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 (State or other jurisdiction of incorporation or organization)		20-4738467 (I.R.S. Employer Identification No.)
16427 N. Scottsdale Road, Suite 440, Scottsdale, Arizona (Address of principal executive offices)		85254 (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 (Do not check if a smaller reporting company)		Smaller reporting company o

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

     As of August 11, 2010, there were 168,884,622 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 June 30, 2010 (Unaudited) and December 31, 2009 (Unaudited)		3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)		4
Condensed Consolidated Statements of Equity for the Six Months Ended June 30, 2010 and 2009 (Unaudited)		5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)		6
Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk		46
Item 4. Controls and Procedures		46
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. Reserved		49
Item 5. Other Information		49
Item 6. Exhibits		49
Signatures		50
EX-10.1
EX-10.2
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 June 30, 2010 and December 31, 2009
(Unaudited)

		June 30, 2010				December 31, 2009
ASSETS
Real estate investments, net		$	1,342,915,000			$	1,149,789,000
Real estate notes receivable, net			55,938,000				54,763,000
Cash and cash equivalents			176,886,000				219,001,000
Accounts and other receivables, net			11,259,000				10,820,000
Restricted cash and escrow deposits			33,135,000				14,065,000
Identified intangible assets, net			232,531,000				203,222,000
Other assets, net			28,850,000				21,875,000
Total assets		$	1,881,514,000			$	1,673,535,000
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans payable, net		$	598,567,000			$	540,028,000
Accounts payable and accrued liabilities			37,809,000				30,471,000
Accounts payable due to former affiliates, net			1,007,000				4,776,000
Derivative financial instruments			4,405,000				8,625,000
Security deposits, prepaid rent and other liabilities			20,578,000				7,815,000
Identified intangible liabilities, net			6,137,000				6,954,000
Total liabilities			668,503,000				598,669,000
Commitments and contingencies (Note 11)
Redeemable noncontrolling interest of limited partners (Note 13)			4,203,000				3,549,000
Stockholder’s 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; 162,869,149 and 140,590,686 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively			1,626,000				1,405,000
Additional paid-in capital			1,443,567,000				1,251,996,000
Accumulated deficit			(236,385,000	)			(182,084,000	)
Total stockholders’ equity			1,208,808,000				1,071,317,000
Total liabilities and equity		$	1,881,514,000			$	1,673,535,000

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 Six Months Ended June 30, 2010 and 2009
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2009				2010				2009
Revenues:
Rental income		$	45,679,000			$	29,838,000			$	88,793,000			$	59,028,000
Interest income from mortgage notes receivable and other income			1,649,000				640,000				4,288,000				1,266,000
Total revenues			47,328,000				30,478,000				93,081,000				60,294,000
Expenses:
Rental expenses			15,672,000				10,560,000				30,760,000				22,361,000
General and administrative			3,487,000				2,787,000				6,675,000				5,093,000
Asset management fees			—				1,318,000				—				2,587,000
Acquisition-related expenses (Note 3)			2,602,000				1,681,000				5,826,000				3,180,000
Depreciation and amortization			18,602,000				12,645,000				35,913,000				25,944,000
Total expenses			40,363,000				28,991,000				79,174,000				59,165,000
Income before other income (expense)			6,965,000				1,487,000				13,907,000				1,129,000
Other income (expense):
Interest expense (including amortization of deferred financing costs and debt discount):
Interest expense related to mortgage loan payables and credit facility			(8,849,000	)			(7,428,000	)			(17,991,000	)			(14,928,000	)
Gain on derivative financial instruments			2,095,000				2,362,000				3,797,000				3,292,000
Interest and dividend income			34,000				44,000				50,000				172,000
Net income (loss)			245,000				(3,535,000	)			(237,000	)			(10,335,000	)
Less: Net income attributable to noncontrolling interest of limited partners			(1,000	)			(102,000	)			(65,000	)			(172,000	)
Net income (loss) attributable to controlling interest		$	244,000			$	(3,637,000	)		$	(302,000	)		$	(10,507,000	)
Net income (loss) per share attributable to controlling interest on distributed and undistributed earnings — basic and diluted		$	0.00			$	(0.03	)		$	(0.00	)		$	(0.11	)
Weighted average number of shares outstanding -
Basic			154,594,418				106,265,880				149,990,622				95,530,594
Diluted			154,815,137				106,265,880				149,990,622				95,530,594

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 Six Months Ended June 30, 2010 and 2009
(Unaudited)

		Stockholders’ Equity
		Common Stock
		Number of								Additional				Accumulated				Total
		Shares				Amount				Paid-In Capital				Deficit				Equity
BALANCE — December 31, 2008			75,465,437			$	755,000			$	673,351,000			$	(74,786,000	)		$	599,320,000
Issuance of common stock			39,994,229				400,000				399,244,000				—				399,644,000
Offering costs			—				—				(39,989,000	)			—				(39,989,000	)
Amortization of nonvested common stock compensation			—				—				117,000				—				117,000
Issuance of common stock under the DRIP			1,661,329				16,000				15,766,000				—				15,782,000
Repurchase of common stock			(406,385	)			(4,000	)			(3,848,000	)			—				(3,852,000	)
Distributions			—				—				—				(34,724,000	)			(34,724,000	)
Adjustment to redeemable noncontrolling interests			—				—				(344,000	)			—				(344,000	)
Net loss attributable to controlling interest			—				—				—				(10,507,000	)			(10,507,000	)
BALANCE — June 30, 2009			116,714,610			$	1,167,000			$	1,044,297,000			$	(120,017,000	)		$	925,447,000
BALANCE — December 31, 2009			140,590,686			$	1,405,000			$	1,251,996,000			$	(182,084,000	)		$	1,071,317,000
Issuance of common stock			21,404,471				212,000				206,617,000				—				206,829,000
Offering costs			—				—				(23,784,000	)			—				(23,784,000	)
Issuance of nonvested restricted common stock, net			150,000				2,000				1,498,000				—				1,500,000
Amortization of nonvested share based compensation			—				—				365,000				—				365,000
Issuance of common stock under the DRIP			2,743,824				27,000				26,039,000				—				26,066,000
Repurchase of common stock			(2,019,832	)			(20,000	)			(19,138,000	)			—				(19,158,000	)
Distributions			—				—				—				(54,300,000	)			(54,300,000	)
Adjustment to redeemable noncontrolling interests			—				—				(26,000	)			301,000				275,000
Net loss attributable to controlling interest			—				—				—				(302,000	)			(302,000	)
BALANCE — June 30, 2010			162,869,149			$	1,626,000			$	1,443,567,000			$	(236,385,000	)		$	1,208,808,000

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

Healthcare Trust of America, Inc.

