                      
                      
                      
                      45,119
                      
                      
                      
                      (4,954
                      )
                      
                      
                      -
                      
                      
                      
                      40,165Selling,
      general, and administrative
                      
                      
                      -
                      
                      
                      
                      4,537
                      
                      
                      
                      (23
                      )
                      
                      
                      -
                      
                      
                      
                      4,514Impairment
      charges
                      
                      
                      -
                      
                      
                      
                      120,920
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      120,920Total
      certain operating expenses
                      
                      
                      7,865
                      
                      
                      
                      170,576
                      
                      
                      
                      (4,977
                      )
                      
                      
                      -
                      
                      
                      
                      173,46412,585
                      
                      
                      
                      (115,781
                      )
                      
                      
                      (652
                      )
                      
                      
                      -
                      
                      
                      
                      (103,848
                      )Interest
      and other income
                      
                      
                      141
                      
                      
                      
                      1
                      
                      
                      
                      -
                      
                      
                      
                      13
                      
                      
                      
                      155Corporate
      general and administrative expenses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,153
                      )
                      
                      
                      (2,153
                      )Interest
      expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (5,991
                      )
                      
                      
                      (5,991
                      )Benefit
      from income taxes applicable to funds fromoperations
      modified
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      18,642
                      
                      
                      
                      18,642Non-real
      estate related depreciation and amortization
                      
                      
                      -
                      
                      
                      
                      (193
                      )
                      
                      
                      -
                      
                      
                      
                      (54
                      )
                      
                      
                      (247
                      )Earnings
      from unconsolidated real estate partnerships,before
      real estate
                        related depreciation and amortization
                      
                      
                      9
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9Noncontrolling
      interests in real estate partnerships, beforereal
      estate related
                        depreciation and amortization
                      
                      
                      (245
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (245
                      )Discontinued
      operations
                      
                      
                      26
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (34
                      )
                      
                      
                      (8
                      )Funds
      from operations modified (FFOM)
                      
                      
                      12,516
                      
                      
                      
                      (115,973
                      )
                      
                      
                      (652
                      )
                      
                      
                      10,423
                      
                      
                      
                      (93,686
                      )Amortization
      of intangibles related to purchaseaccounting,
      net of income tax benefit
                      
                      
                      (42
                      )
                      
                      
                      (2,482
                      )
                      
                      
                      -
                      
                      
                      
                      984
                      
                      
                      
                      (1,540
                      )Funds
      from operations (FFO)
                      
                      
                      12,474
                      
                      
                      
                      (118,455
                      )
                      
                      
                      (652
                      )
                      
                      
                      11,407
                      
                      
                      
                      (95,226
                      )Real
      estate related depreciation and amortization
                      
                      
                      (7,343
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,343
                      )Noncontrolling
      interests in real estate partnerships, beforereal
      estate related
                        depreciation and amortization
                      
                      
                      245
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      245Net
      income (loss)
                      
                      
                      5,376
                      
                      
                      
                      (118,455
                      )
                      
                      
                      (652
                      )
                      
                      
                      11,407
                      
                      
                      
                      (102,324
                      )Net
      loss (income) attributable to the noncontrolling interest
    in:Real
      estate partnerships
                      
                      
                      (92
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (92
                      )Operating
      partnership
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      32,198
                      
                      
                      
                      32,198Net
      income (loss) attributable to Cogdell Spencer Inc.
                      
                      $
                      5,284
                      
                      
                      $
                      (118,455
                      )
                      
                      $
                      (652
                      )
                      
                      $
                      43,605
                      
                      
                      $
                      (70,218
                      )Total
      assets
                      
                      $
                      653,839
                      
                      
                      $
                      93,351
                      
                      
                      $
                      -
                      
                      
                      $
                      945
                      
                      
                      $
                      748,135
 
 11
 5.
                      Discontinued
      Operations
  The Company
reclassified the wholly-owned property, Harbison Medical Office Building, as
held for sale discontinued operations as the Company expects to sell the real
estate property in 2010.  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 (in thousands):
 For
      the Three Months EndedMarch
      31, 2010
                      
                      
                      March
      31, 2009Revenues:Rental
      revenues
                      
                      $
                      78
                      
                      
                      $
                      88Total
      revenues
                      
                      
                      78
                      
                      
                      
                      88Expenses:Property
      operating and management
                      
                      
                      62
                      
                      
                      
                      62Depreciation
      and amortization
                      
                      
                      -
                      
                      
                      
                      35Interest
      expense
                      
                      
                      34
                      
                      
                      
                      34Total
      expenses
                      
                      
                      96
                      
                      
                      
                      131Loss
      from discontinued operations before impairment of real estate
      property
                      
                      
                      (18
                      )
                      
                      
                      (43
                      )Impairment
      of real estate property
                      
                      
                      -
                      
                      
                      
                      -Total
      discontinued operations
                      
                      $
                      (18
                      )
                      
                      $
                      (43
                      )
  6.
                      Contracts
  Revenue
and billings to date on uncompleted contracts, from their inception, as of March
31, 2010 and December 31, 2009, are as follows (in thousands):
  March
      31,
                        2010
                      
                      
                      December
      31,
                        2009Costs
      and estimated earnings on uncompleted contracts
                      
                      $
                      49,621
                      
                      
                      $
                      79,374Billings
      to date
                      
                      
                      (52,483
                      )
                      
                      
                      (90,701
                      )Net
      billings in excess of costs and estimated earnings
                      
                      $
                      (2,862
                      )
                      
                      $
                      (11,327
                      )
  These
amounts are included in the condensed consolidated balance sheet at March 31,
2010 and December 31, 2009 as shown below (in thousands).  At March
31, 2010 and December 31, 2009, the Company had retainage receivables of $2.6
million and $4.5 million, respectively, which are included in Tenant and
accounts receivable in the condensed consolidated balance sheets.
 
 March
      31,
                          2010
                        
                        
                        December
      31,
                          2009Costs
      and estimated earnings in excess of billings (1)
                        
                        $
                        2,491
                        
                        
                        $
                        1,862Billings
      in excess of costs and estimated earnings
                        
                        
                        (5,353
                        )
                        
                        
                        (13,189
                        )Net
      billings in excess of costs and estimated earnings
                        
                        $
                        (2,862
                        )
                        
