Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
For the fiscal year endedDecember 31, 2008
or
o
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto.
Commission file number:000-53206
GRUBB & ELLIS HEALTHCARE REIT,TRUST OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
(To be named Healthcare Trust of America, Inc.)
Maryland20-4738467
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
  
Maryland
20-4738467
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona
 
1551 N. Tustin Avenue, Suite 300, Santa Ana, California
(Address of principal executive offices)
92705
85254
(Zip Code)
Registrant’s telephone number, including area code:(714) 667-8252(480) 998-3478
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
NoneNone
Securities registered pursuant to Section 12(g) of the Act:
NoneCommon Stock, $0.01 par value per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨
Yes 
oNo þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨
Yes 
oNo þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ
No o¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.oþ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, and “smaller reporting company” inRule 12b-2 of the Exchange Act.
Large accelerated filero¨Accelerated filero¨
Non-accelerated filer
þ (Do not check if a smaller reporting company)
Smaller reporting companyo¨

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).
Yes ¨
Yes 
oNo þ
While there is no established market for the registrant’s common stock, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2008,2011, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $393,196,000,$1,624,601,000, assuming a market value of $10.00 per share which iswas the price per share in our currentrecently-completed offering.
As of March 13, 2009,23, 2012, there were 91,264,688229,502,006 shares of common stock of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held in July 2012 are incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K.



Grubb & Ellis




Healthcare REIT,Trust of America, Inc.
(A Maryland Corporation)


TABLE OF CONTENTS
  Page
PART I
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Mine Safety Disclosures54
 
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PART IV
97
 SIGNATURESEX-21.1
EX-10.68 EX-23.1
EX-21.1 EX-31.1
EX-31.1 EX-31.2
EX-31.2 EX-32.1
EX-32.1
EX-32.2

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PART I
Item 1.  Business.
The use of the words “we,” “us” or “our” refers to Grubb & Ellis Healthcare REIT,Trust of America, Inc. and its subsidiaries, including Grubb & Ellis Healthcare REITTrust of America Holdings, L.P.,LP, or our operating partnership, except where the context otherwise requires.

OUR COMPANYBUSINESS OVERVIEW
Grubb & Ellis Healthcare REIT, Inc.,We are a Maryland corporation, was incorporated on April 20, 2006. Upon or prior to the completion of our transition to self-management, we intend to change our name to Healthcare Trust of America, Inc. We were initially capitalized on April 28, 2006fully integrated, self-administered 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 may also invest in other real estate related assets. We focus primarily on investments that produce recurring income. We have qualified and elected to be taxed as aself-managed real estate investment trust, or REIT, underREIT. We acquire, own and operate medical office buildings and other facilities that serve the Internal Revenue Codehealthcare industry. Since January 2007, we have been an active, disciplined buyer of 1986,medical office buildings and other facilities that serve the healthcare industry, acquiring properties with an aggregate purchase price of approximately $2.3 billion and building key industry relationships with significant healthcare systems and quality tenants. We are one of the largest owners of medical office buildings, based on gross leasable area, or GLA, in the United States. Our portfolio is primarily concentrated within major U.S. metropolitan areas and located primarily on or adjacent to campuses of nationally recognized healthcare systems.
As of December 31, 2011, approximately 57% of our annualized base rent was derived from tenants or their parent companies that have a credit rating as amended,determined by a nationally recognized rating agency. Approximately 38% of our annualized base rent was derived from tenants that have an investment grade credit rating as determined by nationally recognized rating agencies, including, but not limited to, Greenville Hospital System, Community Health Systems, Aurora Healthcare, West Penn Allegheny Health System, Indiana University Health, Hospital Corporation of America, and Banner Health. As of December 31, 2011, our portfolio contains approximately 11.2 million square feet of GLA with an occupancy rate of approximately 91%, including leases signed but which have not yet commenced. Approximately 95% of our portfolio (based on GLA) is located on, adjacent to, or anchored by the Code,campuses of nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically, across 25 states, with no state having more than 13% of the GLA of our portfolio. As of December 31, 2011, none of our tenants at our properties accounted for federal income tax purposes7.0% or more of our aggregate annual rental revenue. Our portfolio consisted of 248 medical office buildings and other facilities that serve the healthcare industry, as well as two mortgage loans receivable.
We invest primarily in medical office buildings based on fundamental healthcare and real estate economics. Medical office buildings serve a critical role in the national healthcare delivery system, and we intend tobelieve there are key dynamics within the healthcare industry that increase the need for, and the value of, medical office buildings. As hospitals and other facilities that serve the healthcare industry and physicians continue to collaborate, we believe an increasing number of healthcare services will be taxedundertaken in medical offices. Further, with healthcare reform projected to expand coverage to over 30 million additional patients by 2019, we believe the performance of office-based services will play a key role in providing quality healthcare while also allowing for the recognition of cost efficiencies. In addition, as a REIT.the emphasis within the healthcare industry moves toward preventative care, rather than responsive care, we expect that more healthcare services will be undertaken at medical offices.
Another key reason that we invest in medical office buildings is that we believe there is generally the potential for higher returns with lower vacancy risk relative to other types of real estate investing. Like traditional commercial office property, as we renew leases and lease new space, we expect that the recovering economy will allow us to earn higher rents. Unlike commercial office space, however, medical office tenants, primarily physicians, hospitals and other healthcare providers, typically do not move or relocate, thus providing for stable tenancies and an ongoing demand for medical office space.
We are conducting a best efforts initialMaryland corporation, formed in April 2006. Since that time, we have raised equity capital to finance our real estate investment activities through two public offering, or our offering, in which we are offering up to 200,000,000 sharesofferings of our common stock for $10.00 per share and up to 21,052,632stock. Our offerings raised an aggregate of approximately $2.2 billion in gross offering proceeds, excluding proceeds associated with shares of our common stock pursuant toissued under our distribution reinvestment plan, or the DRIP, for $9.50 per share, aggregating up to $2,200,000,000. We will sell shares in our offering until the earlier of September 20, 2009, or the date on which the maximum amount has been sold. As of December 31, 2008, we had received and accepted subscriptions in our offering for 73,824,809 shares of our common stock, or $737,398,000, excluding shares of our common stock issued under the DRIP.
We conduct substantially all of our operations through Grubb & Ellis Healthcare REIT Holdings, L.P., to be named Healthcare Trust of America Holdings, L.P., or our operating partnership. We are currently externally advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our advisor, pursuant to an advisory agreement, as amended and restated on November 14, 2008 and effective as of October 24, 2008, or the Advisory Agreement, between us, our advisor and Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, who is the managing member of our advisor. Our advisor is affiliated with us in that we and our advisor have a common officer, who also owns an indirect equity interest in our advisor. Our advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, and Grubb & Ellis Management Services, Inc. to provide various services to us, including property management services.
The Advisory Agreement expires on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce our acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement, as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue aself-management program. Upon or prior to completion of our transition to self-managementand/or the termination of the Advisory Agreement we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis Company, or Grubb & Ellis.
The Advisory Agreement, as amended November 14, 2008, also provides that our advisor and Grubb & Ellis Realty Investors agree to coordinate the timing, marketing and other activities for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates so as not to negatively impact our company. In addition, the equity raising for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates shall not begin until after the end of our offering, provided that, consistent with industry practice and standards and without there being any negative impact on our equity raise, such new healthcare REIT may initiate a limited equity raise from a limited broker dealer group, commencing August 1, 2009 or later, to satisfy the escrow requirements applicable to such new healthcare REIT.


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At the commencement of our offering we had minimal assets and operations and we did not believe that it was efficient at that time to engage our own internal management team. As of March 26, 2009, we had acquired 43 geographically diverse properties and other real estate related assets for a total purchase price of $1,000,520,000. As a result of our growth and success, our board of directors believes that we now have the critical mass required to support a self-management structure. Our board of directors believes thatself-management will enable us to better position our company for success in the future for several reasons discussed below:
Management Team.  We believe that our management team, led by Scott D. Peters, our Chief Executive Officer, President and Chairman of the board of directors, has the experience and expertise to efficiently and effectively operate our company. In addition, we have hired a Chief Accounting Officer, Kellie S. Pruitt. We have also hired three other employees and have engaged two independent consultants to assist us with acquisitions, asset management and accounting. We intend to continue to hire additional employees and engage independent consultants to expand our self-management infrastructure, assist in our transition to aself-managed company and fulfill other responsibilities, including acquisitions, accounting, asset management, strategic investing and corporate and securities compliance. Mr. Peters is leading our transition to aself-management structure. Our internal management team, led by Mr. Peters, will manage ourday-to-day operations and oversee and supervise our employees and third party service providers, who will be retained on an as-needed basis. All key personnel will 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 spends 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 December 31, 2008, we incurred to our advisor and its affiliates approximately $28,479,000 in acquisition fees; approximately $7,767,000 in asset management fees; approximately $2,963,000 in property management fees; and approximately $1,513,000 in leasing fees. Although we will incur the costs associated with having our own employees and independent consultants and we expect third party property management expenses 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 the self-management program 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 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, we now believe that by having our own employees and independent consultants manage our operations and retain third party providers, we will significantly reduce the cost structure of our company.
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 our self-management program. We believe that by not paying such fees, as well as operating more cost-effectively under our self-management program, 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 the self-management program will be substantially less than the cost of external management. Therefore, although we are incurring additional costs now related to our transition to self-management, we expect the cost of the self-management program to be effectively funded by future cost savings. Pursuant to the Advisory Agreement, as amended November 14, 2008, we have already reduced acquisition fees and asset management fees payable to our advisor, which we believe will result in substantial cost savings. In addition, we anticipate that we will achieve further cost


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savings in the future as a result of reducedand/or eliminated acquisition fees, asset management fees, internalization fees and other outside fees.
Dedicated Management and Increased Accountability.  Under our self-management program, our officers and employees will only work for our company and will not be associated with any outside advisor or other third party service providers. 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 theself-management program.
Prior to or upon the completion of our transition to self-management, we intend to change our name to “Healthcare Trust of America, Inc.”
On December 7, 2007, NNN Realty Advisors, Inc., or NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of common stock of Grubb & Ellis in exchange for their NNN Realty Advisors shares of common stock and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of the common stock of Grubb & Ellis. As a result of the merger, we consider Grubb & Ellis to be our sponsor. Following the merger, NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office REIT Holdings, L.P., NNN Healthcare/Office REIT Advisor, LLC, NNN Healthcare/Office Management, LLC, Triple Net Properties, LLC and NNN Capital Corp. changed their names to Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, L.P., Grubb & Ellis Healthcare REIT Advisor, LLC, Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Realty Investors, LLC and Grubb & Ellis Securities, Inc., respectively.
Developments during 2008 and 2009
• On November 14, 2008, we amended and restated the Advisory Agreement, which reduced our acquisition and asset management fees and set the framework for our transition to self-management. We also hired Mr. Peters, who previously served as a non-employee executive officer, as our full-time employee pursuant to an employment agreement. We began the transition to self-management immediately after the effective date of the amendments to the Advisory Agreement. We have continued to implement our self-management program and continue to rely on our advisor, our board of directors, Mr. Peters and our other employees and consultants to manage our investments and operate ourday-to-day activities.
• As of December 31, 2008, we owned 41 geographically diverse properties, 33 of which are medical office buildings, five of which are healthcare related facilities, three of which are quality commercial office properties, all of which comprise 5,156,000 square feet of gross leasable area, or GLA, and one real estate related asset for an aggregate purchase price of $966,416,000, in 17 states.
• As of March 26, 2009, we have acquired a medical office condominium and a four-building medical office property comprising 188,000 square feet of GLA for an aggregate purchase price of $34,104,000 in two states.
• As of March 13, 2009, we had received and accepted subscriptions in our offering for 89,030,880 shares of our common stock, or $889,301,000, excluding shares of our common stock issued under the DRIP.
• On March 13, 2009, Shannon K S Johnson resigned from her position as our Chief Financial Officer. Ms. Johnson will continue to provide non-exclusive services to us in her role as a Financial Reporting Manager of Grubb & Ellis Realty Investors.


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• On March 17, 2009, our board of directors appointed Kellie S. Pruitt, our Chief Accounting Officer and principal accounting officer, to also serve as our principal financial officer.
Our Structure
The following is a summary of our and our advisor’s organizational structure as of December 31, 2008:


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The following chart shows our structure upon the completion of our transition to self-management:
Grubb & Ellis Healthcare REIT Advisor, LLC owns less than a 0.01% interest in us and in our operating partnership.
Our principal executive offices are located at 1551 N. Tustin Avenue, Suite 300, Santa Ana, CA 92705 and the telephone number is(714) 667-8252. In connection with our transition to self-management, we have established a new corporate office which houses our Chief Executive Officer and our Chief Accounting Officer. The address of our new office is The Promenade, 1642716435 North Scottsdale Road, Suite 440,320, Scottsdale, AZ 85254 and our telephone number at that address is(480) 998-3478. We anticipate that prior to or upon the completion of our transition toself-management, our new office will serve as our principal executive office. Our sponsor maintainsmaintain a web site atwww.gbe-reits.com/healthcarewww.htareit.comat which there is additional information about us and our affiliates.us. The contents of that site are not incorporated by reference in, or otherwise a part of, this filing. We make our periodic and current reports available atwww.gbe-reits.com/healthcarewww.htareit.comas soon as reasonably practicable after such materials are electronically filed with the United States Securities and Exchange Commission, or the SEC. They are also available for printing byfor any stockholder upon request. We anticipate that prior to or upon our transition to self-management, we will establish a new website.

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CURRENT INVESTMENT OBJECTIVES AND POLICIES
BUSINESS STRATEGIES
Our investment objectives are:
• to acquire quality properties that generate sustainable growth in cash flows from operations to pay regular cash distributions;
• to preserve, protect and return our stockholders’ capital contributions;
• to realize growth in the value of our investments upon our ultimate sale of such investments; and
• to be prudent, patient and deliberate, taking into account current real estate markets.
Each property we acquire is carefully and diligently reviewed and analyzed to make sure it is consistent with our short and long-term investment objectives. Our goalprimary objective is to at all times maintainenhance stockholder value with disciplined growth through strategic investments and to provide an attractive total risk-adjusted return for our stockholders by consistently increasing our cash flow. The strategies we intend to execute to achieve this objective include:
Achieve Growth through Targeted Acquistions. We employ an acquisition philosophy that focuses primarily on mid-sized, relationship-driven medical office building targets that are located in established markets and that complement our existing portfolio. We emphasize building long-term relationships with healthcare systems, owners, operators, and other key industry participants as a core aspect of our acquisition strategy. We believe our focus on building such a strong, balance sheet


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and always have sufficient fundsrelationship-based network fosters opportunities for future growth of our company. We intend to deal with short and long-term operating needs. Macro-economic disruptions have broadly impactedgrow through the economy and have caused an imbalance between buyers and sellersstrategic acquisition of real estate assets, includinghigh-quality medical office buildings and other facilities that serve the healthcare industry:
with stabilized occupancy that are located on or adjacent to the campuses of nationally recognized healthcare systems in major U.S. metropolitan areas. On-campus locations provide for better tenant retention rates and rental rate growth as compared to unaffiliated facilities;
that are affiliated with the country's top healthcare systems, which attract the top physicians. We will seek healthcare systems with dominant market share and high credit quality;
that are located in high-growth primary and secondary markets with attractive demographics and favorable regulatory environments in business-friendly states or those with high barriers to entry; and
that create an attractive mix of credit-rated tenants with long-term, triple-net leases with fixed, scheduled rental growth and multi-tenant buildings with greater market-driven growth opportunities.
We believe we have relationships and a proven track record of acquiring properties in off-market transactions at accretive cap rates. We will continue to focus our acquisition activity primarily on high quality medical office buildings, which we believe comprise the majority of our current property portfolio. We believe our pure focus on the medical office building sector of healthcare related real estate assets.will provide insulation from the impact of certain governmental regulatory actions, such as the recently-passed cut in 2012 Medicare payments to skilled nursing facilities. This is because medical office buildings typically have a diversified payer mix composed largely of private health insurance companies.
Actively Manage Our Balance Sheet Strength and Flexibility.  Our conservative balance sheet, with approximately 27.9% leverage as of December 31, 2011, and flexibility with our unused $575 million unsecured credit facility is crucial to our strategic growth. We anticipated that these tough economic conditions would createactively manage our balance sheet to maintain conservative leverage with carefully staged debt maturities. This positions us to take advantage of strategic investment opportunities. We intend to utilize our unsecured line of credit for acquisition opportunities on a short-term basis. We have a number of sources of liquidity available to effectively manage our long-term leverage strategy, such as unsecured bank debt, mortgage financing, public debt, and private equity. We may also attempt to access the public equity markets to repay our secured debt maturities or for future acquisition opportunities.
Maximize Internal Growth through Proactive Asset Management, Leasing and Property Management Oversight.  Our asset management focuses on a defined growth strategy, seizing on opportunities to achieve more profitable internal and external growth. Our strategy focuses on increasing rental rates while maximizing operating efficiencies at our properties. Specific components of our overall strategy include:
migrating toward our HTA-dedicated property management platform in geographic areas in which we have significant portfolio concentrations;
obtaining accretive rental rates on our lease rollovers and actively leasing our vacant space at a time when there is limited supply of medical office space in a slow-recovering economy;
leveraging and proactively managing the best property management and leasing companies in markets not currently managed by our property management platform;
improving the quality of service provided to tenants by being attentive to needs, managing expenses, and strategically investing capital;
maintaining the high quality of our properties and building on our marketing initiative to brand our company to acquire such assets at higher capitalization rates, as the real estate market adjusted downward. In the fourth quarterlandlord of 2008, we opted not to proceed with certain dealschoice;

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maintaining regional offices in markets in which we determined merited re-pricing. We renegotiated other dealshave a significant presence; and
purchasing in volume and using market expertise to lower pricing points. Wecontinually reduce our operating costs.

COMPANY HIGHLIGHTS
In May 2011, we successfully increased our unsecured revolving credit facility to an aggregate maximum principal amount of $575,000,000 from $275,000,000 as well as extended its maturity date from November 2013 to May 2014.
As of December 31, 2011, we had a strong, flexible balance sheet with total assets of $2,291,629,000, cash on hand of over $128,000,000$69,491,000, and a leverage ratio of our mortgage and secured term loans payable debt to total assets of approximately 27.9%.
In July 2011, we received ratings by two nationally recognized rating agencies. We believe these ratings, along with our strong balance sheet and conservative leverage, will allow us access to multiple sources of liquidity, such as unsecured bank debt, mortgage financing, and public debt.
We completed the sale of 21,564,900 shares of our common stock for $215,649,000 during the first quarter of 2011 pursuant to our follow-on offering and closed this offering on February 28, 2011, except for the DRIP.
For the year ended December 31, 2011, net income increased by 170.6% to $5,593,000 from a loss of $7,919,000 for the year ended December 31, 2010, and by 122.6% from a loss of $24,773,000 for the year ended December 31, 2009.
For the year ended December 31, 2011, Funds from Operations, or FFO, has increased by 60.2% to $113,135,000 from $70,642,000 for the year ended December 31, 2010, and by 292.5% from $28,822,000 for the year ended December 31, 2009. FFO is a non-GAAP financial measure. For a reconciliation of FFO to net income (loss), see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Funds from Operations and Normalized Funds from Operations".
During the year ended December 31, 2011, we transitioned a significant portion of our Indiana property portfolios to a regionally-focused property management platform with HTA-dedicated property management personnel. The addition of this market complemented the 34% of our overall portfolio that we had already been successfully managing with our asset management team. We believe such a platform provides us with the potential to reduce costs while enhancing our relationships with our hospital systems and physician tenants. Further, it allows us to improve the efficiency and effectiveness of property management and leasing. Following the success experienced with transitioning our Indiana portfolios, based on cost savings and enhanced tenant relations, we have begun the transition of properties in Arizona as well as in several east coast markets to our HTA-dedicated property management platform. Upon completion of these markets currently in transition, approximately 61% of our portfolio will be managed internally. We will continue to evaluate additional markets in which to expand our internal property management migration efforts in the future, based on concentrations of properties.
Our total portfolio of properties achieved an occupancy rate, including leases signed but not yet commenced, of approximately 91% as of December 31, 2008,2011.
During the year ended December 31, 2011, we completed two new portfolio acquisitions and expanded two of our existing portfolios through the purchase of additional medical office buildings within each for an aggregate purchase price of $68,314,000. These purchases consist of six buildings comprised of approximately 306,000 square feet of GLA, bringing our total portfolio value, based on purchase price, to $2,334,673,000 as of December 31, 2011. These acquisitions possessed a weighted average acquisition-day occupancy rate of approximately 90%.
In February 2012, J.P. Morgan Securities, LLC, Deutsche Bank Securities Inc., and Wells Fargo Securities, LLC signed engagement letters to serve as Joint Lead Arrangers for a new credit facility of at least $825,000,000. As of March 23, 2012, the Joint Lead Arrangers and other additional lenders had committed in excess of that amount to the new credit facility. The credit facility, which will replace our existing credit facility, will have an initial term of four years, with one twelve-month extension. We anticipate closing the facility in the near future. The terms of this facility have not been finalized and there can be no assurance that we intendwill enter into such facility on the terms or timing described herein or at all.

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On February 14, 2012, we completed the acquisition of St. John Providence MOB, an approximately 203,000 square foot on-campus medical office building located in Novi, Michigan in an all-cash transaction for approximately $51,320,000. The St. John Providence MOB, which was 99% leased as of the date of acquisition, is connected directly to usethe Providence Park Hospital via an enclosed walkway. Providence Park Hospital is part of Ascension Health Systems (Moody's Investors Services rated Aa1).
On March 6, 2012, we completed the acquisition of Penn Avenue Place in Pittsburgh, Pennsylvania for a purchase price of approximately $54,000,000 in an all-cash transaction. Penn Avenue Place is an eight story, 558,000 square foot, Class A office building which was completely renovated in 1997. The building was approximately 99.6% occupied as of the date of acquisition and is anchored by Highmark, Inc. (Standard & Poor's Rating Services rated A). Highmark, Inc., which leases and occupies 92.4% of the building, is one of the largest Blue Cross affiliates in the nation. On January 1, 2012, Highmark, Inc. renewed its lease for an additional 10-year term.
On March 9, 2012, we entered into a purchase and sale agreement for a medical office building portfolio located in the eastern United States for an aggregate purchase price of $100,000,000. The portfolio, which is expected to acquirebe master leased on a triple net basis, consists of a combination of on-campus assets and off-campus medical office buildings. We anticipate closing this acquisition in the near future, though there can be no assurance that are pricedthe acquisition will close on our expected schedule, if at levelsall.

HEALTHCARE INDUSTRY
Healthcare Sector Growth
We operate in the healthcare industry because we believe the demand for healthcare real estate will continue to increase consistent with today’s economy.health spending in the United States. According to the U.S. Department of Health and Human Services, from 1960 to 2010, health spending as a percent of the U.S. gross domestic product, or GDP, increased from 5.2% to 17.9% according to the National Health Expenditures report by the Centers for Medicare and Medicaid Services dated January 2011. Such national healthcare expenditures are projected to reach 19.8% of GDP by 2020, as set forth in the chart below. Similarly, overall healthcare expenditures have risen sharply since 2005 and are projected to grow 5.8% per annum through 2020.


National Healthcare Expenditures
(2005-2020)


Source: U.S. Department of Health and Human Services. Centers for Medicare & Medicaid Services. Office of the Actuary. National Health Expenditures and Selected Economic Indicators. Levels and Annual Percent Change: Calendar Years 2005-2020 (based on the version of the National Health Expenditures released in January 2011).
Between 2010 and 2050, the U.S. population over 65 years of age is projected to more than double from 40.2 million to nearly 88.5 million people, as reflected in the below chart. Similarly, the 85 and older population is expected to more than triple, from 5.7 million in 2010 to 19.0 million between 2010 and 2050. The number of older Americans is also growing as a percentage of the total U.S. population as the “baby boomers” enter their 60s. The number of persons older than 65 was estimated to comprise 13.0% of the total U.S. population in 2010 and is projected to grow to 20.2% by 2050, as reflected in the below chart.

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Projected U.S. Population Aged 65+
(2010-2050)

Source: U.S. Census Bureau, Population Division, August 14, 2008.
Based on the information above, we believe that healthcare expenditures for the population over 65 years of age will continue to rise as a disproportionate share of healthcare dollars is spent on older Americans. According to the 2010 Consumer Expenditure Survey, persons aged 65 to 74 years spent the highest amount annually for healthcare with more than $4,900 in annual personal expenditures including health insurance premiums. Those aged more than 75 years followed closely with nearly $4,800 spent on healthcare per year. In contrast, persons aged less than 25 years spent only $775 per year on healthcare. The older population group will increasingly require treatment and management of chronic and acute health ailments. We believe that during this turbulent economic cycle, our cash on handincreased demand for healthcare services will provide our company with opportunities to acquirecreate a substantial need for the development of additional medical office buildings and other facilities that serve the healthcare related real estate assets at favorable pricing.industry in many regions of the United States. Additionally, we believe that there will likely be a focus on lower cost outpatient care to support the aging U.S. population, which will continue to support medical office building demand in the long term. We believe this will result in a substantial increase in suitable, quality properties meeting our acquisition criteria.
Medical Office Building Supply and Demand
We cannot assure our stockholdersinvest primarily in medical office buildings. We believe that we will attain these objectives or that our capital will not decrease. Our board of directors may change our investment objectives if it determines it is advisable and in the best interests of our stockholders.
Decisions relating to the purchase or sale of investments will be made by our advisor and management, subject to the oversight by our board of directors. See Item 10. Directors, Executive Officers and Corporate Governancedemand for a description of the background and experience of our directors and officers as well as the officers of our advisor.
Business Strategies
We seek to invest in a diversified portfolio of real estate, focusing primarily on investments that produce recurring income. Our real estate investments focus on medical office buildings and other facilities that serve the healthcare industry will increase due to a number of factors, including:
Evolution in the healthcare industry is a contributing factor, with procedures that have traditionally been performed in hospitals, such as surgery, moving to outpatient facilities as a result of shifting consumer preferences, limited space in hospitals, and lower costs. In addition, increased specialization within the medical field is driving the demand for medical office buildings suited specifically toward a particular specialty. Finally, some hospital systems have begun divesting their real estate holdings in order to better focus on the delivery of care.
An increase in medical office visits due to the overall rise in healthcare utilization has in turn driven hiring within the healthcare sector. This has increased the need for expansion of medical office facilities. Additionally, the increased dissemination of health research through media outlets, marketing of healthcare products, and availability of advanced screening techniques and medical procedures have contributed to a more engaged population of healthcare users. This has created a surge in demand for customized facilities providing specialized, preventive, and integrative medicine. Additionally, the rate of employment growth in physicians' offices and outpatient care facilities has outpaced employment growth in hospitals during the past decade, further supporting the trend of increased utilization of healthcare services outside of the hospital. These factors, in combination with changing consumer preferences and limitations on hospital expansion, have resulted in the increased utilization of medical office space, a trend which is expected to continue over the long term. According to the Bureau of Labor Statistics, employment in physicians' offices is expected to increase by a cumulative 36.4% from 2010 to 2020, as compared with a projected 25.9% increase in all healthcare professions and a forecasted increase of 14.3% in total employment.