		Six Months Ended June 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(237,000	)		$	(10,335,000	)
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)			32,554,000				24,111,000
Stock based compensation, net of forfeitures			365,000				117,000
Loss on property insurance settlements			—				5,000
Bad debt expense			97,000				928,000
Change in fair value of derivative financial instruments			(4,643,000	)			(3,292,000	)
Changes in operating assets and liabilities:
Accounts and other receivables, net			(1,240,000	)			(2,023,000	)
Other assets			772,000				(2,414,000	)
Accounts payable and accrued liabilities			7,947,000				7,674,000
Accounts payable due to affiliates, net			(3,769,000	)			349,000
Security deposits, prepaid rent and other liabilities			(70,000	)			(870,000	)
Net cash provided by operating activities			31,776,000				14,250,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate operating properties			(193,325,000	)			(78,988,000	)
Capital expenditures			(11,043,000	)			(4,079,000	)
Restricted cash and escrow deposits			(19,070,000	)			(710,000	)
Real Estate Deposits			(2,984,000	)			—
Proceeds from insurance settlement			—				299,000
Net cash used in investing activities			(226,422,000	)			(83,478,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on mortgage loans payable			45,875,000				1,696,000
Purchase of noncontrolling interest			(3,900,000	)			—
Payments on mortgage loans payable			(27,726,000	)			(9,642,000	)
Proceeds from issuance of common stock			209,359,000				398,887,000
Deferred financing costs			(1,383,000	)			(60,000	)
Security deposits			539,000				89,000
Repurchase of common stock			(19,158,000	)			(3,852,000	)
Payment of offering costs			(23,784,000	)			(39,101,000	)
Distributions			(27,204,000	)			(16,469,000	)
Distributions to noncontrolling interest limited partner			(87,000	)			(172,000	)
Net cash provided by financing activities			152,531,000				331,376,000
NET CHANGE IN CASH AND CASH EQUIVALENTS			(42,115,000	)			262,148,000
CASH AND CASH EQUIVALENTS — Beginning of period			219,001,000				128,331,000
CASH AND CASH EQUIVALENTS — End of period		$	176,886,000			$	390,479,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest		$	14,659,000			$	13,801,000
Income taxes		$	217,000			$	44,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Investing Activities:
Accrued capital expenditures		$	4,452,000			$	2,211,000
The following represents the significant increase in certain assets and liabilities in connection with our acquisitions of operating properties:
Mortgage loans payable, net		$	(40,067,000	)		$	—
Security deposits, prepaid rent and other liabilities		$	12,227,000			$	589,000
Issuance of operating partnership units in connection with Fannin acquisition		$	1,557,000			$	—
Financing Activities:
Issuance of common stock under the DRIP		$	26,066,000			$	15,782,000
Distributions declared but not paid including stock issued under the DRIP		$	9,585,000			$	6,864,000
Accrued offering costs		$	826,000			$	2,806,000
Adjustment to redeemable noncontrolling interests		$	(275,000	)		$	344,000

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

As of and for the Three and Six Months Ended June 30, 2010 and 2009

     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., a Maryland corporation, was incorporated on April 20, 2006. We were initially capitalized on April 28, 2006 and consider that our date of inception.

     We are a self-managed, self-advised real estate investment trust, or REIT. Accordingly, our internal management team manages our day-to-day operations and oversees and supervises our employees and outside service providers. Acquisitions and asset management services are performed in-house by our employees, with certain monitored services provided by third parties at market rates. We do not pay acquisition, disposition or asset management fees to an external advisor, and we have not and will not pay any internalization fees.

     We provide stockholders the potential for income and growth through investment in a diversified portfolio of real estate properties. We focus primarily on medical office buildings and healthcare-related facilities. We also invest to a limited extent in other real estate related assets. However, we do not presently intend to invest more than 15.0% of our total assets in such other real estate related assets. We focus primarily on investments that produce recurring income. We have 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 conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership.

     As of June 30, 2010, we had made 65 acquisitions comprising approximately 8,567,000 square feet of gross leasable area, or GLA, which includes 200 buildings and two real estate related assets. Additionally, we purchased the remaining 20% interest in HTA-Duke Chesterfield Rehab, LLC, or the JV Company that owns the Chesterfield Rehabilitation Center, an asset in which we had originally acquired an 80% interest in December 2007. The aggregate purchase price of these acquisitions was $1,712,420,000. As of June 30, 2010, the average occupancy of these properties was over 91%.

     On September 20, 2006, we commenced a best efforts initial public offering, or our initial offering, in which we offered 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. As of March 19, 2010, the date upon which our initial offering terminated, we had received and accepted subscriptions in our initial offering for 147,562,354 shares of our common stock, or $1,474,062,000, excluding shares of our common stock issued under the DRIP.

     On March 19, 2010, we commenced a best efforts public offering, or our follow-on offering, in which we are offering up to 200,000,000 shares of our common stock for $10.00 per share in our primary offering and up to 21,052,632 shares of our common stock offered for sale pursuant to the DRIP at $9.50 per share, aggregating up to $2,200,000,000. As of June 30, 2010, we have received and accepted subscriptions in our follow-on offering for 10,811,513 shares of our common stock, or $108,066,000, excluding shares of our common stock issued under the DRIP.

     Realty Capital Securities, LLC, or RCS, an unaffiliated third party, serves as the dealer manager for our follow-on offering. RCS is registered with the Securities and Exchange Commission, or the SEC, and with all 50 states and is a member of the Financial Industry Regulatory Authority, or FINRA. RCS offers our shares of common stock for sale through a network of broker-dealers and their licensed registered representatives.

2. Summary of Significant Accounting Policies

     The summary of significant accounting policies presented below is designed to assist in understanding our interim condensed consolidated financial statements. Such interim condensed 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 condensed consolidated financial statements.

Basis of Presentation

     Our accompanying interim condensed 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, or VIEs, as defined in the Financial Accounting Standards Board, or the FASB, Accounting Standard Codification, or ASC, 810, Consolidation, or ASC 810. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. We operate in an umbrella partnership REIT, or UPREIT, 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 June 30, 2010 and December 31, 2009, we owned an approximately 99.89% and an approximately 99.99%, respectively, general partner interest in our operating partnership. Grubb & Ellis Healthcare REIT Advisor, LLC, or our former advisor, is a limited partner of our operating partnership and as of June 30, 2010 and December 31, 2009, owned an approximately 0.01% limited partner interest in our operating partnership. Additionally, as of June 30, 2010, approximately 0.10% of our operating partnership is owned by certain physician investors pursuant to the Fannin acquisition (see Note 13).

     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.

     Certain amounts presented in the interim condensed consolidated statements of operations for the three and six months ended June 30, 2009 have been reclassified to conform to the presentation for the three and six months ended June 30 2010. In our previously issued statement of operations for the three months ended June 30, 2009, asset management fees of $1,318,000 and acquisition-related expenses of $1,681,000 were included within general and administrative expenses of $5,786,000. For the six months ended June 30, 2009, asset management fees of $2,587,000 and acquisition-related expenses of $3,180,000 were included within general and administrative expenses of $10,860,000.

Interim Unaudited Financial Data

     Our accompanying interim condensed 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 condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying interim condensed 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 condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 16, 2010 (or the 2009 Annual Report).

Cash and Cash Equivalents

     Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased.

Segment Disclosure

     ASC 280, Segment Reporting, or ASC 280, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. 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

     Below are the recently issued accounting pronouncements and our evaluation of the impact of such pronouncements.

