Healthcare Realty Trust Inc - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-53206

HEALTHCARE TRUST OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

Maryland		20-4738467
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
16427 N. Scottsdale Road, Suite 440, Scottsdale, Arizona		85254
(Address of principal executive offices)		(Zip Code)

(480) 998-3478
(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 Sections 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. þ Yes o 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). o Yes o No

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(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). o Yes þ No

     As of November 13, 2009, there were 131,833,342 shares of common stock of Healthcare Trust of America, Inc. outstanding.

 

 

Healthcare Trust of America, Inc.
(A Maryland Corporation)
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements			3
		Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008 (Unaudited)			3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)			4
		Condensed Consolidated Statements of Equity for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			5
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			6
		Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			45
Item 4.		Controls and Procedures			45
Item 4T.		Controls and Procedures			46
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			47
Item 1A.		Risk Factors			47
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3.		Defaults Upon Senior Securities			49
Item 4.		Submission of Matters to a Vote of Security Holders			49
Item 5.		Other Information			49
Item 6.		Exhibits			49
Signatures					50
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Healthcare Trust of America, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2009 and December 31, 2008
(Unaudited)

		September 30, 2009				December 31, 2008
ASSETS
Real estate investments:
Operating properties, net		$	995,349,000			$	810,920,000
Real estate notes receivable, net			16,599,000				15,360,000
Cash and cash equivalents			321,791,000				128,331,000
Accounts and other receivables, net			8,098,000				5,428,000
Restricted cash			15,314,000				7,747,000
Identified intangible assets, net			154,487,000				134,623,000
Other assets, net			16,777,000				11,514,000
Total assets		$	1,528,415,000			$	1,113,923,000
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans payable, net		$	452,041,000			$	460,762,000
Accounts payable and accrued liabilities			33,052,000				21,919,000
Accounts payable due to former affiliates, net			1,421,000				3,063,000
Derivative financial instruments			10,791,000				14,198,000
Security deposits, prepaid rent and other liabilities			4,975,000				4,582,000
Identified intangible liabilities, net			6,772,000				8,128,000
Total liabilities			509,052,000				512,652,000
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest of limited partners (Note 13)			2,467,000				1,951,000
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding			—				—
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 130,857,487 and 75,465,437 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively			1,308,000				755,000
Additional paid-in capital			1,168,515,000				673,351,000
Accumulated deficit			(152,927,000	)			(74,786,000	)
Total stockholders’ equity			1,016,896,000				599,320,000
Total liabilities and equity		$	1,528,415,000			$	1,113,923,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

Healthcare Trust of America, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Revenues:
Rental income		$	30,886,000			$	23,920,000			$	89,914,000			$	53,310,000
Interest income from real estate notes receivable, net			862,000				—				2,128,000				—
Total revenues			31,748,000				23,920,000				92,042,000				53,310,000
Expenses:
Rental expenses			10,494,000				8,700,000				32,854,000				18,612,000
General and administrative (Note 3)			11,095,000				2,758,000				21,955,000				6,801,000
Depreciation and amortization			13,287,000				11,213,000				39,231,000				24,905,000
Total expenses			34,876,000				22,671,000				94,040,000				50,318,000
Income before other income (expense)			(3,128,000	)			1,249,000				(1,998,000	)			2,992,000
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount):
Interest expense related to note payable to affiliate			—				(1,000	)			—				(2,000	)
Interest expense related to mortgage loans payable and line of credit			(7,072,000	)			(6,628,000	)			(22,001,000	)			(14,472,000	)
Gain (loss) on derivative financial instruments			66,000				(310,000	)			3,357,000				(414,000	)
Interest and dividend income			60,000				52,000				233,000				83,000
Net loss			(10,074,000	)			(5,638,000	)			(20,409,000	)			(11,813,000	)
Less: Net income attributable to noncontrolling interest of limited partners			(70,000	)			(47,000	)			(241,000	)			(156,000	)
Net loss attributable to controlling interest		$	(10,144,000	)		$	(5,685,000	)		$	(20,650,000	)		$	(11,969,000	)
Net loss per share attributable to controlling interest — basic and diluted		$	(0.08	)		$	(0.12	)		$	(0.20	)		$	(0.34	)
Weighted average number of shares outstanding —
Basic			124,336,078				47,735,536				105,257,482				35,100,807
Diluted			124,336,078				47,735,536				105,257,482				35,100,807

The accompanying notes are an integral part of these condensed consolidated financial statements.

Healthcare Trust of America, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2009 and 2008
(Unaudited)

		Stockholders’ Equity
		Common Stock
		Number of								Additional				Accumulated				Total
		Shares				Amount				Paid-In Capital				Deficit				Equity
BALANCE — December 31, 2007			21,449,451			$	214,000			$	190,534,000			$	(15,158,000	)		$	175,590,000
Issuance of common stock			34,050,254				341,000				339,767,000				—				340,108,000
Issuance of vested and nonvested restricted common stock			12,500				—				25,000				—				25,000
Offering costs			—				—				(36,364,000	)			—				(36,364,000	)
Amortization of nonvested common stock compensation			—				—				63,000				—				63,000
Issuance of common stock under the DRIP			832,339				8,000				7,899,000				—				7,907,000
Repurchase of common stock			(63,426	)			(1,000	)			(633,000	)			—				(634,000	)
Distributions			—				—				—				(19,175,000	)			(19,175,000	)
Net loss attributable to controlling interest			—				—				—				(11,969,000	)			(11,969,000	)
BALANCE — September 30, 2008			56,281,118			$	562,000			$	501,291,000			$	(46,302,000	)		$	455,551,000
BALANCE — December 31, 2008			75,465,437			$	755,000			$	673,351,000			$	(74,786,000	)		$	599,320,000
Issuance of common stock			53,276,134				533,000				530,485,000				—				531,018,000
Offering costs			—				—				(54,533,000	)			—				(54,533,000	)
Issuance of nonvested restricted common stock			57,500				—				—				—				—
Issuance of vested restricted common stock, net, and related compensation			42,500				—				425,000								425,000
Amortization of nonvested share based compensation			—				—				235,000				—				235,000
Issuance of common stock under the DRIP			2,807,028				28,000				26,638,000				—				26,666,000
Repurchase of common stock			(791,112	)			(8,000	)			(7,520,000	)			—				(7,528,000	)
Distributions			—				—				—				(57,491,000	)			(57,491,000	)
Adjustment to redeemable noncontrolling interests			—				—				(566,000	)			—				(566,000	)
Net loss attributable to controlling interest			—				—				—				(20,650,000	)			(20,650,000	)
BALANCE — September 30, 2009			130,857,487			$	1,308,000			$	1,168,515,000			$	(152,927,000	)		$	1,016,896,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

Healthcare Trust of America, Inc.

		Nine Months Ended September 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(20,409,000	)		$	(11,813,000	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization (including deferred financing costs, above/below market leases, debt discount, leasehold interests, deferred rent receivable, note receivable closing costs and discount and lease inducements)			36,088,000				23,607,000
Stock based compensation, net of forfeitures			660,000				88,000
Loss on property insurance settlements			6,000				89,000
Bad debt expense			1,097,000				362,000
Change in fair value of derivative financial instruments			(3,357,000	)			414,000
Changes in operating assets and liabilities:
Accounts and other receivables, net			(2,806,000	)			(4,364,000	)
Other assets			(3,202,000	)			(572,000	)
Accounts payable and accrued liabilities			8,837,000				7,231,000
Accounts payable due to former affiliates, net			207,000				336,000
Security deposits, prepaid rent and other liabilities			(1,153,000	)			255,000
Net cash provided by operating activities			15,968,000				15,633,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate operating properties			(241,668,000	)			(448,852,000	)
Capital expenditures			(6,320,000	)			(2,799,000	)
Restricted cash			(7,567,000	)			(3,920,000	)
Proceeds from insurance settlement			299,000				—
Net cash used in investing activities			(255,256,000	)			(455,571,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on mortgage loans payable			1,696,000				227,695,000
Borrowings on unsecured notes payable to affiliate			—				6,000,000
Borrowings under the line of credit, net			—				(51,801,000	)
Payments on mortgage loans payable			(10,624,000	)			(1,217,000	)
Payments on unsecured notes payable to affiliate							(6,000,000	)
Proceeds from issuance of common stock			533,303,000				341,755,000
Deferred financing costs			(60,000	)			(3,497,000	)
Security deposits			126,000				120,000
Repurchase of common stock			(7,528,000	)			(634,000	)
Payment of offering costs			(56,382,000	)			(34,153,000	)
Distributions			(27,493,000	)			(9,274,000	)
Distributions to noncontrolling interest limited partner			(290,000	)			(235,000	)
Net cash provided by financing activities			432,748,000				468,759,000
NET CHANGE IN CASH AND CASH EQUIVALENTS			193,460,000				28,821,000
CASH AND CASH EQUIVALENTS — Beginning of period			128,331,000				5,467,000
CASH AND CASH EQUIVALENTS — End of period		$	321,791,000			$	34,288,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest		$	19,893,000			$	13,058,000
Income taxes		$	74,000			$	62,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Investing Activities:
Accrued capital expenditures		$	1,243,000			$	1,979,000
The following represents the increase in certain assets and liabilities in connection with our acquisitions of operating properties :
Other assets, net		$	83,000			$	318,000
Mortgage loans payable, net		$	—			$	42,157,000
Accounts payable and accrued liabilities		$	70,000			$	3,420,000
Accounts payable due to affiliates, net		$	—			$	68,000
Security deposits, prepaid rent and other liabilities		$	574,000			$	1,978,000
Financing Activities:
Issuance of common stock under the DRIP		$	26,666,000			$	7,907,000
Distributions declared but not paid		$	7,814,000			$	3,248,000
Accrued offering costs		$	68,000			$	3,323,000
Accrued deferred financing costs		$	14,000			$	1,537,000
Adjustment to redeemable noncontrolling interests		$	566,000			$	40,000
Security Deposits Required		$	652,000			$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

Healthcare Trust of America, Inc.

     The use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and its subsidiaries, including Healthcare Trust of America Holdings, LP except where the context otherwise requires.

1. Organization and Description of Business

     Healthcare Trust of America, Inc., formerly known as Grubb & Ellis Healthcare REIT, Inc., a Maryland corporation, was incorporated on April 20, 2006. We were initially capitalized on April 28, 2006 and therefore we consider that our date of inception. We provide stockholders the potential for income and growth through investment in a diversified portfolio of real estate properties, focusing primarily on medical office buildings and healthcare-related facilities. We have also invested to a limited extent in commercial office properties and other real estate related assets. However, we do not presently intend to invest more than 15.0% of our total assets in other real estate related assets. We focus primarily on investments that produce recurring income. We have qualified and elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes and we intend to continue to be taxed as a REIT.

     We are conducting a best efforts initial public offering, or our initial offering, in which we are offering up to 200,000,000 shares of our common stock for $10.00 per share and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share, aggregating up to $2,200,000,000. The initial offering is currently scheduled to expire upon the earlier of March 19, 2010, or the date on which the maximum offering has been sold. As of September 30, 2009, we had received and accepted subscriptions in our initial offering for 127,100,943 shares of our common stock, or $1,268,416,000, excluding shares of our common stock issued under the DRIP.

     On April 6, 2009, we filed a Registration Statement on Form S-11 with the United States Securities and Exchange Commission, or the SEC, with respect to a proposed follow-on public offering, or our follow-on offering, of up to 221,052,632 shares of our common stock. Our follow-on offering would include up to 200,000,000 shares of our common stock to be offered for sale at $10.00 per share and up to 21,052,632 shares of our common stock to be offered for sale pursuant to the DRIP at $9.50 per share. We have not issued any shares under this registration statement as it has not been declared effective by the SEC.

     We conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership. Our internal management team manages our day-to-day operations and oversees and supervises our employees and outside service providers. We were formerly advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our former advisor, under the terms of the advisory agreement, effective as of October 24, 2008, and as amended and restated on November 14, 2008 and, or the Advisory Agreement, between us, our former advisor and Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, who is the managing member of our former advisor. The Advisory Agreement expired on September 20, 2009.

     Our former advisor engaged affiliated entities, including but not limited to Triple Net Properties Realty, Inc., or Realty, and Grubb & Ellis Management Services, Inc., to provide various services to us, including but not limited to property management and leasing services. On July 28, 2009, we entered into property management and leasing agreements with the following companies, each to manage a specific geographic region: CB Richard Ellis, PM Realty Group, Hokanson Companies, The Plaza Companies, and Nath Companies. On August 31, 2009, each of our subsidiaries terminated its management agreement with Realty.

     Upon the effectiveness of our initial offering, we entered into a dealer manager agreement with Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities, or our former dealer manager. On May 21, 2009, we provided notice to Grubb & Ellis Securities pursuant to the dealer manager agreement that we would proceed with a dealer manager transition pursuant to which Grubb & Ellis Securities would cease to serve as our dealer manager for our initial offering at the end of the day on August 28, 2009. Commencing August 29, 2009, Realty Capital Securities, LLC, or RCS, assumed the role of dealer manager for the remainder of the offering period pursuant to a new dealer manager agreement. We entered into a services agreement on April 3, 2009 with American Realty Capital II, LLC, an affiliate of RCS, relating to the provision of certain consulting services to us, as well as making available to us certain backup support services. This services agreement was amended on August 17, 2009 to delay its effective date until December 1, 2009.