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Advances in medical technology will continue to enable healthcare providers to identify and treat once fatal ailments and will improve the survival rate of critically ill and injured patients who will require continuing medical care. Along with these technical innovations, the U.S. population is growing older and living longer. In addition, according to the Centers for Disease Control and Prevention, from 1950 to 2005, the average life expectancy at birth increased from 68.2 years to 77.9 years. By 2050, the average life expectancy at birth is projected to increase to 82.6 years, according to the U.S. Census Bureau.
Construction of medical office buildings has been relatively constrained with little developable land and high-cost barriers to development.
Strong rent growth is forecasted as market conditions tighten due to limited development, a decline in vacancy rates, growth in healthcare employment, and a larger number of baby boomers entering retirement age. Beginning in 2013, rent growth for medical office buildings is expected to outpace rent growth for traditional office properties as healthcare employment increases at a faster pace than traditional office-using industries.
Healthcare Industry Trends and Outlook
The current healthcare environment is impacted by several factors, each of which will inform the industry outlook over the long term:
According to the United States Department of Labor’s Bureau of Labor Statistics, the healthcare industry was the largest industry in the United States in 2006, providing 14 million jobs. Healthcare-related jobs are among the fastest growing occupations, accounting for ten of the 20 fastest growing occupations. The Bureau of Labor and Statistics estimates that healthcare will generate three million new wage and salary jobs between 2008 and 2018, more than any other industry. Wage and salary employment in the healthcare industry is projected to increase 22% through 2018, compared with 11% for all industries combined. Despite the downturn in the economy and widespread job losses in most industries, the healthcare industry has not been impacted. We expect the increased growth in the healthcare industry will correspond with a growth in demand for medical office buildings and other facilities that serve the healthcare industry.
Complex state and federal regulations govern physician hospital referrals. Patients typically are referred to particular hospitals by their physicians. To restrict hospitals from inappropriately influencing physicians to refer patients to them, federal and state governments adopted Medicare and Medicaid anti-fraud laws and regulations. One aspect of these complex laws and regulations addresses the leasing of medical office space by hospitals to physicians. One intent of the regulations is to restrict medical institutions from providing facilities to physicians at below market rates or on other terms that may present an opportunity for undue influence on physician referrals. The regulations are complex, and adherence to the regulations is time consuming and requires significant documentation and extensive reporting to regulators. The costs associated with regulatory compliance have encouraged many hospital and physician groups to seek third-party ownership and/or management of their healthcare-related facilities.
Physicians are increasingly forming group practices. To increase the numbers of patients they can see and thereby increase market share, physicians have formed and are forming group practices. By doing so, physicians can gain greater influence in negotiating rates with managed care companies and hospitals in which they perform services. Also, the creation of these groups allows for the dispersion of overhead costs over a larger revenue base and gives physicians the financial ability to acquire new and expensive diagnostic equipment. Moreover, certain group practices may benefit from certain exceptions to federal and state self-referral laws, permitting them to offer a broader range of medical services within their practices and to participate in the facility fee related to medical procedures. This increase in the number of group practices has led to the construction of new medical facilities in which the groups are housed and medical services are provided.
We believe that healthcare-related real estate rents and valuations are less susceptible to changes in the general economy than general commercial real estate due to demographic trends and the resistance of rising healthcare expenditures to economic downturns. For this reason, we believe healthcare-related real estate investments could potentially offer a more stable return to investors compared to other types of real estate investments.

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We believe the confluence of these factors over the last several years, in combination with low interest rates and continued increases in the selling price of medical office buildings, has led to the following trends, which encourage third-party ownership of existing and newly developed medical properties:
Decentralization and Specialization.  There is a continuing evolution toward delivery of medical services through smaller outpatient facilities located near patients and designed to treat specific diseases and conditions. In order to operate profitably within a managed care environment, physician practice groups and other medical services providers are aggressively trying to increase patient populations, while maintaining lower overhead costs by building new healthcare facilities in areas of population or patient growth. Continuing population shifts and ongoing demographic changes create a demand for additional properties, including an aging population requiring and demanding more medical services.
Hospital Consolidation and Recapitalization.  Hospitals continue to consolidate in an effort to secure or expand market share, gain access to capital, and/or to achieve various economies of scale. Historically, these have been in the form of the expansion of investor-owned health systems through acquisitions or the merger of one or more tax-exempt health systems. Recently, new entrants include private equity firms that have either acquired hospital assets or are investing capital into existing tax-exempt organizations. We believe that accessing capital will continue to be a major area of focus for healthcare organizations, both in the short and long term.
Increasing Regulation.  Evolving regulatory factors affecting healthcare delivery create an incentive for providers of medical services to focus on patient care, leaving real estate ownership and operation to third-party real estate professionals. Third-party ownership and management of hospital-affiliated medical office buildings substantially reduces the risk that hospitals will violate complex Medicare and Medicaid fraud and abuse statutes.
Modernization.  Hospitals are modernizing by renovating existing properties and building new properties and becoming more efficient in the face of declining reimbursement and changing patient demographics. This trend has led to the development of new, smaller, specialty healthcare-related facilities as well as improvements to existing general acute care facilities. As a result, we believe hospitals will monetize their assets to redeploy needed capital.
Redeployment of Capital.  Medical providers are increasingly focused on wisely investing their capital in their medical business. A growing number of medical providers have determined that third-party ownership of real estate with long term leases is an attractive alternative to investing their capital in bricks-and-mortar. Increasing use of expensive medical technology has placed additional demands on the capital requirements of medical services providers and physician practice groups. By selling their real estate assets and relying on third-party ownership of new healthcare properties, medical services providers and physician practice groups can generate the capital necessary to acquire the medical technology needed to provide more comprehensive services to patients and improve overall patient care.
Physician Practice Ownership.  Many physician groups have reacquired their practice assets and real estate from national physician management companies or otherwise formed group practices to expand their market share. Other physicians have left hospital-based or HMO-based practices to form independent group practices. These physician groups are interested in new healthcare properties that will house medical businesses that regulations permit them to own. In addition to existing group practices, there is a growing trend for physicians in specialties, including cardiology, oncology, women’s health, orthopedics and urology, to enter into joint ventures and partnerships with hospitals, operators and financial sponsors to form specialty hospitals for the treatment of specific diseases. In general, we believe a significant number of these types of organizations have a limited interest in owning real estate and are aggressively looking for third-parties to own their healthcare properties.
The current regulatory environment remains an ongoing challenge for healthcare providers, who are under pressure to comply with complex healthcare laws and regulations designed to prevent fraud and abuse. These regulations, for example, prohibit physicians from referring patients to entities in which they have ownership or investment interests and prohibit hospitals from leasing space to physicians at below market rates. As a result, healthcare providers seek reduced liability costs and have an incentive to dispose of real estate to third parties, thus reducing the risk of violating fraud and abuse regulations. This environment creates investment opportunities for owners, acquirers and joint venture partners of healthcare real estate who understand the needs of healthcare professionals and can help keep tenant costs low. While the current regulatory environment is positive for healthcare operators, there is uncertainty as to the future of government policies and its potential impact on healthcare provider profitability.

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PORTFOLIO OF PROPERTIES
As of December 31, 2011, our portfolio consisted of 229 medical office buildings and 19 other facilities that serve the healthcare industry, as well as two mortgage loans receivable. Our portfolio consisted of approximately 11.2 million square feet of GLA with an occupancy rate, including leases signed but not yet commenced, of 91% as of December 31, 2011.
Our properties are primarily located on or adjacent to, or are anchored by, the campuses of nationally and regionally recognized healthcare systems in the United States, including some of the largest in the United States, such as Adventist Health Systems, Ascension Health, Banner Health System, Catholic Healthcare Partners, Catholic Healthcare West, Community Health Systems, HCA, Inc. and Tenet Healthcare Corporation. As of December 31, 2011, approximately 95% of our portfolio, based on GLA, is located on or adjacent to, or was anchored by, the campuses of such healthcare systems.

The following charts depict 1) the proportion of our portfolio that is located on or is aligned with the campuses of nationally recognized healthcare systems; and 2) the composition of our overall portfolio as of December 31, 2011:
Portfolio by Type
# of
Buildings
 
Annualized
Base Rent (1)
 % of Total
Annualized Base Rent
 
Purchase
Price
 
% of
Aggregate
Purchase
Price
 
Number of
States
Medical office buildings   
  
  
  
  
Single-tenant, net lease55 $41,205,000
 19.9% $488,915,000
 20.9% 15
Single-tenant, gross lease7 $6,308,000
 3.1% $70,504,000
 3.0% 4
Multi-tenant, net lease73 $52,558,000
 25.4% $650,411,000
 27.9% 15
Multi-tenant, gross lease94 $77,765,000
 37.6% $739,388,000
 31.7% 16
Other facilities that serve the healthcare industry   
  
  
  
  
Hospitals, single-tenant, net lease10 $20,692,000
 10.0% $241,720,000
 10.4% 4
Seniors housing, single-tenant, net lease9 $8,236,000
 4.0% $91,600,000
 3.9% 3
Mortgage loans receivable  N/A
 N/A
 $52,135,000
 2.2% 2
TOTALS248 $206,764,000
 100.0% $2,334,673,000
 100.0%  

(1)Annualized base rent is based on the contractual base rent in effect as of December 31, 2011, excluding the impact of renewals, future step-ups in rent, abatements, concessions, and straight-line rent.

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SIGNIFICANT TENANTS
As of December 31, 2011, none of our tenants at our properties accounted for 10.0% or more of our aggregate annual rental revenue. The chart below depicts credit rating, annual rent, and GLA information for our top 20 tenants as determined by annualized base rent:

(1)Annualized base rent is based on the contractual base rent in effect as of December 31, 2011, excluding the impact of renewals, future step-ups in rent, abatements, concessions, and straight-line rent.
(2)Credit ratings of our tenants or their parent companies.

GEOGRAPHIC CONCENTRATION
As of December 31, 2011, our portfolio was comprised of approximately 11.2 million square feet of GLA and was concentrated in locations that we have determined to be strategic based on demographic trends and projected demand for healthcare. We have also investedconcentrations in the following key markets: Phoenix, Arizona; Greenville, South Carolina; Indianapolis, Indiana; Albany, New York; Houston, Texas; Atlanta, Georgia; Pittsburgh, Pennsylvania; Dallas, Texas; Raleigh, North Carolina and Oklahoma City, Oklahoma.
The chart belows depicts our geographic presence based on GLA as of December 31, 2011:


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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, 280, Segment Reporting, or 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 a limited extentinvesting in quality commercialmedical office buildings, other facilities that serve the healthcare industry, and mortgage loans receivable. Our investments in real estate 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. Our other real estate related assets will generally focus on common and preferred stock of public or private real estate companies and certain other securities. We seek to maximize long-term stockholder value by generating sustainable growth in cash flow and portfolio value. In order to achieve these objectives, we may invest using a number of investment structures which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, we may be required to limit our investments in other real estate related assets.
In addition, when and as determined appropriate by our advisor and management, the portfolio may also include properties in various stages of development other than those producing recurring income. These stages would include, without limitation, unimproved land, both with and without entitlements and permits, property to be redeveloped and repositioned, newly constructed properties and properties inlease-up or other stabilization, all of which will have limited or no relevant operating histories and no recurring income. Our advisor and management team will make this determination based upon a variety of factors, including the available risk adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio,are geographically diversified and our objectives of realizing both recurring income and capital appreciation upon the ultimate sale of properties.
Forchief operating decision maker evaluates operating performance on an individual asset level. As each of our investments, regardless of property type, our advisorassets has similar economic characteristics, tenants, and management team seek to ensure that we invest in properties with the following attributes:
• Quality.  We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.
• Location.  We seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants.


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• Market; and Supply and Demand.  We focus on local or regional markets which have potential for stable and growing property level cash flow over the long-term. These determinations will be based in part on an evaluation of local economic, demographic and regulatory factors affecting the property. For instance, we will favor markets that indicate a growing population and employment base or markets that exhibit potential limitations on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we will generally seek to limit our investments in areas that have limited potential for growth, except where we believe that we have a competitive advantage.
• Predictable Capital Needs.  We seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would allow us to meet our objectives of growth in cash flow and preservation of capital and stability.
• Cash Flow.  We seek to acquire properties where the current and projected cash flow, including the potential for appreciation in value, would allow us to meet our overall investment objectives. We will evaluate cash flow as well as expected growth and the potential for appreciation.
We will not invest more than 10.0% of the offering proceeds available for investment in unimproved or non-income producing properties or in other investments relating to unimproved or non-income producing property. A property: (1) not acquired for the purpose of producing rental or other operating income; or (2) with no development or construction in process or planned in good faith to commence within one year, will be considered unimproved or non-income producing property for purposes of this limitation.
We are not limited as to the geographic area where we may acquire properties. We are not specifically limited in the number or size of properties we may acquire or on the percentage ofproducts and services, our assets that we may invest in a single property or investment. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of proceeds we raise in our offering and potential future offerings.have been aggregated into one reportable segment.

Acquisition Strategies
Real Property Investments
We seek to invest in a diversified portfolio of properties, focusing primarily on properties that produce recurring income. We generally seek investments in medical office buildings and healthcare related facilities. We have also invested to a limited extent in quality commercial office properties.
We generally seek to acquire properties of the types described above that will best enable us to meet our investment objectives, taking into account the diversification of our portfolio at the time, relevant real estate and financial factors, the location, income-producing capacity and the prospects for long-range appreciation of a particular property and other considerations. As a result, we may acquire properties other than the types described above. In addition, we may acquire properties that vary from the parameters described above for a particular property type.
The consideration to be paid for each real estate investment must be authorized by a majority of our directors or a duly authorized committee of our board of directors, which is ordinarily based on the fair market value of the investment. If the majority of our independent directors or a duly authorized committee of our board of directors so determines, or if the investment is to be acquired from an affiliate, the fair market value determination will be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors.
Our investments in real estate generally include our holding fee simple title or long-term leasehold interests. Our investments may be made either directly through our operating partnership or indirectly through investments in joint ventures, limited liability companies, general partnerships or other co-ownership arrangements with the developers of the properties, affiliates of our advisor or other persons. See “Joint Venture Investments” below.


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In addition, we may purchase properties and lease them back to the sellers of such properties. We will use our best efforts to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for federal income tax purposes. However, no assurance can be given that the Internal Revenue Service, or the IRS, will not challenge such characterization. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed or significantly reduced.
Our obligation to close a transaction involving the purchase of a real property asset is generally conditioned upon the delivery and verification of certain documents from the seller or developer, including, where appropriate:
• plans and specifications;
• environmental reports (generally a minimum of a Phase I investigation);
• building condition reports;
• surveys;
• evidence of marketable title subject to such liens and encumbrances as are acceptable to our advisor;
• when required to be filed with the SEC and delivered to stockholders, audited financial statements covering recent operations of real properties having operating histories;
• title insurance policies; and
• liability insurance policies.
In determining whether to purchase a particular property, we may, in circumstances in which our advisor and management deem it appropriate, obtain an option on such property, including land suitable for development. The amount paid for an option, if any, is normally surrendered if the property is not purchased, and is normally credited against the purchase price if the property is purchased. We may also enter into arrangements with the seller or developer of a property whereby the seller or developer agrees that if, during a stated period, the property does not generate a specified cash flow, the seller or developer will pay to us in cash a sum necessary to reach the specified cash flow level, subject in some cases to negotiated dollar limitations.
We will not purchase or lease properties in which our sponsor, our advisor, our directors or any of their affiliates have an interest without a determination by a majority of our disinterested directors and a majority of our disinterested independent directors that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the affiliated seller or lessor, unless there is substantial justification for the excess amount and the excess amount is reasonable. In no event will we acquire any such property at an amount in excess of its current appraised value as determined by an independent expert selected by our disinterested independent directors.
We intend to obtain adequate insurance coverage for all properties in which we invest. However, there are types of losses, generally catastrophic in nature, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. See “Risk Factors — Risks Related to Investments in Real Estate — Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholders’ returns.”
Joint Venture Investments
We have entered and may continue to enter into joint ventures, general partnerships and other arrangements with one or more entities or individuals, including real estate developers, operators, owners, investors and others, some of whom may be affiliates of our advisor, for the purpose of acquiring real estate. Such joint ventures may be leveraged with debt financing or unleveraged. We may enter into joint ventures to further diversify our investments or to access investments which meet our investment criteria that would


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otherwise be unavailable to us. In determining whether to invest in a particular joint venture, we will evaluate the real estate that such joint venture will own or is being formed to own under the same criteria used in the selection of our other properties. However, we will not participate intenant-in-common syndications or transactions.
Joint ventures with unaffiliated third parties may be structured such that the investment made by us and the co-venturer are on substantially different terms and conditions. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flow up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flow than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flow, including appreciation, of an investment than we would receive. See “Risk Factors — Risks Associated with Joint Ventures — We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flow or appreciation of an investment.”
We may only enter into joint ventures with other programs sponsored by Grubb & Ellis, or Grubb Ellis programs, or affiliates of our advisor or any of our directors for the acquisition of properties if:
• a majority of our directors, including a majority of the independent directors, approve the transaction as being fair and reasonable to us; and
• the investment by us and such affiliate are on substantially the same terms and conditions that are no less favorable than those that would be available to unaffiliated third parties.
Our entering into joint ventures with our advisor or any of its affiliates will result in certain conflicts of interest.
Investments in Other Real Estate Related Assets
We may invest in the following types of other real estate related assets: (1) equity securities such as the common stock, preferred stock and convertible preferred securities of public or private real estate companies (including other REITs, real estate operating companies and other real estate companies); (2) debt securities such as commercial mortgages, mortgage loan participations and debt securities issued by other real estate companies; and (3) certain other types of securities that may help us reach our diversification and other investment objectives. These other securities may include, but are not limited to, mezzanine loans, bridge loans, and certainnon-United States, or U.S., dollar denominated securities.
We have substantial discretion with respect to the selection of specific securities investments. Our charter provides that we may not invest in equity securities unless a majority of the directors (including a majority of the independent directors) not otherwise interested in the transaction approve such investment as being fair, competitive and commercially reasonable. Consistent with such requirements, in determining the types of real estate related assets to make, we will adhere to a board-approved asset allocation framework consisting primarily of components such as: (1) target mix of securities across a range of risk/reward characteristics, (2) exposure limits to individual securities and (3) exposure limits to securities subclasses (such as common equities and mortgage debt). Within this framework, we will evaluate specific criteria for each prospective investment in real estate related assets including:
• the position of the overall portfolio to achieve an optimal mix of real property and real estate related assets;
• diversification benefits relative to the rest of the securities assets within our portfolio;
• fundamental securities analysis;
• quality and sustainability of underlying property cash flows;
• broad assessment of macro economic data and regional property level supply and demand dynamics;
• potential for delivering high recurring income and attractive risk-adjusted total returns; and


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• additional factors considered important to meeting our investment objectives.
We are not specifically limited in the number or size of our investments in other real estate related assets, or on the percentage of the net proceeds from our offering that we may invest in a single real estate related asset or pool of 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. The specific number and mix of real estate related assets in which we invest will depend upon real estate market conditions, other circumstances existing at the time we are investing in our real estate related assets and the amount of proceeds we raise in our offering. We will not invest in securities of other issuers for the purpose of exercising control and the first or second mortgages in which we intend to invest will likely not be insured by the Federal Housing Administration or guaranteed by the Veterans Administration or otherwise guaranteed or insured.
Operating Strategies
Our primary operating strategy is to acquire suitable properties that meet our acquisition standards and to enhance the performance and value of those properties through management strategies designed to address the needs of current and prospective tenants. Our management strategies include:
• aggressively leasing available space through targeted marketing augmented, where possible, by our advisor and its affiliates’ local asset and property management offices or third party property management companies;
• controlling operating expenses through the centralization of asset and property management, leasing, marketing, financing, accounting, renovation and data processing activities;
• emphasizing regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns; and
• financing acquisitions and refinancing properties when favorable terms are available to increase cash flow.
Disposition Strategies
We intend to hold each property or other real estate related asset we acquire for an extended period. However, circumstances might arise which could result in a shortened holding period for certain investments. In general, the holding period for real estate related assets is expected to be shorter than the holding period for real property assets. An investment in a property or security may be sold before the end of the expected holding period if:
• diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio;
• an opportunity arises to pursue a more attractive investment;
• in the judgment of our advisor and management team, the value of the investment might decline;
• with respect to properties, a major tenant involuntarily liquidates or is in default under its lease;
• the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria;
• an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; or
• in the judgment of our advisor and management team, the sale of the investment is in our best interests.
The determination of whether a particular property or other real estate related asset should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions, with a view towards maximizing our investment objectives. We cannot assure our stockholders that this objective will be realized. The sales price of a property which is net leased will be determined in large


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part by the amount of rent payable under the lease(s) for such property. If a tenant has a repurchase option at a formula price, we may be limited in realizing any appreciation. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the investment being sold is located and the then-prevailing economic conditions.
FINANCING POLICIES
We intend to use secured and unsecured debt as a means of providing additional funds for the acquisition of properties and other real estate related assets. Our ability to enhance our investment returns and to increase our diversification by acquiring assets using additional funds provided through borrowing could be adversely effected if banks and other lending institutions reduce the amount of funds available for the types of loans we seek. When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time.
We anticipate that aggregate borrowings, both secured and unsecured, will not exceed 60.0% of all of our properties’ and other real estate related assets’ combined fair market values, as determined at the end of each calendar year beginning with our first full year of operations. For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2008, our aggregate borrowings were 47.9% of all of our properties’ and other real estate related assets’ combined fair market values.
Our board of directors reviews our secured and unsecured aggregate borrowings at least quarterly to ensure that such borrowings are reasonable in relation to our net assets. Our borrowing policies provide that the maximum amount of such borrowings in relation to our net assets will not exceed 300.0%, unless any excess in such borrowing is approved by a majority of our directors and is disclosed in our next quarterly report along with the justification for such excess. For the purposes of this determination, net assets are our total assets, other than intangibles, calculated at cost before deducting depreciation, amortization, bad debt and other similar non-cash reserves, less total liabilities and computed at least quarterly on a consistently-applied basis. Generally, the preceding calculation is expected to approximate 75.0% of the sum of the aggregate cost of our real estate and real estate related assets before depreciation, amortization, bad debt and other similar non-cash reserves. As of March 27, 2009 and December 31, 2008, our leverage did not exceed 300.0% of the value of our net assets.
By operating on a leveraged basis, we will have more funds available for our investments. This generally allows us to make more investments than would otherwise be possible, potentially resulting in enhanced investment returns and a more diversified portfolio. However, our use of leverage increases the risk of default on loan payments and the resulting foreclosure of a particular asset. In addition, lenders may have recourse to assets other than those specifically securing the repayment of the indebtedness.
Our advisor has used its best efforts to obtain financing on the most favorable terms available to us and we will refinance assets during the term of a loan only in limited circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing loan, when an existing loan matures or if an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment. The benefits of the refinancing may include an increased cash flow resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, and an increase in diversification of assets owned if all or a portion of the refinancing proceeds are reinvested.
Our charter restricts us from borrowing money from any of our directors or from our advisor or its affiliates unless such loan is approved by a majority of our directors (including a majority of the independent directors) not otherwise interested in the transaction, as fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties.


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BOARD REVIEW OF OUR INVESTMENT POLICIES
Our board of directors has established written policies on investments and borrowing. Our board is responsible for monitoring the administrative procedures, investment operations and performance of our company and our advisor to ensure such policies are carried out. Our charter requires that our independent directors review our investment policies at least annually to determine that our policies are in the best interest of our stockholders. Each determination and the basis thereof is required to be set forth in the minutes of our applicable meetings of our directors. Implementation of our investment policies also may vary as new investment techniques are developed. Our investment policies may not be altered by our board of directors without the approval of our stockholders.
As required by our charter, our independent directors have reviewed our policies outlined above and determined that they are in the best interest of our stockholders because: (1) they increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) there are sufficient property acquisition opportunities with the attributes that we seek; (3) our executive officers, directors and affiliates of our advisor have expertise with the type of real estate investments we seek; and (4) our borrowings have enabled us to purchase assets and earn rental income more quickly, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.
TAX STATUS
We have qualified and elected to be taxed as a REIT beginning with our taxable year ended December 31, 2007 under Sections 856 through 860 of the Code for federal income tax purposes and we intend to continue to be taxed as a REIT. To continue to qualify as a REIT for federal income tax purposes, we must meet certain organizational and operational requirements, including a requirement to pay distributions to our stockholders of at least 90.0% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). As a REIT, we generally are not subject to federal income tax on net income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Services, or the IRS, grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our results of operations and net cash available for distribution to stockholders.
DISTRIBUTION POLICY
In order to continue to qualify as a REIT for federal income tax purposes, among other things, we must distribute at least 90.0% of our annual taxable income to our stockholders. The amount of distributions we pay to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for the payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Code. If our investments produce sufficient cash flow, we expect to pay distributions to our stockholders on a monthly basis. However, our board of directors could, at any time, elect to pay distributions quarterly to reduce administrative costs. Because our cash available for distribution in any year may be less than 90.0% of our taxable income for the year, we may obtain the necessary funds by borrowing, issuing new securities or selling assets to pay out enough of our taxable income to satisfy the distribution requirement.
See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion on distribution rates approved by our board of directors.