     Consolidation Pronouncements

     In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) codified primarily in ASC 810-10, Consolidation — Overall, or ASC 810-10, which modifies how a company determines when an entity that is a VIE should be consolidated. This guidance 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. It also requires an ongoing reassessment of whether a company is the primary beneficiary of a VIE, and it requires additional disclosures about a company’s involvement in VIEs and any significant changes in risk exposure due to that involvement. This guidance became effective for us on January 1, 2010. The adoption of ASC 810-10 did not have a material impact on our consolidated financial statements.

     Fair Value Pronouncements

     In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), or ASU 2010-06, which provides amendments to Subtopic 820-10 that require new disclosures and that clarify existing disclosures in order to increase transparency in financial reporting with regard to recurring and nonrecurring fair value measurements. ASU 2010-06 requires new disclosures with respect to the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for those transfers, as well as separate presentation about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). In addition, ASU 2010-06 provides amendments that clarify existing disclosures, requiring a reporting entity to provide fair value measurement disclosures for each class of assets and liabilities as well as disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. Finally, ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets. ASU 2010-06 is effective for the interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Accordingly, ASU 2010-06 became effective for us on January 1, 2010 (except for the Level 3 activity disclosures, which will become effective for us on January 1, 2011). The adoption of ASU 2010-06 has not had a material impact on our consolidated financial statements.

     Equity Pronouncements

     In January 2010, the FASB issued Accounting Standards Update 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, or ASU 2010-01, the objective of which was to address the diversity in practice related to the accounting for a distribution to shareholders that offers them the ability to elect to receive their entire distribution in cash or shares of equivalent value with a potential limitation on the total amount of cash that shareholders can elect to receive in the aggregate. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share (EPS) prospectively. ASU 2010-01 became effective for us January 1, 2010. The adoption of ASU 2010-01 did not have a material impact on our consolidated financial statements.

     Credit Risk Pronouncements

     In July 2010, the FASB issued Accounting Standards Update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, or ASU 2010-20, which requires disclosures about the nature of the credit risk in an entity’s financing receivables, how that risk is incorporated into the allowance for credit losses, and the reasons for any changes in the allowance. Disclosure is required to be disaggregated, primarily at the level at which an entity calculates its allowance for credit losses. The specific required disclosures are a rollforward schedule of the allowance for credit losses for the reporting period, the related investment in financing receivables, the nonaccrual status of financing receivables, impaired financing receivables, credit quality indicators, the aging of past due financing receivables, any troubled debt restructurings and their effect on the allowance for credit losses, the extent of any financing receivables modified by troubled debt restructuring that have defaulted and their impact on the allowance for credit losses, and significant sales or purchases of financing receivables. The ASU 2010-20 disclosure requirements pertain to our mortgage notes receivables and are effective for interim and annual reporting periods ending on or after December 15, 2010.

3. Real Estate Investments

     Our investments in our consolidated properties consisted of the following as of June 30, 2010 and December 31, 2009:

		June 30, 2010				December 31, 2009
Land		$	135,371,000			$	122,972,000
Building and improvements			1,286,661,000				1,083,496,000
Furniture and equipment			10,000				10,000
			1,422,042,000				1,206,478,000
Less: accumulated depreciation			(79,127,000	)			(56,689,000	)
		$	1,342,915,000			$	1,149,789,000

     Depreciation expense for the three months ended June 30, 2010 and 2009 was $11,721,000 and $7,683,000, respectively, and depreciation expense for the six months ended June 30, 2010 and 2009 was $22,434,000 and $15,211,000, respectively.

     During the six months ended June 30, 2010, we completed 12 new acquisitions as well as purchased two additional medical office buildings within existing portfolios. Additionally, we purchased the remaining 20.0% interest in HTA-Duke Chesterfield, Rehab, LLC, the JV Company that owns Chesterfield Rehabilitation Center. Our original 80.0% interest was acquired on December 20, 2007. The aggregate purchase price of the properties and joint venture interest was $252,109,000. Acquisitions completed during the six months ended June 30, 2010 are set forth below:

																Mortgage
				Date				Ownership				Purchase				Loan
Property		Property Location		Acquired				Percentage				Price				Payables(1)
Camp Creek		Atlanta, GA			3/2/10				100	%		$	19,550,000			$	—
King Street		Jacksonville, FL			3/9/10				100				10,775,000				6,602,000
Sugarland		Houston, TX			3/23/10				100				12,400,000				—
Deaconess		Evansville, IN			3/23/10				100				45,257,000				—
Chesterfield Rehabilitation Center(2)		Chesterfield, MO			3/24/10				100				3,900,000				—
Pearland — Cullen		Pearland, TX			3/31/10				100				6,775,000				—
Hilton Head — Heritage		Hilton Head, SC			3/31/10				100				8,058,000				—
Triad Technology Center		Baltimore, MD			3/31/10				100				29,250,000				—
Mt. Pleasant (E. Cooper)		Mount Pleasant, SC			3/31/10				100				9,925,000				—
Federal North		Pittsburgh, PA			4/29/10				100				40,472,000				—
Balfour Concord Portfolio		Lewisville, TX			6/25/10				100				4,800,000				—
Cannon Park Place		Charleston, SC			6/28/10				100				10,446,000				—
7900 Fannin(3)		Houston, TX			6/30/10				84				38,100,000				22,687,000
Balfour Concord Portfolio (4)		Denton, TX			6/30/10				100				8,700,000				4,657,000
Pearland—Broadway (4)		Pearland, TX			6/30/10				100				3,701,000				2,381,000
Total												$	252,109,000			$	36,327,000

4. Real Estate Notes Receivable, Net

     Real estate notes receivable, net consisted of the following as of June 30, 2010 and December 31, 2009:

Property Name
Location of Property		Property Type		Interest Rate				Maturity Date				June 30, 2010				December 31, 2009
MacNeal Hospital Medical Office Building Berwyn, Illinois		Medical Office Building			5.95	%(1)		11/01/11				$	7,500,000			$	7,500,000
MacNeal Hospital Medical Office Building Berwyn, Illinois		Medical Office Building			5.95	(1)		11/01/11					7,500,000				7,500,000
St. Luke’s Medical Office Building Phoenix, Arizona		Medical Office Building			5.85	(2)		11/01/11					3,750,000				3,750,000
St. Luke’s Medical Office Building Phoenix, Arizona		Medical Office Building			5.85	(2)		11/01/11					1,250,000				1,250,000
Rush Presbyterian Medical Office Building Oak Park, Illinois(3)		Medical Office Building			7.76	(4)		12/01/14					41,169,000				41,150,000
Total real estate note receivable													61,169,000				61,150,000
Add: Note receivable closing costs, net													660,000				788,000
Less: discount, net													(5,891,000	)			(7,175,000	)
Real estate notes receivable, net												$	55,938,000			$	54,763,000

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

5. Identified Intangible Assets, Net

     Identified intangible assets consisted of the following as of June 30, 2010 and December 31, 2009:

		June 30, 2010				December 31, 2009
In place leases, net of accumulated amortization of $33,885,000 and $25,452,000 as of June 30, 2010 and December 31, 2009, respectively (with a weighted average remaining life of 96 months and 95 months as of June 30, 2010 and December 31, 2009, respectively)		$	92,371,000			$	80,577,000
Above market leases, net of accumulated amortization of $4,552,000 and $3,233,000 as of June 30, 2010 and December 31, 2009, respectively (with a weighted average remaining life of 86 months and 87 months as of June 30, 2010 and December 31, 2009, respectively)			15,650,000				11,831,000
Tenant relationships, net of accumulated amortization of $18,336,000 and $13,598,000 as of June 30, 2010 and December 31, 2009, respectively (with a weighted average remaining life of 157 months and 150 months as of June 30, 2010 and December 31, 2009, respectively)			103,235,000				89,610,000
Leasehold interests, net of accumulated amortization of $250,000 and $103,000 as of June 30, 2010 and December 31, 2009, respectively (with a weighted average remaining life of 861 months and 899 months as of June 30, 2010 and December 31, 2009, respectively)			21,275,000				21,204,000
		$	232,531,000			$	203,222,000

     Amortization expense recorded on the identified intangible assets for the three months ended June 30, 2010 and 2009 was $7,503,000 and $5,387,000, respectively, which included $718,000 and $478,000, respectively, of amortization recorded against rental income for above market leases and $70,000 and $14,000, respectively, of amortization charged to rental expenses for leasehold interests in our accompanying interim condensed consolidated statements of operations. Amortization expense recorded on the identified intangible assets for the six months ended June 30, 2010 and 2009 was $14,632,000 and $11,603,000, respectively, which included $1,319,000 and $962,000, respectively, of amortization recorded against rental income for above market leases and $147,000 and $27,000, 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 June 30, 2010 and December 31, 2009:

		June 30, 2010				December 31, 2009
Deferred financing costs, net of accumulated amortization of $4,281,000 and $3,346,000 as of June 30, 2010 and December 31, 2009, respectively		$	3,179,000			$	3,281,000
Lease commissions, net of accumulated amortization of $741,000 and $427,000 as of June 30, 2010 and December 31, 2009, respectively			3,885,000				3,061,000
Lease inducements, net of accumulated amortization of $407,000 and $280,000 as of June 30, 2010 and December 31, 2009, respectively			1,405,000				1,215,000
Deferred rent receivable			13,858,000				9,380,000
Prepaid expenses, deposits and other			6,523,000				4,938,000
		$	28,850,000			$	21,875,000

     Amortization and depreciation expense recorded on deferred financing costs, lease commissions, lease inducements and other assets for the three months ended June 30, 2010 and 2009 was $587,000 and $558,000, respectively, of which $462,000 and $468,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $(41,000) and $25,000, 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 six months ended June 30, 2010 and 2009 was $1,384,000 and $1,100,000, respectively, of which $943,000 and $933,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $128,000 and $49,000, 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 were $596,937,000 ($598,567,000, including premium) and $542,462,000 ($540,028,000, net of discount) as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.70% to 12.75% per annum and a weighted average effective interest rate of 4.32% per annum. As of June 30, 2010, we had $290,733,000 ($292,363,000, including premium) of fixed rate debt, or 48.7% of mortgage loans payable, at a weighted average interest rate of 6.15% per annum, and $306,204,000 of variable rate debt, or 51.3% of mortgage loans payable, at a weighted average interest rate of 2.58% per annum. As of December 31, 2009, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.58% to 12.75% per annum and a weighted average effective interest rate of 3.94% per annum. As of December 31, 2009, we had $209,858,000 ($207,424,000 net of discount) of fixed rate debt, or 38.7% of mortgage loans payable, at a weighted average interest rate of 5.99% per annum, and $332,604,000 of variable rate debt, or 61.3% of mortgage loans payable, at a weighted average interest rate of 2.65% per annum. All of our mortgage loans payable were collateralized by our investment properties at June 30, 2010 and December 31, 2009.

     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 of December 31, 2009, we were in compliance with all such covenants and requirements on $457,262,000 of our mortgage loans payable and were making appropriate adjustments to comply with such covenants on $85,200,000 of our mortgage loans payable by depositing $22,676,000 into a restricted collateral account. As of June 30, 2010, we believe that we were in compliance with all such covenants and requirements on $503,837,000 of our mortgage loans payable. The $22,676,000 deposited within the restricted collateral account remains in that restricted account as of June 30, 2010, and we are currently working with lenders in order to comply with certain covenants on the remaining $93,100,000 balance of our mortgage loans payable.

     Mortgage loans payable consisted of the following as of June 30, 2010 and December 31, 2009:

		Interest				Maturity
Property		Rate				Date				June 30, 2010 (a)				December 31, 2009 (b)
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				9,741,000				9,809,000
Yorktown Medical Center and Shakerag Medical Center			5.52				05/11/17				13,517,000				13,530,000
Thunderbird Medical Plaza			5.67				06/11/17				13,829,000				13,917,000
Gwinnett Professional Center			5.88				01/01/14				5,467,000				5,509,000
Northmeadow Medical Center			5.99				12/01/14				7,627,000				7,706,000
Medical Portfolio 2			5.91				07/01/13				14,123,000				14,222,000
Renaissance Medical Centre			5.38				09/01/15				18,600,000				18,767,000
Renaissance Medical Centre			12.75				09/01/15				1,241,000				1,242,000
Medical Portfolio 4			5.50				06/01/19				6,506,000				6,586,000
Medical Portfolio 4			6.18				06/01/19				1,665,000				1,684,000
Marietta Health Park			5.11				11/01/15				7,200,000				7,200,000
Hampden Place			5.98				01/01/12				8,650,000				8,785,000
Greenville — Patewood			6.18				01/01/16				35,825,000				36,000,000
Greenville — Greer			6.00				02/01/17				8,466,000				—
Greenville — Memorial			6.00				02/01/17				4,482,000				—
Greenville — MMC			6.25				06/01/20				22,875,000				—
Sun City-Note B			6.54				09/01/14				14,899,000				14,997,000
Sun City-Note C			6.50				09/01/14				4,456,000				4,509,000
Sun City Note D			6.98				09/01/14				13,903,000				13,985,000
King Street			5.88				03/05/17				6,526,000				—
Wisconsin MOB II — Mequon			6.25				07/10/17				10,000,000				—
Balfour Concord — Denton			7.95				08/10/12				4,657,000				—
Pearland-Broadway			5.57				09/01/12				2,381,000				—
7900 Fannin- Note A			7.30				01/01/21				21,865,000				—
7900 Fannin- Note B			7.68				01/01/16				822,000				—
Total fixed rate debt											290,733,000				209,858,000