     Our main objectives in amending the Advisory Agreement were to reduce acquisition and asset management fees, eliminate internalization fees, discussed below, and to set the framework for our transition to self-management. We started our transition to self-management in the fourth quarter of 2008. This transition is complete and we consider ourselves to be self-managed. We are conducting an ongoing review of advisory services and dealer manager services previously provided by our former advisor and former dealer manager, to ensure that such services have been performed consistent with applicable agreements and standards.

     Self-management is a corporate model based on internal management rather than external management. In general, non-traded REIT’s are externally managed. With external management, a REIT is dependent upon an external advisor. An externally-managed REIT typically pays acquisition fees, disposition fees, asset management fees, property management fees and other fees to its external advisor for services provided. In contrast, under self-management, we are internally managed by our management team led by Scott D. Peters, our Chief Executive Officer, President and Chairman of the board of directors, under the direction of our Board of Directors. With a self-managed REIT, fees paid to third parties are expected to be substantially reduced.

     We anticipate that the various costs of self-management will also be mitigated by the substantial reduction of the acquisition fees and the asset management fees payable to our former advisor under the Advisory Agreement.

     As of September 30, 2009, we had made 45 geographically diverse acquisitions comprising 6,341,000 square feet of gross leasable area, or GLA, for an aggregate purchase price of $1,206,740,000 which includes 154 buildings and one real estate related asset. As of September 30, 2009, the aggregate occupancy at these properties was 90.4%.

     Our principal executive offices are located at 16427 N. Scottsdale Road, Suite 440, Scottsdale, Arizona, 85254 and the telephone number is (480) 998-3478. For investor services, please contact DST Systems, Inc, by telephone at (888) 801-0107.

2. Summary of Significant Accounting Policies

     The summary of significant accounting policies presented below is designed to assist in understanding our interim consolidated financial statements. Such interim consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying interim consolidated financial statements.

Basis of Presentation

     Our accompanying interim consolidated financial statements include our accounts and those of our operating partnership, the wholly-owned subsidiaries of our operating partnership and any variable interest entities, as defined in the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation (“ASC 810”). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. We operate in an umbrella partnership REIT structure in which wholly-owned subsidiaries of our operating partnership own all of the properties acquired on our behalf. We are the sole general partner of our operating partnership and as of September 30, 2009 and December 31, 2008, we owned greater than a 99.99% general partnership interest in our operating partnership. Our former advisor is a limited partner of our operating partnership and as of September 30, 2009 and December 31, 2008, owned less than a 0.01% limited partnership interest in our operating partnership. Our former advisor may be entitled to certain subordinated distribution rights under the partnership agreement for our operating partnership, subject to a number of conditions. Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our consolidated financial statements. All intercompany accounts and transactions are eliminated in consolidation.

     The condensed consolidated financial statements and notes have been prepared consistently with the 2008 Form 10-K and Form 10-Q for the period ended September 30, 2008 with the exception of the reclassification of certain prior-year amounts on our Condensed Consolidated Balance Sheets, Condensed Consolidated Statement of Operations, and Condensed Consolidated Statement of Cash Flows in accordance with SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB 51, codified primarily in ASC 810.

Interim Unaudited Financial Data

     Our accompanying interim consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying interim consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable. Our accompanying interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2008 Annual Report on Form 10-K, as filed with the SEC on March 27, 2009.

Cash and Cash Equivalents

     Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Cash and cash equivalents of $321,791,000 and $128,331,000, includes approximately $201,998,000 and $0 in short-term U.S. Treasury bills as of September 30, 2009 and December 31, 2008, respectively. We account for short-term investments in accordance with ASC 320, Investments — Debt and Equity Securities (“ASC 320”). We determine the appropriate classification of all short-term investments as held-to-maturity, available-for-sale, or trading at the time of purchase and re-evaluate such classification as of each balance sheet date. The U.S. Treasury bills are considered trading as of September 30, 2009 and matured in October 2009.

Segment Disclosure

     ASC 280, Segment Reporting (“ASC 280”) establishes standards for reporting financial and descriptive information about an enterprise’s reportable segment. We have determined that we have one reportable segment, with activities related to investing in medical office buildings, healthcare-related facilities, commercial office properties and other real estate related assets. Our investments in real estate and other real estate related assets are geographically diversified and our chief operating decision maker evaluates operating performance on an individual asset level. As each of our assets has similar economic characteristics, tenants, and products and services, our assets have been aggregated into one reportable segment.

Recently Issued Accounting Pronouncements

     In December 2007, the FASB issued Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations , codified primarily in ASC 805, Business Combinations (“ASC 805”). ASC 805 clarifies and amends the accounting guidance for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree. The provisions of ASC 805 became effective for us for any business combinations occurring on or after January 1, 2009. The adoption of ASC 805 has a material impact on our results of operations when we acquire real estate properties. We anticipate that the new provisions will have an impact on the cost allocation of future acquisitions and will require that we expense acquisition costs for future property acquisitions.

     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB 51, codified primarily in ASC 810. This statement amends ARB 51 and revises accounting and reporting requirements for noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of a subsidiary. ASC 810 was effective for us on January 1, 2009, except for the presentation and disclosure requirements which were applied retrospectively for all periods presented. The adoption of SFAS No. 160 had an impact on the presentation and disclosure of noncontrolling (minority) interests in our condensed consolidated financial statements. As a result of the retrospective presentation and disclosure requirements of SFAS No. 160, we are required to reflect the change in presentation and disclosure for all periods presented. The principal effect on the consolidated balance sheet as of December 31, 2008 related to the adoption of SFAS No. 160 was the change in presentation of the mezzanine section of the minority interest of limited partner in operating partnership of $1,000 and the minority interest of limited partner of $1,950,000, as previously reported, to redeemable noncontrolling interest of limited partners of $1,951,000, as reported herein. Additionally, the adoption of SFAS No. 160 had the effect of reclassifying (income) loss attributable to noncontrolling interest in the consolidated statements of operations from minority interest to separate line items. SFAS No. 160 also requires that net income (loss) be adjusted to include the net income attributable to the noncontrolling interest, and a new line item for net income attributable to controlling interest be presented in the condensed consolidated statements of operations. Thus, after adoption of SFAS No. 160 net loss for the three months ended September 30, 2008 of $5,685,000, as previously reported, changed to net loss of $5,638,000, as reported herein, and net income attributable to controlling interest is equal to net income as previously reported prior to the adoption of SFAS No. 160. Net loss for the nine months ended September 30, 2008 of $11,969,000, as previously reported, changed to net loss of $11,813,000, as reported herein, and net loss attributable to controlling interest is equal to net loss as previously reported prior to the adoption of SFAS No. 160.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133, codified primarily in ASC 815. ASC 815 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. ASC 815 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS No. 161 also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, ASC 815 requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. ASC 815 is effective for quarterly interim periods beginning after November 15, 2008, and fiscal years that include those

quarterly interim periods, with early application encouraged. We adopted ASC 815 on a prospective basis on January 1, 2009. The adoption of ASC 815 did not have a material impact on our consolidated financial statements.

     In June 2008, the FASB issued FSP Emerging Issues Task Force, or EITF, Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, or FSP EITF No. 03-6-1, codified primarily in ASC 260, Earning per Share (“ASC 260”). FSP EITF No. 03-6-1 addresses whether instruments granted by an entity in share-based payment transactions should be considered as participating securities prior to vesting and, therefore, should be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128, Earnings per Share. FSP EITF No. 03-6-1 clarifies that instruments granted in share-based payment transactions can be participating securities prior to vesting (that is, awards for which the requisite service had not yet been rendered). Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF No. 03-6-1 requires us to retrospectively adjust our earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions of FSP EITF No. 03-6-1. We adopted FSP EITF No. 03-6-1 on January 1, 2009. The adoption of FSP EITF No. 03-6-1 did not have a material impact on our consolidated financial statements.

     In April 2009, the FASB issued FASB Staff Position (“FSP”) No. SFAS 157-4, Determining Fair Value when the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are not Orderly (“FSP No. SFAS 157-4”), codified primarily in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides guidance on determining fair value when market activity has decreased. We elected to early adopt ASC 820 as it relates to FSP No. SFAS 157-4 beginning January 1, 2009. Its adoption has not had a material impact on the Company’s condensed consolidated unaudited financial statements.

     In April 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS No. 107-1 and APB Opinion No. 28-1, codified primarily in ASC 825, Financial Instruments (“ASC 825”). FSP FAS No. 107-1 and APB Opinion No. 28-1 relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company early adopted FSP FAS No. 107-1 and APB Opinion No. 28-1 on a prospective basis on January 1, 2009, which did not have a material impact on our consolidated financial statements. We have provided these disclosures in Note 16, Fair Value of Financial Instruments.

     In April 2009, the FASB issued FSP FAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, or FSP FAS No. 141(R)-1, codified primarily in ASC 805. FSP FAS No. 141 (R)-1 amends and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. We adopted FSP FAS No. 141(R)-1 on a prospective basis on January 1, 2009. The adoption of FSP FAS No. 141 (R)-1 did not have a material impact on our consolidated financial statements.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events, codified primarily in ASC 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. ASC 855 was effective for us on April 1, 2009. The additional disclosures required by this pronouncement are included in Note 20, Subsequent Events. The adoption of ASC 855 has not had a material impact on our condensed consolidated unaudited financial statements.

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which modifies how a company determines when an entity that is a VIE should be consolidated. SFAS No. 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS No. 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a VIE. SFAS No. 167 also requires additional disclosures about a company’s involvement in VIEs and any significant changes in risk exposure due to that involvement. SFAS No. 167 is effective for us on January 1, 2010. We have not determined what impact, if any, the adoption of SFAS No. 167 will have on our consolidated financial statements and related disclosures. This pronouncement has not been incorporated into the FASB ASC as of September 30, 2009.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification™ (the “Codification”) will become the source of authoritative GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification became effective on July 1, 2009 and superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification is nonauthoritative. We adopted the Codification beginning on July 1, 2009. Because the Codification is not intended to change GAAP, it did not have a material impact on our condensed consolidated unaudited financial statements.

     In August 2009, the FASB issued Accounting Standard Update 2009-05, Fair Value Measurements and Disclosures (“ASU 2009-05”), which provides alternatives to measuring the fair value of liabilities when a quoted price for an identical liability traded in an active market does not exist. The alternatives include using either (1) a valuation technique that uses quoted prices for identical or similar liabilities or (2) another valuation technique, such as a present value technique or a technique that is based on the amount paid or received by the reporting entity to transfer an identical liability. The amended guidance will be effective for us beginning October 1, 2009. We do not expect the adoption of ASU 2009-05 to have a material impact on our condensed consolidated unaudited financial statements.

3. Real Estate Investments

     Our investments in our consolidated properties consisted of the following as of September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
Land		$	114,896,000			$	107,389,000
Building and improvements			928,094,000				728,171,000
Furniture and equipment			10,000				10,000
			1,043,000,000				835,570,000
Less: accumulated depreciation			(47,651,000	)			(24,650,000	)
		$	995,349,000			$	810,920,000

     Depreciation expense for the three months ended September 30, 2009 and 2008 was $8,186,000 and $6,139,000, respectively, and depreciation expense for the nine months ended September 30, 2009 and 2008 was $23,407,000 and $13,566,000, respectively.

Acquisitions in 2009

     During the nine months ended September 30, 2009, we completed the acquisition of three properties and three office condominiums related to existing properties in our portfolio. The aggregate purchase price of these properties was $240,324,000. These properties were purchased with funds raised from our initial offering. We paid $6,008,000 in acquisition fees to our former advisor and its affiliates in connection with these acquisitions. The fees were expensed and included in general and administrative in our accompanying condensed consolidated statements of operations in accordance with new accounting provisions adopted in the current year which require the immediate expensing of such items. Acquisitions completed during the nine months ended September 30, 2009 are set forth below:

														Mortgage				Fee to our
				Date		Ownership				Purchase				Loan				Former Advisor
Property		Property Location		Acquired		Percentage				Price				Payables(1)				and Affiliate(2)
Lima Medical Office Portfolio(3)		Lima, OH		01/16/09			100	%		$	385,000			$	—			$	9,000
Wisconsin Medical Office Buildings Portfolio		Menomonee Falls, Mequon, Milwaukee and Richfield, WI		02/27/09			100	%			33,719,000				—				843,000
Mountain Empire Portfolio(3)		Rogersville, TN		03/27/09			100	%			2,275,000				1,696,000				57,000
Lima Medical Office Portfolio(3)		Lima, OH		04/21/09			100	%			425,000				—				11,000
Wisconsin Medical Office Buildings Portfolio 2		Mequon and Franklin, WI		05/27/09			100	%			40,700,000				—				1,017,000
Greenville Hospital Systems		Greenville, SC		09/18/09			100	%			162,820,000				—				4,071,000
Total										$	240,324,000			$	1,696,000			$	6,008,000

     Also see Note 17, Business Combinations, for additional disclosures related to our acquisitions.