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COMPETITION
We compete with many other real estate investment entities, including financial institutions, institutional pension funds, real estate developers, other REITs, other public and private real estate companies and private real estate investors for the acquisition of medical office buildings and other facilities that serve the healthcare related facilities and quality commercial office properties.industry. During the acquisitionsacquisition process, we compete with others who have a comparative advantage in terms of size, capitalization, depth of experience, local knowledge of the marketplace, and extended contacts throughout the region. Any combination of these factors may result in an increased purchase price for real properties or other real estate related assets which may reduce the number of opportunities available to us that meet our investment criteria. If the number of opportunities that meet our investment criteria are limited, our ability to increase stockholder value may be adversely impacted.
We face competition in leasing available medical office buildings and other facilities that serve the healthcare related facilities and quality commercial office propertiesindustry to prospective tenants. As a result, we may have to provide rent concessions, incur charges for tenant improvements, offer other inducements, or we may be unable to timely lease vacant space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers.
We believe our focus on medical office buildings and other facilities that serve the healthcare industry, our experience and expertise, and our ongoing relationships with healthcare providers provide us with a competitive advantage. We have established an asset identification and acquisition network, which provides for the early identification of and access to acquisition opportunities. In addition, we believe this broad network allows for us to effectively lease available medical office space, retain our tenants, and maintain and improve our assets.
Conflicts
GOVERNMENT REGULATIONS
Healthcare-related Regulations
Overview.  The healthcare industry is heavily regulated by federal, state and local governmental bodies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of interest will existour tenants to satisfy their contractual obligations, including making lease payments to us.
Healthcare Legislation.  On March 23, 2010, the extent that we are advised by our advisorPresident signed into law the Patient Protection and we acquire propertiesAffordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act. Together, the two laws serve as the primary vehicle for comprehensive healthcare reform in the same geographic areas where other Grubb & Ellis programs ownU.S. and will become effective through a phased approach, which began in 2010 and will conclude in 2018. The laws are intended to reduce the same typenumber of properties. In such a case, a conflict could ariseindividuals in the leasingUnited States without health insurance and significantly change the means by which healthcare is organized, delivered and reimbursed. The Patient Protection and Affordable Care Act includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal healthcare programs. In addition, the Patient Protection and Affordable Care Act expands reporting requirements and responsibilities related to facility ownership and management, patient safety and care quality. In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. If they do not comply with the additional reporting requirements and responsibilities, our tenants’ ability to participate in federal healthcare programs may be adversely affected. Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could materially and adversely affect our tenants and their ability to meet their lease obligations.

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Reimbursement Programs.  Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements, self-insured employers and the patients themselves, among others. Medicare and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement levels as payment in full for services rendered, without regard to a facility’s charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could result in a substantial reduction in our tenants’ revenues. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our propertiestenants. Further, revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable or because additional documentation is necessary or because certain services were not covered or were not medically necessary. The recently enacted healthcare reform law and regulatory changes could impose further limitations on government and private payments to healthcare providers. In some cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in the event that weMedicare, Medicaid and another program managedother government sponsored payment programs. The financial impact on our tenants could restrict their ability to make rent payments to us.
Fraud and Abuse Laws.  There are various federal and state laws prohibiting fraudulent and abusive business practices by Grubb & Ellishealthcare providers who participate in, receive payments from or its affiliates wereare in a position to compete for the same tenants in negotiating leases, or a conflict could arisemake referrals in connection with government-sponsored healthcare programs, including the resaleMedicare and Medicaid programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. These laws include, but are not limited to:
the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral or recommendation for the ordering of any item or service reimbursed by a federal healthcare program, including Medicare or Medicaid;
the Federal Physician Self-Referral Prohibition, commonly referred to as the Stark Law, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;
the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;
the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts and to exclude violators from participating in federal healthcare programs; and
the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment Act of 2009, which protects the privacy and security of personal health information.
Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments to us.
Healthcare Licensure and Certification.  Some of our medical properties and their tenants may require a license or multiple licenses or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON would prevent a facility from operating in the manner intended by the tenant. These event that wecould adversely affect our tenants’ ability to make rent payments to us. State and another program managedlocal laws also may regulate plant expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by Grubb & Ellisrequiring a CON or its affiliates wereother similar approval. State CON laws are not uniform throughout the United States and are subject to attempt to sell similar properties atchange. We cannot predict the same time.
In addition,impact of state CON laws on our advisor will seek to reduce conflicts that may arise with respect to properties available for saledevelopment of facilities or rent by making prospective purchasers or tenants awarethe operations of all such properties. However, these conflicts cannot be fully avoided in that our advisor may establish differing compensation arrangements for employees at different properties or differing terms for resales or leasingtenants.

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GOVERNMENT REGULATIONS
Real Estate Ownership-Related Regulations
Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.
Costs of Compliance with the Americans with Disabilities Act.  Under the Americans with Disabilities Act of 1990, as amended, or the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited and we have only conducted investigations of a few of our properties to determine compliance. We may incur additional costs in connection with compliance with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.
Costs of Government Environmental Regulation and Private Litigation.  Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances and such person often must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.


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Use of Hazardous Substances by Some of Our Tenants.  Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require our tenants in their leases to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.
Other Federal, State and Local Regulations.  Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

SIGNIFICANT TENANTS
EMPLOYEES
As of December 31, 2008,2011, we had approximately 60 employees, none of whom is subject to a collective bargaining agreement.
TAX STATUS
The following discussion addresses U.S. federal income tax considerations related to our election to be subject to taxation as a REIT and the ownership and disposition of our common stock that may be material to holders of our stock. This discussion does not address any foreign, state, or local tax consequences of holding our stock. The provisions of the Internal Revenue Code of 1986, as amended, or the Code, concerning the U.S. federal income tax treatment of a REIT are highly technical and complex; the following discussion sets forth only certain aspects of those provisions. This discussion is intended to provide you with general information only and is not intended as a substitute for careful tax planning.
This summary is based on provisions of the Code, applicable final and temporary Treasury Regulations, judicial decisions, and administrative rulings and practice, all in effect as of the date of this prospectus, and should not be construed as legal or tax advice. No assurance can be given that future legislative or administrative changes or judicial decisions will not affect the accuracy of the descriptions or conclusions contained in this summary. In addition, any such changes may be retroactive and apply to transactions entered into prior to the date of their enactment, promulgation or release.

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Federal Income Taxation of HTA
We believe that we have qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2007 under Sections 856 through 860 of the Code for U.S. federal income tax purposes and we intend to continue to qualify to be taxed as a REIT. To continue to qualify as a REIT for U.S. federal income tax purposes, we must meet certain organizational and operational requirements, including a requirement to pay distributions to our stockholders of at least 90% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gains). As a REIT, we generally are not subject to U.S. federal income tax on net income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to U.S. federal income taxes on our taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service, or the IRS, grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our results of operations and net cash available for distribution to stockholders.
Notwithstanding the foregoing, even if we qualify for taxation as a REIT, we nonetheless may be subject to tax in certain circumstances, including the following:
we will be required to pay U.S. federal income tax on our undistributed REIT taxable income, including net capital gain;
we may be subject to the “alternative minimum tax;”
we may be subject to tax at the highest corporate rate on certain income from “foreclosure property” (generally, property acquired by reason of default on a lease or indebtedness held by us);
we will be subject to a 100% tax on net income from “prohibited transactions” (generally, certain sales or other dispositions of property, sometimes referred to as “dealer property,” held primarily for sale to customers in the ordinary course of business, other than foreclosure property) unless the gain is realized in a “taxable REIT subsidiary,” or TRS, or such property has been held by us for two years and certain other requirements are satisfied;
if we fail to satisfy the 75% gross income test or the 95% gross income test (discussed below), but nonetheless maintain our qualification as a REIT pursuant to certain relief provisions, we will be subject to a 100% tax on the greater of (i) the amount by which we fail the 75% gross income test or (ii) the amount by which we fail the 95% gross income test, in either case, multiplied by a fraction intended to reflect our profitability;
if we fail to satisfy any of the asset tests, other than the 5% or the 10% asset tests that qualify under a de minimis exception, and the failure qualifies under the general exception, as described below under “— Qualification as a REIT — Asset Tests,” then we will have to pay an excise tax equal to the greater of (i) $50,000 and (ii) an amount determined by multiplying the net income generated during a specified period by the assets that caused the failure by the highest U.S. federal income tax applicable to corporations;
if we fail to satisfy any REIT requirements other than the income test or asset test requirements, described below under “— Qualification as a REIT — Income Tests” and “— Qualification as a REIT — Asset Tests,” respectively, and we qualify for a reasonable cause exception, then we will have to pay a penalty equal to $50,000 for each such failure;
we will be subject to a 4% excise tax if certain distribution requirements are not satisfied;
we may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders, as described below in “— Recordkeeping Requirements;”
if we dispose of an asset acquired by us from a C corporation in a transaction in which we took the C corporation’s tax basis in the asset, we may be subject to tax at the highest regular corporate rate on the appreciation inherent in such asset as of the date of acquisition by us;
we will be required to pay a 100% tax on any redetermined rents, redetermined deductions, and excess interest. In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our non-TRS tenants by one of our TRSs. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations; and
income earned by our TRSs or any other subsidiaries that are taxable as C corporations will be subject to tax at regular corporate rates.

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No assurance can be given that the amount of any such taxes will not be substantial. In addition, we and our consolidated properties accountedsubsidiaries may be subject to a variety of taxes, including payroll taxes and state, local and foreign income, property and other taxes on assets and operations. We could also be subject to tax in situations and on transactions not presently contemplated.
Qualification as a REIT
In General
The REIT provisions of the Code apply to a domestic corporation, trust, or association (i) that is managed by one or more trustees or directors, (ii) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest, (iii) that properly elects to be taxed as a REIT and such election has not been terminated or revoked, (iv) that is neither a financial institution nor an insurance company, (v) that uses a calendar year for 10.0%U.S. federal income tax purposes and complies with applicable recordkeeping requirements, and (vi) that meets the additional requirements discussed below.
Preferential dividends cannot be used to satisfy the REIT distribution requirements. In 2007, 2008 and through July 2009, shares of common stock issued pursuant to our DRIP were treated as issued as of the first day following the close of the month for which the distributions were declared, and not on the date that the cash distributions were paid to stockholders not participating in our DRIP. Because we declare distributions on a daily basis, including with respect to shares of common stock issued pursuant to our DRIP, the IRS could take the position that distributions paid by us during these periods were preferential. In addition, during the six months beginning September 2009 through February 2010, we paid certain IRA custodial fees with respect to IRA accounts that invested in our shares. The payment of such amounts could also be treated as dividend distributions to the IRAs, and therefore could result in our being treated as having made additional preferential dividends to our stockholders.
We have entered into a closing agreement with the IRS, or the Closing Agreement, pursuant to which (i) IRS agreed not to challenge the Company's dividends as preferential for its taxable years 2007, 2008, 2009, and 2010 as a result of the matters described above, and (ii) the Company paid a compliance fee in an immaterial amount, to the IRS. In accordance with the terms of the Closing Agreement, any reimbursement to the Company for its payment of this compliance fee will be considered gross income to the Company. As a result of the Closing Agreement, we continue to qualify as a REIT and to satisfy our distribution requirements.
Ownership Tests
In order to qualify as a REIT, commencing with our second REIT taxable year, (i) the beneficial ownership of our stock must be held by 100 or more persons during at least 335 days of a 12-month taxable year (or during a proportionate part of a taxable year of less than 12 months) for each of our taxable years and (ii) during the last half of each taxable year, no more than 50% in value of our stock may be owned, directly or indirectly, by or for five or fewer individuals (the “5/50 Test”). Stock ownership for purposes of the 5/50 Test is determined by applying the constructive ownership provisions of Section 544(a) of the Code, subject to certain modifications. The term “individual” for purposes of the 5/50 Test includes a private foundation, a trust providing for the payment of supplemental unemployment compensation benefits, and a portion of a trust permanently set aside or to be used exclusively for charitable purposes. A “qualified trust” described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code generally is not treated as an individual; rather, stock held by it is treated as owned proportionately by its beneficiaries.
We believe that we have satisfied and will continue to satisfy the above ownership requirements. In addition, our charter restricts ownership and transfers of our stock that would violate these requirements, although these restrictions may not be effective in all circumstances to prevent a violation. We will be deemed to have satisfied the 5/50 Test for a particular taxable year if we have complied with all the requirements for ascertaining the ownership of our outstanding stock in that taxable year and have no reason to know that we have violated the 5/50 Test.
Income Tests
In order to maintain qualification as a REIT, we must annually satisfy two gross income requirements:
(1) first, at least 75% of our gross income (excluding gross income from prohibited transactions and certain other income and gains as described below) for each taxable year must be derived, directly or indirectly, from investments relating to real property or mortgages on real property or from certain types of temporary investments (or any combination thereof). Qualifying income for purposes of this 75% gross income test generally includes: (a) rents from real property, (b) interest on obligations secured by mortgages on real property or on interests in real property, (c) dividends or other distributions on, and gain from the sale of, shares in other REITs, (d) gain from the sale of real estate assets (other than gain from prohibited transactions), (e) income and gain derived from foreclosure property, and (f) qualified temporary investment income (see “Qualified Temporary Investment Income” below); and

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(2) second, in general, at least 95% of our gross income (excluding gross income from prohibited transactions and certain other income and gains as described below) for each taxable year must be derived from sources qualifying under the 75% gross income test and from other types of dividends and interest, gain from the sale or disposition of stock or securities that are not dealer property, or any combination of the above.
Rents we receive will qualify as rents from real property only if several conditions are met. First, the amount of rent generally must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term “rents from real property” solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, rents received from a “related party tenant” will not qualify as rents from real property in satisfying the gross income tests unless the tenant is a TRS and either (i) at least 90% of the property is leased to unrelated tenants and the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space, or (ii) the property leased is a “qualified lodging facility,” as defined in Section 856(d)(9)(D) of the Code, or a “qualified health care property,” as defined in Section 856(e)(6)(D)(i), and certain other conditions are satisfied. A tenant is a related party tenant if the REIT, or an actual or constructive owner of 10% or more of the REIT, actually or constructively owns 10% or more of the tenant. Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.
Generally, for rents to qualify as rents from real property, we may provide directly only an insignificant amount of services, unless those services are “usually or customarily rendered” in connection with the rental of real property and not otherwise considered “rendered to the occupant” under the applicable tax rules. Accordingly, we may not provide “impermissible services” to tenants (except through an independent contractor from whom we derive no revenue and that meets other requirements or through a TRS) without giving rise to “impermissible tenant service income.” Impermissible tenant service income is deemed to be at least 150% of the direct cost to us of providing the service. If the impermissible tenant service income exceeds 1% of our total income from a property, then all of the income from that property will fail to qualify as rents from real property. If the total amount of impermissible tenant service income from a property does not exceed 1% of our total income from the property, the services will not disqualify any other income from the property that qualifies as rents from real property, but the impermissible tenant service income will not qualify as rents from real property.
We do not intend to charge significant rent that is based in whole or in part on the income or profits of any person, derive significant rents from related party tenants, derive rent attributable to personal property leased in connection with real property that exceeds 15% of the total rents from that property, or derive impermissible tenant service income that exceeds 1% of our total income from any property if the treatment of the rents from such property as nonqualified rents could cause us to fail to qualify as a REIT.
Distributions that we receive from a TRS will be classified as dividend income to the extent of the earnings and profits of the TRS. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not under the 75% gross income test. Any dividends received by us from a REIT will be qualifying income for purposes of both the 95% and 75% gross income tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests, we may nevertheless qualify as a REIT for a particular year if we are entitled to relief under certain provisions of the Code. Those relief provisions generally will be available if our failure to meet such tests is due to reasonable cause and not due to willful neglect and we file a schedule describing each item of our gross income for such year(s) in accordance with the applicable Treasury Regulations. It is not possible, however, to state whether in all circumstances we would be entitled to the benefit of these relief provisions.
Foreclosure property.  Foreclosure property is real property (including interests in real property) and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or process of law, after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was made, entered into or acquired by the REIT at a time when default was not imminent or anticipated and (3) for which such REIT makes an election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property is held primarily for sale to customers in the ordinary course of a trade or business.

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Hedging transactions.  We may enter into hedging transactions with respect to one or more of our aggregate annual rental revenue.assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swaps or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent as may be provided by future Treasury Regulations, any income from a hedging transaction which is clearly identified as such before the close of the day on which it was acquired, originated or entered into, including gain from the disposition or termination of such a transaction, will not constitute gross income for purposes of the 95% and 75% gross income tests, provided that the hedging transaction is entered into (i) in the normal course of our business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to indebtedness incurred or to be incurred by us to acquire or carry real estate assets or (ii) primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests (or any property which generates such income or gain). To the extent we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both the 75% and 95% gross income tests. We intend to structure and monitor our hedging transactions so that such transactions do not jeopardize our ability to qualify as a REIT.
Qualified temporary investment income.  Income derived from certain types of temporary stock and debt investments made with the proceeds of this offering, not otherwise treated as qualifying income for the 75% gross income test, generally will nonetheless constitute qualifying income for purposes of the 75% gross income test for the year following this offering. More specifically, qualifying income for purposes of the 75% gross income test includes “qualified temporary investment income,” which generally means any income that is attributable to stock or a debt instrument, is attributable to the temporary investment of new equity capital and certain debt capital, and is received or accrued during the one-year period beginning on the date on which the REIT receives such new capital. After the one year period following this offering, income from investments of the proceeds of this offering will be qualifying income for purposes of the 75% income test only if derived from one of the other qualifying sources enumerated above.
GEOGRAPHIC CONCENTRATIONAsset Tests
AsAt the close of December 31, 2008,each quarter of each taxable year, we had interests in seven consolidated properties located in Texas, which accounted for 17.1%must also satisfy four tests relating to the nature of our assets. First, real estate assets, cash and cash items, and government securities must represent at least 75% of the value of our total rental income and interests in five consolidated properties located in Indiana, which accounted for 15.5%assets. Second, not more than 25% of our total rental income. Asassets may be represented by securities other than those in the 75% asset class. Third, of December 31, 2008, Medical Portfolio 3, locatedthe investments that are not included in Indiana, accounted for 11.3%the 75% asset class and that are not securities of our aggregate total rental income. This rental income is based on contractual base rent from leases in effect asTRSs, (i) the value of December 31, 2008. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.
EMPLOYEES
As of December 31, 2008, we hadany one employee, Scott D. Peters, our Chief Executive Officer, President and Chairmanissuer’s securities owned by us may not exceed 5% of the boardvalue of directors. Mr. Peters manages our day-to-day operationstotal assets and oversees(ii) we may not own more than 10% by vote or by value of any one issuer’s outstanding securities. For purposes of the 10% value test, debt instruments issued by a partnership are not classified as “securities” to the extent of our transitioninterest as a partner in such partnership (based on our proportionate share of the partnership’s equity interests and certain debt securities) or if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test. For purposes of the 10% value test, the term “securities” also does not include debt securities issued by another REIT, certain “straight debt” securities (for example, qualifying debt securities of a corporation of which we own no more than a de minimis amount of equity interest), loans to self-management.
Since December 31, 2008, we have hired four additional employees, including a Chief Accounting Officer. In connection withindividuals or estates, and accrued obligations to pay rent. Fourth, securities of our transition to self-management,TRSs cannot represent more than 25% of our total assets. Although we intend to hiremeet these asset tests, no assurance can be given that we will be able to do so. For purposes of these asset tests, we are treated as holding our proportionate share of our subsidiary partnerships’ assets. Also, for purposes of these asset tests, the term “real estate assets” includes any property that is not otherwise a real estate asset and that is attributable to the temporary investment of new capital, but only if such property is stock or a debt instrument, and only for the one-year period beginning on the date the REIT receives such capital. “Real estate assets” include our investments in stocks of other REITs but do not include stock of any real estate company, or other company, that does not qualify as a REIT (unless eligible for the special rule for temporary investment of new capital).
We will monitor the status of our assets for purposes of the various asset tests and will endeavor to manage our portfolio in order to comply at all times with such tests. If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT status if one of the following exceptions applies:
we satisfied the asset tests at the end of the preceding calendar quarter, and the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets; or
we eliminate any discrepancy within 30 days after the close of the calendar quarter in which it arose.

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Moreover, if we fail to satisfy the asset tests at the end of a calendar quarter during a taxable year, we will not lose our REIT status if one of the following additional employeesexceptions applies:
De Minimis Exception:  The failure is due to a violation of the 5% or 10% asset tests referenced above and independent consultantsis “de minimis” (meaning that the failure is one that arises from our ownership of assets the total value of which does not exceed the lesser of 1% of the total value of our assets at the end of the quarter in which the failure occurred and $10 million), and we either dispose of the assets that caused the failure or otherwise satisfy the asset tests within six months after the last day of the quarter in which our identification of the failure occurred; or
General Exception:  All of the following requirements are satisfied: (i) the failure is not due to servethe above De Minimis Exception, (ii) the failure is due to reasonable cause and not willful neglect, (iii) we file a schedule in key organizational positionsaccordance with Treasury Regulations providing a description of each asset that caused the failure, (iv) we either dispose of the assets that caused the failure or otherwise satisfy the asset tests within six months after the last day of the quarter in which our identification of the failure occurred, and (v) we pay an excise tax as described above in “— Taxation of Our Company.”
Annual Distribution Requirements
In order to fulfillqualify as a REIT, each taxable year we must distribute dividends (other than capital gain dividends) to our stockholders in an amount at least equal to (A) the sum of (i) 90% of our REIT taxable income, determined without regard to the dividends paid deduction and by excluding any net capital gain, and (ii) 90% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of non-cash income. We generally must pay such distributions in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for such year and if paid on or before the first regular dividend payment after such declaration. For these purposes, if we declare a dividend in October, November, or December, payable to stockholders of record on a day in such months, and distribute such dividend in the following January, it will be treated as having been paid on December 31 of the year in which it was declared.
To the extent that we do not distribute all of our net capital gain and taxable income, we will be subject to U.S. federal, state and local tax on the undistributed amount at regular corporate income tax rates. Furthermore, if we should fail to distribute during each calendar year at least the sum of (i) 85% of our REIT taxable income (subject to certain adjustments) for such year, (ii) 95% of our capital gain net income for such year, and (iii) 100% of any corresponding undistributed amounts from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of such required distribution over the sum of amounts actually distributed plus retained income from such taxable year on which we paid corporate income tax.
Under certain circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our stockholders in a later year that may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends; however, we will be required to pay interest based upon the amount of any deduction taken for deficiency dividends. Amounts paid as deficiency dividends are generally treated as taxable income for U.S. federal income tax purposes.
In order to satisfy the REIT distribution requirements, the dividends we pay must not be “preferential” within the meaning of the Code. A dividend determined to be preferential will not qualify for the dividends paid deduction. To avoid paying preferential dividends, we must treat every stockholder of a class of stock with respect to which we make a distribution the same as every other responsibilities, including accounting, strategic investingstockholder of that class, and corporatewe must not treat any class of stock other than according to its dividend rights as a class. Pursuant to an IRS ruling, the prohibition on preferential dividends does not prohibit REITs from offering shares under a dividend reinvestment plan at discounts of up to 5% of fair market value, but a discount in excess of 5% of the fair market value of the shares would be considered a preferential dividend.
We may retain and securities compliance.pay income tax on net long-term capital gains we received during the tax year. To the extent we so elect, (i) each stockholder must include in its income (as long-term capital gain) its proportionate share of our undistributed long-term capital gains, (ii) each stockholder is deemed to have paid, and receives a credit for, its proportionate share of the tax paid by us on the undistributed long-term capital gains, and (iii) each stockholder’s basis in its stock is increased by the included amount of the undistributed long-term capital gains less their share of the tax paid by us.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Financial Accounting Standards Board, or FASB, issued StatementTo qualify as a REIT, we may not have, at the end of Financial Accounting Standards, SFAS No. 131,Disclosures about Segments of an Enterpriseany taxable year, any undistributed earnings and Related Information, which establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments.profits accumulated in any non-REIT taxable year. We have determinedbelieve that we have one reportable segment,not had any non-REIT earnings and profits at the end of any taxable year and we intend to distribute any non-REIT earnings and profits that we accumulate before the end of any taxable year in which we accumulate such earnings and profits.