                        $
                        (11,327
                        )
  (1)
      Included in "Other assets" in the consolidated balance
    sheet
  12
 7.
                      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.  During the remainder of 2009, the Company determined that
no interim review was necessary.
  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 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 Company determined that there were no impairment
indicators and therefore an interim review was not necessary during the three
months ended March 31, 2010.
  The
Company performed an annual review of goodwill for impairment as of December 31,
2009, and concluded there was no further impairment of goodwill.  The
Company also performed an annual review for impairment for other non-amortizing
intangible assets and concluded no impairment existed.   The
Company determined that an interim review was not necessary during the three
months ended March 31, 2010.
  The
goodwill impairment review at March 31, 2009 and December 31, 2009 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.  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 14.5% for the March 31, 2009 review and 14.0% for the
December 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.
  13
 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 the March 31, 2009 and December 31,
2009 reviews, to projected revenues and discounted using a weighted-average cost
of capital that reflects current market conditions, which was 14.5% for the
March 31, 2009 review and 14.0% for the December 31, 2009 review.
  The
following table presents information about the Company’s goodwill and certain
intangible assets measured at fair value as of March 31, 2009, the date at which
the Company recorded an after-tax, non-cash impairment charge of $120.9 million
(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 of the accompanying condensed consolidated financial statements in
this Form 10-Q 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 from the measurement date of
March 31, 2009 to March 31, 2010 (in thousands):
  Recorded
      Value
                      
                      
                      Amortization
      for the
                      
                      
                      Recorded
      Value
                      
                      
                      Amortization
      for the
                      
                      
                      Recorded
      Valueas
      of
                      
                      
                      Three
      Months Ended
                      
                      
                      as
      of
                      
                      
                      Nine
      Months Ended
                      
                      
                      as
      ofLocation
      of Asset
                      
                      March
      31, 2010
                      
                      
                      March
      31, 2010
                      
                      
                      December
      31, 2009
                      
                      
                      December
      31, 2009
                      
                      
                      March
      31, 2009Goodwill
                      Goodwill
                      
                      $
                      108,683
                      
                      
                      
                      n/a
                      
                      
                      $
                      108,683
                      
                      
                      
                      n/a
                      
                      
                      $
                      108,683Trade
      names and trademarks
                      Trade
      names and trademarks
                      
                      
                      41,240
                      
                      
                      
                      n/a
                      
                      
                      
                      41,240
                      
                      
                      
                      n/a
                      
                      
                      
                      41,240Acquired
      signed contracts
                      Intangible
      assets
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      (1,398
                      )
                      
                      
                      1,398Acquired
      proposals
                      Intangible
      assets
                      
                      
                      1,342
                      
                      
                      
                      (447
                      )
                      
                      
                      1,789
                      
                      
                      
                      (340
                      )
                      
                      
                      2,129Acquired
      customer relationships
                      Intangible
      assets
                      
                      
                      1,522
                      
                      
                      
                      (123
                      )
                      
                      
                      1,645
                      
                      
                      
                      (144
                      )
                      
                      
                      1,789$
                      152,787
                      
                      
                      $
                      (570
                      )
                      
                      $
                      153,357
                      
                      
                      $
                      (1,882
                      )
                      
                      $
                      155,239
 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):
 
 Three
      Months Ended March 31, 2010
                      
                      
                      Year
      Ended December 31, 2009Accumulated
                      
                      
                      Net
                      
                      
                      
                      
                      
                      Accumulated
                      
                      
                      NetGross
      Amount
                      
                      
                      Impairment
                      
                      
                      Carrying
      Value
                      
                      
                      Gross
      Amount
                      
                      
                      Impairment
                      
                      
                      Carrying
      ValueGoodwill
      as of January 1
                      
                      $
                      180,438
                      
                      
                      $
                      71,755
                      
                      
                      $
                      108,683
                      
                      
                      $
                      180,438
                      
                      
                      $
                      -
                      
                      
                      $
                      180,438Goodwill
      recognized in acquisition
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Accumulated
      impairment losses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      71,755
                      
                      
                      
                      (71,755
                      )Goodwill
      at end of period
                      
                      $
                      180,438
                      
                      
                      $
                      71,755
                      
                      
                      $
                      108,683
                      
                      
                      $
                      180,438
                      
                      
                      $
                      71,755
                      
                      
                      $
                      108,683Trade
      names and trademarks as of January 1
                      
                      $
                      75,968
                      
                      
                      $
                      34,728
                      
                      
                      $
                      41,240
                      
                      
                      $
                      75,968
                      
                      
                      $
                      -
                      
                      
                      $
                      75,968Trade
      names and trademarks recognized in acquisition
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Accumulated
      impairment losses
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      34,728
                      
                      
                      
                      (34,728
                      )Trade
      names and trademarks at end of period
                      
                      $
                      75,968
                      
                      
                      $
                      34,728
                      
                      
                      $
                      41,240
                      
                      
                      $
                      75,968
                      
                      
                      $
                      34,728
                      
                      
                      $
                      41,240
 14
 Amortizing
intangible assets consisted of the following for the periods shown (in
thousands):
 March
      31, 2010
                          
                          
                          December
      31, 2009Accumulated
                          
                          
                          
                          
                          
                          AccumulatedGross
      Amount
                          
                          
                          Amortization
                          
                          
                          Gross
      Amount
                          
                          
                          AmortizationAcquired
      signed contracts
                          
                          $
                          13,253
                          
                          
                          $
                          13,253
                          
                          
                          $
                          13,253
                          
                          
                          $
                          13,253Acquired
      proposals
                          
                          
                          2,129
                          
                          
                          
                          787
                          
                          
                          
                          2,129
                          
                          
                          
                          340Acquired
      customer relationships
                          
                          
                          1,789
                          
                          
                          
                          267
                          
                          
                          
                          1,789
                          
                          
                          
                          144Acquired
      above market leases
                          
                          
                          1,559
                          
                          
                          
                          1,005
                          
                          
                          
                          1,559
                          
                          
                          
                          955Acquired
      in place lease value and deferred leasing costs
                          
                          
                          40,666
                          
                          
                          
                          28,374
                          
                          
                          
                          40,666
                          
                          
                          
                          27,512Acquired
      ground leases
                          
                          
                          3,562
                          
                          
                          
                          547
                          
                          
                          
                          3,562
                          
                          
                          
                          515Acquired
      property management contracts
                          
                          
                          2,097
                          
                          
                          
                          637
                          
                          
                          
                          2,097
                          
                          
                          
                          594Total
      amortizing intangible assets
                          
                          $
                          65,055
                          
                          
                          $
                          44,870
                          
                          
                          $
                          65,055
                          
                          
                          $
                          43,313
  Amortization
expense related to intangibles for the three months ended March 31, 2010 and
2009 was $1.5 million and $3.7 million, respectively.  The Company
expects to recognize amortization expense from the acquired intangible assets
for the remainder of the current year 2010 and thereafter as follows (in
thousands):
 For
      the year ending:
                          
                          Future
      Amortization ExpenseRemainder
      of 2010
                          
                          $
                          4,8932011
                          
                          
                          3,3532012
                          
                          
                          2,2602013
                          
                          
                          1,4992014
                          
                          
                          1,304Thereafter
                          
                          
                          6,876$
                          20,185
  8.
                          Mortgage
      Notes Payable and Borrowing
Agreements
  Scheduled
Maturities
  The
Company’s mortgages are collateralized by property and principal and interest
payments are generally made monthly.  Scheduled maturities of
mortgages, notes payable under the $150.0 million secured revolving credit
facility (“Credit Facility”), and the $50.0 million senior secured term facility
(“Term Loan”) as of March 31, 2010, are as follows (in thousands):
  For
      the year ending:
                          