4. Real Estate Notes Receivable, Net

     Real estate notes receivable, net consisted of the following as of September 30, 2009 and December 31, 2008:

				Interest				Maturity
Property Name and Location		Property Type		Rate				Date				September 30, 2009				December 31, 2008
MacNeal Hospital Medical Office Building Berwyn, Illinois		Medical Office Building			5.95	%			11/01/11			$	7,500,000			$	7,500,000
MacNeal Hospital Medical Office Building Berwyn, Illinois		Medical Office Building			5.95	%			11/01/11				7,500,000				7,500,000
St. Luke’s Medical Office Building Phoenix, Arizona		Medical Office Building			5.85	%			11/01/11				3,750,000				3,750,000
St. Luke’s Medical Office Building Phoenix, Arizona		Medical Office Building			5.85	%			11/01/11				1,250,000				1,250,000
													20,000,000				20,000,000
Add: closing costs, net													276,000				360,000
Less: discount, net													(3,677,000	)			(5,000,000	)
Real estate notes receivable, net												$	16,599,000			$	15,360,000

The discount is amortized on a straight-line basis over the life of the note.

5. Identified Intangible Assets, Net

     Identified intangible assets consisted of the following as of September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
In place leases, net of accumulated amortization of $21,988,000 and $13,350,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 9.3 years and 7.6 years as of September 30, 2009 and December 31, 2008, respectively)		$	67,012,000			$	55,144,000
Above market leases, net of accumulated amortization of $2,788,000 and $1,513,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 8.0 years and 8.3 years as of September 30, 2009 and December 31, 2008, respectively)			9,681,000				10,482,000
Tenant relationships, net of accumulated amortization of $11,676,000 and $6,479,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 12.7 years and 11.7 years as of September 30, 2009 and December 31, 2008, respectively)			73,612,000				64,881,000
Leasehold interests, net of accumulated amortization of $87,000 and $45,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 79.7 years and 81.8 years as of September 30, 2009 and December 31, 2008, respectively)			4,168,000				3,998,000
Master lease, net of accumulated amortization of $335,000 and $231,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 2 months and 8 months as of September 30, 2009 and December 31, 2008, respectively)			14,000				118,000
		$	154,487,000			$	134,623,000

     Amortization expense recorded on the identified intangible assets for the three months ended September 30, 2009 and 2008 was $5,477,000 and $5,498,000, respectively, which included $497,000 and $443,000, respectively, of amortization recorded against rental income for above market leases and $15,000 and $12,000, respectively, of amortization recorded against rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations. Amortization expense recorded on the identified intangible assets for the nine months ended September 30, 2009 and 2008 was $17,080,000 and $12,148,000, respectively, which included $1,459,000 and $839,000, respectively, of amortization recorded against rental income for above market leases and $43,000 and $29,000, respectively, of amortization recorded against rental expenses for leasehold interests in our accompanying condensed consolidated statements of operations.

6. Other Assets, Net

     Other assets, net, consisted of the following as of September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
Deferred financing costs, net of accumulated amortization of $2,881,000 and $1,461,000 as of September 30, 2009 and December 31, 2008, respectively		$	3,360,000			$	4,751,000
Lease commissions, net of accumulated amortization of $334,000 and $99,000 as of September 30, 2009 and December 31, 2008, respectively			2,359,000				1,009,000
Lease inducements, net of accumulated amortization of $191,000 and $107,000 as of September 30, 2009 and December 31, 2008, respectively			832,000				753,000
Deferred rent receivable			7,585,000				3,928,000
Prepaid expenses, deposits and other			2,641,000				1,073,000
		$	16,777,000			$	11,514,000

     Amortization and depreciation expense recorded on deferred financing costs, lease commissions, lease inducements and other assets for the three months ended September 30, 2009 and 2008 was $642,000 and $456,000, respectively, of which $469,000 and $403,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $36,000 and $22,000, respectively, of amortization was recorded against rental income for lease inducements in our accompanying condensed consolidated statements of operations. Amortization and depreciation expense recorded on deferred financing costs, lease commissions, lease inducements and other assets for the nine months ended September 30, 2009 and 2008 was $1,733,000 and $953,000, respectively, of which $1,402,000 and $831,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $85,000 and $63,000, respectively, of amortization was recorded against rental income for lease inducements in our accompanying condensed consolidated statements of operations.

7. Mortgage Loans Payable, Net

Mortgage Loans Payable

     Mortgage loans payable were $453,614,000 ($452,041,000, net of discount) and $462,542,000 ($460,762,000, net of discount) as of September 30, 2009 and December 31, 2008, respectively. As of September 30, 2009, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.60% to 12.75% per annum and a weighted average effective interest rate of 3.59% per annum. As of September 30, 2009, we had $131,941,000 ($130,368,000, net of discount) of fixed rate debt, or 29.1% of mortgage loans payable, at a weighted average interest rate of 5.76% per annum, and $321,673,000 of variable rate debt, or 70.9% of mortgage loans payable, at a weighted average interest rate of 2.70% per annum. As of December 31, 2008, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.90% to 12.75% per annum and a weighted average effective interest rate of 4.07% per annum. As of December 31, 2008, we had $141,058,000 ($139,278,000 net of discount) of fixed rate debt, or 30.5% of mortgage loans payable, at a weighted average interest rate of 5.76% per annum, and $321,484,000 of variable rate debt, or 69.5% of mortgage loans payable, at a weighted average interest rate of 3.33% per annum. We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As December 31, 2008, we were in compliance with all such covenants and requirements. As of September 30, 2009, we believe that we were in compliance with all such covenants and requirements on $426,414,000 of our mortgage loans payable and are making appropriate adjustments to comply with such covenants on $27,200,000 of our mortgage loans payable by depositing $6,357,000 into a restricted collateral account.

     Mortgage loans payable consisted of the following as of September 30, 2009 and December 31, 2008:

		Interest				Maturity
Property		Rate				Date				September 30, 2009				December 31, 2008
Fixed Rate Debt:
Southpointe Office Parke and Epler Parke I			6.11	%			09/01/16			$	9,146,000			$	9,146,000
Crawfordsville Medical Office Park and Athens Surgery Center			6.12	%			10/01/16				4,264,000				4,264,000
The Gallery Professional Building			5.76	%			03/01/17				6,000,000				6,000,000
Lenox Office Park, Building G			5.88	%			02/01/17				12,000,000				12,000,000
Commons V Medical Office Building			5.54	%			06/11/17				9,843,000				9,939,000
Yorktown Medical Center and Shakerag Medical Center			5.52	%			05/11/17				13,530,000				13,530,000
Thunderbird Medical Plaza			5.67	%			06/11/17				13,960,000				14,000,000
Gwinnett Professional Center			5.88	%			01/01/14				5,541,000				5,604,000
St. Mary Physicians Center			5.80	%			09/04/09				—				8,280,000
Northmeadow Medical Center			5.99	%			12/01/14				7,745,000				7,866,000
Medical Portfolio 2			5.91	%			07/01/13				14,270,000				14,408,000
Renaissance Medical Centre			5.38	%			09/01/15				18,871,000				19,078,000
Renaissance Medical Centre			12.75	%			09/01/15				1,243,000				1,245,000
Medical Portfolio 4			5.50	%			06/01/19				6,633,000				6,771,000
Medical Portfolio 4			6.18	%			06/01/19				1,695,000				1,727,000
Marietta Health Park			5.11	%			11/01/15				7,200,000				7,200,000
											131,941,000				141,058,000
Variable Rate Debt:
Senior Care Portfolio 1			4.75	%(a)			03/31/10				24,800,000	(b)			24,800,000	(c)
1 and 4 Market Exchange			1.60	%(a)			09/30/10				14,500,000	(b)			14,500,000	(c)
East Florida Senior Care Portfolio			1.65	%(a)			10/01/10				29,568,000	(b)			29,917,000	(c)
Kokomo Medical Office Park			1.65	%(a)			11/30/10				8,300,000	(b)			8,300,000	(c)
Chesterfield Rehabilitation Center			1.90	%(a)			12/30/10				22,000,000	(b)			22,000,000	(c)
Park Place Office Park			1.80	%(a)			12/31/10				10,943,000	(b)			10,943,000	(c)
Highlands Ranch Medical Plaza			1.80	%(a)			12/31/10				8,853,000	(b)			8,853,000	(c)
Medical Portfolio 1			1.93	%(a)			02/28/11				20,607,000	(b)			21,340,000	(c)
Fort Road Medical Building			1.90	%(a)			03/06/11				5,800,000	(b)			5,800,000	(c)
Medical Portfolio 3			2.50	%(a)			06/26/11				58,000,000	(b)			58,000,000	(c)
SouthCrest Medical Plaza			2.45	%(a)			06/30/11				12,870,000	(b)			12,870,000	(c)
Wachovia Pool Loans(d)			4.65	%(a)			06/30/11				49,969,000	(b)			50,322,000	(c)
Cypress Station Medical Office Building			2.00	%(a)			09/01/11				7,163,000	(b)			7,235,000	(c)
Medical Portfolio 4			2.40	%(a)			09/24/11				21,400,000	(b)			21,400,000	(c)
Decatur Medical Plaza			2.25	%(a)			09/26/11				7,900,000	(b)			7,900,000	(c)
Mountain Empire Portfolio			2.40	%(a)			09/28/11				19,000,000	(b)			17,304,000	(c)
											321,673,000				321,484,000
Total fixed and variable debt											453,614,000				462,542,000
Less: discount											(1,573,000	)			(1,780,000	)
Mortgage loans payable, net										$	452,041,000			$	460,762,000

     The principal payments due on our mortgage loans payable as of September 30, 2009 for the three months ending December 31, 2009 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2009		$	1,020,000
2010		$	122,731,000
2011		$	201,690,000
2012		$	2,056,000
2013		$	15,521,000
Thereafter		$	110,596,000

     The table above does not reflect all available extension options. Of the amounts maturing in 2010, $64,596,000 have two one-year extensions available and $53,940,000 have a one-year extension available. Of the amounts maturing in 2011, $179,985,000 have two one-year extensions available.

8. Derivative Financial Instruments

     We utilize derivatives such as fixed rate interest rate swaps to manage our exposure to interest rate movements. Consistent with ASC 815, we record derivative financial instruments on our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. ASC 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item(s) or to be deferred in other comprehensive income. As of September 30, 2009 and December 31, 2008, no derivatives were designated as fair value hedges or cash flow hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivative financial instruments are recorded in gain (loss) on derivative financial instruments in our accompanying condensed consolidated statements of operations.

     The following table lists derivative financial instruments held by us as of September 30, 2009:

Notional Amount				Index		Rate				Fair Value				Instrument				Maturity
$	14,500,000			LIBOR			5.97	%		$	(639,000	)		Swap					09/28/10
$	8,300,000			LIBOR			5.86	%		$	(396,000	)		Swap					11/30/10
$	8,853,000			LIBOR			5.52	%		$	(387,000	)		Swap					12/31/10
$	10,943,000			LIBOR			5.52	%		$	(479,000	)		Swap					12/31/10
$	22,000,000			LIBOR			5.59	%		$	(906,000	)		Swap					12/30/10
$	29,568,000			LIBOR			6.02	%		$	(1,270,000	)		Swap					10/01/10
$	20,607,000			LIBOR			5.23	%		$	(807,000	)		Swap					01/31/11
$	5,800,000			LIBOR			4.70	%		$	(197,000	)		Swap					03/06/11
$	7,163,000			LIBOR			4.51	%		$	(116,000	)		Swap					05/03/10
$	24,800,000			LIBOR			4.85	%		$	(354,000	)		Swap					03/31/10
$	49,969,000			LIBOR			5.60	%		$	(1,279,000	)		Swap					06/30/10
$	12,870,000			LIBOR			5.65	%		$	(327,000	)		Swap					06/30/10
$	58,000,000			LIBOR			5.59	%		$	(1,413,000	)		Swap					06/26/10
$	21,400,000			LIBOR			5.27	%		$	(857,000	)		Swap					09/23/11
$	7,900,000			LIBOR			5.16	%		$	(324,000	)		Swap					09/26/11
$	19,000,000			LIBOR			5.87	%		$	(1,040,000	)		Swap					09/28/13

     The following table lists derivative financial instruments held by us as of December 31, 2008:

Notional Amount				Index		Rate				Fair Value				Instrument				Maturity
$	14,500,000			LIBOR			5.97	%		$	(870,000	)		Swap					09/28/10
$	8,300,000			LIBOR			5.86	%		$	(512,000	)		Swap					11/30/10
$	8,853,000			LIBOR			5.52	%		$	(480,000	)		Swap					12/31/10
$	10,943,000			LIBOR			5.52	%		$	(593,000	)		Swap					12/31/10
$	22,000,000			LIBOR			5.59	%		$	(1,167,000	)		Swap					12/30/10
$	29,917,000			LIBOR			6.02	%		$	(1,776,000	)		Swap					10/01/10
$	21,340,000			LIBOR			5.23	%		$	(976,000	)		Swap					01/31/11
$	5,800,000			LIBOR			4.70	%		$	(221,000	)		Swap					03/06/11
$	7,235,000			LIBOR			4.51	%		$	(168,000	)		Swap					05/03/10
$	24,800,000			LIBOR			4.85	%		$	(554,000	)		Swap					03/31/10
$	50,322,000			LIBOR			5.60	%		$	(1,797,000	)		Swap					06/30/10
$	12,870,000			LIBOR			5.65	%		$	(460,000	)		Swap					06/30/10
$	58,000,000			LIBOR			5.59	%		$	(1,972,000	)		Swap					06/26/10
$	21,400,000			LIBOR			5.27	%		$	(936,000	)		Swap					09/23/11
$	7,900,000			LIBOR			5.16	%		$	(355,000	)		Swap					09/26/11
$	17,304,000			LIBOR			5.87	%		$	(1,361,000	)		Swap					09/28/13

     As of September 30, 2009 and December 31, 2008, the fair value of our derivative financial instruments was as follows:

Asset Derivatives

Liability Derivatives

September 30, 2009

December 31, 2008

September 30, 2009

December 31, 2008

Derivatives not designated as

Balance Sheet

Balance Sheet

Balance Sheet

Balance Sheet

hedging instruments

Location

Fair Value

Location

Fair Value

Location

Fair Value

Location

Fair Value

Interest Rate Swaps

Derivative Financial Instruments

$ —

Derivative Financial Instruments

$ —

Derivative Financial Instruments

$

10,791,000

Derivative Financial Instruments

$

14,198,000

     For the three and nine months ended September 30, 2009 and 2008, our derivative financial instruments had the following effect on our condensed consolidated statements of operations:

				Amount of Gain (Loss) Recognized								Amount of Gain (Loss) Recognized
Derivatives not designated as hedging		Location of Gain (Loss)		Three Months Ended								Nine Months Ended
instruments:		Recognized		September 30, 2009				September 30, 2008				September 30, 2009				September 30, 2008
Interest Rate Swaps		Interest Expense		$	66,000			$	(310,000	)		$	3,357,000			$	(414,000	)

     For the three months ended September 30, 2009 and 2008, we recorded a decrease in interest expense of $66,000 and an increase in interest expense of $310,000, respectively, related to the change in the fair value of our derivative financial instruments and for the nine months ended September 30, 2009 and 2008, we recorded a decrease in interest expense of $3,357,000 and a increase in interest expense of $414,000, respectively, related to the change in the fair value of our derivative financial instruments.

     The Company has agreements with each of its derivative counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, then the Company could also be declared in default on its derivative obligations resulting in an acceleration of payment. In addition, the Company is exposed to credit risk in the event of non-performance by its derivative counterparties. The Company believes it mitigates its credit risk by entering into agreements with credit-worthy counterparties. The Company records counterparty credit risk valuation adjustments on its interest rate swap derivative asset in order to properly reflect the credit quality of the counterparty. In addition, the Company’s fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of the Company’s credit quality. As of September 30, 2009 and December 31, 2008, there have been no termination events or events of default related to the interest rate swaps.

9. Line of Credit

     We have a loan agreement with LaSalle Bank National Association, or LaSalle, and KeyBank National Association, or KeyBank, in which we obtained our secured revolving line of credit with LaSalle and KeyBank in an aggregate maximum principal amount up to $80,000,000, or the Loan Agreement. The actual amount of credit available under the Loan Agreement is a function of certain loan to cost, loan to value and debt service coverage ratios contained in the Loan Agreement. As of September 30, 2009 and December 31, 2008, the amount of credit available under the Loan Agreement is $78,172,000. The maximum principal amount of the Loan Agreement may be increased up to $120,000,000 subject to the terms of the Loan Agreement. Also, additional financial institutions may become lenders under the Loan Agreement. The initial maturity date of the Loan Agreement is September 10, 2010 which may be extended by one 12-month period subject to satisfaction of certain conditions, including the payment of an extension fee equal to 0.20% of the principal balance of loans then outstanding.

     At our option, loans under the Loan Agreement bear interest at per annum rates equal to (a) the London Interbank Offered Rate, or LIBOR, plus a margin of 1.50%, (b) the greater of LaSalle’s prime rate or the Federal Funds Rate (as defined in the Loan Agreement) plus 0.50%, or (c) a combination of these rates.

     The Loan Agreement contains various affirmative and negative covenants that are customary for facilities and transactions of this type, including limitations on the incurrence of debt by us and our subsidiaries that own properties that serve as collateral for the Loan Agreement, limitations on the nature of our business and limitations on our subsidiaries that own properties that serve as collateral for the Loan Agreement. The Loan Agreement also imposes the following financial covenants on us and our operating partnership, as applicable: (i) a minimum ratio of operating cash flow to interest expense, (ii) a minimum ratio of operating cash flow to fixed charges, (iii) a maximum ratio of liabilities to asset value, (iv) a maximum distribution covenant and (v) a minimum net worth covenant, all of which are defined in the Loan Agreement. In addition, the Loan Agreement includes events of default that are customary for facilities and transactions of this type. As of December 31, 2008 and September 30, 2009, we were in compliance with all such covenants and requirements.

     As of September 30, 2009 and December 31, 2008, we did not have any borrowings under the Loan Agreement.

10. Identified Intangible Liabilities, Net

     Identified intangible liabilities consisted of the following as of September 30, 2009 and December 31, 2008:

		September 30, 2009				December 31, 2008
Below market leases, net of accumulated amortization of $2,640,000 and $1,400,000 as of September 30, 2009 and December 31, 2008, respectively (with a weighted average remaining life of 9.5 years and 9.4 years as of September 30, 2009 and December 31, 2008, respectively)		$	6,772,000			$	8,128,000
		$	6,772,000			$	8,128,000

     Amortization recorded on the identified intangible liabilities for the three months ended September 30, 2009 and 2008 was $437,000 and $428,000, respectively, which is recorded to rental income in our accompanying condensed consolidated statements of operations. Amortization recorded on the identified intangible liabilities for the nine months ended September 30, 2009 and 2008 was $1,380,000 and $831,000, respectively, which is recorded to rental income in our accompanying condensed consolidated statements of operations.

11. Commitments and Contingencies

Litigation

     We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial statements.

Environmental Matters

     We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other Organizational and Offering Expenses

     Our former advisor previously was entitled to receive up to 1.5% of the aggregate gross offering proceeds from the sale of shares of our common stock in the primary offering for reimbursement of cumulative organizational and offering expenses pursuant to the terms of the expired Advisory Agreement. As a self-managed company, we will be responsible for all of our future organizational and offering expenses. These other organization and offering expenses include all expenses (other than selling commissions and the marketing support fees which generally represents 7.0% and 2.5% of our gross offering proceeds, respectively) to be paid by us in connection with our initial offering. As of September 30, 2009 and December 31, 2008, neither we nor our former advisor and its affiliates have incurred additional other organizational and offering expenses in excess of 1.5% of the gross proceeds of our initial offering. See Note 12, Related Party Transactions- Offering Stage, for a further discussion of other organizational and offering expenses.

Chesterfield Rehabilitation Center

     The operating agreement with BD St. Louis Development, LLC, or BD St. Louis, for G&E Healthcare REIT/Duke Chesterfield Rehab, LLC, or the JV Company, which owns Chesterfield Rehabilitation Center, provides that from January 1, 2010 to March 31, 2010, our operating partnership has the right and option to purchase the 20.0% membership interest in the JV Company held by BD St. Louis at a fixed price of $3,900,000. We anticipate exercising our right to purchase the 20.0% membership interest. If we do not exercise that right, subject to cumulative returns, the distributions will no longer be paid proportionate to the ownership percentages and BD St. Louis will receive a higher proportionate distribution. Also, if we do not exercise that right, the operating agreement provides that from January 1, 2011 to March 31, 2011, BD St. Louis has the right and option to sell all, but not less than all, of its 20.0% membership interest in the JV Company to our operating partnership at a price equal to the greater of $10.00 or the fair market value as determined in accordance with the operating agreement. As of September 30, 2009 and December 31, 2008, the estimated redemption value at the earliest date of redemption is $2,905,000 and $3,133,000, respectively. See Note 13, Redeemable Noncontrolling Interests of Limited Partners, to our accompanying condensed consolidated financial statements.

Future Development Agreement

     In connection with the closing of the acquisition of the Greenville Hospital System Portfolio, HTA LLC and Greenville Hospital System, or GHS, entered into a Future Development Agreement, or the Future Development Agreement. Pursuant to the Future Development Agreement, GHS may elect for HTA LLC to provide funding for development costs associated with certain potential GHS development properties and/or the acquisition of the properties upon completion of development, subject to the satisfaction of certain conditions and approvals by HTA LLC, as provided in the Future Development Agreement, including a lease back to GHS of 100% of the space. The maximum funding commitment from HTA LLC may not exceed $5,500,000 in the aggregate.

Other

     Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

12. Related Party Transactions

Fees and Expenses Paid to Former Affiliates

     Two of our former executive officers were also executive officers and employees and/or holders of a direct or indirect interest in our former advisor, and our former sponsor, Grubb & Ellis Realty Investors, or other affiliated entities. These executive officers resigned on June 30, 2009 and July 10, 2009, respectively. Upon the effectiveness of our initial offering, we entered into an Advisory Agreement with our former advisor and a dealer manager agreement with our former dealer manager. These agreements entitled our former advisor, our former dealer manager and their affiliates to specified compensation for certain services as well as reimbursement

of certain expenses. The Advisory Agreement was effective as of October 24, 2008, amended and restated on November 14, 2008 and expired on September 20, 2009. On May 21, 2009, we provided notice to Grubb & Ellis Securities that we would proceed with a dealer manager transition pursuant to which Grubb & Ellis Securities ceased to serve as our dealer manager for our initial offering at the end of the day on August 28, 2009. Commencing August 29, 2009, RCS assumed the role of dealer manager for the remainder of the offering period. In the aggregate, for the three months ended September 30, 2009 and 2008, we incurred fees to our former advisor and its affiliates of $17,531,000 and $23,768,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred fees to our former advisor and its affiliates of $66,011,000 and $58,965,000, respectively, as detailed below.

Offering Stage

Selling Commissions

     Prior to the transition of the dealer manager function to RCS, our former dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager re-allowed all or a portion of these fees to participating broker-dealers. For the three months ended September 30, 2009 and 2008, we incurred $7,644,000 and $11,373,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $35,337,000 and $23,454,000, respectively, in selling commissions to our former dealer manager. Such selling commissions are charged to stockholders’ equity as such amounts were reimbursed to our former dealer manager from the gross proceeds of our initial offering.

Marketing Support Fees and Due Diligence Expense Reimbursements

     Our former dealer manager received non-accountable marketing support fees of up to 2.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager re-allowed a portion up to 1.5% of the gross offering proceeds for non-accountable marketing fees to participating broker-dealers. In addition, we reimbursed our former dealer manager or its affiliates an additional 0.5% of the gross offering proceeds to participating broker-dealers for accountable bona fide due diligence expenses. For the three months ended September 30, 2009 and 2008, we incurred $2,757,000 and $4,128,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $12,786,000 and $8,533,000, respectively, in marketing support fees and due diligence expense reimbursements to our former dealer manager. Such fees and reimbursements are charged to stockholders’ equity as such amounts are reimbursed to our former dealer manager or its affiliates from the gross proceeds of our initial offering.

Other Organizational and Offering Expenses

     Our other organizational and offering expenses have been paid by our former advisor or Grubb & Ellis Realty Investors on our behalf. Our former advisor was reimbursed for actual expenses incurred up to 1.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended September 30, 2009 and 2008, we incurred $290,000 and $1,749,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $2,557,000 and $4,377,000, respectively, in offering expenses to our former advisor and its affiliates. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity as such amounts are reimbursed to our former advisor or its affiliates from the gross proceeds of our initial offering.

Acquisition and Development Stage

Acquisition Fee

     For the period from September 20, 2006 through October 24, 2008, our former advisor or its affiliates received, as compensation for services rendered in connection with the investigation, selection and acquisition of properties, an acquisition fee of up to 3.0% of the contract purchase price for each property acquired or up to 4.0% of the total development cost of any development property acquired, as applicable.

     In connection with the Advisory Agreement, the acquisition fee payable to our former advisor or its affiliate for services rendered in connection with the investigation, selection and acquisition of our properties was reduced from up to 3.0% to an amount determined as follows:

•

for the first $375,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.5% of the contract purchase price of each such property;

•

for the second $375,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.0% of the contract purchase price of each such property, which amount is subject to downward adjustment, but not below 1.5%, based on reasonable projections regarding the anticipated amount of net proceeds to be received in our initial offering; and

•

for above $750,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.25% of the contract purchase price of each such property.

     The Advisory Agreement also provides that we will pay an acquisition fee in connection with the acquisition of real estate related assets in an amount equal to 1.5% of the amount funded to acquire or originate each such real estate related asset.

     Our former advisor or its affiliate may be entitled to receive these acquisition fees for properties and other real estate related assets acquired with funds raised in our initial offering, including acquisitions completed after the termination of the Advisory Agreement, as compensation for services rendered, subject to certain conditions.