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Failure to Qualify
If we fail to qualify as a REIT and such failure is not an asset test or income test failure subject to the cure provisions described above, we generally will be eligible for a relief provision if the failure is due to reasonable cause and not willful neglect and we pay a penalty of $50,000 with activities relatedrespect to investingsuch failure.
If we fail to qualify for taxation as a REIT in medical office buildings, healthcare related facilities, quality commercial office propertiesany taxable year and other realno relief provisions apply, we generally will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Distributions to our stockholders in any year in which we fail to qualify as a REIT will not be deductible by us nor will they be required to be made. In such event, to the extent of our current or accumulated earnings and profits, all distributions to our stockholders will be taxable as dividend income. Subject to certain limitations in the Code, corporate stockholders may be eligible for the dividends received deduction, and individual, trust and estate related assets. stockholders may be eligible to treat the dividends received from us as qualified dividend income taxable as net capital gains, under the provisions of Section 1(h)(11) of the Code, through the end of 2012. Unless entitled to relief under specific statutory provisions, we also will be ineligible to elect to be taxed as a REIT again prior to the fifth taxable year following the first year in which we failed to qualify as a REIT under the Code.
Our investments in real estate and real estate related assets are geographically diversified and management evaluates operating performancequalification as a REIT for U.S. federal income tax purposes will depend on an individual portfolio level. However, as eachour continuing to meet the various requirements summarized above governing the ownership of our outstanding stock, the nature of our assets, the sources of our income, and the amount of our distributions to our stockholders. Although we intend to operate in a manner that will enable us to comply with such requirements, there can be no certainty that such intention will be realized. In addition, because the relevant laws may change, compliance with one or more of the REIT requirements may become impossible or impracticable for us.
Taxation of U.S. Stockholders
The term “U.S. stockholder” means an investor in our stock that, for U.S. federal income tax purposes, is (i) a citizen or resident of the United States, (ii) a corporation or other entity treated as a corporation that is created or organized in or under the laws of the United States, any of its states or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (a) if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) that has a valid election in effect under the applicable Treasury Regulations to be treated as a U.S. person under the Code. If a partnership, including any entity treated as a partnership for U.S. federal income tax purposes, holds our stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our stock, you are urged to consult your tax advisor regarding the consequences of the ownership and disposition of shares of our stock by the partnership. This summary assumes that stockholders hold our stock as capital assets for U.S. federal income tax purposes, which generally means property held for investments.
This discussion does not address all aspects of federal income taxation that may apply to persons that are subject to special treatment under the Code, such as (i) insurance companies; (ii) financial institutions or broker-dealers; (iii) persons who mark-to-market our stock; (iv) subchapter S corporations; (v) U.S. stockholders whose functional currency is not the U.S. dollar; (vi) regulated investment companies; (x) holders who receive our stock through the exercise of employee stock options or otherwise as compensation; (vii) persons holding shares of our stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment; and (viii) persons subject to the alternative minimum tax provisions of the Code.
Distributions
Distributions by us, other than capital gain dividends, will constitute ordinary dividends to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. In general, these dividends will be taxable as ordinary income and will not be eligible for the dividends-received deduction for corporate stockholders. Our ordinary dividends generally will not qualify as “qualified dividend income” currently taxed as net capital gain for U.S. stockholders that are individuals, trusts, or estates. However, provided we properly designate the distributions, distributions to U.S. stockholders that are individuals, trusts, or estates generally will constitute qualified dividend income to the extent the U.S. stockholder satisfies certain holding period requirements and to the extent the dividends are attributable to (i) qualified dividend income we receive from other corporations during the taxable year, including from our TRSs, and (ii) our undistributed earnings or built-in gains taxed at the corporate level during the immediately preceding year. We do not anticipate distributing a significant amount of qualified dividend income. Absent an extension, the favorable rates for qualified dividend income will not apply for taxable years beginning after December 31, 2012.

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To the extent that we make a distribution in excess of our current and accumulated earnings and profits (a “return of capital distribution”), the distribution will be treated first as a tax-free return of capital, reducing the tax basis in a U.S. stockholder’s stock. To the extent a return of capital distribution exceeds a U.S. stockholder’s tax basis in its stock, the distribution will be taxable as capital gain realized from the sale of such stock.
Dividends declared by us in October, November or December and payable to a stockholder of record on a specified date in any such month shall be treated both as paid by us and as received by the stockholder on December 31, provided that the dividend is actually paid by us during January of the following calendar year.
We will be treated as having sufficient earnings and profits to treat as a dividend any distribution up to the amount required to be distributed in order to avoid imposition of the 4% excise tax generally applicable to REITs if certain distribution requirements are not met. Moreover, any deficiency dividend will be treated as an ordinary or a capital gain dividend, as the case may be, regardless of our earnings and profits at the time the distribution is actually made. As a result, stockholders may be required to treat certain distributions as taxable dividends that would otherwise result in a tax-free return of capital.
Distributions that are properly designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year) without regard to the period for which the stockholder has held its stock. However, corporate stockholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. In addition, U.S. stockholders may be required to treat a portion of any capital gain dividend as “unrecaptured Section 1250 gain,” taxable at a maximum rate of 25%, if we incur such gain. Capital gain dividends are not eligible for the dividends-received deduction for corporations.
The REIT provisions of the Code do not require us to distribute our long-term capital gain, and we may elect to retain and pay income tax on our net long-term capital gains received during the taxable year. If we so elect for a taxable year, our stockholders would include in income as long-term capital gains their proportionate share of designated retained net long-term capital gains for the taxable year. A U.S. stockholder would be deemed to have paid its share of the tax paid by us on such undistributed capital gains, which would be credited or refunded to the stockholder. The U.S. stockholder’s basis in its stock would be increased by the amount of undistributed long-term capital gains (less the capital gains tax paid by us) included in the U.S. stockholder’s long-term capital gains.
Passive Activity Loss and Investment Interest Limitations; No Pass Through of Losses
Our distributions and gain from the disposition of our stock will not be treated as passive activity income and, therefore, U.S. stockholders will not be able to apply any “passive losses” against such income. With respect to non-corporate U.S. stockholders, our distributions (to the extent they do not constitute a return of capital) that are taxed at ordinary income rates will generally be treated as investment income for purposes of the investment interest limitation; however, net capital gain from the disposition of our stock (or distributions treated as such), capital gain dividends, and dividends taxed at net capital gains rates generally will be excluded from investment income except to the extent the U.S. stockholder elects to treat such amounts as ordinary income for U.S. federal income tax purposes. U.S. stockholders may not include in their own U.S. federal income tax returns any of our net operating or net capital losses.
Sale or Disposition of Stock
In general, any gain or loss realized upon a taxable disposition of shares of our stock by a stockholder that is not a dealer in securities will be a long-term capital gain or loss if the stock has been held for more than one year and otherwise will be a short-term capital gain or loss. However, any loss upon a sale or exchange of the stock by a stockholder who has held such stock for six months or less (after applying certain holding period rules) will be treated as a long-term capital loss to the extent of our distributions or undistributed capital gains required to be treated by such stockholder as long-term capital gain. All or a portion of any loss realized upon a taxable disposition of shares of our stock may be disallowed if the taxpayer purchases other shares of our common stock within 30 days before or after the disposition.
Medicare Tax on Unearned Income
For taxable years beginning after December 31, 2012, certain U.S. stockholders that are individuals, estates or trusts and have modified adjusted gross income exceeding certain thresholds will be required to pay an additional 3.8% tax (the “Medicare Tax”) on, among other things, certain dividends on and capital gains from the sale or other disposition of stock. U.S. stockholders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of the Medicare Tax on their ownership and disposition of our stock.


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Taxation of U.S. Tax-Exempt Stockholders
In General
In general, a U.S. tax-exempt organization is exempt from U.S. federal income tax on its income, except to the extent of its “unrelated business taxable income” or UBTI, which is defined by the Code as the gross income derived from any trade or business which is regularly carried on by a tax-exempt entity and unrelated to its exempt purposes, less any directly connected deductions and subject to certain modifications. For this purpose, the Code generally excludes from UBTI any gain or loss from the sale or other disposition of property (other than stock in trade or property held primarily for sale in the ordinary course of a trade or business), dividends, interest, rents from real property, and certain other items. However, a portion of any such gains, dividends, interest, rents, and other items generally is UBTI to the extent derived from debt-financed property, based on the amount of “acquisition indebtedness” with respect to such debt-financed property.
Distributions we make to a tax-exempt employee pension trust or other domestic tax-exempt stockholder or gains from the disposition of our stock held as capital assets generally will not constitute UBTI unless the exempt organization’s stock is debt-financed property (e.g., the stockholder has incurred “acquisition indebtedness” with respect to such stock). However, if we are a “pension-held REIT,” this general rule may not apply to distributions to certain pension trusts that are qualified trusts and that hold more than 10% (by value) of our stock. We will be treated as a “pension-held REIT” if (i) treating qualified trusts as individuals would cause us to fail the 5/50 Test (as defined above) and (ii) we are “predominantly held” by qualified trusts. We will be “predominantly held” by qualified trusts if either (i) a single qualified trust holds more than 25% by value of our stock or (ii) one or more qualified trusts, each owning more than 10% by value of our stock, hold in the aggregate more than 50% by value of our stock. In the event we are a pension-held REIT, the percentage of any dividend received from us treated as UBTI would be equal to the ratio of (a) the gross UBTI (less certain associated expenses) earned by us (treating us as if we were a qualified trust and, therefore, subject to tax on UBTI) to (b) our total gross income (less certain associated expenses). A de minimis exception applies where the ratio set forth in the preceding sentence is less than 5% for any year; in that case, no dividends are treated as UBTI. We cannot assure you that we will not be treated as a pension-held REIT.
Special Issues
Social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans that are exempt from taxation under paragraphs (7), (9), (17), and (20), respectively, of Section 501(c) of the Code are subject to different UBTI rules, which generally will require them to characterize distributions from us as UBTI.
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of non-U.S. stockholders, such as nonresident alien individuals, foreign corporations, and foreign trusts and estates (“non-U.S. stockholders”), are complex. This section is only a partial discussion of such rules. This discussion does not attempt to address the considerations that may be relevant for non-U.S. stockholders that are partnerships or other pass-through entities, that hold their stock through intermediate entities, that have special statuses (such as sovereigns), or that otherwise are subject to special rules. Prospective non-U.S. stockholders are urged to consult their tax advisors to determine the impact of U.S. federal, state, local and foreign income tax laws on their ownership of our stock, including any reporting requirements.
Distributions
A non-U.S. stockholder that receives a distribution that is not attributable to gain from our sale or exchange of “United States real property interests” (as defined below) and that we do not designate as a capital gain dividend generally will recognize ordinary income to the extent that we pay the distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax treaty reduces or eliminates the tax. Under some treaties, lower withholding rates do not apply to dividends from REITs or are available in limited circumstances. However, if a distribution is treated as effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business, the non-U.S. stockholder generally will be subject to U.S. federal income tax on the distribution at graduated rates (in the same manner as U.S. stockholders are taxed on distributions) and also may be subject to the 30% branch profits tax in the case of a corporate non-U.S. stockholder. We plan to withhold U.S. income tax at the rate of 30% on the gross amount of any distribution paid to a non-U.S. stockholder that is neither a capital gain dividend nor a distribution that is attributable to gain from the sale or exchange of “United States real property interests” unless either (i) a lower treaty rate or special provision of the Code (e.g., Section 892) applies and the non-U.S. stockholder files with us any required IRS Form W-8 (for example, an IRS Form W-8BEN) evidencing eligibility for that reduced rate or (ii) the non-U.S. stockholder files with us an IRS Form W-8ECI claiming that the distribution is effectively connected income.

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A non-U.S. stockholder generally will not incur tax on a return of capital distribution in excess of our current and accumulated earnings and profits that is not attributable to the gain from our disposition of a “United States real property interest” if the excess portion of the distribution does not exceed the adjusted basis of the non-U.S. stockholder’s stock. Instead, the excess portion of the distribution will reduce the
adjusted basis of the stock. However, a non-U.S. stockholder will be subject to tax on such a distribution that exceeds both our current and accumulated earnings and profits and the non-U.S. stockholder’s adjusted basis in the stock, if the non-U.S. stockholder otherwise would be subject to tax on gain from the sale or disposition of its stock, as described below. Because we generally cannot determine at the time we make a distribution whether or not the distribution will exceed our current and accumulated earnings and profits, we normally will withhold tax on the entire amount of any distribution at the same rate as we would withhold on a dividend. However, a non-U.S. stockholder may file a U.S. federal income tax return and obtain a refund from the IRS of amounts that we withhold if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.
We may be required to withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any distribution that is neither attributable to the gain from our disposition of a “United States real property interest” nor designated by us as a capital gain dividend, to the extent that we do not do so, we will withhold at a rate of 10% on any portion of a distribution not subject to withholding at a rate of 30%.
Subject to the exception discussed below for 5% or smaller holders of regularly traded classes of stock, a non-U.S. stockholder will incur tax on distributions that are attributable to gain from our sale or exchange of “United States real property interests” under special provisions of the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, regardless of whether we designate such distributions as capital gain distributions. The term “United States real property interests” includes interests in U.S. real property and stock in U.S. corporations at least 50% of whose assets consist of interests in U.S. real property. Under those rules, a non-U.S. stockholder is taxed on distributions attributable to gain from sales of United States real property interests as if the gain were effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business. A non-U.S. stockholder thus would be required to file a U.S. federal income tax return to report such income and would be taxed on such a distribution at the normal capital gain rates applicable to U.S. stockholders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A corporate non-U.S. stockholder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. We generally must withhold 35% of any distribution subject to these rules (“35% FIRPTA Withholding”). A non-U.S. stockholder may receive a credit against its tax liability for the amount we withhold.
A non-U.S. stockholder that owns no more than 5% of our stock at all times during the one-year period ending on the date of a distribution would not be subject to FIRPTA, branch profits tax or 35% FIRPTA Withholding with respect to a distribution on stock that is attributable to gain from our sale or exchange of United States real property interests, if our stock were regularly traded on an established securities market in the United States. Instead, any such distributions made to such non-U.S. stockholder would be subject to the general withholding rules discussed above, which generally impose a withholding tax equal to 30% of the gross amount of each distribution (unless reduced by treaty). Our shares are not traded on an established securities market.
Distributions that are designated by us as capital gain dividends, other than those attributable to the disposition of a U.S. real property interest, generally should not be subject to U.S. federal income taxation unless:
such distribution is effectively connected with the non-U.S. stockholder’s U.S. trade or business and, if certain treaties apply, is attributable to a U.S. permanent establishment maintained by the non-U.S. stockholder, in which case the non-U.S. stockholder will be subject to tax on a net basis in a manner similar economic characteristics, tenants,to the taxation of U.S. stockholders with respect to such gain, except that a holder that is a foreign corporation may also be subject to the additional 30% branch profits tax; or
the non-U.S. stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and productshas a “tax home” in the United States, in which case such nonresident alien individual generally will be subject to a 30% tax on the individual’s net U.S. source capital gain.
It is not entirely clear to what extent we are required to withhold on distributions to non-U.S. stockholders that are not treated as ordinary income and services, our assetsare not attributable to the disposition of a United States real property interest. Unless the law is clarified to the contrary, we will generally withhold and remit to the IRS 35% of any distribution to a non-U.S. stockholder that is designated as a capital gain dividend (or, if greater, 35% of a distribution that could have been aggregated into


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one reportable segmentdesignated as a capital gain dividend). Distributions can be designated as capital gain dividends to the extent of our net capital gain for the years endedtaxable year of the distribution. The amount withheld is creditable against the non-U.S. stockholder’s U.S. federal income tax liability.

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Dispositions
If gain on the sale of the stock were taxed under FIRPTA, a non-U.S. stockholder would be taxed on that gain in the same manner as U.S. stockholders with respect to that gain, subject to applicable alternative minimum tax, and a special alternative minimum tax in the case of nonresident alien individuals. A non-U.S. stockholder generally will not incur tax under FIRPTA on a sale or other disposition of our stock if we are a “domestically controlled qualified investment entity,” which requires that, during the shorter of the period since our formation and the five-year period ending on the date of the distribution or disposition, non-U.S. stockholders hold, directly or indirectly, less than 50% in value of our stock and we are qualified as a REIT. We cannot assure you that we will be a domestically controlled qualified investment entity. In addition, the gain from a sale of our stock by a non-U.S. stockholder will not be subject to tax under FIRPTA if (i) our stock is considered regularly traded under applicable Treasury Regulations on an established securities market, such as the New York Stock Exchange, and (ii) the non-U.S. stockholder owned, actually or constructively, 5% or less of our stock at all times during a specified testing period. Our shares are not traded on an established securities market.
In addition, even if we are a domestically controlled qualified investment entity, upon a disposition of our stock, a non-U.S. stockholder may be treated as having gain from the sale or exchange of a United States real property interest if the non-U.S. stockholder (i) disposes of an interest in our stock during the 30-day period preceding the ex-dividend date of a distribution, any portion of which, but for the disposition, would have been treated as gain from sale or exchange of a United States real property interest, and (ii) directly or indirectly acquires, enters into a contract or option to acquire, or is deemed to acquire, other shares of our stock within 30 days before or after such ex-dividend date. The foregoing rule does not apply if the exception described above for dispositions by 5% or smaller holders of regularly traded classes of stock is satisfied.
Furthermore, a non-U.S. stockholder generally will incur tax on gain not subject to FIRPTA if (i) the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business and, if certain treaties apply, is attributable to a U.S. permanent establishment maintained by the non-U.S. stockholder, in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain, or (ii) the non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will generally incur a 30% tax on his or her net U.S. source capital gains.
Purchasers of our stock from a non-U.S. stockholder generally will be required to withhold and remit to the IRS 10% of the purchase price unless at the time of purchase (i) any class of our stock is regularly traded on an established securities market in the United States (subject to certain limits if the stock sold are not themselves part of such a regularly traded class) or (ii) we are a domestically controlled qualified investment entity. The non-U.S. stockholder may receive a credit against its tax liability for the amount withheld.
Information Reporting Requirements and Backup Withholding Tax
We will report to our U.S. stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a U.S. stockholder may be subject to backup withholding at the current rate of 28% with respect to distributions paid, unless such stockholder (i) is a corporation or other exempt entity and, when required, proves its status or (ii) certifies under penalties of perjury that the taxpayer identification number the stockholder has furnished to us is correct and the stockholder is not subject to backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. stockholder that does not provide us with its correct taxpayer identification number also may be subject to penalties imposed by the IRS.
We will also report annually to the IRS and to each non-U.S. stockholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. stockholder resides under the provisions of an applicable income tax treaty. A non-U.S. stockholder may be subject to back-up withholding unless applicable certification requirements are met.
New reporting requirements generally will apply with respect to dispositions of REIT shares acquired after 2010 (2011 in the case of shares acquired in connection with a distribution reinvestment plan). Brokers that are required to report the gross proceeds from a sale of shares on Form 1099-B will also be required to report the customer’s adjusted basis in the shares and whether any gain or loss with respect to the shares is long-term or short-term. In some caes, there may be alternative methods of determining the basis in shares that are disposed of, in which case your broker will apply a default method of its choosing if you do not indicate which method you choose to have applied. You should consult with your own tax advisor regarding the new reporting requirements and your election options.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.

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Additional U.S. Federal Income Tax Withholding Rules
Additional U.S. federal income tax withholding rules apply to certain payments made after December 31, 20082013 to foreign financial institutions and 2007certain other non-U.S. entities. A withholding tax of 30% would apply to dividend payments made after December 31, 2013 and the gross proceeds of a disposition of our stock paid to certain foreign entities after December 31, 2014, unless various information reporting requirements are satisfied. For these purposes, a foreign financial institution generally is defined as any non-U.S. entity that (i) accepts deposits in the ordinary course of a banking or similar business, (ii) as a substantial portion of its business, holds financial assets for the period from April 28, 2006 (Dateaccount of Inception) throughothers, or (iii) is engaged or holds itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such assets. Prospective investors are encouraged to consult their tax advisors regarding the implications of these rules with respect to their investment in our stock, as well as the status of any related federal regulations.
Sunset of Reduced Tax Rate Provisions
Several of the tax considerations described herein are subject to a sunset provision. The sunset provisions generally provide that for taxable years beginning after December 31, 2006.2012, certain provisions that are currently in the Code will revert back to a prior version of those provisions. These provisions include provisions related to the reduced maximum U.S. federal income tax rate for long-term capital gains of 15% (rather than 20%) for taxpayers taxed at individual rates, the application of the 15% U.S. federal income tax rate for qualified dividend income, and certain other tax rate provisions described herein. The impact of this reversion generally is not discussed herein. Prospective stockholders are urged to consult their tax advisors regarding the effect of sunset provisions on an investment in our stock.
Legislative or Other Actions Affecting REITs
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. No assurance can be given as to whether, when, or in what form, the U.S. federal income tax laws applicable to us and our stockholders may be enacted. Changes to the U.S. federal tax laws and interpretations of federal tax laws could adversely affect an investment in our stock.
State, Local and Foreign Tax
We may be subject to state, local and foreign tax in states, localities and foreign countries in which we do business or own property. The tax treatment applicable to us and our stockholders in such jurisdictions may differ from the U.S. federal income tax treatment described above.

BOARD REVIEW OF OUR INVESTMENT POLICIES
Our board of directors has established written policies on investments and borrowing. Our board is responsible for monitoring the administrative procedures, investment operations and performance of our company and our management to ensure such policies are carried out, and that such policies are updated and adjusted consistent with our charter, our strategic plan and business model, and any changes in law or regulation. Our charter requires that our independent directors review our investment policies at least annually to determine that our policies are in the best interest of our stockholders. Each determination and the basis thereof is required to be set forth in the minutes of our applicable meetings of our directors. Implementation of our investment policies also may vary as new investment techniques are developed.
As required by our charter, our independent directors have reviewed our policies referred to above and determined that they are in the best interest of our stockholders because they provide the basis for and increase the likelihood that we will be able to acquire a diversified portfolio of stable income producing properties, thereby properly managing risk and creating stable yield and long term value in our portfolio, and they define the attributes we seek when evaluating the sufficiency of our acquisition opportunities. Our implementation of and commitment to these policies is further enhanced by the facts that (1) our executive officers, directors and management have expertise with the type of real estate investments we seek to acquire and own, and (2) our liquidity and borrowings have enabled us to purchase assets in both strong and challenging economic environments and to timely earn short and long term rental income, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our executive officers included in Part III, Item 10 of this Annual Report on Form 10-K is incorporated herein by reference.



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Item 1A.Risk Factors.
Investment Risks Related to Our Common Stock

There is currently no public market for shares of our common stock. Therefore, it will be difficult for our stockholders to sell their shares and, if our stockholdersthey are able to sell their shares, our stockholdersthey will likely sell them at a substantial discount.

There currently is no public market for shares of our common stock. We do not expect a public market for our stock to develop prior to the listing of our shares on a national securities exchange, which we domay not expect to occur in the near future and which may not occuror at all. Additionally, our charter contains restrictions on the ownership and transfer of our shares, and these restrictions may inhibit our stockholders’stockholders' ability to sell their shares. We have adopted a share repurchase plan, buthowever, it is limited in terms of the amount of shares thatwhich may be repurchased annually. Ourquarterly and annually and may be limited, suspended, terminated or amended at any time by our board of directors, may also limit, suspend, terminate orin its sole discretion, upon 30 days' notice. On November 24, 2010, we, with the approval of our board of directors, elected to amend and restate our share repurchase plan upon 30 days written notice. effective January 1, 2011. Under our share repurchase plan, we expect to fund a maximum of $10 million of share repurchase requests per quarter, subject to available funding. Funding for our repurchase program each quarter will come exclusively from and will be limited to the sale of shares under our DRIP during such quarter. These limits have prevented us from accommodating all repurchase requests in the past and are likely to do so in the future. In addition, with the termination of our follow-on offering on February 28, 2011, except for the DRIP, we are conducting an ongoing review of potential alternatives for our share repurchase plan, including the suspension or termination of the plan.

Therefore, it willmay be difficult for our stockholders to sell their shares promptly or at all. If our stockholders are able to sell their shares, our stockholdersthey may only be able to sell them at a substantial discount from the price our stockholdersthey paid. This may be the result, in part, of the fact that at the time we make our investments, the amount of funds available for investment will behas been reduced by up toapproximately 11.5% of the gross offering proceeds which will bethat was used to pay selling commissions, the marketing supportdealer manager fee due diligence expense reimbursements and organizational and offering expenses. We will also beare required to use gross offering proceeds to pay acquisition fees, acquisition expenses and asset management fees.expenses. Unless our aggregate investments increase in value to compensate for these up front fees and expenses, which may not occur, it is unlikely that our stockholders will be able to sell their shares whether pursuant to our share repurchase plan or otherwise, without incurring a substantial loss. We cannot assure our stockholders that their shares will ever appreciate in value equal to equal the price they paid for ourtheir shares. Thus, stockholders should consider their purchase of shares ofinvestment in our common stock as illiquid and a long-term investment, and stockholders must be prepared to hold their shares for an indefinite length of time.

As of March 26, 2009, weStockholders may be unable to sell their shares because their ability to have acquired 43 geographically diverse propertiesshares repurchased pursuant to our amended and other real estate related assets and have identifiedrestated share repurchase plan has been limited.
Even though our share repurchase plan may provide stockholders with a limited opportunity to sell shares to us after they have held them for a period of one year or in the event of death or qualifying disability, stockholders should be fully aware that our share repurchase plan contains significant restrictions and limitations. Repurchases of shares, when requested, will generally be made quarterly. Our board may limit, suspend, terminate or amend any provision of the share repurchase plan upon 30 days' notice. Repurchases will be limited to 5.0% of the weighted average number of additional propertiesshares outstanding during the prior calendar year, subject to acquire withavailable funding from the DRIP. Further, we expect to fund a maximum of $10 million of share repurchase requests per quarter, subject to available funding. Funding for quarterly repurchases of shares will come exclusively from and will be limited to the net proceeds from the sale of shares under the DRIP in the applicable quarter. In addition, stockholders must present at least 25.0% of their shares for repurchase and until they have held shares for at least four years, repurchases will be made for less than stockholders paid for their shares. Therefore, stockholders should not assume that they will be able to sell any of their shares back to us pursuant to our amended and restated share repurchase plan at any particular time or at all.

The availability and timing of cash distributions to our stockholders is uncertain.

In the past we have made monthly distributions to our stockholders. However, we bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash distributions to our stockholders. In the future, we will receive frombe restricted by the future equity raise, and stockholders are therefore unable to evaluate the economic merits of mostterms of our future investments priorcredit agreement for our unsecured credit facility from paying distributions in excess of our FFO, as adjusted pursuant to purchasingthe terms of the credit agreement, or a percentage of such adjusted FFO. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be available to make distributions or that the amount of distributions will increase over time. If we fail for any reason to distribute at least 90.0% of our ordinary taxable income, we would not qualify for the favorable tax treatment accorded to REITs.


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We may not have sufficient cash available from operations to pay distributions and, therefore, distributions may include a return of capital.