                          TotalRemainder
      of 2010
                          
                          $
                          24,3032011
                          
                          
                          181,6962012
                          
                          
                          25,1852013
                          
                          
                          16,0252014
                          
                          
                          57,112Thereafter
                          
                          
                          111,891$
                          416,212
 The
scheduled maturity related to the mortgage note payable on the Harbison Medical
Office Building included in discontinued operations is 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 March
31, 2010, the Company believes it was in compliance with all its loan
covenants.  See “Liquidity and Capital Resources.”
  9.
                            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 March 31, 2010 and December 31, 2009
(dollars in thousands):
 
 15
 As
      of March 31, 2010
                          
                          March
      31, 2010
                          
                          
                          December
      31, 2009Entity
                          
                          Notional
      Amount
                          
                          Receive
      Rate
                          
                          Pay
      Rate
                          
                          Effective
                            Date
                          Expiration
                            Date
                          
                          Asset
                          
                          
                          Liability
                          
                          
                          Asset
                          
                          
                          LiabilityMEA
      Holdings, LLC
                          
                          $
                          100,000
                          
                          1
      Month LIBOR
                          
                          
                          2.82
                          %
                          4/1/2008
                          3/1/2011
                          
                          $
                          -
                          
                          
                          $
                          2,146
                          
                          
                          $
                          -
                          
                          
                          $
                          2,397Cogdell
      Spencer LP
                          
                          
                          30,000
                          
                          1
      Month LIBOR
                          
                          
                          3.11
                          %
                          10/15/2008
                          3/10/2011
                          
                          
                          -
                          
                          
                          
                          740
                          
                          
                          
                          -
                          
                          
                          
                          697St.
      Francis Community MOB LLC
                          
                          
                          6,824
                          
                          1
      Month LIBOR
                          
                          
                          3.32
                          %
                          10/15/2008
                          6/15/2011
                          
                          
                          -
                          
                          
                          
                          232
                          
                          
                          
                          -
                          
                          
                          
                          246St.
      Francis Medical Plaza (Greenville)
                          
                          
                          7,331
                          
                          1
      Month LIBOR
                          
                          
                          3.32
                          %
                          10/15/2008
                          6/15/2011
                          
                          
                          -
                          
                          
                          
                          250
                          
                          
                          
                          -
                          
                          
                          
                          264Beaufort
      Medical Plaza
                          
                          
                          4,731
                          
                          1
      Month LIBOR
                          
                          
                          3.80
                          %
                          8/18/2008
                          8/18/2011
                          
                          
                          -
                          
                          
                          
                          207
                          
                          
                          
                          -
                          
                          
                          
                          216East
      Jefferson Medical Plaza
                          
                          
                          11,600
                          
                          1
      Month LIBOR
                          
                          
                          1.80
                          %
                          1/15/2009
                          12/23/2011
                          
                          
                          -
                          
                          
                          
                          187
                          
                          
                          
                          -
                          
                          
                          
                          121River
      Hills Medical Plaza
                          
                          
                          3,560
                          
                          1
      Month LIBOR
                          
                          
                          1.78
                          %
                          1/15/2009
                          1/31/2012
                          
                          
                          
                          
                          
                          
                          52
                          
                          
                          
                          
                          
                          
                          
                          33HealthPartners
      Medical Office Building
                          
                          
                          11,800
                          
                          1
      Month LIBOR
                          
                          
                          3.55
                          %
                          6/1/2010
                          11/1/2014
                          
                          
                          -
                          
                          
                          
                          421
                          
                          
                          
                          -
                          
                          
                          
                          186Lancaster
      ASC MOB
                          
                          
                          10,574
                          
                          1
      Month LIBOR
                          
                          
                          4.03
                          %
                          3/14/2008
                          3/2/2015
                          
                          
                          -
                          
                          
                          
                          705
                          
                          
                          
                          -
                          
                          
                          
                          567Woodlands
      Center for Specialized Medicine
                          
                          
                          16,797
                          
                          1
      Month LIBOR
                          
                          
                          4.71
                          %
                          4/1/2010
                          10/1/2018
                          
                          
                          -
                          
                          
                          
                          1,586
                          
                          
                          
                          -
                          
                          
                          
                          1,166Medical
      Center Physicians Tower
                          
                          
                          14,770
                          
                          1
      Month LIBOR
                          
                          
                          3.69
                          %
                          9/1/2010
                          3/1/2019
                          
                          
                          -
                          
                          
                          
                          68
                          
                          
                          
                          271
                          
                          
                          
                          -University
      Physicians MOB & Outpatient Clinic
                          
                          
                          10,439
                          
                          1
      Month LIBOR
                          
                          
                          3.70
                          %
                          10/1/2010
                          4/1/2019
                          
                          
                          -
                          
                          
                          
                          20
                          
                          
                          
                          217
                          
                          
                          
                          -$
                          -
                          
                          
                          $
                          6,614
                          
                          
                          $
                          488
                          
                          
                          $
                          5,893
 The
following tables show the effect of the Company’s derivative instruments
designated as cash flow hedges for the three months ended March 31, 2010 and
2009, respectively, (in thousands):
  Three
      Months Ended March 31, 2010Gain
      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
      rate swap agreements
                            
                            $
                            (1,464
                            )
                            Interest
      Expense
                            
                            $
                            (254
                            )
                            Interest
      rate derivative expense
                            
                            $
                            (15
                            )
  Three
      Months Ended March 31, 2009Gain
      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
      rate swap agreements
                              
                              $
                              (164
                              )
                              Interest
      Expense
                              
                              $
                              (903
                              )
                              Interest
      rate derivative expense
                              
                              $
                              -
  (1)
                          Refer
      to the Condensed Consolidated Statement of Changes in Equity of this Form
      10-Q, which summarizes the activity in Unrealized gain on interest rate
      swaps, net of tax related to the interest rate swap
      agreements.
  The
following tables present information about the Company’s liabilities measured at
fair value on a recurring basis as of March 31, 2010 adn 2009,
respectively, and indicates the fair value hierarchy referenced in Note 2
within this Form 10-Q, of the valuation techniques utilized by the Company to
determine such fair value (in thousands):
 
 Fair
      Value Measurements as ofMarch
      31, 2010Total
                          
                          
                          Level
      1
                          
                          
                          Level
      2
                          
                          
                          Level
      3Liabilities:Derivative
      financial instruments
                          
                          $
                          (6,614
                          )
                          
                          $
                          -
                          
                          
                          $
                          (6,614
                          )
                          
                          $
                          -
 Fair
      Value Measurements as ofMarch
      31, 2009Total
                            
                            
                            Level
      1
                            
                            
                            Level
      2
                            
                            
                            Level
      3Liabilities:Derivative
      financial instruments
                            
                            $
                            (10,744
                            )
                            
                            $
                            -
                            
                            
                            $
                            (10,744
                            )
                            