     For the three months ended September 30, 2009 and 2008, we incurred $4,071,000 and $3,083,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $6,008,000 and $14,543,000, respectively, in acquisition fees to our former advisor and its affiliates. Acquisition fees are included in general and administrative expenses for the three and nine months ended September 30, 2009. Acquisition fees are capitalized as part of the purchase price allocations for the three and nine months ended September 30, 2008.

Reimbursement of Acquisition Expenses

     Our former advisor or its affiliates are reimbursed for acquisition expenses related to selecting, evaluating, acquiring and investing in properties. Acquisition expenses, excluding amounts paid to third parties, will not exceed 0.5% of the purchase price of the properties. The reimbursement of acquisition fees and expenses, including real estate commissions paid to unaffiliated parties, will not exceed, in the aggregate, 6.0% of the purchase price or total development costs, unless fees in excess of such limits are approved by a majority of our disinterested independent directors. For the three months ended September 30, 2009 and 2008, we incurred $0 and $3,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $0 and $11,000, respectively, for such expenses to our former advisor and its affiliates, excluding amounts our former advisor and its affiliates paid directly to third parties. Acquisition expenses are included in general and administrative expenses for the three and nine months ended September 30, 2009. Acquisition expenses are capitalized as part of the purchase price allocations for the three and nine months ended September 30, 2008.

Operational Stage

Asset Management Fee

     For the period from September 20, 2006 through October 24, 2008, our former advisor or its affiliates were paid a monthly fee for services rendered in connection with the management of our assets in an amount equal to one-twelfth of 1.0% of the average invested assets calculated as of the close of business on the last day of each month, subject to our stockholders receiving annualized distributions in an amount equal to at least 5.0% per annum on average invested capital. The asset management fee was calculated and payable monthly in cash or shares of our common stock at the option of our former advisor or one of its affiliates.

     In connection with the Advisory Agreement, the monthly asset management fee we pay to our former advisor in connection with the management of our assets was reduced from one-twelfth of 1.0% of our average invested assets to one-twelfth of 0.5% of our average invested assets. For the three months ended September 30, 2009 and 2008, we incurred $1,196,000 through September 20, 2009 and $2,090,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $3,783,000 through September 20, 2009 and $4,712,000, respectively, in asset management fees to our former advisor and its affiliates, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

Property Management Fee

     Our former advisor or its affiliates were paid a monthly property management fee equal to 4.0% of the gross cash receipts through August 31, 2009 from each property managed. For properties managed by other third parties besides our former advisor or its affiliates, our former advisor or its affiliates were paid up to 1.0% of the gross cash receipts from the property for a monthly oversight fee. For the three months ended September 30, 2009 and 2008, we incurred $507,000 and $758,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $2,289,000 and $1,597,000, respectively, in property management fees and oversight fees to our former advisor and its affiliates, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

Lease Fee

     Our former advisor or its affiliates, as the property manager, has received a separate fee for leasing activities in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties, as determined by a survey of brokers and agents in such area ranging between 3.0% and 8.0% of gross revenues generated from the initial term of the lease. For the three months ended September 30, 2009 and 2008, we incurred $496,000 and $247,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $1,173,000 and $823,000, respectively, to Realty and its affiliates in lease fees which is capitalized and included in other assets, net, in our accompanying condensed consolidated balance sheets.

     On July 2, 2009, we provided notice, on behalf of each of our subsidiaries to Realty, pursuant to each management agreement that each of our subsidiaries elected to terminate its management agreement with Realty and proceed with a property management transition program under which Realty would cease to serve as the property manager effective as of September 1, 2009. We also provided notice to Realty of the election by our subsidiaries to have Realty terminate all sub-management agreements effective as of September 1, 2009, except for certain agreements to be assigned to the applicable subsidiaries, with such terminations being done under our direction.

On-site Personnel and Engineering Payroll

     For the three months ended September 30, 2009 and 2008, Grubb & Ellis Realty Investors incurred payroll for on-site personnel and engineering on our behalf of $509,000 and $250,000, respectively, and for the nine months ended September 30, 2009 and 2008, Grubb & Ellis Realty Investors incurred $1,865,000 and $587,000, respectively, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

Operating Expenses

     We reimbursed our former advisor or its affiliates for operating expenses incurred in rendering its services to us, subject to certain limitations on our operating expenses. We cannot reimburse our former advisor or affiliates for operating expenses that exceed the greater of: (1) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (2) 25.0% of our net income, as defined in the Advisory Agreement, unless a majority of our independent directors determines that such excess expenses were justified based on unusual and non-recurring factors. For the 12 months ended September 30, 2009, our operating expenses did not exceed this limitation. Our operating expenses as a percentage of average invested assets and as a percentage of net income were 1.6% and 96.1%, respectively, for the 12 months ended September 30, 2009.

     For the three months ended September 30, 2009 and 2008, Grubb & Ellis Realty Investors incurred on our behalf $4,000 and $48,000, respectively, and for the nine months ended September 30, 2009 and 2008, Grubb & Ellis Realty Investors incurred on our behalf $35,000 and $230,000, respectively, in operating expenses which is included in general and administrative in our accompanying condensed consolidated statements of operations

Related Party Services Agreement

     We entered into a services agreement, effective January 1, 2008, with Grubb & Ellis Realty Investors for subscription agreement processing and investor services. The services agreement had an initial one year term and was subject to successive one year renewals. Since Grubb & Ellis Realty Investors is the managing member of our former advisor, the terms of this agreement were approved and determined by a majority of our directors, including a majority of our independent directors, as fair and reasonable to us and at fees charged to us in an amount no greater than the cost to Grubb & Ellis Realty Investors for providing such services to us, which amount shall be no greater than that which would be paid to an unaffiliated third party for similar services. On March 17, 2009, Grubb & Ellis

Realty Investors provided notice of its termination of the services agreement. The termination was to be effective September 20, 2009; however as part of our transition to self-management, we have worked with DST Systems, Inc. to serve as our transfer agent and to provide subscription processing and investor relations services which became effective on August 10, 2009. Accordingly, the services agreement with Grubb & Ellis Realty Investors terminated on August 9, 2009.

     For the three months ended September 30, 2009 and 2008, we incurred $57,000 and $31,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $177,000 and $89,000, respectively, for investor services that Grubb & Ellis Realty Investors provided to us, which is included in general and administrative in our accompanying condensed consolidated statements of operations.

     For the three months ended September 30, 2009 and 2008, our former advisor and its affiliates incurred $23,000 and $52,000, respectively, and for the nine months ended September 30, 2009 and 2008, our former advisor and its affiliates incurred $173,000 and $111,000, respectively, in subscription agreement processing that Grubb & Ellis Realty Investors provided to us. As an other organizational and offering expense, these subscription agreement processing expenses will only become our liability to the extent other organizational and offering expenses do not exceed 1.5% of the gross proceeds of our initial offering.

Compensation for Additional Services

     Our former advisor or its affiliates were paid for services performed for us other than those required to be rendered by our former advisor or its affiliates under the Advisory Agreement. The rate of compensation for these services must be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the three months ended September 30, 2009 and 2008 we incurred $0 and $7,000, respectively, and for the nine months ended September 30, 2009 and 2008, we incurred $0 and $7,000, respectively, for tax services an affiliate provided to us.

Liquidity Stage

Disposition Fee

     Upon the expiration of our Advisory Agreement on September 20, 2009, we did not pay a disposition fee to our former advisor or its affiliates.

Subordinated Participation Interest

Subordinated Distribution upon Termination

     Upon termination or expiration of the Advisory Agreement, other than a termination by us for cause, our former advisor may be entitled to receive a distribution from our operating partnership, subject to a number of conditions, in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our operating partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our operating partnership from our inception through the termination date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. As of the expiration of our Advisory Agreement on September 20, 2009, no amounts were due based on the aforementioned formula.

     On November 14, 2008, we entered into an amendment to the partnership agreement for our operating partnership, or the Partnership Agreement Amendment. Pursuant to the terms of the Partnership Agreement Amendment, our former advisor may elect to defer its right, if applicable, to receive a subordinated distribution from our operating partnership after the termination or expiration of the Advisory Agreement. Our former advisor has provided us with evidence of its notice to us of its election to defer its right to a subordinated distribution. Our former advisor’s right to receive any deferred subordinated distribution is subject to a number of ongoing conditions. These conditions include, without limitation, that our former advisor fully and reasonably cooperate with us and our self management program during the course of our transition to self management. Various issues have arisen with respect to whether our former advisor and its affiliates have fully and reasonably cooperated with us and with our transition to self management. We have communicated our positions to our former advisor regarding these issues, which have not yet been resolved.

     The Partnership Agreement Amendment provided that after the termination or expiration of the Advisory Agreement, if there is a listing of our shares on a national securities exchange or a merger with a company that has shares listed on a national securities exchange, our former advisor may be entitled to receive a distribution from our operating partnership, subject to a number of conditions, in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of the assets of our operating partnership (determined by appraisal as of the listing date or merger date, as applicable) owned as of the termination of the Advisory

Agreement, plus any assets acquired after such termination for which our former advisor was entitled to receive an acquisition fee (as described above under Advisory Agreement — Acquisition Fee), or the Included Assets, less any indebtedness secured by the Included Assets, plus the cumulative distributions made by our operating partnership to us and the limited partners who received partnership units in connection with the acquisition of the Included Assets, from our inception through the listing date or merger date, as applicable, exceeds (2) the sum of the total amount of capital raised from stockholders and the capital value of partnership units issued in connection with the acquisition of the Included Assets through the listing date or merger date, as applicable (excluding any capital raised after the completion of our initial offering) (less amounts paid to redeem shares pursuant to our share repurchase plan), plus an annual 8.0% cumulative, non-compounded return on such invested capital and the capital value of such partnership units measured for the period from inception through the listing date or merger date, as applicable.

     In addition, the Partnership Agreement Amendment provided that after the termination or expiration of our Advisory Agreement, in the event of a liquidation or sale of all or substantially all of the assets of the operating partnership, our former advisor may be entitled to receive, subject to a number of conditions, a distribution in an amount equal to 15.0% of the net proceeds from the sale of the Included Assets, after subtracting distributions to our stockholders and the limited partners who received partnership units in connection with the acquisition of the Included Assets of (1) their initial invested capital and the capital value of such partnership units (less amounts paid to repurchase shares pursuant to our share repurchase program) through the date of the other liquidity event plus (2) an annual 8.0% cumulative, non-compounded return on such invested capital and the capital value of such partnership units measured for the period from inception through the other liquidity event date.

Accounts Payable Due to Former Affiliates, Net

     The following amounts were outstanding to former affiliates as of September 30, 2009 and December 31, 2008:

Entity		Fee		September 30, 2009				December 31, 2008
Grubb & Ellis Realty Investors		Operating Expenses		$	—			$	33,000
Grubb & Ellis Realty Investors		Offering Costs			63,000				797,000
Grubb & Ellis Realty Investors		Due Diligence			—				—
Grubb & Ellis Realty Investors		On-site Payroll and Engineering			—				207,000
Grubb & Ellis Realty Investors		Acquisition Related Expenses			—				103,000
Grubb & Ellis Securities		Selling Commissions and Marketing Support Fees			—				1,120,000
Realty		Asset and Property Management Fees			973,000				726,000
Realty		Lease Commissions			385,000				77,000
				$	1,421,000			$	3,063,000

13. Redeemable Noncontrolling Interest of Limited Partners

     As of September 30, 2009 and December 31, 2008, we owned greater than a 99.99% general partnership interest in our operating partnership. Our former advisor is a limited partner of our operating partnership and as of September 30, 2009 and December 31, 2008, owned less than a 0.01% limited partnership interest in our operating partnership. As such, less than 0.01% of the earnings of our operating partnership are allocated to redeemable noncontrolling interest of limited partners.

     As of September 30, 2009 and December 31, 2008, we owned an 80.0% interest in the JV Company that owns Chesterfield Rehabilitation Center, which was purchased on December 20, 2007. As of September 30, 2009 and December 31, 2008, the balance was comprised of the noncontrolling interest’s initial contribution, 20.0% of the earnings at Chesterfield Rehabilitation Center, and accretion of the change in the redemption value over the period from the purchase date to January 1, 2011, the earliest redemption date.

     Redeemable noncontrolling interests are accounted for in accordance with ASC 480, Distinguishing Liabilities From Equity (“ASC 480”) at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the redemption value from the purchase date to the earliest redemption date are accreted using the straight-line method. The redemption value as of September 30, 2009 and December 31, 2008 was $2,905,000. As of September 30, 2009 and December 31, 2008, redeemable noncontrolling interest of limited partners was $2,468,000 and $1,951,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.