Distributions payable to stockholders may include a return of capital, rather than a return on capital. It is our present intention to continue to make monthly distributions to our stockholders. However, the actual amount and timing of distributions will be determined by our board of directors in its discretion and typically will depend on the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time. We may not have sufficient cash available from operations to pay distributions required to maintain our status as a REIT and may need to use borrowed funds to make such cash distributions, which may reduce the amount of proceeds available for investment and operations. Additionally, if the aggregate amount of cash distributed in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will be deemed a return of capital, which will decrease our stockholders' tax basis in their investment in shares of our common stock.
As Our organizational documents do not establish a limit on the amount of March 26, 2009, we have acquired 43 geographically diverse properties and other real estate related assets with the net proceeds from our offering. As of March 26, 2009, we have only identified a limited number of additional potential properties to acquire with the net proceeds we will receivemay use to fund distributions.

We may not have sufficient cash available from our offering. Other than these 43 geographically diverse propertiesoperations to pay distributions and, other real estate related assets,therefore, distributions may be paid, without limitation, with borrowed funds.

The amount of the distributions we make to our stockholders are unablewill be determined by our board of directors, at its sole discretion, and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, and capital expenditure requirements and annual distribution requirements needed to evaluatemaintain our status as a REIT, as well as any liquidity event alternatives we may pursue. On February 14, 2007, our board of directors approved a 7.25% per annum, or $0.725 per common share, distribution based on a $10.00 share price, to be paid to our stockholders beginning with our February 2007 monthly distribution, and we have continued to declare distributions at that rate through the mannerfirst quarter of 2012. However, our board may reduce our distribution rate and we cannot guarantee the amount and timing of distributions paid in which the netfuture, if any.

If our cash flow from operations is less than the distributions our board of directors determines to pay, we would be required to pay our distributions, or a portion thereof, with borrowed funds. As a result, the amount of proceeds are investedavailable for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.

In the economic meritspast we have paid a portion of our distributions using offering proceeds or borrowed funds, and we may continue to use borrowed funds in the future investments prior to purchasingpay distributions. For the year ended December 31, 2011, we paid distributions of $160,664,000 ($84,800,000 in cash and $75,864,000 in shares of our common stock. Additionally,stock pursuant to the DRIP), as compared to cash flow from operations of $111,807,000. The remaining $48,857,000 of distributions paid in excess of our stockholders do not havecash flow from operations, or 30%, was paid using proceeds of our offerings or proceeds of debt financing. In addition, the opportunityDRIP may be terminated at any time by our board of directors and may be amended at any time by our board of directors, at its sole discretion, upon 10 days notice.

We presently intend to evaluate the transaction terms or other financial or operational data concerning other investment properties or other real estate related assets.
If we are unable to find suitable investments, we may not be able to achieve our investment objectives.
Our stockholders must rely on management and our advisor to evaluate our investment opportunities, and management and our advisor may not be able to achieve our investment objectives or may make unwise decisions or our advisor may make decisions that are not in our best interest because of conflicts of interest. Further,effect a liquidity event by September 20, 2013, however, we cannot assure our stockholders that acquisitionswe will effect a liquidity event by such time or at all. If we do not effect a liquidity event as presently intended, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock.

On a limited basis, our stockholders may be able to sell shares through our share repurchase plan. We may amend or terminate our share repurchase plan with 30 days notice. We may also consider various forms of liquidity events, including, without limitation (1) a Listing, (2) a sale or merger in a transaction that provides our stockholders with a combination of cash and/or securities of a publicly traded company, and (3) the sale of all or substantially all of our real property for cash or other consideration. We presently intend to effect a liquidity event by September 20, 2013, however, we cannot assure our stockholders that we will effect a liquidity event within such time or at all. If we do not effect a liquidity event as presently intended, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock.

Because a portion of the offering price from the sale of shares was used to pay expenses and fees, the full offering price paid by our stockholders was not invested in real estate investments. As a result, our stockholders will only receive a full return of their invested capital if we either (1) sell our assets or other real estate related assets made usingour company for a sufficient amount in excess of the proceedsoriginal purchase price of our offeringassets, or (2) the market value of our company after a Listing is substantially in excess of the original purchase price of our assets.




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In the event our shares of common stock are listed on a national securities exchange, our common stock will producebe converted into shares of Class A and Class B common stock, the shares of Class B common stock would not immediately be listed on such exchange and there would be no public market for the shares of Class B common stock.

Our charter provides that in the event our shares of common stock are listed on a returnnational securities exchange, our common stock will automatically be reclassified and converted into shares of Class A common stock and Class B common stock immediately prior to a Listing. The shares of Class A common stock would be listed on a national securities exchange upon a Listing. The shares of Class B common stock would not be listed. Rather, those shares would convert into shares of Class A common stock and become listed in defined phases, over a defined period of time. We believe all shares of Class B common stock would convert into shares of Class A common stock within 18 months of a Listing, with individual classes of Class B common stock converting into Class A common stock and becoming listed every six months. If we pursue a Listing, the ultimate length of the overall phased in liquidity program and the timing of each of the phases will depend on a number of factors, including the timing of the Listing. As a result, there would be no public market for the shares of Class B common stock. Until the shares of Class B common stock convert into Class A common stock and become listed, they cannot be traded on a national securities exchange. As a result, after a Listing, our stockholders will have very limited, if any, liquidity with respect to their shares of Class B common stock. Further, the trading price per share of Class A common stock when each class of Class B common stock converts into Class A common stock could be very different than the trading price per share of the Class A common stock on the date of a Listing. As a result, our stockholders may receive less consideration for their shares than they may have received if they had been able to sell immediately upon the effectiveness of a Listing.

Risks Related to Our Business

We are dependent on investments in a single industry, making our profitability more vulnerable to a downturn or slowdown in that sector than if we were investing in multiple industries.

We concentrate our investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our investmentbusiness than if we had investments in multiple industries. Specifically, a downturn in the healthcare property sector could negatively impact the ability of our tenants to make loan or will generate cash flowlease payments to enable us as well as our ability to maintain rental and occupancy rates, which could adversely affect our business, financial condition and results of operations as well as our ability to make distributions to our stockholders.


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We face competition for the acquisition of medical office buildings and other facilities that serve the healthcare related facilities,industry, which may impede our ability to make future acquisitions or may increase the cost of these acquisitions.

We compete with many other entities engaged in real estate investment activities for acquisitions of medical office buildings and other facilities that serve the healthcare related facilities,industry, including national, regional and local operators, acquirers and developers of healthcare real estate properties. The competition for healthcare real estate properties may significantly increase the price we must pay for medical office buildings and other facilities that serve the healthcare related facilitiesindustry or other real estate related assets we seek to acquire and ouracquire. Our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger healthcare real estate REITs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. This competition willincrease, which could result in increased demand for these assetsproperties and therefore increased prices paid for them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices if we purchase single properties in comparison with portfolio acquisitions. If we pay higher prices for medical office buildings and other facilities that serve the healthcare related facilities,industry, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materiallyadversely affected.

We may not be successful in identifying and completing off-market acquisitions and other suitable acquisitions or investment opportunities, which may impede our growth and adversely affected.affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Our stockholdersA key component of our growth strategy is to acquire properties before they are widely marketed by the owners, or "off-market." Facilities that are acquired off-market are typically more attractive to us as a purchaser because of the absence of a formal marketing process, which could lead to higher prices. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire facilities at attractive prices could be adversely affected. We expect to compete for investment opportunities with entities that may have substantially greater financial resources than we have. These entities generally may be

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able to accept more risk than we can prudently manage. This competition may generally limit the number of suitable investment opportunities offered to us or the number of facilities that we are able to acquire. This competition may also increase the bargaining power of facility owners seeking to sell to us, making it more difficult for us to acquire new facilities on attractive terms.

We may not be able to maintain or expand our relationships with our existing and future hospital and healthcare system clients.

The success of our business depends, to a large extent, on our past, current and future relationships with hospital and healthcare system clients. We invest a significant amount of time to develop these relationships, and they have helped us to secure acquisition and development opportunities, with both new and existing clients. If any of our relationships with hospital or healthcare system clients deteriorates, or if a conflict of interest or non-compete arrangement prevents us from expanding these relationships, our ability to secure new acquisition and development opportunities could be adversely impacted and our professional reputation within the industry could be damaged.

If we are unable to find suitable investments, we may not be able to achieve our investment objectives.

We may not be able to achieve our investment objectives or may be unable to sell their shares because their ability to have their shares repurchased pursuant to our share repurchase plan is subject to significant restrictions and limitations.
Even though our share repurchase plan may provide our stockholders with a limited opportunity to sell their shares to us after they have held them for a period of one yearlocate or in the event of death or disability, our stockholders should be fully aware that our share repurchase plan contains significant restrictions and limitations. Further, our board of directors may limit, suspend, terminate or amend any provision of the share repurchase plan upon 30 days written notice. Repurchase of shares, when requested, will generally be made quarterly. Repurchases will be limited to: (1) those that could be funded from the net proceeds from the sale of shares of our common stock under the DRIP in the prior 12 months, and (2) 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. In addition, our stockholders must present at least 25.0% of their shares of our common stock for repurchase, and until you have held your shares of our common stock for at least four years, repurchases will be made for less than they paid for their shares of our common stock. Therefore, in making a decision to purchase shares of our common stock, our stockholders should not assume that they will be able to sell any of their shares of our common stock back to us pursuant to our share repurchase plan at any particular time or at all.
We are conducting a “best efforts” offering and if we are unable to continue to raise proceeds in this offering, we will be limited in the number and type of investments we may make, which will result in a less diversified portfolio.
Our offering is being made on a “best efforts” basis, whereby Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities, or our dealer manager, and the broker-dealers participating in our offering are only required to use their best efforts to sell our shares of our common stock and have no firm commitment or obligation to purchase any of our shares of our common stock. As a result, if we are unable to continue to raise proceeds under our offering, we will have limited diversification in terms of the number of investments owned, the geographic regions in which our investments are located and the types of investments that we make. Our stockholders’ investment in our shares of our common stock will be subject to greater risk to the extent that we lack a diversified portfolio ofacquire suitable investments. In such event, the likelihood of our profitability being affected by the poor performance of any single investment will increase.
Our offering is a fixed price offering and the fixed offering price may not accurately represent the current value of our assets at any particular time. Therefore, the purchase price our stockholders paid for


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shares of our common stock may be higher than the value of our assets per share of our common stock at the time of their purchase.
Our offering is a fixed price offering, which means that our offering price for shares of our common stock is fixed and will not vary based on the underlying value of our assets at any time. Our board of directors arbitrarily determined our offering price in its sole discretion. The fixed offering price for shares of our common stock has not been based on appraisals for any assets we may own nor do we intend to obtain such appraisals. Therefore, the fixed offering price established for shares of our common stock may not accurately represent the current value of our assets per share of our common stock at any particular time and may be higher or lower than the actual value of our assets per share at such time.
Payments to our advisor related to its subordinated participation interest in our operating partnership will reduce cash available for distribution to stockholders.
Our advisor holds a subordinated participation interest in our operating partnership, pursuant to which it may be entitled to receive a distribution upon the occurrence of certain events, including in connection with dispositions of our assets, the termination or non-renewal of the Advisory Agreement other than for cause, certain mergers of our company with another company or the listing of our common stock on a national securities exchange. The distribution payable to our advisor will equal or approximate 15.0% of the net proceeds from the sales of our properties only after we have made distributions to our stockholders of the total amount raised from our stockholders (less amounts paid to repurchase shares of our common stock through our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital. Any distributions to our advisor by our operating partnership upon dispositions of our assets and such other events will reduce cash available for distribution to our stockholders.
We presently intend to effect a liquidity event by September 20, 2013; however, there can be no assurance that we will effect a liquidity event by such time or at all. If we do not effect a liquidity event, it will be very difficult for our stockholders to have liquidity for their investment in shares of our common stock.
On a limited basis, our stockholders may be able to sell their shares of our common stock through our share repurchase plan. However, in the future we may also consider various forms of liquidity events, including but not limited to: (1) the listing of shares of our common stock on a national securities exchange; (2) our sale or merger in a transaction that provides our stockholders with a combination of cashand/or exchange securities of a publicly traded company; and (3) the sale of all or substantially all of our real property for cash or other consideration. We presently intend to effect a liquidity event by September 20, 2013. However, we cannot assure our stockholders that acquisitions of real estate or other real estate related assets will produce a return on our investment or will generate cash flow to enable us to make distributions to our stockholders.

We may be unable to acquire any of the properties that we have in our acquisition pipeline or under non-binding letters of intent, which could adversely affect our business, results of operations and our ability to make distributions to our stockholders.

As of the date of this Annual Report on Form 10-K, we have additional properties in our acquisition pipeline and under non-binding letters of intent. We cannot assure you that we will effectacquire any of the properties in our acquisition pipeline or under these letters of intent because the letters of intent are non-binding and each of these transactions is subject to a liquidity event within such timevariety of factors including: (i) the willingness of the current property owner to proceed with a transaction, (ii) our completion of satisfactory due diligence, (iii) the negotiation and execution of a mutually acceptable binding definitive purchase agreement and (iv) the satisfaction of closing conditions, including the receipt of third-party consents and approvals. Accordingly, we cannot assure you that we will be in a position to acquire any of the properties in our acquisition pipeline or at all.under non-binding letters of intent. We may incur significant costs and divert management attention in connection with evaluation and negotiation of potential acquisitions, including ones that we are subsequently unable to complete. If we do not effect a liquidity event, it will be very difficult forare unsuccessful in completing the acquisition of additional properties in the future, our stockholdersbusiness, results of operations and our ability to have liquidity for their investment in shares of our common stock other than limited liquidity through our share repurchase plan.
Because a portion of the offering price from the sale of shares of our common stock will be usedmake distributions to pay expenses and fees, the full offering price paid by our stockholders will be adversely affected.

Our results of operations, our ability to pay distributions to our stockholders, and our ability to dispose of our investments are subject to general economic conditions affecting the commercial real estate and credit markets.

Our business is sensitive to national, regional and local economic conditions, as well as the commercial real estate and credit markets. For example, the financial disruption and accompanying credit crisis negatively impacted the value of commercial real estate assets, contributing to a general slowdown in our industry, which may continue through 2012. The financial markets are still recovering from a recession, which created volatile market conditions, and resulted in a decrease in availability of business credit and led to the insolvency, closure or acquisition of a number of financial institutions. A slow economic recovery could continue or accelerate the reduction in overall transaction volume and size of sales and leasing activities that we have already experienced, and would continue to put downward pressure on our revenues and operating results. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions.

Adverse economic conditions in the commercial real estate and credit markets may result in:

defaults by tenants of our properties due to bankruptcy, lack of liquidity or operational failures;

rent concessions or reduced rental rates to maintain or increase occupancy levels;

reduced values of our properties, thereby limiting our ability to dispose of assets at attractive prices or obtain debt financing secured by our properties as well as reducing the availability of unsecured loans;


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the value and liquidity of our short-term investments and cash deposits being reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment or other factors;

one or more lenders under our unsecured credit facility refusing to fund their financing commitment to us, which such case we may not be investedable to replace the financing commitment of any such lenders on favorable terms, or at all;

a recession or rise in interest rates, which could make it more difficult for us to lease real estate investments. As a result, our stockholders will only receive a full returnproperties or dispose of their invested capital if we either: (1) sell our assetsthem or our company for a sufficient amount in excess ofmake alternative interest-bearing and other investments more attractive, thereby lowering the original purchase price of our assets, or (2) the marketrelative value of our company afterexisting real estate investments;

one or more counter parties to our interest rate swaps defaulting on their obligations to us, thereby increasing the risk that we list sharesmay not realize the benefits of these instruments;

increases in supply of competing properties or decreases in demand for our common stockproperties, which may impact our ability to maintain or increase occupancy levels and rents or to dispose of investments;

constricted access to credit, which may result in tenant defaults or non-renewals under leases; and

increased insurance premiums, real estate taxes or energy or other expenses, which may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults or make it difficult to increase rents to tenants on a national securities exchangeturnover, which may limit our ability to increase our returns.

Our business, financial condition, results of operations and our ability to pay distributions to our stockholders may be negatively impacted to the extent an economic slowdown or downturn is substantially in excess of the original purchase price of our assets.prolonged or becomes more severe.

Our property investments are geographically concentrated in certain states and subject to economic fluctuations in those states.
For the year ended As of December 31, 2008,2011, we had interests in seven consolidated properties26 buildings located in Texas, which accounted for 17.1%15.0% of our totalannualized rental income, interests in 44 buildings in Arizona, which accounted for 12.1% of our annualized rental income, interests in 22 buildings located in South Carolina, which accounted for 9.6% of our annualized rental income, interests in 20 buildings in Florida, which accounted for 8.7% of our annualized rental income, and interests in five consolidated properties located44 buildings in Indiana, which accounted for 15.5%8.1% of our total rental income. As of December 31, 2008, Medical Portfolio 3, located in Indiana, accounted for 11.3% of our aggregate totalannualized rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2008. Accordingly, there is2011. As a geographic concentrationresult, our business, financial condition, results of risk subjectoperations, and ability to fluctuationsmake distributions to our stockholders could be disproportionately affected by an economic downturn or other events affecting the economies in these states.

Our success depends to a significant degree upon the continued contributions of certain key personnel, each state’s economy.


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Risks Relatedof whom would be difficult to replace. If we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.

Our Business
We have limited operating history and we cannot assure you that we will be able to successfully achieve our investment objectives; and the prior performance of other Grubb & Ellis Group programs may not be an accurate predictor of our future results.
We have limited operating history and we may not be ableability to achieve our investment objectives.objectives and to pay distributions is dependent upon the performance of our board of directors, Scott D. Peters as our Chief Executive Officer, President and Chairman of the Board, Kellie S. Pruitt as our Chief Financial Officer, Treasurer and Secretary, Mark Engstrom as our Executive Vice President - Acquisitions, Amanda Houghton, as our Executive Vice President - Asset Management, and our other employees, in the identification and acquisition of investments, the determination of any financing arrangements, the asset management of our investments and operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report on Form 10-K or other periodic filings with the SEC. We were formed in April 2006, commencedrely primarily on the management ability of our offeringChief Executive Officer and other executive officers and the governance of our board of directors, each of whom would be difficult to replace. We do not have any key man life insurance on September 20, 2006,Messrs. Peters and as of December 31, 2008,Engstrom or Mses. Pruitt and Houghton. Although we have 41 geographically diverse propertiesentered into employment agreements with each of Messrs. Peters and one other real estate related assets.Engstrom and Mses. Pruitt and Houghton, the employment agreements contain various termination rights. If we were to lose the benefit of their experience, efforts and abilities, our operating results could suffer. In addition, if any member of our board of directors were to resign, we would lose the benefit of such director's governance and experience. As a result anof the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.



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Compliance with changing government regulations may result in sharesadditional expenses.

During July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was signed into federal law. The provisions of the Dodd-Frank Act include new regulations for over-the-counter derivatives and substantially increased regulation and risk of liability for credit rating agencies, all of which could increase our common stockcost of capital. The Dodd-Frank Act also includes provisions concerning corporate governance and executive compensation which, among other things, require additional executive compensation disclosures and enhanced independence requirements for board compensation committees and related advisors, as well as provide explicit authority for the SEC to adopt proxy access, all of which could result in additional expenses in order to maintain compliance. The Dodd-Frank Act is wide-ranging, and the provisions are broad with significant discretion given to the many and varied agencies tasked with adopting and implementing the act. The majority of the provisions of the Dodd-Frank Act did not go into effect immediately and may entail more risks thanbe adopted and implemented over many months or years. As such, we cannot predict the sharesfull impact of common stock of a REIT with a more substantial operating history. In addition, past performance of other Grubb & Ellis Group programs should not be relied upon to predict our future results.
Current dislocations in the credit markets and real estate markets could have a material adverse effectDodd-Frank Act on our business, financial condition, results of operations financial condition and our ability to pay distributions to our stockholders.

Domestic and international financial markets currently are experiencing significant dislocations which have been brought about in large part by failures in the U.S. banking system. These dislocations have severely impacted the availability of credit and have contributed to rising costs associated with obtaining credit. If debt financing is not available on terms and conditions we find acceptable, we may not be able to obtain financing for investments. If this dislocation in the credit markets persists, our ability to borrow monies to finance the purchase of, or other activities related to, properties and other real estate related assets will be negatively impacted. If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase, and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance indebtedness which is maturing. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties and our income could be reduced. In addition, if we pay fees to lock-in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees. All of these events would have a material adverse effect on our results of operations, financial condition and ability to pay distributions.
In addition to volatility in the credit markets, the real estate market is subject to fluctuation and can be impacted by factors such as general economic conditions, supply and demand, availability of financing and interest rates. To the extent we purchase real estate in an unstable market, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future that it attracts at the time of our purchases, or the number of companies seeking to acquire properties decreases, the value of our investments may not appreciate or may decrease significantly below the amount we pay for these investments.
Finally, the pervasive and fundamental disruptions that the global financial markets are currently undergoing have led to extensive and unprecedented governmental intervention. Although the government intervention is intended to stimulate the flow of capital and to undergird the U.S. economy in the short term, it is impossible to predict the actual effect of the government intervention and what effect, if any, additional interim or permanent governmental intervention may have on the financial marketsand/or the effect of such intervention on us and our results of operations. In addition, there is a high likelihood that regulation of the financial markets will be significantly increased in the future, which could have a material impact on our operating results and financial condition.
We may suffer from delays in locating suitable investments, which could reduce our ability to make distributionsRisks Related to our stockholders and reduce their return on their investment.Organizational Structure

As of March 26, 2009, we have acquired 43 geographically diverse properties and other real estate related assets and have identified a limited number of additional properties to acquire. There may be a substantial period of time before the proceeds of our offering are invested in suitable investments, particularly as a result of current economic environment and capital constraints. Because we are conducting our offering on a best efforts basis over time, our ability to commit to purchase specific assets will also depend, in part, on the amount of proceeds we have received at a given time. If we are delayed or unable to find additional suitable


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investments, we may not be able to achieve our investment objectives or make distributions to our stockholders.
The availability and timing of cash distributions to our stockholders is uncertain.
We expect to make monthly distributions to our stockholders. However, we bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash distributions to our stockholders. In addition, our board of directors, in its discretion, may retain any portion of such funds for working capital. We cannot assure our stockholders that sufficient cash will be available to make distributions to them or that the amount of distributions will increase over time. Should we fail for any reason to distribute at least 90.0% of our REIT taxable income, we would not qualify for the favorable tax treatment accorded to REITs.
We may not have sufficient cash available from operations to pay distributions, and, therefore, distributions may include a return of capital.
Distributions payable to our stockholders may include a return of capital, rather than a return on capital. We expect to make monthly distributions to our stockholders. The actual amount and timing of distributions will be determined by our board of directors in its discretion and typically will depend on the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. Our distribution policy is set by our board of directors and is subject to change based on available cash flows. As a result, our distribution rate and payment frequency may vary from time to time. During the early stages of our operations, we may not have sufficient cash available from operations to pay distributions. Therefore, we may need to use proceeds from this offering or borrowed funds to make cash distributions in order to maintain our status as a REIT, which may reduce the amount of proceeds available for investment and operations or cause us to incur additional interest expense as a result of borrowed funds. Further, if the aggregate amount of cash distributed in any given year exceeds the amount of our REIT taxable income generated during the year, the excess amount will be deemed a return of capital.
We may not have sufficient cash available from operations to pay distributions, and, therefore, distributions may be paid with offering proceeds or borrowed funds.
The amount of the distributions to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT. On February 14, 2007, our board of directors approved a 7.25% per annum distribution to be paid to stockholders beginning with our February 2007 monthly distribution which was paid in March 2007.
For the year ended December 31, 2008, we paid distributions of $28,042,000 ($14,943,000 in cash and $13,099,000 in shares of our common stock pursuant to the DRIP), as compared to cash flows from operations of $20,677,000. The distributions paid in excess of our cash flows from operations were paid using proceeds from our offering. As of December 31, 2008, we had an amount payable of $1,043,000 to our advisor and its affiliates for operating expenses,on-site personnel and engineering payroll, lease commissions and asset and property management fees, which will be paid from cash flows from operations in the future as they become due and payable by us in the ordinary course of business consistent with our past practice.
As of December 31, 2008, no amounts due to our advisor or its affiliates have been deferred or forgiven. Our advisor and its affiliates have no obligations to defer or forgive amounts due to them. In the future, if our advisor or its affiliates do not defer or forgive amounts due to them and our cash flows from operations is less than the distributions to be paid, we would be required to pay our distributions, or a portion thereof, with proceeds from our offering or borrowed funds. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.
For the year ended December 31, 2008, our funds from operations, or FFO, was $8,745,000. We paid distributions of $28,042,000, of which $8,745,000 was paid from FFO and the remainder from proceeds from


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our offering. For more information about FFO, see Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions.
We are uncertain of our sources of debt or equity for funding our future capital needs. If we cannot obtain funding on acceptable terms, our ability to make necessary capital improvements to our properties may be impaired or delayed.
The gross proceeds of our offering will be used to buy a diversified portfolio of real estate and other real estate related assets and to pay various fees and expenses. In addition, to continue to qualify as a REIT, we generally must distribute to our stockholders at least 90.0% of our taxable income each year, excluding capital gains. Because of this distribution requirement, it is not likely that we will be able to fund a significant portion of our future capital needs from retained earnings. We have not identified any sources of debt or equity for future funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or expand our business.
We may structure acquisitions of property in exchange for limited partnership units in our operating partnership on terms that could limit our liquidity or our flexibility.

We may continue to acquire properties by issuing limited partnership units in our operating partnership in exchange for a property owner contributing property. For example, approximately 0.07% 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 may continue to acquire properties by issuing limited partnership units in our operating partnership in exchange for a property owner contributing property to the partnership. If we continue to enter into such transactions, in order to induce the contributors of such properties to accept units in our operating partnership, rather than cash, in exchange for their properties, it may be necessary for us to provide them additional incentives. For instance, our operating partnership’spartnership's limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for shares of our common stock, or, at our option, cash equal to the value of an equivalent number of our shares of our common stock.shares. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to repurchase a contributor’scontributor's units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and, thus, our ability to use cash to make other investments, satisfy other obligations or to make distributions to our stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with a defined return, then upon redemption of the contributor’scontributor's units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’scontributor's units for cash or shares of our common stock.shares. Such an agreement would prevent us from selling those properties, even if market conditions made such a sale favorable to us.