                            $
                            -
 The
valuation of derivative financial instruments is determined using widely
accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative.The fair values of
variable to fixed interest rate swaps are determined using the market standard
methodology of netting the discounted future fixed cash payments and the
discounted expected variable cash receipts.  The variable cash receipts are
based on an expectation of future interest rates forward curves derived from
observable market interest rate curves. To comply with GAAP,
the Company incorporates credit valuation adjustments to appropriately reflect
both its nonperformance risk and the respective counterparty’s nonperformance
risk in the fair value measurements.  In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk, the Company has
considered the impact of netting and any applicable credit enhancements, such as
collateral postings, thresholds, mutual puts, and guarantees.
  The MEA
Holdings, LLC $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 is 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.
  16
 10.
                            Equity
  Cogdell
Spencer Inc. Stockholders’ Equity
  The
following is a summary of changes of the Company’s common stock for the three
months ended March 31, 2010 and 2009 (in thousands):
 For
      the Three Months EndedMarch
      31, 2010
                            
                            
                            March
      31, 2009Common
      stock shares at beginning of period
                            
                            
                            42,729
                            
                            
                            
                            17,699Conversion
      of OP Units to common stock
                            
                            
                            29
                            
                            
                            
                            1,776Restricted
      stock grants
                            
                            
                            35
                            
                            
                            
                            13Common
      stock shares at end of period
                            
                            
                            42,793
                            
                            
                            
                            19,488
  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 three months ended
March 31, 2010 and 2009 (in thousands):
  For
      the Three Months EndedMarch
      31, 2010
                            
                            
                            March
      31, 2009Net
      income (loss) attributable to Cogdell Spencer Inc.
                            
                            $
                            3,286
                            
                            
                            $
                            (70,218
                            )Increase
      in Cogdell Spencer Inc. additional paid-in capital for the conversion of
      OP units into common stock
                            
                            
                            158
                            
                            
                            
                            17,496Change
      from net loss attributable to Cogdell Spencer Inc. and transfers from
      noncontrolling interests
                            
                            $
                            3,444
                            
                            
                            $
                            (52,722
                            )
  Noncontrolling
Interests in Operating Partnership
  As of
March 31, 2010, there were 50.6 million OP units outstanding, of which 42.8
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 March 31, 2010, the fair market value of
the OP units not owned by the Company was $57.6 million, based on a market value
of $7.40 per unit, which was the closing stock price of the Company’s shares of
common stock on the New York Stock Exchange (“NYSE”) on March 31,
2010.
  Dividends
and Distributions
  On March
18, 2010, the Company announced that its Board of Directors had declared a
quarterly dividend of $0.10 per share and OP unit that was paid in cash on April
21, 2010 to holders of record on March 26, 2010. The dividend covered the
Company’s first quarter of 2010.  Total distributions paid to OP unit
holders, excluding inter-company distributions, during 2010 totaled $1.0
million.
  11.
                            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,
long-term incentive plan units (“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 2005 Incentive Plan, subject to certain adjustments set forth in
the plan.  Each LTIP unit issued under the 2005 Incentive 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.
  17
 In
January 2010, each non-employee member of the Company’s Board of Directors was
granted 6,981 shares of the Company’s restricted stock or LTIP units, at each
director’s option, that all vested upon issuance. Messrs. Georgius, Lubar,
Jennings, Neugent, and Smoak each elected to receive restricted stock and Mr.
Lee elected to receive LTIP units. The restricted stock and LTIP units were
valued at $5.73 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
January 2010, the Company issued 500 LTIP units that vested upon issuance to one
employee. The LTIP units were valued at $6.46 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 2010, the Company issued an aggregate of 14,394, LTIP units to certain
employees based on specific performance goals.  The LTIP units were
valued at $6.23 per unit, which was the Company’s closing stock price on the
grant date.  The Company recorded compensation expense of less than
$0.01 million and capitalized $0.07 million as a development project cost in
connection with these issuances.
  The
following is a summary of restricted stock and LTIP unit activity for the three
months ended March 31, 2010 (in thousands, except weighted average grant
price):
  Restricted
                              Stock
                            
                            
                            LTIP
      Units
                            
                            
                            Weighted
      Average
                              Grant
      PriceUnvested
      balance at December 31, 2009
                            
                            
                            5
                            
                            
                            
                            120
                            
                            
                            $
                            15.43Granted
                            
                            
                            35
                            
                            
                            
                            22
                            
                            
                            
                            5.86Vested
                            
                            
                            (40
                            )
                            
                            
                            (27
                            )
                            
                            
                            5.41Unvested
      balance at March 31, 2010
                            
                            
                            -
                            
                            
                            
                            115
                            
                            
                            $
                            15.72
  12.
                            Related
      Party Transactions
  The Fork
Farm, a working farm owned by the Company’s Chairman, periodically hosts events
on behalf of the Company. Charges of less than $10,000 for each three month
period ended March 31, 2010 and 2009, respectively, are reflected in “Selling,
general, and administrative” expenses in the condensed consolidated statement of
operations.
 13.
                            Subsequent
      Events
  The
Company evaluates significant unusual or infrequent events occurring after the
financial statement date through the date the financial statements are issued,
to determine if additional disclosures are needed.  As of May 10,
2010, the only significant event identified is described below.
  On May 3,
2010, the Company recorded an after-tax compensation expense charge of $2.6
million related to retirement benefits for its Chief Executive Officer. 
The charge consists of $2.7 million for a cash payment and three years continued
health benefits, a $0.4 million charge for vesting of LTIP units, and an income
tax benefit of $0.5 million.
  18
 ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 When
used in this discussion and elsewhere in this Quarterly Report on Form 10-Q, 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.
 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 and 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 derives a majority of its revenues from two sources: (1) rents received
from tenants under existing leases in medical office buildings and other
healthcare related facilities, and (2) from design-build services for healthcare
customers.  To a lesser degree, the Company has revenues from
consulting and property management agreements.
  19
 The
Company’s rental revenue is derived from its Property Operations
segment.  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 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’s design-build revenue is derived from its Design-Build and Development
segment.  The demand for this segment’s 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 the Company’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,
design-build 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 design-build revenues.  Due to the current adverse
economic environment and the volatility in the credit markets, the Design-Build
and Development segment is experiencing delays in client project starts and
cancellations.  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.  The Company expects its
design-build revenue and FFOM contribution from the Design-Build and Development
segment for the year ending December 31, 2010 to be less than revenue and FFOM
contribution from the Design-Build and Development segment for the same period
in the prior year.
  As of
March 31, 2010, the Company’s portfolio consisted of 112 properties totaling
approximately 5.8 million square feet.  The Company’s portfolio was
comprised of the following at March 31, 2010:
 ·
                              62
      consolidated wholly-owned and joint venture properties, comprising a total
      of approximately 3.4 million net rentable square feet and an overall
      leased percentage
of  90.6%,
  ·
                              One
      wholly-owned property in lease-up totaling approximately 0.1 million net
      rentable square feet and is 75%
leased,
  ·
                              One
      wholly-owned property held for sale totaling 38,703 net rentable square
      feet,
  ·
                              Three
      unconsolidated joint venture properties comprising a total of
      approximately 0.2 million net rentable square feet
  and,
  ·
                              45
      properties managed for third party clients comprising a total of
      approximately 2.1 million net rentable square
  feet.
  At March
31, 2010, approximately 79.5% 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.
  Critical
Accounting Policies
 The
Company’s discussion and analysis of financial condition and results of
operations are based upon the Company’s condensed 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
consolidated financial statements included in its Annual Report on
Form 10-K for the year ended December 31, 2009.  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.
  20
 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 consolidated financial statements includedin its Annual Report on
Form 10-K for the year ended December 31, 2009.  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.
  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 consolidated financial statements includedin its Annual Report on
Form 10-K for the year ended December 31, 2009.  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 a shorter-lived asset, this amount would be recognized as an
expense over a longer period of time.
  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 or changes in the intended use of the asset,
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.
  21
 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.
  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.
  22
 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 collectability 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.
  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.
 Results
of Operations
  The
Company’s income (loss) from operations is generated primarily from operations
of its properties and design-build services.  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.
  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.  See
Note 4 of the accompanying condensed consolidated financial statements in this
Form 10-Q.
  23
 Property
Summary
  The
following is an activity summary of the Company’s in-service and lease-up
property portfolio (excluding unconsolidated partnership properties) for the
three months ended March 31, 2010 and 2009 and the year ended December 31,
2009:
  Three
      Months EndedMarch
      31, 2010
                                