		Interest				Maturity
Property		Rate				Date				June 30, 2010 (a)				December 31, 2009 (b)
Variable Rate Debt:
Senior Care Portfolio 1			4.75	%(c)			03/31/10				—				24,800,000
1 and 4 Market Exchange			1.70	(c)			09/30/10				14,500,000				14,500,000
East Florida Senior Care Portfolio			1.75	(c)			10/01/10				29,218,000				29,451,000
Kokomo Medical Office Park			1.75	(c)			11/30/10				8,300,000				8,300,000
Chesterfield Rehabilitation Center			2.00	(c)			12/30/10				22,000,000				22,000,000
Park Place Office Park			1.90	(c)			12/31/10				10,943,000				10,943,000
Highlands Ranch Medical Plaza			1.90	(c)			12/31/10				8,853,000				8,853,000
Medical Portfolio 1			2.03	(c)			02/28/11				20,020,000				20,460,000
Fort Road Medical Building			2.00	(c)			03/06/11				5,800,000				5,800,000
Medical Portfolio 3			2.60	(c)			06/26/11				58,000,000				58,000,000
SouthCrest Medical Plaza			2.55	(c)			06/30/11				12,870,000				12,870,000
Wachovia Pool Loans(d)			4.65	(c)			06/30/11				49,134,000				49,696,000
Cypress Station Medical Office Building			2.10	(c)			09/01/11				7,083,000				7,131,000
Medical Portfolio 4			2.50	(c)			09/24/11				21,400,000				21,400,000
Decatur Medical Plaza			2.35	(c)			09/26/11				7,900,000				7,900,000
Mountain Empire Portfolio			2.45	(c)			09/28/11				18,645,000				18,882,000
Sun City-Sun 1			1.85	(c)			12/31/14				2,000,000				2,000,000
Sun City-Sun 2			1.85	(c)			12/31/14				9,538,000				9,618,000
Total variable rate debt											306,204,000				332,604,000
Total fixed and variable debt											596,937,000				542,462,000
Add: Premium											1,630,000				—
Less: Discount											—				(2,434,000	)
Mortgage loans payable, net										$	598,567,000			$	540,028,000

     The principal payments due on our mortgage loans payable as of June 30, 2010 for the six months ending December 31, 2010 and for each of the next four years ending December 31 and thereafter, is as follows:

Year		Amount
2010		$	96,964,000
2011			204,534,000
2012			20,135,000
2013			18,696,000
2014			47,302,000
Thereafter			209,306,000
Total		$	596,937,000

     The table above does not reflect all available extension options. Of the amounts maturing in 2010, $53,653,000 have two one-year extensions available and $29,218,000 have a one-year extension available. Of the amounts maturing in 2011, $180,832,000 have two one-year extensions available.

8. Derivative Financial Instruments

     ASC 815, Derivatives and Hedging, or ASC 815, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. We utilize derivatives such as fixed interest rate swaps and interest rate caps to add stability to interest expense and to manage our exposure to interest rate movements. In addition to these instruments, our financial statements reflect a derivative instrument related to a contractual participation interest in the potential sale of the Rush medical office building, which serves to secure a note receivable acquired by us on December 1, 2009. Consistent with ASC 815, we record derivative financial instruments on our accompanying 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 June 30, 2010 and December 31, 2009, 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 and payments/receipts on such instruments are recorded in gain on derivative financial instruments in our accompanying interim condensed consolidated statements of operations.

     During the six months ended June 30, 2010, five of our interest rate swap derivative instruments with an aggregate notional amount of $153,283,000 reached maturity.

     The following table lists the derivative financial instruments held by us as of June 30, 2010:

Notional Amount				Index		Rate				Fair Value				Instrument		Maturity
$	14,500,000			LIBOR			5.97	%		$	(202,000	)		Swap			09/28/10
	8,300,000			LIBOR			5.86				(168,000	)		Swap			11/30/10
	8,853,000			LIBOR			5.52				(183,000	)		Swap			12/31/10
	10,943,000			LIBOR			5.52				(226,000	)		Swap			12/31/10
	22,000,000			LIBOR			5.59				(417,000	)		Swap			12/30/10
	29,218,000			LIBOR			6.02				(388,000	)		Swap			10/01/10
	19,947,000			LIBOR			5.23				(412,000	)		Swap			01/31/11
	5,800,000			LIBOR			4.70				(113,000	)		Swap			03/06/11
	21,400,000			LIBOR			5.27				(704,000	)		Swap			09/23/11
	7,900,000			LIBOR			5.16				(266,000	)		Swap			09/26/11
	17,072,000			LIBOR			5.87				(1,325,000	)		Swap			09/28/13
	9,618,000			LIBOR			2.00				447,000			Cap			12/31/14
	54,000,000			N/A			N/A				1,070,000			Participation Interest			12/01/29

     The following table lists the derivative financial instruments held by us as of December 31, 2009:

Notional Amount				Index		Rate				Fair Value				Instrument		Maturity
$	14,500,000			LIBOR			5.97	%		$	(505,000	)		Swap			09/28/10
	8,300,000			LIBOR			5.86				(327,000	)		Swap			11/30/10
	8,853,000			LIBOR			5.52				(326,000	)		Swap			12/31/10
	10,943,000			LIBOR			5.52				(403,000	)		Swap			12/31/10
	22,000,000			LIBOR			5.59				(759,000	)		Swap			12/30/10
	29,101,000			LIBOR			6.02				(998,000	)		Swap			10/01/10
	22,000,000			LIBOR			5.23				(688,000	)		Swap			01/31/11
	5,800,000			LIBOR			4.70				(173,000	)		Swap			03/06/11
	7,292,000			LIBOR			4.51				(75,000	)		Swap			05/03/10
	24,800,000			LIBOR			4.85				(206,000	)		Swap			03/31/10
	50,321,000			LIBOR			5.60				(922,000	)		Swap			06/30/10
	12,870,000			LIBOR			5.65				(236,000	)		Swap			06/30/10
	58,000,000			LIBOR			5.59				(1,016,000	)		Swap			06/26/10
	21,400,000			LIBOR			5.27				(782,000	)		Swap			09/23/11
	7,900,000			LIBOR			5.16				(296,000	)		Swap			09/26/11
	17,304,000			LIBOR			5.87				(913,000	)		Swap			09/28/13
	9,618,000			LIBOR			2.00				890,000			Cap			12/31/14
	54,000,000			N/A			N/A				1,051,000			Participation Interest			12/01/29

     As of June 30, 2010 and December 31, 2009, the fair value of our derivative financial instruments was as follows:

Asset Derivatives

Liability Derivatives

June 30, 2010

December 31, 2009

June 30, 2010

December 31, 2009

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

$

4,404,000

Derivative Financial Instruments

$

8,625,000

Interest Rate Cap

Other Assets

$

447,000

Other Assets

$

890,000

Participation Interest

Other Assets

$

1,070,000

Other Assets

$

1,051,000

     For the three and six months ended June 30, 2010 and 2009, our derivative financial instruments had the following effect on our condensed consolidated statements of operations:

		Location of Gain				Amount of Gain (Loss) Recognized								Amount of Gain (Loss) Recognized
Derivatives not designated as hedging		(Loss)				Three Months Ended								Six Months Ended
instruments under:		Recognized				June 30, 2010				June 30, 2009				June 30, 2010				June 30, 2009
Interest Rate Swaps		Gain (loss) on derivative instruments				$	2,324,000			$	2,362,000			$	4,221,000			$	3,292,000
Interest Rate Cap		Gain (loss) on derivative instruments				$	(248,000	)		$	—			$	(443,000	)		$	—
Participation Interest		Gain (loss) on derivative instruments				$	19,000			$	—			$	19,000			$	—

     We have agreements with each of our interest rate swap derivative counterparties that contain a provision whereby if we default on certain of our unsecured indebtedness, then we could also be declared in default on our interest rate swap derivative obligations resulting in an acceleration of payment. In addition, we are exposed to credit risk in the event of non-performance by our derivative counterparties. We believe we mitigate our credit risk by entering into agreements with credit-worthy counterparties. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality. As of June 30, 2010 and December 31, 2009, there have been no termination events or events of default related to the interest rate swaps.