UntilFuture offerings of debt securities, which would be senior to our existing stockholders, or equity securities, which would dilute our existing stockholders and may be senior to our existing stockholders, may adversely affect holders of common stock.

In the terminationfuture, we may issue debt or expirationequity securities, including medium term notes, senior or subordinated notes and classes of our Advisory Agreement, our success is dependent in part on the performancepreferred or common stock. Debt securities or shares of our advisor, which is a subsidiary of our sponsor.
Until the termination or expiration of our Advisory Agreement our abilitypreferred stock will generally be entitled to achieve our investment objectivesreceive distributions, both current and to pay distributions is dependent in part on the performance of our advisor, which is a subsidiary of our sponsor, in identifying and advising on the acquisition of investments, the determination of any financing arrangements, the asset management of our investments and operation of our day-to-day activities. Our stockholders have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our offering prospectus or other periodic filings made with the SEC. We rely in part on the management ability of our advisor, subject to the oversight of our Chief Executive Officer and our board of directors. If our advisor suffers or is distracted by adverse financial or operational problems in connection with its operationsany liquidation or the operations of our sponsor unrelatedsale, prior to us, our advisor may be unable to allocate timeand/or resources to our operations. If our advisor is unable


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to allocate sufficient resources to oversee and perform our operations for any reason, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.
In March 2009, Grubb & Ellis reported that due to the disruptions in the credit markets, the severe and extended general economic recession, and the significant decline in the commercial real estate market in 2008, it anticipates that it will report a significant decline in operating earnings and net income for the fourth quarter of 2008 as compared to the fourth quarter of 2007 and for the year ended December 31, 2008 as compared to the year ended December 31, 2007. In addition, Grubb & Ellis anticipates that it will recognize significant impairment charges to goodwill, impairments on the value of real estate assets held as investments, and additional charges related to its activities as a sponsor of investment programs in the quarter ended December 31, 2008. Grubb & Ellis has also reported that it is restating certain of its previously issued financial statements. To the extent that any of the foregoing or any other matters related to our sponsor impact the performance of our advisor, our results of operations, financial condition and ability to pay distributions to our stockholders could also suffer.
After the termination or expiration of our Advisory Agreement and upon the completion of our transition to a self-management program, we will not be able to rely on our advisor to manage our operations, which could adversely impact our ability to achieve our investment objectives and pay distributions to our stockholders.
We are currently transitioning to a self-management program, which means that when our Advisory Agreement expires on September 20, 2009 or is terminated, we do not intend to renew such agreement with our advisor or engage a successor advisor; provided the parties may mutually agree to specified service arrangements. As we continue to implement our self-management program, our advisor will have a more limited role in managing our business and operations. After the termination or expiration of the Advisory Agreement, we will not be able to rely on our advisor to provide services to us, including asset management services, property management services and investor relations services. In addition, the Advisory Agreement provides that after termination or expiration, upon the request of our advisor, we cannot use the name “Grubb & Ellis.” Upon the completion of our transition to self-management, we intend to change our name to “Healthcare Trust of America, Inc.” We will rely on our board of directors, Mr. Peters and our management team, as well as third party service providers, to identify and acquire future investments for us, determine any financing arrangements, manage our investments and operate our day-to-day activities. If we are not successful in hiring additional employees, engaging independent consultants or finding third parties to manage our operations, our ability to achieve our investment objectives and pay distributions to our stockholders could suffer.
As we transition to self-management, our success is increasingly dependent on the performance of our board of directors and our Chairman of the Board, Chief Executive Officer and President.
As we transition to self-management, our ability to achieve our investment objectives and to pay distributions is increasingly dependent upon the performance of our board of directors, Scott D. Peters, our Chairman of the Board, Chief Executive Officer and President, and our employees, in the identification and acquisition of investments, the determination of any financing arrangements, the asset management of our investments and operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report onForm 10-K or other periodic filings with the SEC. We rely primarily on the management ability of our Chief Executive Officer and the governance of our board of directors. We do not have any key man life insurance on Mr. Peters. We have entered into an employment agreement for a term beginning November 1, 2008 to November 1, 2010 with Mr. Peters, but the employment agreement contains various termination rights. If we were to lose the benefit of his experience, efforts and abilities, our operating results could suffer. In addition, if any member of our board of directors were to resign, we would lose the benefit of such director’s governance and experience. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.


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We are transitioning to be a self-managed company and we may not be successful in hiring additional employees and/or third party service providers, which could impact our ability to achieve our investment objectives.
We currently have a full-time Chief Executive Officer and President, Scott D. Peters, and a Chief Accounting Officer, Kellie S. Pruitt, and other personnel. We intend to engage additional employees and independent consultants. We may also outsource certain services, including property management, to third parties. As we continue to implement our self-management program, we will rely less on our advisor and will increasingly rely on our board of directors, Mr. Peters and our other employees and consultants to manage our investments and operate our day-to-day activities. If we are unsuccessful in hiring additional employees or engaging consultants and other third parties to provide services to us, or if our employees and consultants and the additional employees that we hire or consultants and third parties we engage do not perform at the level we expect, our ability to achieve our investment objectives and pay distributions to our stockholders could suffer.
Our success may be hampered by the current slow down in the real estate industry.
Our business is sensitive to trends in the general economy, as well as the commercial real estate and credit markets. The current macroeconomic environment and accompanying credit crisis has negatively impacted the value of commercial real estate assets, contributing to a general slow down in our industry, which we anticipate will continue through 2009. A prolonged and pronounced recession could continue or accelerate the reduction in overall transaction volume and size of sales and leasing activities that we have already experienced, and would continue to put downward pressure on our revenues and operating results. To the extent that any decline in our revenues and operating results impacts our performance, our results of operations, financial condition and ability to pay distributions to our stockholders could also suffer.
Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to international, national and local economic factors we cannot control or predict.
Our results of operations are subject to the risks of an international or national economic slow down or downturn and other changes in international, national and local economic conditions. The following factors may affect income from our properties, our ability to acquire and dispose of properties, and yields from our properties:
• poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity, or operational failures. We may also be required to provide rent concessions or reduced rental rates to maintain or increase occupancy levels;
• reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;
• the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for ourshort-term investments, increased volatility in market rates for such investment or other factors;
• one or more lenders under our lines of credit could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all;
• one or more counterparties to our interest rate swaps could default on their obligations to us or could fail, increasing the risk that we may not realize the benefits of these instruments;
• increases in supply of competing properties or decreases in demand for our properties may impact our ability to maintain or increase occupancy levels and rents;
• constricted access to credit may result in tenant defaults or non-renewals under leases;


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• job transfers and layoffs may cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels; and
• increased insurance premiums, real estate taxes or energy or other expenses may reduce funds available for distribution or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may make it difficult to increase rents to tenants on turnover, which may limit our ability to increase our returns.
The length and severity of any economic slow down or downturn cannot be predicted. Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments may be negatively impacted to the extent an economic slowdown or downturn is prolonged or becomes more severe.
The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.
Through 2009, the Federal Deposit Insurance Corporation, or FDIC, will only insure amounts up to $250,000 per depositor per insured bank and after 2009, the FDIC will only insure up to $100,000 per depositor per bank; the FDIC will insure amounts held in certain transaction-based, non-interest bearing accounts. We currently have cash and cash equivalents and restricted cash deposited in certain financial institutions in excess offederally-insured levels. If any of the banking institutions in which we have deposited funds ultimately fail, we may lose any amount of our deposits over any federally-insured amounts. The loss of our deposits could reduce the amount of cash we have available to distribute or invest and could result in a decline in the value of our stockholders’ investment.
Our advisor and its affiliates have no obligation to defer or forgive fees or loans or advance any funds to us, which could reduce our ability to make investments or pay distributions.
In the past, our sponsor, or its affiliates have, in certain circumstances, deferred or forgiven fees and loans payable by programs sponsored or managed by our sponsor. Our advisor and its affiliates, including our sponsor, have no obligation to defer or forgive fees owed by us to our advisor or its affiliates or to advance any funds to us. As a result, we may have less cash available to make investments or pay distributions.
Risks Related to Conflicts of Interest
We are subject to conflicts of interest arising out of relationships among us, our officers, our advisor and its affiliates, including the material conflicts discussed below. The Conflicts of Interest section of our offering prospectus provides a more detailed discussion of these conflicts of interest.
We will compete with our sponsor’s other programs for investment opportunities. As a result, our advisor may not cause us to invest in favorable investment opportunities, which may reduce our returns on our investments.
Our sponsor, Grubb & Ellis, or its affiliates have sponsored existing programs with investment objectives and strategies similar to ours, and may sponsor other similar programs in the future. As a result, we may be buying properties at the same time as one or more of the other Grubb & Ellis Group programs managed or advised by affiliates of our advisor. Officers and employees of our advisor may face conflicts of interest in allocating investment opportunities between us and these other programs. For instance, our advisor may select properties for us that provide lower returns to us than properties that its affiliates select to be purchased by another Grubb & Ellis Group program. We cannot be sure that officers and employees acting for or on behalf of our advisor and on behalf of managers of other Grubb & Ellis Group programs will act in our best interests when deciding whether to allocate any particular investment to us. We are subject to the risk that as a result of the conflicts of interest between us, our advisor and other entities or programs managed by its affiliates, our advisor may not cause us to invest in favorable investment opportunities that our advisor locates when it would be in our best interest to make such investments. As a result, we may invest in less favorable investments, which may reduce our returns on our investments and ability to pay distributions.


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Our sponsor has recently sponsored a REIT focused on acquiring medical office buildings and other healthcare related facilities; such REIT’s offering could negatively impact our current offering as well as any future offerings we may conduct; we share the same dealer manager and several of the same officers with such REIT, which may create conflicts of interest; in addition, we may compete with such REIT with respect to acquiring additional properties.
Our sponsor, Grubb & Ellis, is also the sponsor of Grubb & Ellis Healthcare REIT II, Inc., or REIT II. REIT II intends to acquire medical office buildings and other healthcare related facilities, as well as other real estate related investments using the proceeds from its proposed initial public offering.
REIT II’s offering could negatively impact our current offering as well as any future equity offerings we may conduct if investors decide to purchase shares of the common stock of REIT II rather than our shares of common stock. In addition, the dealer manager for our offering will also serve as the dealer manager for the offering of REIT II, which may adversely affect the services provided by our dealer manager to our company. It may also create conflicts of interest with respect to our dealer manager’s relationships with broker-dealers participating in our current offering. After the termination or expiration of our Dealer Manager Agreement, we will not be able to rely on our current dealer manager to provide services to us, including management of any future equity offerings we may conduct. Any future dealer manager we may engage may be unable to secure relationships with key participating broker-dealers, including broker-dealers participating in our current offering, thus negatively impacting our ability to raise additional capital. Further, any future dealer manager we engage will compete with the dealer manager for REIT II for participating broker-dealer relationships.
Some of our officers and some of the officers of our advisor are also officers of REIT II or the advisor for REIT II. Danny Prosky, our Executive Vice President — Acquisitions, is serving as the President and Chief Operating Officer of REIT II and as the President and Chief Operating Officer of the advisor to REIT II. Andrea R. Biller, our Executive Vice President and Secretary, is serving as the Executive Vice President and Secretary of REIT II and as the Executive Vice President of the advisor to REIT II. Jeffrey T. Hanson, the President of our advisor, is serving as the Chief Executive Officer and Chairman of the Board of REIT II and as the Chief Executive Officer of the advisor of REIT II. These individuals have legal and fiduciary obligations to REIT II which are similar to and may conflict with those they owe to us and our stockholders. In addition, these individuals may have conflicts of interest in allocating their time and resources between our business and the business of REIT II. Also, our advisor and the advisor of REIT II are affiliated entities and share many key personnel and employees. If such individuals, for any reason, are not able to provide sufficient resources to manage our business, our business will suffer and this may adversely affect our results of operations and the value of our stockholders’ investments.
Finally, over time, REIT II may compete with us with respect to acquiring the real properties and other real estate related assets we intend to acquire. As a result, the price we pay for such properties and assets may increase.
The conflicts of interest faced by our officers may cause us not to be managed solely in the best interests of our stockholders, which may adversely affect our results of operations and the value of their investment.
Some of our officers are also officers or employees of our advisor, Grubb & Ellis Realty Investors, which manages our advisor, our sponsor and other affiliated entities which will receive fees in connection with our offering and operations. Andrea R. Biller is our Executive Vice President and Secretary and also serves as the Executive Vice President of our advisor, the General Counsel and Executive Vice President of Grubb & Ellis Realty Investors, the General Counsel, Executive Vice President and Secretary of our sponsor and the General Counsel, Executive Vice President, Secretary and a Director of NNN Realty Advisors and the Secretary of Grubb & Ellis Securities. Ms. Biller owns less than 1.0% of our sponsor’s outstanding common stock and owns a de minimis interest in several of our sponsor’s other programs. Danny Prosky is our Executive Vice President — Acquisitions and also serves as the Executive Vice President — Healthcare Real Estate of Grubb & Ellis Realty Investors. Mr. Prosky owns a de minimis equity interest in our sponsor, no equity


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interest in other programs of our sponsor, and 3,000 shares of our common stock. In addition, each of Ms. Biller and Mr. Prosky holds options to purchase a de minimis amount of our sponsor’s outstanding common stock. As of December 31, 2008, Ms. Biller own 18.0% membership interests in Grubb & Ellis Healthcare Management, LLC, which owns 25.0% of the membership interest of our advisor.
Some of the other programs of our sponsor in which our officers have invested and to which they provide services, have investment objectives similar to our investment objectives. These individuals have legal and fiduciary obligations to these entities which are similar to those they owe to us and our stockholders. As a result, they may have conflicts of interest in allocating their time and resources between our business and these other activities. During times of intense activity in other programs, the time they devote to our business may decline and be less than we require. If our officers, for any reason, are not able to provide sufficient resources to manage our business, our business will suffer and this may adversely affect our results of operations and the value of our stockholders’ investments.
If we enter into joint ventures with affiliates, we may face conflicts of interest or disagreements with our joint venture partners that will not be resolved as quickly or on terms as advantageous to us as would be the case if the joint venture had been negotiated at arm’s length with an independent joint venture partner.
In the event that we enter into a joint venture with any other program sponsored or advised by our sponsor or one of its affiliates, we may face certain additional risks and potential conflicts of interest. For example, securities issued by the other programs sponsored by Grubb & Ellis may never have an active trading market. Therefore, if we were to become listed on a national securities exchange, we may no longer have similar goals and objectives with respect to the resale of properties in the future. Joint ventures between us and other Grubb & Ellis programs will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers. Under these joint venture agreements, none of the co-venturers may have the power to control the venture, and an impasse could occur regarding matters pertaining to the joint venture, including the timing of a liquidation, which might have a negative impact on the joint venture and decrease returns to our stockholders.
Our advisor will face conflicts of interest relating to its compensation structure, which could result in actions that are not necessarily in the long-term best interests of our stockholders.
Under the Advisory Agreement and pursuant to the subordinated participation interest our advisor holds in our operating partnership, our advisor is entitled to fees and distributions that are structured in a manner intended to provide incentives to our advisor to perform in our best interest and in the best interest of our stockholders. The fees our advisor is entitled to include acquisition fees, asset management fees, property management fees and disposition fees. The distributions our advisor may become entitled to receive would be payable upon distribution of net sales proceeds to our stockholders, the listing of our shares of our common stock, the termination of the Advisory Agreement, other than for cause, and if our advisor elects to defer payment upon termination, certain other transactions. However, because our advisor does not maintain a significant equity interest in us and is entitled to receive substantial minimum compensation regardless of our performance, our advisor’s interests are not wholly aligned with those of our stockholders. In that regard, our advisor or its affiliates receives an asset management fee with respect to the ongoing operation and management of properties based on the amount of our initial investment and not the performance of those investments, which could result in our advisor not having adequate incentive to manage our portfolio to provide profitable operations during the period we hold our investments. On the other hand, our advisor could be motivated to recommend riskier or more speculative investments in order to increase the fees payable to our advisor or for us to generate the specified levels of performance or net sales proceeds that would entitle our advisor to fees or distributions.


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The distribution payable to our advisor may influence our decisions about listing our shares of our common stock on a national securities exchange, merging our company with another company and acquisition or disposition of our investments.
Our advisor’s entitlement to fees upon the sale of our assets and to participate in net sales proceeds could result in our advisor recommending sales of our investments at the earliest possible time at which sales of investments would produce the level of return to our stockholders which would entitle our advisor to compensation relating to such sales, even if continued ownership of those investments might be in the best long-term interest of our stockholders. The subordinated participation interest may require our operating partnership to make a distribution to our advisor upon the listing of our shares of our common stock on a national securities exchange or the merger of our company with another company in which our stockholders receive shares of our common stock that are traded on a national securities exchange, if our advisor meets the performance thresholds for stockholder returns included in our operating partnership’s limited partnership agreement even if our advisor is no longer serving as our advisor. To avoid making this distribution, our independent directors may decide against listing our shares of our common stock or merging with another company even if, but for the requirement to make this distribution, such listing or merger would be in the best interest of our stockholders. In addition, the requirement to make this distribution could cause our independent directors to make different investment or disposition decisions than they would otherwise make in order to satisfy our obligation to the advisor.
We have and may continue to acquire assets from, or dispose of assets to, affiliates of our advisor, which could result in us entering into transactions on less favorable terms than we would receive from a third party or that negatively affect the public’s perception of us.
We have and may continue to acquire assets from affiliates of our advisor. Further, we may also dispose of assets to affiliates of our advisor. Affiliates of our advisor may make substantial profits in connection with such transactions and may owe fiduciaryand/or other duties to the selling or purchasing entity in these transactions, and conflicts of interest between us and the selling or purchasing entities could exist in such transactions. Because our independent directors would rely on our advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party. Also, the existence of conflicts, regardless of how they are resolved, might negatively affect the public’s perception of us.
Except for the current modification to our Advisory Agreement, the fees we pay our advisor under the Advisory Agreement and the distributions payable to our advisor under our operating partnership agreement were not determined on an arm’s-length basis and therefore may not be on the same terms as those we could negotiate with an unrelated party.
Our independent directors relied on information and recommendations provided by our advisor to determine the fees and distributions payable to our advisor and its affiliates under the Advisory Agreement and pursuant to the subordinated participation interest in our operating partnership. As a result, except for the modifications made to the Advisory Agreement and operating partnership agreement on November 14, 2008, these fees and distributions cannot be viewed as having been determined on an arm’s-length basis and we cannot assure our stockholders that an unaffiliated party would not be willing and able to provide to us the same services at a lower price.
Risks Associated with Our Organizational Structure
We may issue preferred stock or other classes of common stock, which issuance could adversely affect the holders of our common stock issued pursuant to our offering.
Our stockholders do not have preemptive rights to any shares of our common stock issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of our stockholder shares of our common stock. Our charter authorizes us to issue 1,200,000,000 shares of capital stock, of which 1,000,000,000 shares of capital stock are designated as


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common stock and 200,000,000 shares of capital stock are designated as preferred stock. Our board of directors may issue such securities without stockholder approval and under Maryland law may amend our charter to increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. IfWe are not required to offer any such additional debt or equity securities to existing common stockholders on a preemptive basis. Therefore, offerings of common stock or other equity securities may dilute the percentage ownership interest of our existing stockholders. To the extent we ever createdissue additional equity interests, our stockholders' percentage ownership interest in us will be diluted. Depending upon the terms and issued preferred stock withpricing of any additional offerings and the value of our real properties and other real estate related assets, our stockholders may also experience dilution in both the book value and fair market value of their shares. As a distribution preference overresult, future offerings of debt or equity securities, or the perception that such offerings may occur, may reduce the market price of our common stock payment of any distribution preferences of outstanding preferred stock would reduceand/or the amount of funds available for the payment of distributions onthat we pay with respect to our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount our common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, theThe issuance of preferred stock or a separate class or seriesclasses of common stock may also render more difficult or tend to discourage:

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discourage a change of control which could be in the best interest of stockholders.
• a merger, tender offer or proxy contest;
• assumption of control by a holder of large block of our securities; or
• removal of incumbent management.

Our stockholders’ ability to controlboard of directors may change our operations is severely limited.investment objectives and major strategies and take other actions without seeking stockholder approval.

Our board of directors determines our investment objectives and major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification, and distributions. Our board of directors may amend or revise these and other strategies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association, or the NASAA Guidelines. Under our charter and Maryland law, our stockholders will have a right to vote only on the following matters:
• the election or removal of directors;
• any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to change our name or the name of other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of our shares of stock, increase or decrease the number of our shares of any class or series that we have the authority to issue, or effect certain reverse stock splits;
• our dissolution; and
• certain mergers, consolidations and sales or other dispositions of all or substantially all of our assets.

Allthe election or removal of directors;

our dissolution; 

certain mergers, consolidations and sales or other matters are subjectdispositions of all or substantially all of our assets; and

any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to change our name or the discretionname or other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of our shares of stock or the number of our shares of any class or series that we have the authority to issue, or effect certain reverse stock splits.

As a result, stockholders will not have the right to approve most actions taken by our board of directors.

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefitedbenefit our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board of directors and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease theirour stockholders' ability to sell their shares of our common stock.
Our board of directors may change our investment objectives without seeking stockholder approval.

Our board of directorscharter includes a provision that may change our investment objectives without seekingdiscourage a stockholder approval. Although our board of directors has fiduciary duties to our stockholders and intends only to change our investment objectives when our board of directors determines thatfrom launching a change is in the best interests of our


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stockholders, a change in our investment objectives could reduce our payment of cash distributions to our stockholders or cause a decline in the valuetender offer for shares of our investments.common stock.

Our charter requires that any tender offer made by a person, including any “mini-tender” offer, must comply with Regulation 14D of the Securities Exchange Act of 1934, as amended. The offeror must provide us notice of the tender offer at least ten business days before initiating the tender offer. If the offeror does not comply with these requirements, we will have the right to repurchase that person's shares of our common stock and any shares of our common stock acquired in such tender offer. In addition, the non-complying offeror shall be responsible for all of our expenses in connection with that stockholder's noncompliance. This provision of our charter does not apply to any shares of our common stock that are listed on a national securities exchange. This provision of our charter may discourage a person from initiating a tender offer for shares of our common stock and prevent you from receiving a premium price for your shares of our common stock in such a transaction.

Maryland law and our organizational documents limit our stockholders’ rightsstockholders' right to bring claims against our officers and directors.

Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in ourthe best interest of our stockholders, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities unless: (1) their act or omission was material to the matter giving rise to the proceeding and was committed in bad faith or was the result of active and deliberate dishonesty, (2) they actually received an improper personal benefit in money, property or services, or (3) in the case of any criminal proceeding, they had reasonable cause to believe the act or omission was unlawful. Moreover, we have entered into separate indemnification agreements with each of our directors and someall of our executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, our charter provides that we may be obligatedare required to fund the defense costspay or reimburse expenses incurred by these persons in some cases. However,advance of final disposition of a proceeding, without requiring a preliminary determination of the ultimate entitlement to indemnification. Our charter also provides that current and former directors and

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officers are entitled to indemnification for acts or omissions that occurred while a director or officer and at our charter does provide that we may not indemnify our directors, our advisor and its affiliates for lossrequest serves or liability suffered by themhas served as a director, officer, partner, or hold them harmless for loss or liability suffered by us unless they have determined that: (1) the course of conduct that caused the loss or liability was in our best interests, (2) they were acting on our behalf or performing services for us, (3) the loss or liability was not the result of negligence or misconduct by our non-independent directors, our advisor or its affiliates or gross negligence or willful misconduct by our independent directors and (4) the indemnification or agreement to hold harmless is recoverable only outtrustee of our net assetscorporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan, or other enterprise and who is made or threatened to be made a party to the proceedsproceeding by reason of insurance and not from our stockholders.his or her service in that capacity.

Certain provisions of Maryland law could restrict a changeinhibit changes in control even if a change in control were inof us, which could lower the value of our stockholders’ interests.Class A Common Stock.

Certain provisionsprovision of the Maryland General Corporation Law applicable to us, or MGCL, may have the effect of inhibiting or deterring a third party from making a proposal to acquire us or of delaying or preventing a change of control under circumstance that otherwise could provide stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board;

"business combination" provisions that, subject to limitations, prohibit certain business combinations, with:asset transfers and equity security issuance or Reclassifications between us and an "interested stockholder" (define generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who, at any time within the two-year period to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose special stockholder voting requirements unless certain minimum price conditions are satisfied.

• any person who beneficially owns 10.0% or more of the voting power of our outstanding voting stock, which we refer to as an interested stockholder;
• an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, owns 10.0% or more of the voting power of our then outstanding stock, which we also refer to as interested stockholder; or
• an affiliate of an interested stockholder.
"control share" provisions that provide that "control shares" of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of outstanding "control shares") have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

Our board of directors has adopted a resolution providing that any business combination between us and any other person exempted from this statute, provided that such business combination is first approved by our board. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, we have opted out of these provisions pursuant to a provision in our bylaws. We may, only upon the approval of our stockholders, by amendment to our bylaws, opt in to the control share provisions of the MGCL. We may also choose to adopt a classified board or other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of stockholders.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination with the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least 80.0% of the votes entitled to be cast by holders of our outstanding shares of our voting stock and two-thirds of the votes entitled to be cast by holders of shares of our voting stock other than shares held by the interested stockholder or by an affiliate or associate of the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’stockholders' interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder.


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Our stockholders’ investment returnboard of directors has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our board. This resolution, however, may be altered or repealed in whole or in part at any time.

Our stockholders approved amendments to our charter which provide that certain provisions of our charter will not remain in effect in the event our shares of common stock are listed on a national securities exchange.