                                
                                March
      31, 2009Properties
      at beginning of the period
                                
                                
                                62
                                
                                
                                
                                62Developments
                                
                                
                                1
                                
                                
                                
                                -Properties
      at end of the period
                                
                                
                                63
                                
                                
                                
                                62
  Year
      EndedDecember
      31, 2009Properties
      at January 1
                                
                                
                                62Developments
                                
                                
                                1Discontinued
      operations held for sale
                                
                                
                                (1
                                )Properties
      at December 31
                                
                                
                                62
  The above tables include East Jefferson Medical Specialty Building, which is
accounted for as a sales-type capital lease.
 
 The
Company considers a property to be “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 one
property in lease-up at March 31, 2010 and one property in lease-up at March 31,
2009.
  Comparison
of the three months ended March 31, 2010 and 2009
  FFOM
  For the
three months ended March 31, 2010, FFOM, excluding non-recurring event,
increased $3.1 million, or 38.3%, compared to the same period in the prior
year.  The increase is due primarily to increased FFOM for the
Company’s business segments.  FFOM for the Design-Build and
Development segment increased $2.4 million, excluding impairment charges, and
FFOM for the Property Operations segment increased $0.9
million.   The following is a summary of FFOM for the three
months ended March 31, 2010 and 2009 (in thousands):
 For
      the Three Months EndedMarch
      31, 2010
                              
                              
                              March
      31, 2009FFOM
      attributable to:Property
      operations
                              
                              $
                              13,440
                              
                              
                              $
                              12,516Design-Build
      and development
                              
                              
                              7,333
                              
                              
                              
                              (115,973
                              )Intersegment
      eliminations
                              
                              
                              (518
                              )
                              
                              
                              (652
                              )Unallocated
      and other
                              
                              
                              (9,106
                              )
                              
                              
                              10,423FFOM
                              
                              
                              11,149
                              
                              
                              
                              (93,686
                              )Non-recurring
      event:Goodwill
      and intangible asset impairment charges, net of tax
benefit
                              
                              
                              -
                              
                              
                              
                              101,746FFOM,
      excluding non-recurring event
                              
                              $
                              11,149
                              
                              
                              $
                              8,060
  24
 See Note 4 of the accompanying condensed consolidated financial statements in
this Form 10-Q 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 three months ended
March 31, 2010 and 2009 (in thousands):
 For
      the Three Months EndedMarch
      31, 2010
                                  
                                  
                                  March
      31, 2009Net
      income (loss)
                                  
                                  $
                                  4,195
                                  
                                  
                                  $
                                  (102,324
                                  )Add:Real
      estate related depreciation and amortization:Wholly-owned
      and consolidated properties, including amounts in discontinued
      operations
                                  
                                  
                                  7,194
                                  
                                  
                                  
                                  7.340Unconsolidated
      real estate partnerships
                                  
                                  
                                  3
                                  
                                  
                                  
                                  3Less:Noncontrolling
      interests in real estate partnerships, before real estate related
      depreciation and amortization
                                  
                                  
                                  (616
                                  )
                                  
                                  
                                  (245
                                  )Funds
      from Operations (FFO)
                                  
                                  
                                  10,776
                                  
                                  
                                  
                                  (95,226
                                  )Amortization
      of intangibles related to purchaseaccounting,
      net of income tax benefit
                                  
                                  
                                  373
                                  
                                  
                                  
                                  1,540Funds
      from Operations Modified (FFOM)
                                  
                                  $
                                  11,149
                                  
                                  
                                  $
                                  (93,686
                                  )
 25
 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 three months ended March 31, 2010 and 2009
(in thousands):
  For
      the Three Months EndedMarch
      31, 2010
                                  
                                  
                                  March
      31, 2009Rental
      revenue, net of intersegment elimination of $23 in 2010 and
      2009
                                  
                                  $
                                  21,245
                                  
                                  
                                  $
                                  19,577Property
      management and other fee revenue
                                  
                                  
                                  818
                                  
                                  
                                  
                                  850Property
      operating and management expenses
                                  
                                  
                                  (8,198
                                  )
                                  
                                  
                                  (7,865
                                  )Other
      income (expense)
                                  
                                  
                                  146
                                  
                                  
                                  
                                  141Earnings
      from unconsolidated real estate partnerships, before real estate
      relateddepreciation
      and amortization
                                  
                                  
                                  6
                                  
                                  
                                  
                                  9Noncontrolling
      interests in real estate partnerships, before real estate
      relateddepreciation
      and amortization
                                  
                                  
                                  (616
                                  )
                                  
                                  
                                  (245
                                  )Discontinued
      operations and impairment of real estate, before real estate
      relateddepreciation
      and amortization
                                  
                                  
                                  16
                                  
                                  
                                  
                                  26FFOM,
      net of intersegment eliminations
                                  
                                  $
                                  13,417
                                  
                                  
                                  $
                                  12,493
  See Note
4 of the accompanying condensed consolidated financial statements in this Form
10-Q for a reconciliation of above segment FFOM to net income
(loss).
  For the
three months ended March 31, 2010, FFOM attributable to property operations, net
of intersegment eliminations, increased $0.9 million, or 7.4%, compared to the
same period last year.  The increase in rental revenue is primarily
due to the addition of two properties, the Woodlands Center for Specialized
Medicine property which began operations in December 2009, and Medical Center
Physicians Tower which began operations in February 2010, as well as increases
in rental rates associated with CPI increases and reimbursable
expenses.  The increase in property operating and management expenses
is primarily due to the addition of the properties previously
mentioned.
  FFOM
attributable to Design-Build and Development, net of intersegment
eliminations
  The
following is a summary of FFOM attributable to Design-Build and Development, net
of intersegment eliminations, for the three months ended March 31, 2010 and 2009
(in thousands):
 For
      the Three Months EndedMarch
      31, 2010
                                  