Balance as of December 31, 2007		$	3,091,000
Net income attributable to noncontrolling interest of limited partners			157,000
Distributions			(235,000	)
Purchase price allocation adjustment			(883,000	)
Balance as of September 30, 2008		$	2,130,000
Balance as of December 31, 2008		$	1,951,000
Net income attributable to noncontrolling interest of limited partners			241,000
Distributions			(290,000	)
Adjustment to noncontrolling interests			566,000
Balance as of September 30, 2009		$	2,468,000

14. Stockholders’ Equity

Common Stock

     In April 2006, our former advisor purchased 200 shares of our common stock for total cash consideration of $2,000 and was admitted as our initial stockholder. Through September 30, 2009, we granted an aggregate of 255,000 shares of restricted common stock to our independent directors, Chief Executive Officer, Chief Accounting Officer and Executive VP — Acquisitions pursuant to the terms and conditions of our 2006 Incentive Plan and Employment Agreements described below. Through September 30, 2009, we issued 127,100,943 shares of our common stock in connection with our initial offering and 4,467,204 shares of our common stock under the DRIP, and repurchased 900,860 shares of our common stock under our share repurchase plan. As of September 30, 2009 and December 31, 2008, we had 130,857,487 and 75,465,437 shares of our common stock outstanding, respectively.

     Pursuant to our initial offering, we are offering and selling to the public up to 200,000,000 shares of our $0.01 par value common stock for $10.00 per share and up to 21,052,632 shares of our $0.01 par value common stock to be issued pursuant to the DRIP at $9.50 per share. Our charter authorizes us to issue 1,000,000,000 shares of our common stock.

Preferred Stock

     Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. As of September 30, 2009 and December 31, 2008, no shares of preferred stock were issued and outstanding.

Distribution Reinvestment Plan

     We adopted the DRIP, which allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions, subject to certain conditions. We registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in our initial offering. For the three months ended September 30, 2009 and 2008, $10,884,000 and $3,573,000, respectively, in distributions were reinvested and 1,145,699 and 376,084 shares of our common stock, respectively, were issued under the DRIP. For the nine months ended September 30, 2009 and 2008, $26,666,000 and $7,907,000, respectively, in distributions were reinvested and 2,807,028 and 832,339 shares of our common stock, respectively, were issued under the DRIP. As of September 30, 2009 and December 31, 2008, a total of $42,438,000 and $15,772,000, respectively, in distributions were reinvested and 4,467,204 and 1,660,176 shares of our common stock, respectively, were issued under the DRIP.

Share Repurchase Plan

     Our board of directors has approved a share repurchase plan. On August 24, 2006, we received SEC exemptive relief from rules restricting issuer purchases during distributions. The share repurchase plan allows for share repurchases by us upon request by stockholders when certain criteria are met by the requesting stockholders. Share repurchases will be made at the sole discretion of our board of directors. Funds for the repurchase of shares will come exclusively from the proceeds we receive from the sale of shares under the DRIP.

     Our board of directors adopted and approved certain amendments to our share repurchase plan which became effective August 25, 2008. The primary purpose of the amendments was to provide stockholders with the opportunity to have their shares of our common stock redeemed, at the sole discretion of our board of directors, during the period we are engaged in a public offering at increasing prices based upon the period of time the shares of common stock have been continuously held. Under the amended share repurchase plan, redemption prices range from $9.25 per share, or 92.5% of the price paid per share, following a one year holding period to an

amount equal to not less than 100% of the price paid per share following a four year holding period. Under the previous share repurchase plan, stockholders could only request to have their shares of our common stock redeemed at $9.00 per share during the period we are engaged in a public offering.

     For the three months ended September 30, 2009 and 2008, we repurchased 384,727 shares of our common stock, for an aggregate amount of $3,676,000, and 31,156 shares of our common stock, for $311,000, respectively. For the nine months ended September 30, 2009 and 2008, we repurchased 791,112 shares of our common stock, for an aggregate amount of $7,528,000 and 63,426 shares of our common stock, for an aggregate amount of $634,000, respectively. As of September 30, 2009 and December 31, 2008, we had repurchased 900,860 shares of our common stock, for an aggregate amount of $8,605,000, and 109,748 shares of our common stock, for an aggregate amount of $1,077,000, respectively.

2006 Incentive Plan, Employment Agreements and Independent Directors Compensation Plan

     Under the terms of the NNN Healthcare/Office REIT, Inc. 2006 Incentive Plan, or the 2006 Incentive Plan, the aggregate number of shares of our common stock subject to options, shares of restricted common stock, restricted stock units, stock purchase rights, stock appreciation rights or other awards, including those issuable under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares. On December 30, 2008, we amended the 2006 Independent Directors Compensation Plan as follows, which amendments became effective on January 1, 2009:

•

Annual Retainer. The annual retainer for independent directors was increased to $50,000.

•

Annual Retainer, Committee Chairman. The chairman of each committee of the board of directors (including the audit committee, the compensation committee, the risk management committee, the nominating and corporate governance committee and the investment committee) will receive an additional annual retainer of $7,500.

•

Meeting Fees. The meeting fee for each board of directors meeting attended in person or by telephone was increased from $1,000 to $1,500 and the meeting fee for each committee meeting attended in person or by telephone was increased from $500 to $1,000.

•

Equity Compensation. Each independent director will receive a grant of 5,000 shares of restricted common stock upon each re-election to the board of directors, rather than 2,500 shares.

     Effective July 1, 2009, we entered into employment agreements with Scott D. Peters, the Company’s Chairman, Chief Executive Officer and President, Mark Engstrom, Executive Vice President-Acquisitions, and Kellie Pruitt, Chief Accounting Officer. The employment agreement with Mr. Peters replaces his 2008 employment agreement.

     In 2006, 2007 and 2008, we granted an aggregate of 20,000, 17,500 and 12,500 shares, respectively to our independent directors. In the third quarter of 2009 we also granted an aggregate of 25,000 shares to our independent directors. Each of these restricted stock awards vested 20.0% on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant.

     On November 14, 2008, we granted Mr. Peters 40,000 shares of restricted common stock under, and pursuant to the terms and conditions of our 2006 Incentive Plan. The shares of restricted common stock will vest and become non-forfeitable in equal annual installments of 33.3% each, on the first, second and third anniversaries of the grant date. On July 1, 2009, we granted Mr. Peters 50,000 shares of fully vested stock under, and pursuant to the terms and conditions of our 2006 Incentive plan and revised employment agreement. On July 1, 2009, we also granted Mr. Peters four annual awards of 100,000 shares of restricted common stock under, and pursuant to the terms and conditions of our 2006 Incentive plan and revised employment agreement. The shares awards will vest and become non-forfeitable over approximately three years. The terms of the employment agreement allows Mr. Peters to receive cash in lieu of stock for up to 50% of the grants awarded in 2009 at the time of issuance at the common stock fair value on the grant date, which was exercised.

     In the third quarter of 2009, we granted an aggregate of 65,000 shares of restricted common stock units under, and pursuant to the terms and conditions of our 2006 Incentive plan and the employment agreement of certain key employees. The shares of restricted common stock units will vest and convert on a one-to-one basis into common stock shares in equal annual installments of 33.3% which will vest on each of the first three anniversaries of the date of grant.

     The fair value of each share of restricted common stock and restricted common stock unit was estimated at the date of grant at $10.00 per share, the per share price of shares in our initial offering, and is amortized on a straight-line basis over the vesting period. Shares of restricted common stock and restricted common stock units may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. For the three months ended September 30, 2009 and 2008, we recognized compensation expense of $544,000 and $25,000, respectively, and for the nine months ended September 30, 2009 and

2008, we recognized compensation expense of $660,000 and $88,000, respectively, related to the restricted common stock, restricted common stock units. Such compensation expense is included in general and administrative in our accompanying condensed consolidated statements of operations. Shares of restricted common stock have full voting rights and rights to dividends. Shares of restricted common stock units do not have voting rights or rights to dividends.

     A portion of the Company’s awards may be paid in cash in lieu of stock in accordance with the respective employment agreement and vesting schedule of such awards. These awards are revalued every reporting period end with the cash redemption liability reflected on our consolidated balance sheets, if material. For the nine months ended September 30, 2009, approximately 37,500 shares were settled in cash for approximately $375,000.

     As of September 30, 2009 and December 31, 2008, there was approximately $5,131,000 and $623,000, respectively, of total unrecognized compensation expense, related to nonvested shares of restricted common stock and nonvested shares of restricted common stock units. This expense is expected to be recognized over a remaining weighted average period of 2.7 years. As of September 30, 2009 and December 31, 2008, there was approximately $375,000 and $0, respectively, of total unrecognized compensation expense, related to nonvested cash awards. This expense is expected to be recognized over a remaining weighted average period of 2.7 years.

     As of September 30, 2009 and December 31, 2008, the fair value of the nonvested shares of restricted common stock and restricted common stock units was $4,820,000 and $685,000, respectively. A summary of the status of the nonvested shares of restricted common stock and restricted common stock units as of September 30, 2009 and December 31, 2008, and the changes for the nine months ended September 30, 2009, is presented below:

		Restricted				Weighted
		Common				Average Grant
		Stock/Units				Date Fair Value
Balance — December 31, 2008			68,500			$	10.00
Granted, net			465,000				—
Vested			(51,500	)			—
Forfeited			—				—
Balance — September 30, 2009			482,000			$	10.00
Expected to vest — September 30, 2009			482,000			$	10.00

15. Subordinated Participation Interest

     On November 14, 2008, we entered into an amendment to the partnership agreement for our operating partnership, or the Partnership Agreement Amendment. Pursuant to the terms of the Partnership Agreement Amendment, our former advisor may elect to defer its right, if applicable, to receive a subordinated distribution from our operating partnership after the termination or expiration of the Advisory Agreement. Our former advisor has provided us with evidence of its notice to us of its election to defer its right to a subordinated distribution. Our former advisor’s right to receive any deferred subordinated distribution is subject to a number of ongoing conditions. These conditions include, without limitation, that our former advisor fully and reasonably cooperate with us and our self management program during the course of our transition to self management. Various issues have arisen with respect to whether our former advisor and its affiliates have fully and reasonably cooperated with us and with our transition to self management. We have communicated our positions to our former advisor regarding these issues, which have not yet been resolved.

     Upon termination or expiration of the Advisory Agreement, other than a termination by us for cause, our former advisor may be entitled to receive a distribution from our operating partnership, subject to a number of conditions, in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our operating partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our operating partnership from our inception through the termination date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. As of the expiration of our Advisory Agreement on September 20, 2009, no amounts were due based on the aforementioned formula.

     The Partnership Agreement provided that after the termination or expiration of the Advisory Agreement, if there is a listing of our shares on a national securities exchange or a merger in which our stockholders received in exchange for shares of our common stock shares of a company that are tracked on a national securities exchange, our former advisor may be entitled to receive a distribution from our operating partnership in an amount equal to 15.0% of the amount, if any, by which (1) the fair market value of all of the assets of our operating partnership (determined by appraisal as of the listing date or merger date, as applicable) owned as of the termination or expiration of the Advisory Agreement, plus any assets acquired after such termination or expiration for which our former advisor was entitled to receive an acquisition fee (as described above under Note 12, Related Party Transactions), or the

Included Assets, less any indebtedness secured by the Included Assets, plus the cumulative distributions made to us by our operating partnership to us and the limited partners who received partnership units in connection with the acquisition of the Included Assets, from our inception through the listing date or merger date, as applicable, exceeds (2) the sum of the total amount of capital raised from stockholders and the capital value of partnership units issued in connection with the acquisition of the Included Assets through the listing date or merger date, as applicable, (excluding any capital raised after the completion of our initial offering less amounts paid to redeem shares of our common stock pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital and the capital value of such partnership units measured for the period from inception through the listing date or merger date, as applicable.

     In addition, the Partnership Agreement Amendment provided that after the termination or expiration of the Advisory Agreement in the event of a liquidation or sale of all or substantially all of the assets of the operating partnership, or another liquidity event, then our former advisor may be entitled to receive a distribution from our operating partnership in an amount equal to 15.0% of the net proceeds from the sale of the Included Assets, after subtracting distributions to our stockholders and the limited partners who received partnership units in connection with the acquisition of the Included Assets of: (1) their initial invested capital and the capital value of such partnership units (less amounts paid to repurchase shares pursuant to our share repurchase program) through the date of the other liquidity event plus (2) an annual 8.0% cumulative, non-compounded return on such invested capital and the capital value of such partnership units measured for the period from inception through the other liquidity event date. For the three months ended September 30, 2009 and 2008, and for the nine months ended September 30, 2009 and 2008, we have not recorded any charges to earnings related to the subordinated distribution.

16. Fair Value of Financial Instruments

     ASC 820 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement and most of the provisions were effective for our consolidated financial statements beginning January 1, 2008.

     Fair value is defined by ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:

     Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

     Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).

     Level 3 — Unobservable inputs, only used to the extent that observable inputs are not available, reflect our assumptions about the pricing of an asset or liability.

     ASC 825 requires disclosure of fair value of financial instruments in interim financial statements as well as in annual financial statements.

     We use fair value measurements to record fair value of certain assets and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value.

Financial Instruments Reported at Fair Value

Cash and Cash Equivalents

     We invest in money market funds which are classified within Level 1 of the fair value hierarchy because they are valued using unadjusted quoted market prices in active markets for identical securities. We also invest in short term maturity U.S. Treasury bills which are classified within Level 1 of the fair value hierarchy because they are valued using unadjusted quoted market prices in active markets for identical securities.