The provisions of the Statement of Policy Regarding Real Estate Investment Trusts adjusted by the North American Securities Administrators Association, or the NASAA Guidelines, apply to REITs with shares of common stock that are publicly registered with the SEC but are not listed on a national securities exchange. In the event of a Listing, there are certain provisions of our charter that will no longer be required to be included pursuant to the NASAA Guidelines. At our 2010 annual meeting, our stockholders approved amendments to our charter which provided that certain provisions of our charter will not remain in effect in the event of a Listing, including but not limited to provisions which:

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limit the voting rights per share of stock sold in a private offering;

prohibit distributions in kind, except for distributions of readily marketable securities, distributions of beneficial interests in a liquidity trust or distributions in which each stockholder is advised of the risks of direct ownership of property and offered the election of receiving such distributions;

place limits on incentive fees;

place limits on our organizational and offering expenses;

place limits on our total operating expenses;

place limits on our acquisition fees and expenses;

relate to the requirement that a special meeting of stockholders be called upon the request of stockholders holding 10% of our shares entitled to vote;

relate to the restrictions on amending our charter in certain circumstances without prior stockholder approval;

relate to inspection of our stockholder list and receipt of reports;

relate to restrictions on exculpation, indemnification and the advancement of expenses to our directors; and

relate to prohibitions on roll-up transactions.

Risks Related to Investments in Real Estate

Increasing vacancy rates for commercial real estate resulting from a slow economic recovery could result in increased vacancies at some or all of our properties, which may result in reduced revenue and resale value.

We may experience vacancies by a default of tenants under their leases or the expiration or termination of tenant leases, and such vacancies may continue for a long period of time. Recent disruptions in the financial markets and the slow economic recovery have resulted in a trend toward increasing vacancy rates for virtually all classes of commercial real estate, including medical office buildings and other facilities that serve the healthcare industry, due to generally lower demand for rentable space, as well as potential oversupply of rentable space. Uncertain economic conditions and related levels of unemployment have led to reduced demand for medical services, causing physician groups and hospitals to delay expansion plans, leaving a growing number of vacancies in new buildings. Reduced demand for medical office buildings and other facilities that serve the healthcare industry could require us to increase concessions, make tenant improvement expenditures or reduce rental rates to maintain occupancies. We may suffer reduced revenues resulting in less cash distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

We are dependent on the financial stability of our tenants.

Lease payment defaults by tenants would cause us to lose the revenue associated with such leases, and we may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant causing us to reduce the amount of distributions to our stockholders. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property, and may not be able to re-lease the property for the rent previously received, if at all. Lease terminations could also reduce the value of the properties.


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We face potential adverse consequences of bankruptcy or insolvency by our tenants.

We are exposed to the risk that our tenants could become bankrupt or insolvent. This risk would be magnified to the extent that a tenant leased or managed multiple facilities. The bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-lessee may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-lessee for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap might be substantially less than the remaining rent actually owed under the lease, and it is quite likely that any claim we might have for unpaid rent would not be paid in full. In addition, a debtor-lessee may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to a landlord, would generally be more limited.

Our medical office buildings, other facilities that serve the healthcare industry and tenants may be subject to competition.

Our medical office buildings and other facilities that serve the healthcare industry often face competition from nearby hospitals and other medical office buildings that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.

Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Further, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants' ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our medical office buildings and other facilities that serve the healthcare industry and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

The hospitals on whose campuses our medical office buildings are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our medical office buildings.

Our medical office building operations depend on the viability of the hospitals on or near whose campuses our medical office buildings are located and their affiliated healthcare systems in order to attract physicians and other healthcare-related clients. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. If a hospital on or near whose campus one of our medical office buildings is located is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related clients. Because we rely on our proximity to and affiliations with these hospitals to create demand for space in our medical office buildings, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our medical office building operations and have an adverse effect on us.

The unique nature of certain or our properties, including our senior healthcare properties, may make it difficult to lease or transfer our property or find replacement tenants, which could require us to spend considerable capital to adapt the property to an alternative use or otherwise negatively affect our performance.

Some of the properties we seek to acquire are specialized medical facilities or otherwise designed or built for a particular tenant of a specific type of use known as a single use facility. For example, senior healthcare facilities present unique challenges with respect to leasing and transferring the same. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and often times operator-specific. As a result, these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. A new or replacement tenant may require different features in a property, depending on that tenant's particular operations.

If we or our tenants terminate or do not renew the leases for our properties or our tenants lose their regulatory authority to operate such properties or default on their lease obligations for any reason, we may not be able to locate, or may incur additional costs to locate, suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to modify a property for a new tenant, or for multiple tenants with varying

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infrastructure requirements, before we are able to re-lease the space or we could otherwise incur re-leasing costs. Furthermore, because transfers of healthcare facilities may be subject to regulatory approvals not required for transfers of other types of property, there may be significant delays in transferring operations of senior healthcare facilities to successor operators. Any loss of revenues or additional capital expenditures required as a result may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholder returns.

There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to register as an investment company underdo so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the Investment Company Act.
Wevalue of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to stockholders. In cases where we are not registered as an investment company under the Investment Company Act. Ifrequired by mortgage lenders to obtain casualty loss insurance for any reason, we were required to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:
• limitations on capital structure;
• restrictions on specified investments;
• prohibitions on transactions with affiliates; and
• compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.
We intend to continue to operate incatastrophic events or terrorism, such a manner that we willinsurance may not be subject to regulation under the Investment Company Act. In order to maintain our exemption from regulation under the Investment Company Act, we must comply with technical and complex rules and regulations.
Specifically, so that we willavailable, or may not be subjectavailable at a reasonable cost, which could inhibit our ability to regulation asfinance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have an investment company underadverse effect on the Investment Company Act, we intend to engage primarily innet income from the business of investing in interests in real estateproperty, and, to make these investments within one year after our offering ends. If we are unable to invest a significant portion of the proceeds of our offering in properties within one year of the termination of our offering, we may avoid being required to register as an investment company under the Investment Company Act by temporarily investing any unused proceeds in government securities with low returns. Investments in government securities likely would reducethus, the cash available for distribution to stockholdersour stockholders.

We may obtain only limited warranties when we purchase a property and possibly lower their returns.
In order to avoid coming within the application of the Investment Company Act, either as a company engaged primarily in investing in interests in real estate or under another exemption from the Investment Company Act, we may be required to limit our investment activities. In particular, we may limit the percentage of our assets that fall into certain categories specifiedwould have only limited recourse in the Investment Company Act, which could result in us holding assets we otherwise might desire to sell and selling assets we otherwise might wish to retain. In addition, we may have to acquire additional assetsevent our due diligence did not identify any issues that we might not otherwise have acquired or be forced to forgo investment opportunities that we would otherwise want to acquire and that could be important to our investment strategy. In particular, we will monitor our investments in other real estate related assets to ensure continued compliance with one or more exemptions from investment company status under the Investment Company Act and, depending on the particular characteristics of those investments and our overall portfolio, we may be required to limit the percentage of our assets represented by other real estate related assets.
If we were required to register as an investment company, our ability to enter into certain transactions would be restricted by the Investment Company Act. Furthermore, the costs associated with registration as an investment company and compliance with such restrictions could be substantial. In addition, registration under and compliance with the Investment Company Act would require a substantial amount of time on the part of our advisor, its affiliates and management thereby decreasing the time spent actively managing our investments. If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
To the extent we issue additional equity interests after you purchase shares of our common stock in this offering, your percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings andlower the value of our realproperty.

The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.

Even if acquisitions are completed, we may fail to successfully operate acquired properties.

Our ability to successfully operate any acquired properties are subject to the following risks:

we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;

we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;

even if we are able to finance the acquisition, our cash flow may be insufficient to meet our required principal and interest payments;

we may spend more than budgeted to make necessary improvements or renovations to acquired properties;

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisition of portfolios of properties, into our existing operations, and as a result our results of operations and financial condition could be adversely affected;

market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities for clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we are unable to successfully operate acquired properties, our financial condition, results of operations, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.


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Our ownership of certain medical office building properties is subject to ground lease or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.

We hold interests in certain of our medical office building properties through leasehold interests in the land on which the buildings are located and we may acquire additional medical office building properties in the future that are subject to ground leases or other similar agreements. Many of our ground leases and other similar agreements limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties, which may impair their value.

Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.

We intend to hold our various real estate related assets, youinvestments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Chief Executive Officer and our board of directors may also experience dilutionexercise their discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We generally intend to hold properties for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the book valuefuture. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we may not be able to sell our properties at a profit in the future or at all. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and fairrealize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market valueconditions. Any inability to sell a property could adversely impact our business, financial condition, results of your shares.operation and ability to pay distributions to our stockholders.


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YouOur stockholders may not receive any profits resulting from the sale of one of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.

If we sell one of our properties during liquidation, youour stockholders may experience a delay before receiving yourtheir share of the proceeds of such liquidation. In a forced or voluntary liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We may take a purchase money obligation secured by a mortgage as partial payment. We do not have any limitations or restrictions on our taking such purchase money obligations. To the extent we receive promissory notes or other property instead of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be included in net sale proceeds until and to the extent the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In many cases, we will receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. Therefore, youstockholders may experience a delay in the distribution of the proceeds of a sale until such time.

Dilution andLease rates under our Operating Partnership
Several potential events could cause our stockholders’ investment in us to be diluted, which may reduce the overall value of their investment.
The value of our common stock could be diluted by a number of factors, including:
• future offerings of our securities, including issuances under our distribution reinvestment plan and up to 200,000,000 shares of any preferred stock that our board of directors may authorize;
• private issuances of our securities to other investors, including institutional investors;
• issuances of our securities under our 2006 Incentive Plan;
• redemptions of units of limited partnership interest in our operating partnership in exchange for shares of our common stock; or
• issuance of shares of our common stock to our advisor in connection with its subordinated interest in our operating partnership.
To the extent we issue additional equity interests after investors purchase shares of our common stock in our offering, such investors’ percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our real properties and other real estate related assets, investors may also experience dilution in the book value and fair market value of their shares.
Our stockholders’ interestslong-term leases may be diluted in various ways, which may reduce their returns.
Our board of directors is authorized, without stockholder approval, to cause us to issue additional shares of our common stock or to raise capital through the issuance of preferred stock, options, warrants and other rights, on terms and for consideration as our board of directors in its sole discretion may determine, subject to certain restrictions in our charter in the instance of options and warrants. Any such issuance could result in dilution of the equity of our stockholders. Our board of directors may, in its sole discretion, authorize us to issue common stock or other equity or debt securities to: (1) persons from whom we purchase properties, as part or all of the purchase price of the property, or (2) our advisor in lieu of cash payments required under the Advisory Agreement or other contract or obligation. Our board of directors, in its sole discretion, may determine the value of any common stock or other equity issued in consideration of properties or services provided, or to be provided, to us, except that while shares of our common stock are offered by us to the public, the public offering price of the shares of our common stock will be deemed their value.


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Risks Related to Investments in Real Estate
Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations and our ability to pay distributions to our stockholders or reduce the value of their investment.
We are subject to risks generally incident to the ownership of real property, including changes in national, regional or local economic, demographic or real estate market conditions. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions. For example, a recession or rise in interest rates could make it more difficult for us to lease real properties or dispose of them. In addition, rising interest rates could also make alternative interest-bearing and other investments more attractive and therefore potentially lower the relative value of our existing real estate investments. These conditions, or others we cannot predict, may adversely affect our results of operations and, our ability to pay distributions to our stockholders or reduce the value of their investment.
Some or all of our properties may incur vacancies, which may result in reduced revenue and resale value, a reduction in cash available for distribution and a diminished return on investment.
Some or all of our properties may incur vacancies either by a default of tenants under their leases or the expiration or termination of tenant leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
We are dependent on tenants for our revenue, and lease terminations could reduce our distributions to our stockholders.
The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could cause us to reduce the amount of distributions to our stockholders. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.
If we acquired real estate at a time when the real estate market was experiencing substantial influxes of capital investment and competition for income producing properties, the real estate investments we have made may not appreciate or may decrease in value.
Until recently, the real estate market has experienced a substantial influx of capital from investors. This substantial flow of capital, combined with significant competition for income producing real estate, may have resulted in inflated purchase prices for such assets. To the extent we purchased or in the future purchase real estate in such an environment, we are subject to the risk that the real estate market may cease to attract the same level of capital investment in the future, or if the number of companies seeking to acquire such assets decreases, the value of our investment may not appreciate or may decrease significantly below the amount we paid for such investment.
Competition with third parties in acquiring properties and other investments may reduce our profitability and our stockholders may experience a lower return on their investment.
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, pension funds, other REITs, real estate limited partnerships, and foreign investors, many of which have greater resources than we do. Many of these entities may enjoy significant competitive advantages that result from, among other things, a lower cost of


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capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. As such, competition with third parties would result in increased demand for these assets and therefore increased prices paid for them. If we pay higher prices for properties and other investments, our profitability will be reduced and our stockholders may experience a lower return on their investment.
Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions to our stockholders could be lower than if we did not enter into long-term leases.time.

We have entered into and may in the future enter into long-term leases with tenants of certain of our properties. OurCertain of our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions to our stockholders could be lower than if we did not enter into long-term leases.

We may incur additional costs in acquiring or re-leasing properties which could adversely affect the cash available for distribution to our stockholders.
We may invest in properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If the tenant fails to renew its lease or defaults on its lease obligations, we may not be able to readily market a single-user facility to a new tenant without making substantial capital improvements or incurring other significant re-leasing costs. We also may incur significant litigation costs in enforcing our rights as a landlord against the defaulting tenant. These consequences could adversely affect our revenues and reduce the cash available for distribution to our stockholders.
We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract or replace tenants and decrease stockholders’ return on investment.
When tenants do not renew their leases or otherwise vacate their space, it is common that, in order to attract replacement tenants, we will be required to expend substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements may require us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant improvements or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential tenants being attracted to the property or existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may not be able to make necessary capital improvements to our properties, pay other expenses or pay distributions to our stockholders.
Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholders’ returns.
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less


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cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have a material adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.
If one of our insurance carriers does not remain solvent, we may not be able to fully recover on our claims.
An insurance subsidiary of American International Group, or AIG, provides coverage under an umbrella insurance policy we have obtained that covers our properties. Recently, AIG has announced that it has suffered from severe liquidity problems. Although the U.S. Treasury and Federal Reserve have announced measures to assist AIG with its liquidity problems, such measures may not be successful. If AIG were to become insolvent, it could have a material adverse impact on AIG’s insurance subsidiaries. In the event that AIG’s insurance subsidiary that provides coverage under our policy is not able to cover our claims, it could have a material adverse impact on the value of our properties and our financial condition.
We may be unable to obtain desirable types of insurance coverage at a reasonable cost, if at all, and we may be unable to comply with insurance requirements contained in mortgage or other agreements due to high insurance costs.
We may not be able either to obtain certain desirable types of insurance coverage, such as terrorism, earthquake, flood, hurricane and pollution or environmental matter insurance, or to obtain such coverage at a reasonable cost in the future, and this risk may limit our ability to finance or refinance debt secured by our properties. Additionally, we could default under debt or other agreements if the costand/or availability of certain types of insurance make it impractical or impossible to comply with covenants relating to the insurance we are required to maintain under such agreements. In such instances, we may be required to self-insure against certain losses or seek other forms of financial assurance.
Increases in our insurance rates could adversely affect our cash flow and our ability to make future cash distributions to our stockholders.
We cannot assure our stockholders that we will be able to renew our insurance coverage at our current or reasonable rates or that we can estimate the amount of potential increases of policy premiums. As a result, our cash flow could be adversely impacted by increased premiums. In addition, the sales prices of our properties may be affected by these rising costs and adversely affect our ability to make cash distributions to our stockholders.
We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.
The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.
Terrorist attacks and other acts of violence or war may affect the markets in which we operate and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to our stockholders.
Terrorist attacks may negatively affect our operations and our stockholders’ investment. We may acquire real estate assets located in areas that are susceptible to attack. These attacks may directly impact the value of


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our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs.
More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases or our ability to borrow money or issue capital stock at acceptable prices and have a material adverse effect on our financial condition, results of operations and ability to pay distributions to stockholders.
Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and returns to our stockholders.
Delays we encounter in the selection, acquisition and development of real properties could adversely affect stockholders’ returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, stockholders could suffer delays in the receipt of cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to builders prior to completion of construction. Each of those factors could result in increased costs of a project or loss of our investment. In addition, we are subject to normallease-up risks relating to newly constructed projects. Furthermore, the price we agree to for a real property will be based on our projections of rental income and expenses and estimates of the fair market value of real property upon completion of construction. If our projections are inaccurate, we may pay too much for a property.
Uncertain market conditions relating to the future disposition of properties could cause us to sell our properties at a loss in the future.
We intend to hold our various real estate investments until such time as our advisor determines that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our advisor, subject to the oversight and approval of our Chief Executive Officer and our board of directors, may exercise its discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. We generally intend to hold properties for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we cannot assure stockholders that we will be able to sell our properties at a profit in the future. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, the extent to which our stockholders will receive cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions.
We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to our stockholders.

Because we own and operate real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced


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by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage

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associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could changeincrease the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury or other claims or fines could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.
Our real estate investments may be concentrated in medical office or other healthcare related facilities, making us more vulnerable economically than if our investments were diversified.
As a REIT, we invest primarily in real estate. Within the real estate industry, we have primarily acquired medical office buildings and healthcare related facilities and intend to continue to acquire or selectively develop these types of properties in the future. We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business strategy to invest to a substantial degree in healthcare related facilities.
A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our ability to make distributions to our stockholders. These adverse effects could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in medical office buildings and healthcare related facilities.
Certain of our properties may not have efficient alternative uses, so the loss of a tenant may cause us not to be able to find a replacement or cause us to spend considerable capital to adapt the property to an alternative use.
Some of the properties we will seek to acquire are specialized medical facilities. If we or our tenants terminate the leases for these properties or our tenants lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Our medical office buildings, healthcare related facilities and tenants may be unable to compete successfully.
Our medical office buildings and healthcare related facilities often face competition from nearby hospitals and other medical office buildings that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our buildings.
Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Our tenants’ failure to compete successfully with these other practices could adversely affect their ability to make rental payments, which could adversely affect our rental revenues. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. This could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues.


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Any reduction in rental revenues resulting from the inability of our medical office buildings and healthcare related facilities and our tenants to compete successfully may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Our costs associated with complying with the Americans with Disabilities Act may reduce our cash available for distributions.
Our properties may be subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the ADA or place the burden on the seller or other third party, such as a tenant, to ensure compliance with the ADA. However, we cannot assure our stockholders that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for ADA compliance may reduce cash available for distributions and the amount of distributions to our stockholders.
Our real properties are subject to property taxes that may increase in the future, which could adversely affect our cash flow.
Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Some of our leases generally provide that the property taxes or increases therein are charged to the tenants as an expense related to the real properties that they occupy while other leases will generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. In addition, we are generally responsible for real property taxes related to any vacant space.
Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.
All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate those substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’tenants' operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may also adversely affect our real properties. In addition, there are various local, state and


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federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

Risks Related to the Healthcare Industry

New laws or regulations affecting the heavily regulated healthcare industry, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.

Many of our medical properties and their tenants may require a license or multiple licenses or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON would prevent a facility from operating in the manner intended by the tenant. These events could adversely affect our tenants' ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the United States and are subject to change. We cannot predict the impact of state CON laws on our development of facilities or the operations of our tenants.

In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Recently enacted comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations and our ability to pay distributions to stockholders.

On March 23, 2010, the President signed into law the Patient Protection and Affordable Care Act of 2010, or the Patient Protection and Affordable Care Act, and on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010, or the Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act. Together, the two laws serve as the primary vehicle for comprehensive healthcare reform in the U.S. and will become effective through a phased approach, which began in 2010 and will conclude in 2018. The laws are intended to reduce the number of individuals in the United States without health insurance and significantly change the means by which healthcare is organized, delivered and reimbursed. The Patient Protection and Affordable Care Act includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal healthcare programs. In addition, the Patient Protection and Affordable Care Act expands reporting requirements and responsibilities related to facility ownership and management, patient safety and care quality. In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. If they do not comply with the additional reporting requirements and responsibilities, our tenants' ability to participate in federal healthcare programs may be adversely affected. Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could adversely affect our tenants, and therefore our business, financial condition, results of operations and ability to pay distributions to our stockholders.


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Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.

Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, and health maintenance organizations, preferred provider arrangements, self-insured employers and the patients themselves, among others. Medicare and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement rates as payment in full for services rendered, without regard to a provider's charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could result in a substantial reduction in our tenants' revenues. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. Further, revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable or because additional documentation is necessary or because certain services were not covered or were not medically necessary. The recently enacted healthcare reform law and regulatory changes could impose further limitations on government and private payments to healthcare providers. In some cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to managed care payors, and general industry trends that include pressures to control healthcare costs. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement to managed care plans have resulted in an increase in the number of patients whose healthcare coverage is provided under managed care plans, such as health maintenance organizations and preferred provider organizations. These changes could have a materialan adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have a materialan adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

The healthcare industry is heavily regulated,Government budget deficits could lead to a reduction in Medicaid and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensureMedicare reimbursement, which could result inadversely affect the inabilityfinancial condition of our tenantstenants.

Adverse U.S. economic conditions have negatively affected state budgets, which may put pressure on states to make rent paymentsdecrease reimbursement rates with the goal of decreasing state expenditures under state Medicaid programs. The need to us.
Thecontrol Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes, and eligibility expansions required by the recently enacted healthcare industry is heavily regulatedreform law. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state and local governmental bodies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participationMedicaid programs. Potential reductions in governmentreimbursements under these programs and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affectimpact the ability of our tenants and their ability to make lease paymentsmeet their obligations to us, and our ability to make distributions to our stockholders.
Many of our medical properties and their tenants may require a license or certificate of need, or CON, to operate. Failure to obtain a license or CON, or loss of a required license or CON would prevent a facility from operatingwhich could, in the manner intended by the tenant. These events could materially adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of healthcare related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the United States and are subject to change. We cannot predict the impact of state CON lawsturn, have an adverse effect on our development of facilities or the operations of our tenants.
In addition, state CON laws often materially impact the ability of competitors to enter into the marketplace of our facilities. The repeal of CON laws could allow competitors to freely operate in previously closed markets. This could negatively affect our tenants’ abilities to make rent payments to us.


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In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition, and results of operations and our ability to make distributions to our stockholders.

Some tenants of our medical office buildings and other facilities that serve the healthcare related facilitiesindustry are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’stenant's ability to make rent payments to us.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from or are in a position to make referrals in connection with government-sponsored healthcare programs, including the Medicare and Medicaid programs. Our lease arrangements with certain tenants may also beThese laws include, but are not limited to:

the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral or recommendation for the ordering of any item or service reimbursed by Medicare or Medicaid;

the Federal Physician Self-Referral Prohibition, which, subject to these fraudspecific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;


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the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and abuse laws.Medicaid programs; and

These laws include:the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts; and

• the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral of any item or service reimbursed by Medicare or Medicaid;
• the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;
• the False Claims Act, which prohibits any person from knowingly presenting false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs; and
• the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts.
the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment Act of 2009, which protects the privacy and security of personal health information.

Each of these laws includes criminaland/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid paymentsand/or exclusion from the Medicare and Medicaid programs. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’stenant's ability to operate or to make rent payments, which may have a materialan adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

Adverse trends in healthcare provider operations may negatively affect our lease revenues and our ability to make distributions to our stockholders.
The healthcare industry is currently experiencing:
• changes in the demand for and methods of delivering healthcare services;
• changes in third party reimbursement policies;
• significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;
• continued pressure by private and governmental payors to reduce payments to providers of services; and
• increased scrutiny of billing, referral and other practices by federal and state authorities.


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These factors may adversely affect the economic performance of some or all of our healthcare related tenants and, in turn, our lease revenues and our ability to make distributions to our stockholders.
Our healthcare related tenants may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us.

As is typical in the healthcare industry, our healthcare related tenants may often become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claimsand/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our medical office buildings and other facilities that serve the healthcare related facilitiesindustry operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that thereThere has been, and will continue to be, an increase in governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims and quality of care, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could lead to potential termination from government programs, large penalties and fines and otherwise have a materialan adverse effect on a tenant’stenant's financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’stenant's ability to pay rent, which in turn could have a materialan adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

We may experience adverse effects as a result of potential financial and operational challenges faced by the operators of our senior healthcare facilities.

Operators of our senior healthcare facilities may face operational challenges from potentially reduced revenue streams and increased demands on their existing financial resources.

Changes in reimbursement policies. Our skilled nursing operators’operators' revenues are primarily derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Accordingly, our facility operators are subject to the potential negative effects of decreased reimbursement rates offered through such programs.

Impact of general economic conditions. Our operators’operators' revenue may also be adversely affected as a result of falling occupancy rates or slowlease-ups for assisted and independent living facilities due to the recent turmoil in the capital debt and real estate markets. In addition, our facility operators may incur additional demands on their existing financial resources as a result of increases in senior healthcare operator liability, insurance premiums and other operational expenses. The economic deterioration of an operator could cause such operator to file for bankruptcy protection. The bankruptcy or insolvency of an operator may adversely affect the income produced by the property or properties it operates.


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Compliance costs. Our financial position could be weakened and our ability to make distributions could be limited if any of our senior healthcare facility operators were unable to meet their financial obligations to us.
Our operators’operators' performance and economic condition may be negatively affected if they fail to comply with various complex federal and state laws that govern a wide array of referrals, relationships, reimbursement and licensure requirements in the senior healthcare industry. The violation of any of these laws or regulations by a senior healthcare facility operator may result in the imposition of fines or other penalties that could jeopardize that operator’soperator's ability to make payment obligations to us or to continue operating its facility. Compliance with the requirements in the healthcare reform law could increase costs as well. Increased costs could limit our healthcare operator's ability to meet their obligations to us, potentially decreasing our revenue and increasing our collection and litigation costs.

Legal actions. Moreover, advocacy groups that monitor the quality of care at healthcare facilities have sued healthcare facility operators and called upon state and federal legislators to enhance their oversight of trends in healthcare facility ownership and quality of care. In response, the recently enacted healthcare reform law imposes additional reporting requirements and responsibilities for healthcare facility operators. Patients have also sued healthcare facility operators and have, in certain cases, succeeded in winning very large damage awards for alleged abuses. This litigation and potential litigation in the future has materially increased the costs incurred by our operators for monitoring and reporting quality of care compliance.