                                  
                                  March
      31, 2009Design-Build
      contract revenue and other sales, net of intersegment
      eliminationsof
      $3,764 in 2010 and $4,771 in 2009
                                  
                                  $
                                  35,436
                                  
                                  
                                  $
                                  46,390Development
      management and other income, net of intersegment
    eliminationsof
      $783 in 2010 and $835 in 2009
                                  
                                  
                                  103
                                  
                                  
                                  
                                  2,799Design-Build
      contract and development management expenses, net of
      intersegmenteliminations
      of $4,029 in 2010 and $4,954 in 2009
                                  
                                  
                                  (24,619
                                  )
                                  
                                  
                                  (40,165
                                  )Selling,
      general, and administrative expenses
                                  
                                  
                                  (3,889
                                  )
                                  
                                  
                                  (4,537
                                  )Other
      income (expense)
                                  
                                  
                                  3
                                  
                                  
                                  
                                  1Depreciation
      and amortization
                                  
                                  
                                  (219
                                  )
                                  
                                  
                                  (193
                                  )FFOM,
      excluding impairment charge, net of intersegment
    eliminations
                                  
                                  
                                  6,815
                                  
                                  
                                  
                                  4,295Impairment
      charge
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (120,920
                                  )FFOM,
      net of intersegment eliminations
                                  
                                  $
                                  6,815
                                  
                                  
                                  $
                                  (116,625
                                  )
  See Note 4 of the accompanying condensed consolidated financial statements in
the Form 10-Q for a reconciliation of above segment FFOM to net income
(loss).
  For the
three months ended March 31, 2010, FFOM, excluding impairment charge,
attributable to design-build and development, net of intersegment eliminations,
increased $2.5 million, or 58.7%, compared to the same period last
year.
  Revenues
(design-build contract revenue and other sales plus development management and
other income) decreased $13.7 million, or 27.8%, for the three months ended
March 31, 2009 compared to the same period last year.  This decrease
is due to a lower volume of activity as the number of active revenue generating
design-build construction projects has decreased from 22 at March 31, 2009 to
11at March 31, 2010.  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. By the end
of the second quarter of 2010, unless new revenue generating design-build
construction projects for third parties are added by the Company, the number of
revenue generating design-build construction projects will decline further as
existing projects are completed.  The Company is actively pursuing a
number of new project opportunities for third parties and is starting to see
some pick-up in requests for proposals and in client advance
opportunities.   However, in the past the time period from ebing
selected as a result of the request for proposal proces and the start of
construction, which is a trigger for commencement for revenue recognition
for a project, has averaged approximately 6 to 15 months.
  However,
gross margin percentage (revenues, as defined above, less design-build contract
and development management expenses and as a percent of revenues) increased from
18.3% in 2009 to 30.7% in 2010, or an increase of 67.8%.  This
increase is primarily due to cost controls implemented by the Company, favorable
pricing in the sub-contracting market leading to lower overall costs, and the
timing and type of work being performed for each project during the time
periods.  The gross margin percentage experienced during the three
months ended March 31, 2010, is not indicative of the results that may be
expected for other interim periods during the current fiscal
year.  The Company expects gross margin percentage to decrease during
the current year.
 Development
management and other income decreased $2.7 million, or 96.3%, for the three
months ended March 31,2009 compared to the three months ended March
31, 2010.  The decrease is due to two active third party
development engagements during 2009 compared to one engagement in
2010.  In addition, one of the development engagements in 2009, which
accounted for $2.0 million of the decrease, 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 intended to invest in the building under
the original terms.  In accordance with the development agreement,
during 2009, 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 decreased $0.6 million, or 14.3%, for the three months ended
March 31, 2009 compared to the same period last year.  The decrease is
primarily due to a reduction in force that occurred in May 2009 and other cost
reduction initiatives implemented by the Company.
  26
 Selling,
general, and administrative
  For the
three months ended March 31, 2010, selling, general, and administrative expenses
decreased $0.8 million, or 12.7% as compared to the same period last
year.  Excluding the decrease attributable to the Design-Build and
Development segment, which is discussed above, selling, general and
administrative decreased $0.2 million due to lower professional fees for the
three months ended March 31, 2010.
  Depreciation
and amortization
  For the
three months ended March 31, 2010, depreciation and amortization expenses
decreased $2.0 million, or 19.8%, as compared to the same period last
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.
  Impairment
charge
  For the
three months ended March 31, 2010, there were no indicators that impairment
charges were required whereas there was a $120.9 million charge for the three
months ended March 31, 2009.  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.
  The
Company performed an annual review of goodwill for impairment as of December 31,
2009, and concluded there was no further impairment of goodwill.  The
Company also performed an annual review for impairment for other non-amortizing
intangible assets and concluded no impairment existed.
  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.
  Interest
expense
  For the three months ended March 31,
2010, interest expense decreased $0.9 million, or 15.1%, as compared to the same
period last year.  The decrease was primarily due to lower debt
balances as the Company used a majority of the proceeds from its June 2009
equity offering to repay debt.  This decrease was offset by increases
in interest expense related to mortgage debt on properties that became
operational in December 2009 and February 2010.
  Income
tax benefit (expense)
  For the three months ended March 31,
2010, income tax expense increased $21.4 million, or 108.8%, as compared to the
same period last year.  The increase was primarily due to the $19.2
million income tax benefit recorded in the prior year as a result of the
impairment charge described above.  No such benefit was recorded in
the current year.  The remainder of the increase relates to the
increased income for the Design-Build and Development segment.
  Cash
Flows
  Comparison
of the three months ended March 31, 2010 and 2009
  Cash
provided by operating activities increased $0.6 million for the three months
ended March 31, 2010, as compared to the same period last year, and is
summarized below for the three months ended March 31, 2010 and 2009 (in
thousands):
  For
      the Three Months EndedMarch
      31, 2010
                                  
                                  
                                  March
      31, 2009Net
      income (loss) plus non-cash adjustments
                                  
                                  $
                                  11,745
                                  
                                  
                                  $
                                  10,061Changes
      in operating assets and liabilities
                                  
                                  
                                  (8,977
                                  )
                                  
                                  
                                  (7,916
                                  )Net
      cash provided by operating activities
                                  