9. Revolving Credit Facility

     As of June 30, 2010, we had a loan agreement, or the Loan Agreement, in which we had a secured revolving credit facility in an aggregate maximum principal amount of $80,000,000. We did not borrow on this credit facility during 2009 or during the six months ended June 30, 2010. The actual amount of credit available under the Loan Agreement at any given time is a function of and is subject to certain loan to cost, loan to value and debt service coverage ratios contained in the Loan Agreement.

     At our option, loans under the Loan Agreement bear interest at per annum rates equal to: (1) the London Interbank Offered Rate, or LIBOR, plus a margin of 1.50%, (2) the greater of LaSalle Bank National Association’s prime rate or the Federal Funds Rate (as defined in the Loan Agreement) plus 0.50%, or (3) a combination of these rates.

     The Loan Agreement contains various affirmative and negative covenants, which are customary for facilities and transactions of this type. Such covenants include limitations on the incurrence of debt by us and our subsidiaries, which 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: (1) a minimum ratio of operating cash flow to interest expense, (2) a maximum ratio of liabilities to asset value, (3) a maximum distribution covenant and (4) 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 June 30, 2010 and December 31, 2009, we were in compliance with all such covenants and requirements. We do not intend to borrow from our existing credit facility, which terminates on September 30, 2010. We do not intend to renew this credit facility. As of June 30, 2010 and December 31, 2009, there were no borrowings under the Loan Agreement.

     Please refer to Note 19, Subsequent Events, for discussion of our proposed new credit facility.

10. Identified Intangible Liabilities, Net

     Identified intangible liabilities consisted of the following as of June 30, 2010 and December 31, 2009:

		June 30, 2010				December 31, 2009
Below market leases, net of accumulated amortization of $3,900,000 and $3,033,000 as of June 30, 2010 and December 31, 2009, respectively (with a weighted average remaining life of 98 months and 94 months as of June 30, 2010 and December 31, 2009, respectively)		$	6,137,000			$	6,954,000
		$	6,137,000			$	6,954,000

     Amortization recorded on the identified intangible liabilities for the three months ended June 30, 2010 and 2009 was $424,000 and $442,000, respectively. Amortization recorded on the identified intangible liabilities for the six months ended June 30, 2010 and 2009 was $867,000 and $943,000, respectively. Amortization on the identified intangible liabilities is recorded in 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 with our former advisor, or the Advisory Agreement. As a self-managed company, we are responsible for all of our current and future organizational and offering expenses, including those incurred in connection with our follow-on offering. These other organization and offering expenses include all expenses (other than selling commissions and dealer manager fees, which generally represent 7.0% and 3.0% of our gross offering proceeds, respectively) to be paid by us in connection with our follow-on offering.

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

      Under the Advisory Agreement with our former advisor and the Dealer Manager Agreement with our former dealer manager, an affiliate of our advisor, such parties or their affiliates were entitled to specified compensation for certain services as well as reimbursement of certain expenses. The Advisory Agreement expired on September 20, 2009. The Dealer Manager Agreement was terminated effective as of 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 of our initial offering. RCS now serves as the dealer manager for our follow-on offering. In the aggregate, for the three months ended June 30, 2010

and 2009, we incurred fees to our former advisor and its affiliates of $0 and $25,399,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred fees to our former advisor and its affiliates of $0 and $48,479,000, respectively.

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 June 30, 2010 and 2009, we incurred $0 and $14,297,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $27,693,000, 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, in our initial offering, we reimbursed our former dealer manager or its affiliates an additional 0.5% of the gross offering proceeds for accountable bona fide due diligence expenses, all or a portion of which could be re-allowed to participating broker-dealers. For the three months ended June 30, 2010 and 2009, we incurred $0 and $5,159,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $10,029,000, 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 were paid by our former advisor or its affiliates, who we generally refer to as our former advisor, 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 June 30, 2010 and 2009, we incurred $0 and $1,404,000, respectively and for the six months ended June 30, 2010 and 2009, we incurred $0 and $2,267,000, respectively, in offering expenses to our former advisor. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity as such amounts are reimbursed to our former advisor 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 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. As we moved toward self-management, we entered into an amendment to the Advisory Agreement, effective as of October 24, 2008, which reduced the acquisition fee payable to our former advisor from up to 3.0% to a lower fee 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 provided that we would 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.

      We paid our former advisor acquisition fees for properties and other real estate related assets acquired with funds raised in our initial offering by our former dealer manager for such acquisitions completed after the expiration of the Advisory Agreement. Our obligation to pay such fees effectively terminated during the year ended December 31, 2009. We are no longer required to pay such fees to our former advisor.

     For the three months ended June 30, 2010 and 2009, we incurred $0 and $1,028,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $1,937,000, respectively, in acquisition fees to our former advisor. Acquisition fees are included in acquisition-related expenses in our accompanying condensed consolidated statements of operations.

Operational Stage

Asset Management Fee

     For the period from September 20, 2006 through October 24, 2008, our former advisor was 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.

     In connection with the amendment to the Advisory Agreement, effective as of October 24, 2008, we reduced the monthly asset management fee to one-twelfth of 0.5% of our average invested assets. As part of our transition to self-management, this fee to our former advisor was eliminated in connection with the expiration of the Advisory Agreement.

     For the three months ended June 30, 2010 and 2009, we incurred $0 and $1,318,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $2,587,000, respectively, in asset management fees to our former advisor.

Property Management Fee

     Our former advisor was paid a monthly property management fee equal to 4.0% of the gross cash receipts of our properties through August 31, 2009. For properties managed by other third parties besides our former advisor, our former advisor was paid up to 1.0% of the gross cash receipts from the property as a monthly oversight fee. For the three months ended June 30, 2010 and 2009, we incurred $0 and $917,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $1,782,000, respectively, in property management fees and oversight fees to our former advisor, which is included in rental expenses in our accompanying condensed consolidated statements of operations. As part of our transition to self-management, this fee to our former advisor was eliminated in connection with the expiration of the Advisory Agreement. Under self-management, we pay property management fees to third parties at market rates.

Lease Fee

     Our former advisor, as the property manager, was paid 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 June 30, 2010 and 2009, we incurred $0 and $504,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $677,000, respectively, to Triple Net Properties Realty, Inc., or Realty and its affiliates in lease fees which are capitalized and included in other assets, net, in our accompanying condensed consolidated balance sheets.