Derivative Financial Instruments

     Currently, we use interest rate swaps to manage interest rate risk associated with floating rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The fair values of 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 ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

     Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of September 30, 2009, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Assets and Liabilities at Fair Value

     The table below presents our assets and liabilities measured at fair value on a recurring basis as of September 30, 2009, aggregated by the level in the fair value hierarchy within which those measurements fall.

		Quoted Prices in
		Active Markets for
		Identical Assets				Significant Other				Significant
		and Liabilities				Observable Inputs				Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Assets
Money market funds		$	43,000			$	—			$	—			$	43,000
U.S. Treasury Bills			201,998,000				—				—				201,998,000
Total assets at fair value		$	202,041,000			$				$	—			$	202,041,000
Liabilities
Derivative financial instruments		$	—			$	(10,791,000	)		$	—			$	(10,791,000	)
Total liabilities at fair value		$	—			$	(10,791,000	)		$	—			$	(10,791,000	)

Financial Instruments Disclosed at Fair Value

     ASC 825 requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under ASC 820.

     Our accompanying consolidated balance sheets include the following financial instruments: real estate notes receivable, net, cash and cash equivalents, restricted cash, accounts and other receivables, net, accounts payable and accrued liabilities, accounts payable due to affiliates, net, mortgage loans payable, net and borrowings under the line of credit.

     We consider the carrying values of cash and cash equivalents, restricted cash, accounts and other receivables, net, and accounts payable and accrued liabilities to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. The fair value of accounts payable due to affiliates, net, is not determinable due to the related party nature.

     The fair value of the mortgage loan payable is estimated using borrowing rates available to us for mortgage loans payable with similar terms and maturities. As of September 30, 2009, the fair value of the mortgage loans payable was $446,209,000, compared to the gross value of $453,614,000. As of December 31, 2008, the fair value of the mortgage loans payable was $456,606,000, compared to the gross value of $462,542,000.

     The fair value of our notes receivable, net is estimated based on expected interest rates for notes to similar borrowers with similar terms and remaining maturities rates. As of September 30, 2009, the fair value of the note receivable was $20,022,000, compared to the carrying value of $20,000,000. As of December 31, 2008, the fair value of our notes receivable, net reasonably approximated fair value

17. Business Combinations

     For the nine months ended September 30, 2009, we completed the acquisition of three properties and three office condominiums related to an existing property in our portfolio, adding a total of approximately 1,191,000 square feet of GLA to our property portfolio. The aggregate purchase price was $240,324,000 plus closing costs of $8,560,000. See Note 3, Real Estate Investments, for a listing of the properties acquired and the dates of acquisition. Revenues and net income (loss) for the property acquisitions for the periods subsequent to the acquisition dates were $2,507,000 and $(3,134,000), respectively, for the three months ended September 30, 2009. Revenues and net income (loss) for the property acquisitions for the periods subsequent to the acquisition date were $3,896,000 and $(4,342,000), respectively, for the nine months ended September 30, 2009. Results of operations are reflected in our condensed consolidated statements of operations.

     In accordance with ASC 805, we allocated the purchase price to the fair value of the assets acquired and the liabilities assumed including allocating to the intangibles associated with the in place leases, considering the following factors: lease origination costs and tenant relationships. Certain allocations as of September 30, 2009 are subject to change based on information received within one year of the purchase date related to one or more events at the time of purchase which confirm the value of an asset acquired or a liability assumed in an acquisition of a property. As of September 30, 2009, the aggregate purchase price was allocated in the amount of $7,508,000 to land, $179,273,000 to building and improvements, $16,657,000 to tenant improvements, $21,817,000 to lease commissions, $14,220,000 to tenant relationships, $212,000 to leasehold interest in land, $662,000 to above market leases and $(25,000) to below market leases.

     Assuming the property acquisitions discussed above had occurred on January 1, 2009, for the three months ended September 30, 2009, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $33,754,000, $(8,280,000) and $(0.07), respectively, and for the nine months ended September 30, 2009, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $102,179,000, $(12,798,000) and $(0.12), respectively.

     Assuming the property acquisitions discussed above had occurred on January 1, 2008, for the three months ended September 30, 2008, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $30,015,000, $(2,379,000) and $(0.05), respectively, and for the nine months ended September 30, 2008, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $68,719,000, $(5,134,000) and $(0.15) , respectively.

     The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

18. Concentration of Credit Risk

     Financial instruments that potentially subject us to a concentration of credit risk are primarily cash and cash equivalents, restricted cash and accounts receivable from tenants. As of September 30, 2009 and December 31, 2008, we had cash and cash equivalent and restricted cash accounts in excess of Federal Deposit Insurance Corporation, or FDIC, insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants, and security deposits are obtained upon lease execution. In addition, we evaluate tenants in connection with the acquisition of a property.

     For the nine months ended September 30, 2009, we had interests in seven consolidated properties located in Texas, which accounted for 16.3% of our total rental income and interests in five consolidated properties located in Indiana, which accounted for

13.9% of our total rental income. This rental income is based on contractual base rent from leases in effect as of September 30, 2009. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.

     For the nine months ended September 30, 2008, we had interests in five consolidated properties located in Indiana which accounted for 16.9% of our total rental income and interests in six consolidated properties located in Texas which accounted for 13.3% of our total rental income. Medical Portfolio 3, located in Indiana, accounted for 12.4% of our total rental income. This rental income is based on contractual base rent from leases in effect as of September 30, 2008. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.

     For the nine months ended September 30, 2009 and 2008, respectively, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income.

19. Per Share Data

     We report earnings (loss) per share pursuant to ASC 260. In January 2009, we adopted the provisions of FSP EITF No. 03-6-1, primarily codified into ASC 260 on a prospective basis, which requires us to include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” in the computation of basic and diluted income per share pursuant to the two-class method as described in ASC 260.

     Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) by the weighted average number of shares of our common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. As of September 30, 2009 and 2008, we did not have any securities that give rise to potentially dilutive shares of our common stock.

20. Subsequent Events

     We evaluated subsequent events through the time of filing this quarterly Report on Form 10-Q on November 16, 2009. The significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the consolidated financial statements are summarized below.

     On October 23, 2009, we entered into a Purchase and Sale Agreement with Roskamp Management Company, LLC for the purchase of a 17 property portfolio in Sun City and Sun City West, Arizona. The acquisition is subject to a number of conditions. The portfolio consists of approximately 641,000 rentable square feet in the aggregate. The purchase price for the portfolio is $107,000,000.

     On October 27, 2009, we entered into a letter of intent with the owner of the Rush Medical Avenue Building located at Rush Oak Park Hospital in Oak Park, Illinois. The parties are negotiating a series of agreements, consistent with the letter of intent.

     On November 6, 2009, we entered into a Purchase and Sale Agreement with Rocky Mountain MOB, LLC for the purchase of a medical office building located in Englewood, Colorado. The acquisition is subject to a number of conditions. The medical office building consists of approximately 66,339 rentable square feet. The purchase price for the medical office building is approximately $18,600,000.

     On November 11, 2009, we entered into a Purchase and Sale Agreement with Spartanburg Investors Limited Partnership for the purchase of a medical office building located in Spartanburg, South Carolina. The closing of the acquisition is subject to a number of conditions. The medical office building consists of approximately 108,500 rentable square feet. The purchase price for the medical office building is approximately $16,250,000.

     On November 12, 2009, we entered into a Purchase and Sale Agreement with GS Associates LLLP for the purchase of a medical office building located in Baltimore, Maryland. The closing of the acquisition is subject to a number of conditions. The professional office building consists of approximately 62,000 rentable square feet. The purchase price for the medical office building is approximately $11,250,000.

     In November 2009, we entered into agreements with three life insurance companies to secure long-term mortgage notes payable for a total of $72,000,000. The mortgage notes payable have an average interest rate of 6.25% for an average term of 7.4 years and will be secured by certain assets in the Greenville Hospital System portfolio.

Status of our Initial Offering

     As of November 16, 2009, we had received and accepted subscriptions in our initial offering for approximately 119,800,000 shares of our common stock, or approximately $1,195,500,000, excluding shares of our common stock issued under the DRIP.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and its subsidiaries, including Healthcare Trust of America Holdings, LP except where the context otherwise requires.

     The following discussion should be read in conjunction with our accompanying interim consolidated financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q. Such interim consolidated financial statements and information have been prepared to reflect our financial position as of September 30, 2009 and December 31, 2008, together with our results of operations for the three and nine months ended September 30, 2009 and 2008, and cash flows for the nine months ended September 30, 2009 and 2008.

Forward-Looking Statements

     Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results may differ materially from those included in the forward-looking statements. We intend those forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to healthcare laws and laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; changes in interest rates; competition in the real estate industry; the supply and demand for operating properties in our proposed market areas; changes in accounting principles generally accepted in the United States of America, or GAAP; policies and guidelines applicable to REITs; the availability of properties to acquire; and the availability of financing. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the United States Securities and Exchange Commission, or the SEC.

Overview and Background

     Healthcare Trust of America, Inc., a Maryland corporation, was incorporated on April 20, 2006. We were initially capitalized on April 28, 2006, and therefore, we consider that our date of inception. We provide stockholders the potential for income and growth through investment in a diversified portfolio of real estate properties, focusing primarily on medical office buildings and healthcare related facilities. We have also invested to a limited extent in quality commercial office properties and other real estate related assets. However, we do not intend to invest more than 15.0% of our total assets in other real estate related assets. We focus primarily on investments that produce current income. We qualified and elected to be taxed as a REIT for federal income tax purposes and we intend to continue to be taxed as a REIT.

     We are conducting a best efforts initial public offering, or our initial offering, in which we are offering up to 200,000,000 shares of our common stock for $10.00 per share and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share, aggregating up to $2,200,000,000. The initial offering is currently scheduled to expire upon the earlier of March 19, 2010, or the date on which the maximum offering has been sold. As of September 30, 2009, we had received and accepted subscriptions in our initial offering for 127,100,943 shares of our common stock, or $1,268,416,000, excluding shares of our common stock issued under the DRIP.

     On April 6, 2009, we filed a Registration Statement on Form S-11 with the SEC with respect to a proposed follow-on public offering, or our follow-on offering, of up to 221,052,632 shares of our common stock. Our follow-on offering would include up to 200,000,000 shares of our common stock to be offered for sale at $10.00 per share and up to 21,052,632 shares of our common stock to be offered for sale pursuant to the DRIP at $9.50 per share. We have not issued any shares under this registration statement as it has not been declared effective by the SEC.

     As of October 31, 2009, we had received and accepted subscriptions in our initial offering for 129,993,535 shares of our common stock, or $1,297,082,000, excluding shares of our common stock issued under the DRIP.

     We conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership. Our internal management team manages our day-to-day operations and oversees and supervises our employees and outside service providers. We were formerly advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our former advisor, under the terms of an advisory agreement, effective as of October 24, 2008 and as amended and restated on November 13, 2008, or the Advisory Agreement, between us, our former advisor and Grubb & Ellis Realty Investors, LLC, or Realty, who is the managing member of our former advisor. The Advisory Agreement expired on September 20, 2009.

     Our former advisor engaged affiliated entities, including, but not limited to Triple Net Properties Realty, Inc., or Realty, and Grubb & Ellis Management Services, Inc., that provided various services to us, including, but not limited to, property management and leasing services. On July 28, 2009, we entered into property management and leasing agreements with the following companies, each to manage a specific geographic region: CB Richard Ellis, PM Realty Group, Hokanson Companies, The Plaza Companies, and Nath Companies. On August 31, 2009, each of our subsidiaries terminated its management agreement with Realty.

     Upon the effectiveness of our initial offering, we entered into a dealer manager agreement with Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities, pursuant to the dealer manager agreement that we would proceed with a dealer manager transition pursuant to which Grubb & Ellis Securities would cease to service as our dealer manager for our initial offering at the end of the day on August 28, 2009. Commencing August 29, 2009, Realty Capital Securities, LLC, or RCS, assumed the role of dealer manager for the remainder of the offering period pursuant to the terms of a dealer manager agreement. We entered into a services agreement on April 3, 2009 with American Realty Capital II, LLC, an affiliate of RCS, relating to the provision of certain consulting services to us as well as making available to us certain backup support services. This services agreement was amended on August 17, 2009 to delay its effective date until December 1, 2009.

     As of November 16, 2009, we had made 45 geographically diverse acquisitions for a total purchase price of $1,206,740,000 which includes 154 buildings and other real estate related assets.

Transition to Self-Management

     Our main objectives in amending the Advisory Agreement were to reduce acquisition and asset management fees, eliminate internalization fees and to set the framework for our transition to self-management. We started our transition to self-management in the fourth quarter of 2008. This transition is complete and we consider ourselves to be self-managed. We conducted a review of advisory services and dealer manager services previously provided by our former advisor and former dealer manager, to ensure that such services are consistent with applicable agreements and standards. In addition, we are actively monitoring, and are engaged in ongoing discussions with, both the former advisor and former dealer manager to resolve any issues as they arise and to ensure compliance with their transition-related obligations under applicable agreements. The Advisory Agreement expired on September 20, 2009.