                                  $
                                  2,768
                                  
                                  
                                  $
                                  2,145
 27
 The net
income (loss) plus non-cash adjustments increased $1.7 million, or 16.8%, for
the three months ended March 31, 2010, as compared to the same period last
year.  The increase is primarily due to increased
earnings.  The changes in operating assets and liabilities decreased
$1.1 million, or 13.4%, for the three months ended March 31, 2010, as compared
to the same period last year.  The decrease is primarily due to a
decrease in design-build billings in excess of costs and estimated earnings on
uncompleted contracts, which decreases cash provided by operations, offset by
severance costs paid in the first quarter of 2009 compared to no such payments
in 2010, which increases cash provided by operations.
  Cash used
in investing activities increased $1.9 million, or 24.5%, for the three months
ended March 31, 2010, as compared to the same period last year.  The
increase is primarily due to an increase in the number of properties under
construction and changes in restricted cash balances offset by a decrease in
purchases of corporate property, plant, and equipment as the Design-Build and
Development segment was constructing a steel fabrication facility in the prior
period.
  Investment
in real estate properties consisted of the following for the three months ended
March 31, 2010 and 2009 (in thousands):
  For
      the Three Months EndedMarch
      31, 2010
                                  
                                  
                                  March
      31, 2009Development,
      redevelopment, and acquisitions
                                  
                                  $
                                  (9,177
                                  )
                                  
                                  $
                                  (6,321
                                  )Second
      generation tenant improvements
                                  
                                  
                                  (208
                                  )
                                  
                                  
                                  (671
                                  )Recurring
      property capital expenditures
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  (56
                                  )Investment
      in real estate properties
                                  
                                  $
                                  (9,393
                                  )
                                  
                                  $
                                  (7,048
                                  )
  Cash used
in financing activities decreased $16.2 million, or 96.8%, for the three months
ended March 31, 2010, as compared to same period last year.  The
decrease is primarily due to $12.5 million being repaid to the revolving credit
facility in the prior period whereas no repayments were made in the current
period and an increase in construction loan proceeds, which corresponds to the
increased properties under construction.  These were offset by an
increase in distributions made to noncontrolling interests in real estate
partnerships primarily due to the sharing of construction savings related to a
completed development property owned by a consolidated joint venture
partnership.
  Construction
in Progress
  Construction
in progress consisted of the following as March 31, 2010 (dollars in
thousands):
  Property
                                  Location
                                  
                                  Estimated
      Completion Date
                                  
                                  
                                  Net
      Rentable Square Feet
                                  
                                  
                                  Investment
                                    to
      Date
                                  
                                  
                                  Estimated
      Total InvestmentHealthPartners
      Medical Office Building
                                  St.
      Cloud, MN
                                  
                                  
                                  2Q
      2010
                                  
                                  
                                  
                                  60,000
                                  
                                  
                                  $
                                  12,877
                                  
                                  
                                  $
                                  18,300Lancaster
      Rehabilitation Hospital
                                  Lancaster,
      PA
                                  
                                  
                                  2Q
      2010
                                  
                                  
                                  
                                  4,600
                                  
                                  
                                  
                                  1,283
                                  
                                  
                                  
                                  2,100University
      Physicians MOB & Outpatient Clinic
                                  Brandon,
      MS
                                  
                                  
                                  2Q
      2010
                                  
                                  
                                  
                                  50,600
                                  
                                  
                                  
                                  11,634
                                  
                                  
                                  
                                  16,400Land
      and pre-construction developments
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,607
                                  
                                  
                                  
                                  -115,200
                                  
                                  
                                  $
                                  29,401
                                  
                                  
                                  $
                                  36,800
  Liquidity
and Capital Resources
  As of
March 31, 2010, the Company had approximately $18.5 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.
  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.
  28
 The
Credit Facility will terminate and all amounts outstanding thereunder shall be
due and payable in March 2011.  The Credit Facility provides for a
one-year extension at the Company’s option conditioned upon the Lenders being
satisfied with the Company and its subsidiaries’ financial condition and
liquidity, and taking into consideration any payment, extension or refinancing
of the Term Loan.  There can be no assurance if and on what terms the
Lenders may be willing to extend the Credit Facility upon its maturity in March
2011.
  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 (0.25% as of March 31, 2010)
plus a margin of between 95 to 140 basis points based on the Company’s total
leverage ratio (1.25% as of March 31, 2010) 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 March 31, 2010).
  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
March 31, 2010, there was $61.7 million available under the Credit
Facility.  There was $80.0 million outstanding at March 31, 2010 and
$8.3 million of availability was restricted related to outstanding letters of
credit.
  The
Credit Facility has the following financial covenants as of March 31, 2010
(dollars in thousands):
 Financial
      Covenant
                                      
                                      As
      of and for the
                                        Three
      Months Ended March 31, 2010Maximum
      total leverage ratio (0.70 to 1.00)
                                      
                                      0.48
      to 1.00Maximum
      real estate leverage ratio (0.70 to 1.00)
                                      
                                      0.54
      to 1.00Minimum
      fixed charge coverage ratio (1.50 to 1.00)
                                      
                                      2.40
      to 1.00Minimum
      consolidated tangible net worth ($141,983)
                                      
                                      $
                                      206,168Maximum
      total debt to real estate value ration (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 of Erdman and is guaranteed by the
Company.  The Term Loan matures in March 2011, and is subject to a
one-time right to a one-year extension at the Company’s option (and the payment
of an extension fee).
  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 as well as the first three months ended March 31, 2010, 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.
  29
 The Term
Loan, as amended, also has the following financial covenants relating only to
the Design-Build and Development segment as of March 31, 2010:
  Financial
      Covenant
                                        As
      of and for the
                                          Three
      Months Ended March 31, 2010Minimum
      adjusted consolidated EBITDAto
      consolidated fixed charges (2.00 to 1.00)
                                        4.39
      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)
                                        2.14
      to 1.00Maximum
      consolidated indebtedness to adjustedconsolidated
      EBITDA (5.50 to 1.00)
                                        2.14
      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 March 31, 2010, 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 March 31, 2010,
the Company expects to exercise the extension option for both the Credit
Facility and the Term Loan.
 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.  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.
 As of
March 31, 2010, the Company had approximately $24.3 million of principal and
maturity payments related to mortgage note payables remaining due in
2010.  The $24.3 million is comprised of $3.4 million for principal
amortization and $20.9 million for maturities.  Of the $20.9 million
in maturing mortgage notes payable, $7.2 relates to wholly-owned properties and
$13.7 million relates to Alamance Regional Medical Outpatient Center, which is a
consolidated real estate partnership in which the Company owns
35.5%.
  The
Company believes it will be able to refinance the $7.2 million 2010 balloon
maturities related to the wholly-owned properties as a result of the current
loan to value ratios at individual properties and preliminary discussions with
lenders.  The Company believes that it will be able to refinance $12.4
million of the $13.7 million 2010 balloon maturity related to Alamance Regional
Medical Outpatient Center.
  30
 Should
the Company be unable to refinance the 2010 balloon maturities, the Company has
$80.2 million combined cash and cash equivalents and Credit Facility
availability as of March 31, 2010, which exceeds the 2010 principal and maturity
payments due in 2010.
  As of
March 31, 2010, the Company has no outstanding equity commitments to joint
ventures formed prior to March 31, 2010.  The Cogdell Spencer Medical
Partners LLC acquisition joint venture with Northwestern Mutual has no
properties under contract to acquire as of March 31, 2010, thus the Company has
no equity commitment to the joint venture as of March 31, 2010.
 On March
18, 2010, the Company announced that its Board of Directors had declared a
quarterly dividend and distribution of $0.10 per share and OP unit that was paid
in cash on April 21, 2010 to stockholders and holders of OP units of record
on March 26, 2010.  The dividend and distribution covered the first
quarter of 2010 and totaled $5.0 million.  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.
  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
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.
  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.  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.
  31
 Contractual
Obligations
  The
following table summarizes the Company’s contractual obligations as of March 31,
2010, 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):
  Remainder
      of 2010
                                          