On-site Personnel and Engineering Payroll

     For the three months ended June 30, 2010 and 2009, Grubb & Ellis Realty Investors incurred payroll for on-site personnel and engineering on our behalf of $0 and $694,000, respectively, and for the six months ended June 30, 2010 and 2009, Grubb & Ellis Realty Investors incurred $0 and $1,356,000, respectively, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

Operating Expenses

     We reimbursed our former advisor for operating expenses incurred in rendering its services to us, subject to certain limitations on our operating expenses. We did not reimburse our former advisor for operating expenses that exceeded 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 determined that such excess expenses were justified based on unusual and non-recurring factors. Our operating expenses did not exceed this limitation during the term of the Advisory Agreement.

     For the three months ended June 30, 2010 and 2009, Grubb & Ellis Realty Investors incurred on our behalf $0 and $11,000, respectively, and for the six months ended June 30, 2010 and 2009, Grubb & Ellis Realty Investors incurred on our behalf $0 and $31,000, respectively, in operating expenses which is included in general and administrative expenses 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. 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 transitioned to DST Systems, Inc., our transfer agent and provider of subscription processing and investor relations services, as of August 10, 2009. Accordingly, the services agreement with Grubb & Ellis Realty Investors terminated on August 9, 2009.

     For the three months ended June 30, 2010 and 2009, we incurred $0 and $67,000, respectively, and for the six months ended June 30, 2010 and 2009, we incurred $0 and $120,000, respectively, for investor services that Grubb & Ellis Realty Investors provided to us, which is included in general and administrative expenses in our accompanying condensed consolidated statements of operations.

     For the three months ended June 30, 2010 and 2009, our former advisor incurred $0 and $80,000, respectively, and for the six months ended June 30, 2010 and 2009, our former advisor incurred $0 and $150,000, respectively, in subscription agreement processing that Grubb & Ellis Realty Investors provided to us.

Compensation for Additional Services

     In periods preceding our transition to self-management during the third quarter of 2009, our former advisor was paid for services performed for us other than those required to be rendered by our former advisor under the Advisory Agreement. The rate of compensation for these services was required to be approved by a majority of our board of directors, including a majority of our independent directors, and could not exceed an amount that would be paid to unaffiliated third parties for similar services.

Liquidity Stage

Disposition Fee

     We paid no disposition fees to our former advisor under the terms of the Advisory Agreement. In addition, we have no obligation to pay any disposition fees to our former advisor in the future.

Subordinated Participation Interest

     Pursuant to the terms of the partnership agreement for our operating partnership, as amended on November 14, 2008, our former advisor had the right, subject to a number of ongoing conditions, to receive a subordinated distribution upon the occurrence of certain liquidity events based on the value of our assets owned at the time the Advisory Agreement was terminated plus any assets acquired after such termination for which our former advisor received an acquisition fee. For more information, see Note 12, Related Party Transactions, to our consolidated financial statements included in our 2009 Annual Report.

Accounts Payable Due to Former Affiliates, Net

     The following amounts were outstanding to former affiliates as of June 30, 2010 and December 31, 2009:

Entity		Fee		June 30, 2010				December 31, 2009
Grubb & Ellis Realty Investors		Operating expenses		$	27,000			$	27,000
Grubb & Ellis Realty Investors		Offering costs			90,000				90,000
Grubb & Ellis Realty Investors		Due diligence			15,000				15,000
Grubb & Ellis Realty Investors		On-site payroll and engineering			104,000				104,000
Grubb & Ellis Realty Investors		Acquisition related expenses			—				3,769,000
Realty		Asset and property management fees			771,000				771,000
				$	1,007,000			$	4,776,000

We have notified our former advisor that we are entitled to certain refunds in addition to other ongoing claims that we have previously communicated to our former advisor.

13. Redeemable Noncontrolling Interest of Limited Partners

     As of June 30, 2010 and December 31, 2009, we owned an approximately 99.89% and an approximately 99.99%, respectively, general partner interest in our operating partnership. Our former advisor is a limited partner of our operating partnership and as of June 30, 2010 and December 31, 2009, owned an approximately 0.01% limited partner interest in our operating partnership. Additionally, approximately 0.10% of our operating partnership is owned by individual physician investors that elected to exchange their partnership interests in the partnership that owns the 7900 Fannin medical office building for limited partner units of our operating partnership. We acquired the majority interest in the Fannin partnership on June 30, 2010. In aggregate approximately 0.11% of the earnings of our operating partnership are allocated to redeemable noncontrolling interest of limited partners.

     As of December 31, 2009, we owned an 80.0% interest in the JV Company that owns the Chesterfield Rehabilitation Center, which was originally purchased on December 20, 2007. The redeemable noncontrolling interest balance related to this arrangement at December 31, 2009 was comprised of the noncontrolling interest’s initial contribution, 20.0% of the earnings at the 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. On March 24, 2010, our subsidiary exercised its call option to buy, for $3,900,000, 100% of the interest owned by its joint venture partner, BD St. Louis, in the JV Company. As a result of the closing of the purchase on March 24, 2010, as of June 30, 2010, we own a 100% interest in the Chesterfield Rehabilitation Center, and the associated redeemable noncontrolling interest balance related to this entity was reduced to zero.

     On June 30, 2010, we completed the acquisition of the majority interest in the Fannin partnership, which owns the 7900 Fannin medical office building located in Houston, Texas on the Texas Medical Center campus. At closing, we acquired the general partner interest and the majority of the limited partner interests in the Fannin partnership. The original physician investors were provided the right to remain in the Fannin partnership, receive limited partner units in our operating partnership, and/or receive cash. Some of the original physician investors elected to remain in the Fannin partnership post-closing as limited partners.

     Redeemable noncontrolling interests are accounted for in accordance with ASC 480, Distinguishing Liabilities From Equity, or 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 December 31, 2009 was $3,549,000. As of June 30, 2010 and 2009, redeemable noncontrolling interest of limited partners was $4,203,000 and $2,295,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.

Balance as of December 31, 2008		$	1,951,000
Net income attributable to noncontrolling interest of limited partners			172,000
Distributions			(172,000	)
Purchase price allocation adjustment			344,000
Balance as of June 30, 2009		$	2,295,000
Balance as of December 31, 2009		$	3,549,000
Net income attributable to noncontrolling interest of limited partners			65,000
Distributions			(87,000	)
Valuation adjustment to noncontrolling interests			570,000
Purchase of Chesterfield 20% interest			(3,900,000	)
Addition of noncontrolling interest attributable to the Fannin acquisition			4,006,000
Balance as of June 30, 2010		$	4,203,000

     Of the $65,000 in net income attributable to noncontrolling interest shown on our June 30, 2010 condensed consolidated Statement of Operations, $64,000 reflects net income earned by the noncontrolling interest in the JV Company prior to our purchase of this noncontrolling interest on March 24, 2010. As such, there will be no additional net income attributable to the Chesterfield noncontrolling interest beyond this amount going forward in the current year. The net impact to our equity as a result of this purchase was $275,000.