     Management Team. In July 2008, Scott D. Peters assumed the positions of President and Chief Executive officer of our company on a full-time and exclusive basis. This was the first major step toward self-management. We began our transition to complete self-management in November of 2008 when we amended and restated our Advisory Agreement on November 14, 2008. We have assembled a highly qualified and experienced management team which is focused on efficiency and performance to increase stockholder value. Our internal management team includes (1) Mr. Peters, our President and Chief Executive Officer, (2) Kellie S. Pruitt, our Chief Accounting Officer, Treasurer and Secretary, (3) Mark Engstrom, our Executive Vice President — Acquisitions, (4) Christopher Balish, our Senior Vice President — Asset Management and (5) Kelly Hogan, our Controller and Assistant Secretary. We believe that our management team has the experience and expertise to efficiently and effectively operate our company.

     We have 25 employees, including 12 in our corporate and property accounting team, five in our asset management team and three on our acquisition team. We have engaged nationally recognized property management groups to perform property management services at the direction of our asset management team. In addition and where cost beneficial, we have outsourced certain administrative-related services to third party service providers. Our internal management team manages our day-to-day operations, oversees our employees and closely supervises the services provided to us by our third party service providers, who are retained on an as needed basis. All key personnel report directly to Mr. Peters.

     Governance. An integral part of our self-management program is our experienced board of directors. Our board of directors provides effective ongoing governance for our company and has spent a substantial amount of time overseeing our transition to self-management. Our governance and management framework is one of our key strengths.

     Significantly Reduced Cost. From inception through September 30, 2009, we incurred to our former advisor and its affiliates approximately $34,487,000 in acquisition fees; approximately $11,550,000 in asset management fees; approximately $5,252,000 in property management fees; and approximately $2,145,000 in leasing fees. We expect third party expenses associated with property management and third party acquisition expenses, including legal fees, due diligence fees and closing costs, to remain approximately the same as under external management. We believe that the total cost of self-management will be substantially less than the cost of external management. While our board of directors, including a majority of our independent directors, previously determined that the fees to our former advisor were fair, competitive and commercially reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties based on circumstances at that time, we now believe that by having our own employees manage our operations and retain third party providers, we will significantly reduce our cost structure.

     No Internalization Fees. Unlike many other non-listed REITs that internalize or pay to acquire various management functions and personnel, such as advisory and asset management services, from their sponsor or advisor prior to listing on a national securities exchange for substantial fees, we will not be required to pay such fees under self-management. We believe that by not paying such fees, as well as operating more cost-effectively under self-management, we will save a substantial amount of money. To the extent that our management and board of directors determine that utilizing third party service providers for certain services is more cost-effective than conducting such services internally, we will pay for these services based on negotiated terms and conditions consistent with the current marketplace for such services on an as-needed basis.

     Funding of Self-Management. We believe that the cost of self-management will be substantially less than the cost of external management. Therefore, although we incurred additional costs in 2009 related to our implementation of our self-management program, we expect the cost of self-management to be more than funded by future cost savings. Pursuant to the November 14, 2008 amendment to the Advisory Agreement, we reduced acquisition fees and asset management fees payable to our former advisor, which resulted in substantial cost savings. In addition, we anticipate that we will achieve further cost savings in the future as a result of reduced and/or eliminated acquisition fees, liquidation fees, asset management fees, internalization fees and other outside fees.

     Dedicated Management and Increased Accountability. Under self-management, our officers and employees work only for our company and are not be associated with any outside advisor or other third party service provider. Our management team, led by Mr. Peters, has direct oversight of employees, independent consultants and third party service providers on an ongoing basis. We believe that these direct reporting relationships along with our performance-based compensation programs and ongoing oversight by our management team create an environment for and will achieve increased accountability and efficiency.

     Conflicts of Interest. We believe that self-management works to remove inherent conflicts of interest that necessarily exist between an externally advised REIT and its advisor. The elimination or reduction of these inherent conflicts of interest is one of the major reasons that we elected to proceed with the self-management program.

     Our principal executive offices are located at 16427 N. Scottsdale Road, Suite 440, Scottsdale, Arizona, 85254 and the telephone number is (480) 998-3478. For investor services, please contact DST Systems, Inc. by telephone at (888) 801-0107.

Recent Developments

     On September 18, 2009, we completed our acquisition of 16 medical office buildings from Greenville Hospital System and certain of its affiliates, or GHS, in the Greenville, South Carolina area. The portfolio consists of approximately 856,000 rentable square feet, of which approximately 84.0% is leased by GHS. The purchase price for the portfolio was approximately $162,820,000.

     On October 23, 2009, we entered into a Purchase and Sale Agreement with Roskamp Management Company, LLC for the purchase of a 17 property portfolio in Sun City and Sun City West, Arizona. The acquisition is subject to a number of conditions. The portfolio consists of approximately 641,000 rentable square feet in the aggregate. The purchase price for the portfolio is $107,000,000.

     On October 27, 2009, we entered into a letter of intent with the owner of the Rush Medical Avenue Building located at Rush Oak Park Hospital in Oak Park, Illinois. The parties are negotiating a series of agreements, consistent with the letter of intent.

     On November 6, 2009, we entered into a Purchase and Sale Agreement with Rocky Mountain MOB, LLC for the purchase of a medical office building located in Englewood, Colorado. The acquisition is subject to a number of conditions. The medical office building consists of approximately 66,339 rentable square feet. The purchase price for the medical office building is approximately $18,600,000.

     On November 11, 2009, we entered into a Purchase and Sale Agreement with Spartanburg Investors Limited Partnership for the purchase of a medical office building located in Spartanburg, South Carolina. The closing of the acquisition is subject to a number of conditions. The medical office building consists of approximately 108,500 rentable square feet. The purchase price for the medical office building is approximately $16,250,000.

     On November 12, 2009, we entered into a Purchase and Sale Agreement with GS Associates LLLP for the purchase of a medical office building located in Baltimore, Maryland. The closing of the acquisition is subject to a number of conditions. The professional office building consists of approximately 62,000 rentable square feet. The purchase price for the medical office building is approximately $11,250,000.

     In November 2009, we entered into agreements with three life insurance companies to secure long-term mortgage notes payable for a total of $72,000,000. The mortgage notes payable have an average interest rate of 6.25% for an average term of 7.4 years and will be secured by certain assets in the Greenville Hospital System portfolio.

     As of November 16, 2009, we had made 45 geographically diverse acquisitions comprising 6,341,000 square feet of gross leasable area, or GLA, which includes 154 buildings and one real estate related asset, for an aggregate purchase price of $1,206,740,000.

Critical Accounting Policies

     The complete listing of our Critical Accounting Policies was previously disclosed in our 2008 Annual Report on Form 10-K, as filed with the SEC on March 27, 2009, and there have been no material changes to our Critical Accounting Policies as disclosed therein.

Interim Unaudited Financial Data

     Our accompanying interim consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying interim consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying interim consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable. Our accompanying interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2008 Annual Report on Form 10-K, as filed with the SEC on March 27, 2009.

Recently Issued Accounting Pronouncements

     See Note 2, Summary of Significant Accounting Policies — Recently Issued Accounting Pronouncements, to our accompanying condensed consolidated financial statements, for a discussion of recently issued accounting pronouncements.

Acquisitions in 2009

     See Note 3, Real Estate Investments — Acquisitions in 2009, to our accompanying condensed consolidated financial statements, for a listing of the properties acquired and the dates of acquisition.

Factors Which May Influence Results of Operations

     We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of properties other than those listed in Part II, Item 1A of this report and those Risk Factors previously disclosed in our 2008 Annual Report on Form 10-K, as filed with the SEC on March 27, 2009.

Rental Income

     The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from unscheduled lease terminations at the existing rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods.

Offering Proceeds

     If we fail to continue to raise proceeds under our initial offering, we will be limited in our ability to invest in a diversified real estate portfolio which could result in increased exposure to local and regional economic downturns and the poor performance of one or more of our properties and, therefore, expose our stockholders to increased risk. In addition, some of our general and administrative expenses are fixed regardless of the size of our real estate portfolio. Therefore, depending on the amount of initial offering proceeds we raise, we would expend a larger portion of our income on operating expenses. This would reduce our profitability and, in turn, the amount of net income available for distribution to our stockholders.

34

Scheduled Lease Expirations

     As of September 30, 2009, our consolidated properties were 90.4% occupied. Over the next 12 months, for the period ending September 30, 2010 8.3% of the occupied GLA will expire. Our leasing strategy for 2009 focuses on negotiating renewals for leases scheduled to expire during the remainder of the year. If we are unable to negotiate such renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy. Of the leases expiring in 2009, we anticipate, but cannot assure, that a majority of the tenants will renew their leases for another term.

Sarbanes-Oxley Act

     The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, have increased the costs of compliance with corporate governance, reporting and disclosure practices. These costs may have a material adverse effect on our results of operations and could impact our ability to continue to pay distributions at current rates to our stockholders. Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to distribute funds to our stockholders. As part of our compliance with the Sarbanes-Oxley Act, we provided management’s assessment of our internal control over financial reporting as of December 31, 2008 and continue to comply with such regulations.

     The SEC has delayed the timing of when publicly reporting companies will begin complying with the final portion of a key provision of a 2002 corporate governance law that requires companies to report to the public about the effectiveness of their internal control over financial reporting. This extension of time will expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. This expiration date previously had been for fiscal years ending on or after December 15, 2009. As a result, we will be required to obtain auditor attestation in our fiscal year ending December 31, 2010.

     In addition, these laws, rules and regulations create new legal bases for potential administrative enforcement, civil and criminal proceedings against us in the event of non-compliance, thereby increasing the risks of liability and potential sanctions against us. We expect that our efforts to comply with these laws and regulations will continue to involve significant and potentially increasing costs, and that our failure to comply with these laws could result in fees, fines, penalties or administrative remedies against us.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2009 and 2008

     Our operating results are primarily comprised of income derived from our portfolio of properties.

     Except where otherwise noted, the change in our results of operations is due to owning 154 geographically diverse builidings and one real estate related asset as of September 30, 2009, as compared to owning 129 geographically diverse builidngs and no real estate related assets as of September 30, 2008.

Rental Income

     For the three months ended September 30, 2009, rental income was $30,886,000 as compared to $23,920,000 for the three months ended September 30, 2008. For the three months ended September 30, 2009, rental income was primarily comprised of base rent of $24,167,000 and expense recoveries of $6,720,000. For the three months ended September 30, 2008, rental income was primarily comprised of base rent of $18,316,000 and expense recoveries of $4,605,000.

     For the nine months ended September 30, 2009, rental income was $89,914,000 as compared to $53,310,000 for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, rental income was primarily comprised of base rent of $68,842,000 and expense recoveries of $21,072,000. For the nine months ended September 30, 2008, rental income was primarily comprised of base rent of $21,894,000 and expense recoveries of $5,783,000.

Rental Expenses

     For the three months ended September 30, 2009 and 2008, rental expenses were $10,494,000 and $8,700,000, respectively. For the nine months ended September 30, 2009 and 2008, rental expenses were $32,854,000 and $18,612,000, respectively. Rental expenses consisted of the following for the periods then ended:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Real estate taxes		$	3,701,000			$	2,776,000			$	11,241,000			$	6,572,000
Building maintenance			2,090,000				1,790,000				6,647,000				3,414,000
Utilities			2,204,000				2,005,000				6,445,000				3,806,000
Property management fees			734,000				758,000				2,506,000				1,597,000
Administration			776,000				486,000				2,402,000				1,314,000
Grounds maintenance			383,000				362,000				1,501,000				824,000
Non-recoverable operating expenses			345,000				306,000				1,210,000				506,000
Insurance			227,000				190,000				729,000				469,000
Other			34,000				27,000				173,000				110,000
Total rental expenses		$	10,494,000			$	8,700,000			$	32,854,000			$	18,612,000

General and Administrative

     For the three months ended September 30, 2009 and 2008, general and administrative was $11,095,000 and $2,758,000, respectively, and for the nine months ended September 30, 2009 and 2008, general and administrative was $21,955,000 and $6,801,000, respectively. General and administrative consisted of the following for the periods then ended:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Acquisition-related costs		$	5,920,000	(a)		$	—	(a)		$	9,100,000	(a)		$	—	(a)
Asset management fees			1,196,000	(b)			2,090,000	(b)			3,783,000	(b)			4,712,000	(b)
Professional and legal fees			712,000	(c)			243,000	(c)			2,410,000	(c)			757,000	(c)
Bad debt expense			169,000	(d)			129,000	(d)			1,097,000	(d)			359,000	(d)
Salaries and benefits			1,193,000	(e)			—	(e)			1,994,000	(e)			—	(e)
Directors’ fees			134,000	(f)			63,000	(f)			436,000	(f)			186,000	(f)
Directors’ and officers’ insurance premiums			124,000	(g)			58,000	(g)			371,000	(g)			174,000	(g)
Bank charges			64,000				30,000				201,000				53,000
Restricted stock compensation			544,000				25,000				660,000				88,000
Investor services			650,000	(h)			31,000	(h)			771,000	(h)			88,000	(h)
Postage			79,000				22,000				194,000				129,000
Other			310,000				67,000				938,000				255,000
		$	11,095,000			$	2,758,000			$	21,955,000			$	6,801,000