                                          
                                          2011
                                          
                                          
                                          2012
                                          
                                          
                                          2013
                                          
                                          
                                          2014
                                          
                                          
                                          Thereafter
                                          
                                          
                                          TotalObligation:Long-term
      debt principalpayments
      and maturities (1)
                                          
                                          $
                                          24,303
                                          
                                          
                                          $
                                          181,696
                                          
                                          
                                          $
                                          25,185
                                          
                                          
                                          $
                                          16,025
                                          
                                          
                                          $
                                          57,112
                                          
                                          
                                          $
                                          111,891
                                          
                                          
                                          $
                                          416,212Standby
      letters of credit (2)
                                          
                                          
                                          8,257
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          8,257Interest
      payments (3)
                                          
                                          
                                          16,379
                                          
                                          
                                          
                                          12,685
                                          
                                          
                                          
                                          10,427
                                          
                                          
                                          
                                          9,394
                                          
                                          
                                          
                                          7,761
                                          
                                          
                                          
                                          16,530
                                          
                                          
                                          
                                          73,176Purchase
      commitments (4)
                                          
                                          
                                          2,140
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,140Ground
      and air rights leases (5)
                                          
                                          
                                          601
                                          
                                          
                                          
                                          801
                                          
                                          
                                          
                                          439
                                          
                                          
                                          
                                          407
                                          
                                          
                                          
                                          407
                                          
                                          
                                          
                                          11,324
                                          
                                          
                                          
                                          13,979Operating
      leases (6)
                                          
                                          
                                          4,027
                                          
                                          
                                          
                                          4,911
                                          
                                          
                                          
                                          4,128
                                          
                                          
                                          
                                          3,282
                                          
                                          
                                          
                                          3,248
                                          
                                          
                                          
                                          23,621
                                          
                                          
                                          
                                          43,271Total
                                          
                                          $
                                          55,707
                                          
                                          
                                          $
                                          200,093
                                          
                                          
                                          $
                                          40,179
                                          
                                          
                                          $
                                          29,108
                                          
                                          
                                          $
                                          68,528
                                          
                                          
                                          $
                                          163,366
                                          
                                          
                                          $
                                          556,981
 __________________­­­_
  (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 the Credit
Facility.
  (3)
Assumes one-month LIBOR of 0.25% and Prime Rate of 3.25%, which were the rates
as of March 31, 2010.
  (4)
These purchase commitments are related to the Company’s development projects
that are currently under construction.  The Company has a committed
construction loan that will fund the obligation.
  (5)Substantially
all of the ground and air rights leases effectively limit our control over
various aspects of the operation of the applicable property, restrict our
ability to transfer the property and allow the
 lessor the right of first    refusal to purchase the
building and improvements. All of the ground leases provide for the property to
revert to the lessor for no consideration upon the expiration or earlier
 termination of the ground or air rights lease.
  (6)
Payments under operating lease agreements relate to several of our properties’
equipment and office space leases. The future minimum lease commitments under
these leases are as indicated.
  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 March
31, 2010, the Company did not have any such guarantees or other off-balance
sheet arrangements outstanding.
  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 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.
  32
 Recent
Accounting Pronouncements
  For additional information, see Note 2 of the accompanying condensed
consolidated financial statements in this Form 10-Q.
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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
March 31, 2010, the Company had $416.2 million of consolidated debt outstanding
(excluding any discounts or premiums related to assumed debt).  Of the
Company’s total consolidated debt, $70.8 million, or 17.0%, was variable rate
debt that is not subject to variable to fixed rate interest rate swap
agreements.  Of the Company’s total indebtedness, $345.4 million, or
83.0%, 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 March 31,
2010.
  If LIBOR
were to increase by 100 basis points based on March 31, 2010 one-month LIBOR of
0.25%, the increase in interest expense on the Company’s March 31, 2010 variable
rate debt would decrease future annual earnings and cash flows by approximately
$0.7 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.
  ITEM
4. CONTROLS AND PROCEDURES
  The
Company’s Chief Executive Officer and Chief Financial Officer, based on their
evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, have concluded
that as of March 31, 2010, the Company’s disclosure controls and procedures were
effective to give reasonable assurances to the timely collection, evaluation and
disclosure of information relating to the Company that would potentially be
subject to disclosure under the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
  During
the three months ended March 31, 2010, there was no change in the Company’s
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
  Notwithstanding
the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute assurance that it will detect or uncover
failures within the Company to disclose material information otherwise required
to be set forth in our periodic reports.
  PART
II.  OTHER INFORMATION
  ITEM
1.  LEGAL PROCEEDINGS
  The
Company is not involved in any material litigation nor, to the Company’s
knowledge, is any material litigation pending or threatened against it, other
than routine litigation arising out of the ordinary course of business or which
is expected to be covered by insurance and not expected to harm the Company’s
business, financial condition or results of operations.
  ITEM
1A.  RISK FACTORS
  See the
Company’s Annual Report on Form 10-K for the year ended December 31,
2009.  There have been no significant changes to the Company’s risk
factors during the three months ended March 31, 2010.
  33
 ITEM
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  None.
  Issuer
Purchases of Equity Securities
  None.
  ITEM
3.  DEFAULTS UPON SENIOR SECURITIES
  None.
  ITEM
4.  REMOVED AND RESERVED
  ITEM
5.  OTHER INFORMATION
  None.
 
 ITEM
6. EXHIBITS
 
 31.1
                                          Certification
      of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act
      of 2002.
  31.2
                                            Certification of
      Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of
      2002.
 32.1
                                          Certification
      of Chief Executive and Chief Financial Officer pursuant to 18 U.S.C.
      Section 1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002.
 
  34
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 COGDELL SPENCER INC.
 Registrant
 
 
 Date: May
10,
2010                                                                /s/Frank C.
Spencer
 Frank C. Spencer
 President and Chief Executive
Officer
 
 
 Date: May
10,
2010                                                                /s/Charles M.
Handy
 Charles M. Handy
 Senior Vice President and Chief
Financial Officer
  35