     The remaining $1,000 of the total $65,000 in net income attributable to noncontrolling interest reflects income earned by our former advisor during the six months ended June 30, 2010. For the six months ended June 30, 2010, there is $0 in net income

attributable to noncontrolling interest related to our majority partnership interest purchase of the Fannin partnership, as this transaction occurred on June 30, 2010.

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 June 30, 2010, we granted an aggregate of 400,200 shares of restricted common stock to our independent directors, Chief Executive Officer, Chief Financial Officer and Executive Vice President — Acquisitions pursuant to the terms and conditions of our 2006 Incentive Plan and Employment Agreements described below. Through June 30, 2010, we issued 158,018,788 shares of our common stock in connection with our initial offering and follow-on offering and 8,463,006 shares of our common stock under the DRIP, and repurchased 3,859,591 shares of our common stock under our share repurchase plan. As of June 30, 2010 and December 31, 2009, we had 162,869,149 and 140,590,686 shares of our common stock outstanding, respectively.

     Pursuant to our follow-on 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 June 30, 2010 and December 31, 2009, no shares of preferred stock were issued and outstanding.

Distribution Reinvestment Plan

     The DRIP 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 each of our initial and follow-on offerings. For the three months ended June 30, 2010 and 2009, $13,544,000 and $8,849,000, respectively, in distributions were reinvested and 1,425,722 and 931,383 shares of our common stock, respectively, were issued under the DRIP. For the six months ended June 30, 2010 and 2009, $26,066,000 and $15,782,000, respectively, in distributions were reinvested and 2,743,824 and 1,661,329 shares of our common stock, respectively, were issued under the DRIP. As of June 30, 2010 and December 31, 2009, a total of $80,398,000 and $54,331,000, respectively, in distributions were reinvested and 8,463,006 and 5,719,182 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.

     For the three months ended June 30, 2010 and 2009, we repurchased 1,120,434 shares of our common stock, for an aggregate amount of $10,625,000, and 269,263 shares of our common stock, for $2,542,000, respectively. For the six months ended June 30, 2010 and 2009, we repurchased 2,019,832 shares of our common stock, for an aggregate amount of $19,158,000 and 406,385 shares of our common stock, for an aggregate amount of $3,852,000, respectively. As of June 30, 2010 and December 31, 2009, we had repurchased a total of 3,859,591 shares of our common stock, for an aggregate amount of $36,501,000, and 1,839,759 shares of our common stock, for an aggregate amount of $17,343,000, respectively.

2006 Incentive Plan and 2006 Independent Directors Compensation Plan

     Under the terms of our 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.

     The fair value of each share of restricted common stock and restricted common stock unit that has been granted under the plan is estimated at the date of grant at $10.00 per share, the per share price of shares in our initial offering and our follow-on 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 June 30, 2010 and 2009, we recognized compensation expense of $209,000 and $59,000, respectively, and for the six months ended June 30, 2010 and 2009, we recognized compensation expense of $365,000 and $117,000, respectively, related to the restricted common stock grants. Such compensation expense is included in general and administrative expenses 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 our 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 at the end of every reporting period with the cash redemption liability reflected on our consolidated balance sheets, if material. For the three and six months ended June 30, 2010, no shares were settled in cash.

     As of June 30, 2010 and December 31, 2009, there was approximately $3,016,000 and $1,881,000, respectively, of total unrecognized compensation expense net of estimated forfeitures, related to nonvested shares of restricted common stock. As of June 30, 2010, this expense is expected to be recognized over a remaining weighted average period of 2.4 years.

     As of June 30, 2010 and December 31, 2009, the fair value of the nonvested shares of restricted common stock and restricted common stock units was $3,117,000 and $1,677,000, respectively. A summary of the status of the nonvested shares of restricted common stock and restricted common stock units as of June 30, 2010 and December 31, 2009, and the changes for the six months ended June 30, 2010, is presented below:

		Restricted				Weighted
		Common				Average Grant
		Stock/Units				Date Fair Value
Balance — December 31, 2009			167,667			$	10.00
Granted, net			150,000				10.00
Vested			(6,000	)			10.00
Forfeited			—				—
Balance — June 30, 2010			311,667			$	10.00
Nonvested shares expected to vest — June 30, 2010			311,667			$	10.00

15. Fair Value of Financial Instruments

     ASC 820, Fair Value Measurements and Disclosures, or 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, Financial Instruments, or ASC 825, which codified Statements of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an Amendment of Statement No. 115, and No. 107, Disclosures about Fair Value of Financial Instruments, 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.

Derivative Financial Instruments

     Currently, we use interest rate swaps and interest rate caps 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 and interest rate caps 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 interest rate swap and interest rate cap 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 June 30, 2010, 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 interest rate swap and interest rate cap derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

     Also, we have recognized a derivative instrument related to the participation interest rights acquired in conjunction with the acquisition of the Rush Presbyterian Note Receivable on December 1, 2009. We have determined that this feature qualified as a derivative and bifurcated it from the value of the note receivable. Its fair value is based upon the expected variability in the property value over the next 20 years. As such, valuation of this instrument required utilization of Level 3 inputs, including estimates of the property’s potential value and their associated probabilities of occurrence, as there is no public market for this asset and thus Level 1 and Level 2 inputs are unavailable for a derivative of this nature. The valuation is based upon the expected value of the participation interest calculated using these inputs. As a result, we have determined that the valuation of our derivative instrument related to the participation rights is classified within Level 3 of the fair value hierarchy. In accordance with ASC 820, we included disclosure of the activity within the Level 3 asset, specifically with regard to purchases, sales, issuances, and settlements as of June 30, 2010.

     As of June 30, 2010, there have been no transfers of assets or liabilities between levels.

Assets and Liabilities at Fair Value

     The table below presents our assets and liabilities measured at fair value on a recurring basis as of June 30, 2010, 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
Derivative financial instruments			—				447,000				1,070,000				1,517,000
Total assets at fair value		$	43,000			$	447,000			$	1,070,000			$	1,560,000
Liabilities
Derivative financial instruments		$	—			$	(4,404,000	)		$	—			$	(4,404,000	)
Total liabilities at fair value		$	—			$	(4,404,000	)		$	—			$	(4,404,000	)

     The table below presents the activity within our fair value measurement using significant unobservable inputs (Level 3) as of June 30, 2010. As of June 30, 2010, we have recognized a $19,000 credit to earnings in relation to changes in this fair value measurement.

		Level 3
		Participation Interest
		Derivative Instrument
Balance—December 31, 2009		$	1,051,000
Total Gains or Losses in Earnings			19,000
Purchases, Issuances, & Settlements			—
Transfers in and/or out of Level 3			—
Balance—June 30, 2010		$	1,070,000

     The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 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
Derivative financial instruments		$	—			$	890,000			$	1,051,000			$	1,941,000
Total assets at fair value		$	43,000			$	890,000			$	1,051,000			$	1,984,000
Liabilities
Derivative financial instruments		$	—			$	(8,625,000	)		$	—			$	(8,625,000	)
Total liabilities at fair value		$	—			$	(8,625,000	)		$	—			$	(8,625,000	)