Insurance. In addition, the cost of medical malpractice and liability insurance has increased and may continue to increase so long as the present litigation environment affecting the operations of healthcare facilities continues. To the extent we are required to remove or replace a healthcare operator, our revenue from the affected property could be reduced or eliminated for an extended period of time.

New or future legislative proposals. In addition, legislative proposals are commonly being introduced or proposed in federal and state legislatures that could affect major changes in the senior healthcare sector, either nationally or at the state level. It is impossible to say with any certainty whether this proposed legislation will be adopted or, if adopted, what effect such legislation would have on our facility operators and our senior healthcare operations.


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The unique natureIncreased operating expenses. In addition, our facility operators may incur additional demands on their existing financial resources as a result of increases in senior healthcare operator liability, insurance premiums and other operational expenses. Our financial position could be weakened and our ability to make distributions could be limited if any of our senior healthcare properties may make it difficultfacility operators were unable to lease or transfer such properties and, as a result, may negatively affect our performance.meet their financial obligations to us.

Senior healthcare facilities present unique challenges with respect to leasing and transferring the same. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare related uses. As a result,Any of these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. These renovation costs may materiallyfactors could adversely affect the ability of our revenues,tenants to pay rent, diminish the value of our properties or otherwise have an adverse effect on our business, financial condition and results of operations and financial condition. Furthermore, because transfers of healthcare facilities may be subjectability to regulatory approvals not required for transfers of other types of property, there may be significant delays in transferring operations of senior healthcare facilitiesmake distributions to successor operators. If we are unable to efficiently transfer our senior healthcare properties our revenues and operations may suffer.stockholders.

Risks Related to Investments in Other Real Estate Related Assets

We do not have substantial experience in acquiring mortgage loans or investing in other real estate related assets, which may result in our other real estate related assets failing to produce returns or incurring losses.
None of our officers or the management personnel of our advisor have any substantial experience in acquiring mortgage loans or investing in other real estate related assets in which we may invest. We may make such investments to the extent that our advisor, in consultation with our board of directors, determines that it is advantageous for us to do so. Our and our advisor’s lack of expertise in making investments in other real estate related assets may result in our real estate related assets failing to produce returns or incurring losses, either of which would reduce our ability to make distributions to our stockholders.
Real estate related equity securities in which we may invest are subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities.

We may invest in the common and preferred stock of both publicly traded and private real estate companies, which involves a higher degree of risk than debt securities due to a variety of factors, including the fact that such investments are subordinate to creditors and are not secured by the issuer’sissuer's property. Our investments in real estate related equity securities will involve special risks relating to the particular issuer of the equity securities, including the financial condition and business outlook of the issuer. Issuers of real estate related common equity securities generally invest in real estate or other real estate related assets and are subject to the inherent risks associated with other real estate related assets discussed in this Annual Report on Form 10-K, including risks relating to rising interest rates.

The mortgage or other real estate-related loans in which we may invest may be impacted by unfavorable real estate market conditions, which could decrease their value.

As of December 31, 2011, we had acquired two mortgage loans. If we make additional investments in mortgage loans, we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate described above under the heading “Risks“- Risks Related to Investments in Real Estate Related Assets”.Estate.” If we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know

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whether the values of the property securing any of our investments in other real estate related assets will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Delays in liquidating defaulted mortgage loan investments could reduce our investment returns.

If there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the


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underlying properties quickly which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The mezzanine loans in which we may invest would involve greater risks of loss than senior loans secured by income-producing real properties.
We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.
We expect a portion of our investments in other real estate related assets to be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

We may purchase other real estate related assets in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default.

Interest rate and related risks may cause the value of our investments in other real estate related assets to be reduced.

Interest rate risk is the risk that fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stocks,stock, will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market value of such securities will decline, and vice versa. Our investment in such securities means that the net asset value and market price of the common shares may tend to decline if market interest rates rise.

During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’ssecurity's duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as call or prepayment risk. If this occurs, we may be forcedforce us to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our investments in other real estate related assets.


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If we liquidate prior to the maturity of our investments in other real estate assets, we may be forced to sell those investments on unfavorable terms or at a loss.

Our board of directors may choose to effect a liquidity event in which we liquidate our assets, including our investments in other real estate related assets. If we liquidate those investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

Risks Related to Debt Financing

We have and intend to incur mortgage indebtedness and other borrowings, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of our stockholders’ investments.company.

As of December 31, 2011, we had fixed and variable rate debt of $639.1 million outstanding, including a premium of $2.6 million. We have and intend to continue to finance a portion of the purchase price of our investments in real estate and other real estate related assets by borrowing funds. We anticipate that, after an initial phase of our operations when we may employ greater amounts of leverage to enable us to purchase properties more quickly and therefore generate distributions for our stockholders sooner, our overall leverage will not exceed 60.0% of our properties’ and other real estate related assets’ combined fair market value of our assets. Under our charter, we have a limitation on borrowing which precludes us from borrowing in excess of 300.0% of the value of our net assets, without the approval of a majority of our independent directors. In addition, any excess borrowing must be disclosed to stockholders in our next quarterly report following the borrowing, along with justification for the excess. Net assets for purposes of this calculation are defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation or other non-case reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75.0% of the sum of (a) the aggregate cost of our real property investments before non-cash reserves and depreciation and (b) the aggregate cost of our investments in other real estate related assets. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90.0%90% of our annual REITordinary taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. We anticipate that our overall leverage, the ratio of our debt to total assets, will fluctuate within approximately 35% to 40%.

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High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our stockholders’ investments.company. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.


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Higher mortgage rates may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.

As of December 31, 2011, we had $79.6 million principal amount of debt maturing in the year ending December 31, 2012. If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance theutilize financing in our initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to our stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Increases in interest rates could increase the amount of our debt payments and, therefore, negatively impact our operating results.

Interest we pay on our debt obligations reduces cash available for distributions. Whenever we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to our stockholders. As of December 31, 2011, we had $175.3 million outstanding variable rate debt. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments.

To the extent we borrow at fixed rates or enter into fixed interest rate swaps we will not benefit from reduced interest expense if interest rates decrease.
We are exposed to the effects of interest rateAdverse changes primarily as a result of borrowings used to maintain liquidity and fund expansion and refinancing ofin our real estate investment portfolio and operations. To limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk, we may borrow at fixed rates or variable rates depending upon prevailing market conditions. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. To the extent we borrow at fixed rates or enter into fixed interest rate swaps we will not benefit from reduced interest expense if interest rates decrease.
Lenders may require us to enter into restrictive covenants relating to our operations, whichcredit ratings could limit our ability to make distributions to our stockholders.
When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt and affect our distribution and operating policies. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.
In connection with our transition to self-management, we may be required to provide notice or obtain the consent of certain of our lenders, and our failure to obtain any required consents could result in a default under our loan documents.
We may be required to provide notice to,and/or obtain consent from, certain of our lenders in connection with our transition to self-management. To the extent that we are required to obtain the consent of a lender and such lender does not provide consent, then in the event that we are otherwise unable to amend, refinance or pay off the applicable loan, we may be in default under the loan documents. Such default would afford the applicable lender the right to exercise the remedies available to it under the loan documents, including the right to accelerate the repayment of the loan. To the extent that any of our loan repayments are accelerated, we may have difficulty, particularly given the current status of the credit markets, obtaining replacement


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financing, or alternatively, the replacement financing we may obtain may not be on terms as advantageous as the terms of our current financing arrangements. In addition, any acceleration of any of our debt without replacement financing may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT and could have a significant, negative impact on our stockholders’ investments.
Hedging activity may expose us to risks.
To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to our stockholders will be adversely affected.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to stockholders.
We have and may continue to finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.
If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to refinance or sell properties on favorable terms, and to make distributions to our stockholders.
Some of our financing arrangements may require us to make a lump-sum or balloon payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend uponimpair our ability to obtain additional debt and equity financing oron favorable terms, if at all, and negatively impact the market price of our ability to sellsecurities, including our common stock.

The credit ratings of our senior unsecured debt are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the particular property. Atcredit rating agencies in their rating analysis of us. Our credit ratings can affect the timeamount and type of capital we can access, as well as the balloon payment is due,terms of any financings we may or may notobtain. There can be no assurance that we will be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. The refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of our assets. In an environment of increasing mortgage rates, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt if mortgage rates are higher at a time a balloon payment is due. In addition, payments of principal and interest made to service our debts, including balloon payments, may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification ascurrent credit ratings and in the event that our current credit ratings deteriorate, we would likely incur higher borrowing costs and it may be more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Also, a REIT. Any of these resultsdowngrade in our credit ratings would have a significant,trigger additional costs or other potentially negative impact onconsequences under our stockholders’ investments.current and future credit facilities and debt instruments.

Risks Associated withRelated to Joint Ventures

The terms of joint venture agreements or other joint ownership arrangements into which we have entered and may enter could impair our operating flexibility and our results of operations.

In connection with the purchase of real estate, we have entered and may continue to enter into joint ventures with third parties, including affiliates of our advisor.parties. We may also purchase or develop properties in


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co-ownership arrangements with the sellers of the properties, developers or other persons. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint venture partners may have rights to take some actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:

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• a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;
• a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;
• actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and
• a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.



a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;

a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;

actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and

a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.

Under certain joint venture arrangements, neither venture partner may have the power to control the venture and an impasse could occur, which might adversely affect the joint venture and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal of our venture partner.

We may structure our joint venture relationships in a manner which may limit the amount we participate in the cash flow or appreciation of an investment.

We may enter into joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flow up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flow than we are to receive once such target return has been achieved. This type of investment structure may result in theco-venturer coventurer receiving more of the cash flow, including appreciation, of an investment than we would receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to make cash distributions to our stockholders.

Federal Income Tax Risks

Failure to qualify as a REIT for U.S. federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.

We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2007 and we intendbelieve that our current and intended manner of operation will enable us to continue to meet the qualifications to be taxed as a REIT. To qualify as a REIT, we must meet various requirements set forth in the Internal Revenue Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and


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interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our board of directors to revoke our REIT election, which it may do without stockholder approval.


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If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status.qualification as a REIT. Losing our qualification as a REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer be deductible in computing our taxable income, and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable federalcorporate income tax. In addition, although we intend to operate in a manner intended to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to recommend that we revoke our REIT election.

As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to our stockholders.

To continue to qualify as a REIT and to avoid the payment of U.S. federal income and excise taxes and maintain our REIT status, we may be forced to borrow funds, use proceeds from the issuance of securities, (including our offering), or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations.

To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90.0% of our real estate investment trustREIT taxable income, determined without regard to the deduction for distributionsdividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4.0% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of: (1) 85.0% of our ordinary income,income; (2) 95.0% of our capital gain net incomeincome; and (3) 100.0%100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities (including our offering) or sell assets in order to distribute enough of our taxable income to maintain our qualification as a REIT status and to avoid the payment of federal income and excise taxes.

If our operating partnership fails to maintain its status as a partnership for federal income tax purposes, its income would be subject to taxation and our REIT status would be terminated.
We intend to maintain the status of our operating partnership as a partnership for federal income tax purposes. However, if the IRS were to successfully challenge the status of our operating partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our operating partnership could make to us. This would also result in our losing REIT status and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the return on our stockholders’ investment. In addition, if any of the entities through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our operating partnership. Such a recharacterization of our operating partnership or an underlying property owner could also threaten our ability to maintain our REIT status.


48


Our stockholdersInvestors may have a current tax liability on distributions they elect to reinvest in shares of our common stock.

If our stockholders participate in theour DRIP, they will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested invalue of the shares of our common stockreceived to the extent the amount reinvested was not a tax-free return of capital. As a result, unlessexcept in the case of tax-exempt entities, our stockholders are a tax-exempt entity, they may have to use funds from other sources to pay their tax liability on the value of the common stock received.

Dividends paid by REITs do not qualify for the reduced tax rates that apply to other corporate dividends.

Tax legislation enacted in 2003 and 2006 generally reduces theThe maximum tax rate for qualified dividends“qualified dividends” paid by corporations to individuals to 15.0%is 15% through 2010.2012, as extended by recent tax legislation. Dividends paid by REITs, however, generally continue to be taxed at the normal ordinary income rate applicable to the individual recipient (subject to a maximum rate of 35% through 2012), rather than the 15.0%15% preferential rate. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, theThe more favorable rates applicable to regular corporate dividends could cause potential investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the value of the stock of REITs, including our common stock.

In certain circumstances, we may be subject to U.S. federal and state income taxes as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we qualify and maintain our status as a REIT, we may be subject to U.S. federal income taxes or state taxes. For example, net income from a prohibited transaction“prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any U.S. federal or state taxes we pay will reduce our cash available for distribution to our stockholders.


45


Distributions to certain tax-exempt stockholders may be classified as unrelated business taxable income.

Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income to a tax-exempt stockholder. However, there are certain exceptions to this rule. In particular:
• part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a speciallook-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;
• part of the income and gain recognized by a tax exempt stockholder with respect to our common stock would constitute unrelated business taxable income if the stockholder incurs debt in order to acquire the common stock; and
• part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as unrelated business taxable income.


49


part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominantly held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;

part of the income and gain recognized by a tax exempt stockholder with respect to our common stock would constitute unrelated business taxable income if the stockholder incurs debt in order to acquire the common stock; and

part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from U.S. federal income taxation under Sections 501(c)(7), (9), (17) or (20) of the Code may be treated as unrelated business taxable income.

Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.

To continue to qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments in order to comply with the REIT tests. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.

Changes to U.S. federal income tax laws or regulations could adversely affect stockholders.

In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure our stockholders that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock. We urge our stockholdersprospective investors to consult with their own tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Employee Benefit Plan, IRAForeign purchasers of shares of our common stock may be subject to FIRPTA tax upon the sale of their shares of our common stock.

A foreign person disposing of a U.S. real property interest, including shares of stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to U.S. tax pursuant to the Foreign Investment in Real Property Tax Act of 1980, as amended, or FIRPTA. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50.0% of the REIT's stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT's existence. We cannot assure our stockholders that we will continue to qualify as a “domestically controlled” REIT.

Foreign stockholders may be subject to FIRPTA tax upon the payment of a capital gains dividend.

A foreign stockholder also may be subject to U.S. tax pursuant to FIRPTA upon the payment of any dividend is attributable to gain from sales or exchanges of U.S. real property interests.


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If investors fail to meet the fiduciary and Other Tax-Exempt Investor Risksother standards under ERISA or the Code as a result of an investment in our common stock, they could be subject to criminal and civil penalties.

We, and our stockholders that are employee benefit plans or individual retirement accounts, or IRAs, annuities described in Sections 403(a) or (b) of the Code, Archer MSAs, health savings accounts, or Coverdell education savings accounts (referred to generally as Benefit Plans and IRAs) will be subject to risks relating specifically to our having employee benefit plans and IRAs as stockholders, which risks are discussed below.
If our stockholders fail to meet the fiduciary and other standards under the Employee Retirement Income Security Act of 1974, or ERISA, or the Internal Revenue Code as a result of an investment in shares of our common stock, such stockholder could be subject to criminal and civil penalties.
There are special considerations that apply to Benefit Plans orpension, profit-sharing trusts of IRAs investing in shares of our common stock. StockholdersIf investors are investing the assets of a pension, profit sharing or 401(k) plan, health or welfare plan, or an IRA in us, they should consider:

• whether its investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code, or any other applicable governing authority in the case of a government plan;
• whether its investment is made in accordance with the documents and instruments governing its Benefit Plan or IRA, including its Benefit Plan investment policy;
• whether its investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
• whether its investment will impair the liquidity of the Benefit Plan or IRA;
• whether its investment will constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code;
• whether its investment will produce unrelated business taxable income, referred to as UBTI and as defined in Sections 511 through 514 of the Code, to the plan or IRA; and
• its need to value the assets of the plan annually in accordance with ERISA and the Code.
whether the investment is consistent with the applicable provisions of ERISA and the Code, or any other applicable governing authority in the case of a government plan;

whether the investment is made in accordance with the documents and instruments governing their plan or IRA, including their plan's investment policy;

whether the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;

whether the investment will impair the liquidity of the plan or IRA;

whether the investment will produce unrelated business taxable income, referred to as UBTI and as defined in Sections 511 through 514 of the Code, to the plan or IRA; and

their need to value the assets of the plan annually in accordance with ERISA and the Code.

In addition to considering their fiduciary responsibilities under ERISA and the prohibited transaction rules of ERISA and the Code, trustees or others purchasing shares should consider the effect of the plan asset regulations of the U.S. Department of Labor. To avoid our assets from being considered plan assets under those regulations, our charter prohibits “benefit plan investors” from owning 25.0% or more of our common stock prior to the time that the common stock qualifies as a class of publicly-offered securities, within the


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meaning of the ERISA plan asset regulations. However, we cannot assure our stockholders that those provisions in our charter will be effective in limiting benefit plan investor ownership to less than the 25.0% limit. For example, the limit could be unintentionally exceeded if a benefit plan investor misrepresents its status as a benefit plan. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan or IRA purchasing shares, and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of investorsa plan or IRA, an investorinvestors should not purchase shares unless an administrative or statutory exemption applies to an investorthe purchase.

Governmental plans, church plans, and foreign plans generally are not subject to ERISA or the prohibited transaction rules of the Code, but may be subject to similar restrictions under other laws. A plan fiduciary making an investment in our shares on behalf of such a plan should consider whether the investment is in accordance with applicable law and governing plan documents.

Item 1B.Unresolved Staff Comments.
Not applicable.



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Item 2.  Properties.
As of December 31, 2008,2011, we have not entered into any leases forleased our principal executive offices located at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705. We did not have an address separate from our advisor, Grubb & Ellis Realty Investors, or our sponsor, Grubb & Ellis. Since we pay our advisor fees for its services, we do not pay rent for the use of its space. In connection with our self-management program, on February 4, 2009, we entered into a lease for our new principal executive offices located at The Promenade, 1642716435 North Scottsdale Road, Suite 440,320, Scottsdale, AZ 85254. Additionally, we lease regional offices in Indianapolis, IN and in Charleston, SC. Our Indianapolis regional office is located at 201 N. Pennsylvania Parkway, Suite 201, Indianapolis, IN 46280. Our Charleston regional office is located at 463 King Street, Suite B, Charleston, SC 29403.
We anticipate that upon or prior to the completionhave built a portfolio of our transition to self-management, this office will serve as our principal executive office.
As of December 31, 2008, we owned 41 geographically diverse properties, 33 of which are medical office properties, five of which are healthcare related facilities and three of which are quality commercial office properties,acquisitions comprising 5,156,000248 buildings with approximately 11.2 million square feet of GLA, for an aggregate purchase price of $951,416,000, in 17 states.
The following table presents certain additional information about our properties$2,334,673,000 as of December 31, 2008:2011. Our portfolio is geographically diverse, with property portfolios located in 25 states. Each of our properties is 100% owned by our operating partnership, except for the 7900 Fannin medical office building in which we own an approximate 84% interest through our operating partnership. As of December 31, 2011, our property portfolio had an occupancy rate of approximately 91%, including leases signed but which have not yet commenced.
                                       
                      % Total of
     Annual Rent
 
    GLA
  % of
  Ownership
  Date
  Purchase
  Annual
  Annual
  Physical
  Per Leased
 
Property Property Location (Sq Ft)  GLA  Percentage  Acquired  Price  Rent(1)  Rent  Occupancy  Sq Ft(2) 
 
Southpointe Office Parke and Epler Parke I Indianapolis, IN  97,000   1.9%  100%  01/22/07  $14,800,000  $1,176,000   1.4%  90.4% $12.12 
Crawfordsville Medical
Office Park
and Athens Surgery Center
 Crawfordsville, IN  29,000   0.6   100%  01/22/07   6,900,000   593,000   0.7   100   20.12 
The Gallery Professional Building St. Paul, MN  106,000   2.1   100%  03/09/07   8,800,000   1,164,000   1.3   67.8   11.00 
Lenox Office Park, Building G Memphis, TN  98,000   1.9   100%  03/23/07   18,500,000   2,176,000   2.5   100   22.24 
Commons V Medical Office Building Naples, FL  55,000   1.1   100%  04/24/07   14,100,000   1,143,000   1.3   100   20.73 
Yorktown Medical Center and
Shakerag Medical Center
 Fayetteville and Peachtree City, GA  115,000   2.2   100%  05/02/07   21,500,000   2,385,000   2.7   83.8   20.74 
Thunderbird Medical Plaza Glendale, AZ  110,000   2.1   100%  05/15/07   25,000,000   1,777,000   2.0   69.1   16.17 
Triumph Hospital Northwest
and Triumph Hospital Southwest
 Houston and Sugar Land, TX  151,000   2.9   100%  06/08/07   36,500,000   2,990,000   3.4   100   19.84 
Gwinnett Professional Center Lawrenceville, GA  60,000   1.2   100%  07/27/07   9,300,000   928,000   1.1   67.5   15.46 
1 & 4 Market Exchange Columbus, OH  116,000   2.2   100%  08/15/07   21,900,000   1,499,000   1.7   92.6   12.95 
Kokomo Medical Office Park Kokomo, IN  87,000   1.7   100%  08/30/07   13,350,000   1,349,000   1.6   98.2   15.48 
St. Mary Physicians Center Long Beach, CA  67,000   1.3   100%  09/05/07   13,800,000   1,359,000   1.6   78.6   20.37 
2750 Monroe Boulevard Valley Forge, PA  109,000   2.1   100%  09/10/07   26,700,000   2,699,000   3.1   100   24.70 
East Florida Senior Care Portfolio Jacksonville, Winter Park
and Sunrise, FL
  355,000   6.9   100%  09/28/07   52,000,000   4,197,000   4.8   100   11.84 
Northmeadow Medical Center Roswell, GA  51,000   1.0   100%  11/15/07   11,850,000   1,239,000   1.4   98.6   24.30 
Tucson Medical Office Portfolio Tucson, AZ  111,000   2.2   100%  11/20/07   21,050,000   1,641,000   1.9   67.0   14.75 


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                      % Total of
     Annual Rent
 
    GLA
  % of
  Ownership
  Date
  Purchase
  Annual
  Annual
  Physical
  Per Leased
 
Property Property Location (Sq Ft)  GLA  Percentage  Acquired  Price  Rent(1)  Rent  Occupancy  Sq Ft(2) 
 
Lima Medical Office Portfolio Lima, OH  195,000   3.8   100%  12/07/07   25,250,000   2,042,000   2.3   79.7   10.48 
Highlands Ranch Medical Plaza Highlands Ranch, CO  79,000   1.5   100%  12/19/07   14,500,000   1,607,000   1.8   85.8   20.41 
Chesterfield Rehabilitation Center Chesterfield, MO  112,000   2.2   80.0%  12/19/07   36,440,000   3,022,000   3.5   100   26.98 
Park Place Office Park Dayton, OH  133,000   2.6   100%  12/20/07   16,200,000   2,084,000   2.4   93.0   15.71 
Medical Portfolio 1 Overland, KS and Largo,
Brandon and
Lakeland, FL
  163,000   3.2   100%  02/01/08   36,950,000   3,334,000   3.8   96.6   20.47 
Fort Road Medical Building St. Paul, MN  50,000   1.0   100%  03/06/08   8,650,000   647,000   0.7   92.2   12.89 
Liberty Falls Medical Plaza Liberty Township, OH  44,000   0.9   100%  03/19/08   8,150,000   594,000   0.7   91.5   13.60 
Epler Parke Building B Indianapolis, IN  34,000   0.7   100%  03/24/08   5,850,000   513,000   0.6   95.2   15.09 
Cypress Station Medical Office Building Houston, TX  52,000   1.0   100%  03/25/08   11,200,000   936,000   1.1   100   17.99 
Vista Professional Center Lakeland, Fl  32,000   0.6   100% ��03/27/08   5,250,000   362,000   0.4   89.3   11.30 
Senior Care Portfolio 1 Arlington, Galveston,
Port Arthur
and Texas City, TX
and Lomita and El Monte, CA
  226,000   4.4   100%  Various   39,600,000   3,394,000   3.9   100   14.99 
Amarillo Hospital Amarillo, TX  65,000   1.3   100%  05/15/08   20,000,000   1,666,000   1.9   100   25.73 
5995 Plaza Drive Cypress, CA  104,000   2.0   100%  05/29/08   25,700,000   1,941,000   2.2   100   18.60 
Nutfield Professional Center Derry, NH  70,000   1.4   100%  06/03/08   14,200,000   1,140,000   1.3   100   16.29 
SouthCrest Medical Plaza Stockbridge, GA  81,000   1.6   100%  06/24/08   21,176,000   1,447,000   1.7   79.1   17.94 
Medical Portfolio 3 Indianapolis, IN  689,000   13.4   100%  06/26/08   90,100,000   9,810,000   11.3   87.6   14.23 
Academy Medical Center Tucson, AZ  41,000   0.8   100%  06/26/08   8,100,000   808,000   0.9   94.3   19.71 
Decatur Medical Plaza Decatur, GA  43,000   0.8   100%  06/27/08   12,000,000   1,046,000   1.2   99.5   24.36 
Medical Portfolio 2 O’Fallon and St. Louis, MO
and Keller and
Wichita Falls, TX
  173,000   3.4   100%  Various   44,800,000   3,736,000   4.3   97.7   21.64 
Renaissance Medical Centre Bountiful, UT  112,000   2.2   100%  06/30/08   30,200,000   2,188,000   2.5   88.5   19.51 
Oklahoma City Medical Portfolio Oklahoma City, OK  186,000   3.6   100%  09/16/08   29,250,000   3,374,000   3.9   92.8   18.11 
Medical Portfolio 4 Phoenix, AZ, Parma
and Jefferson West, OH,
and Waxahachie,
Greenville, and Cedar Hill, TX
  227,000   4.4   100%  Various   48,000,000   4,245,000   4.9   84.4   18.73 
Mountain Empire Portfolio Kingsport and Bristol,
TN and Pennington Gap
and Norton, VA
  277,000   5.4   100%  09/12/08   25,500,000   3,855,000   4.4   95.5   13.94 
Mountain Plains Portfolio San Antonio and Webster, TX  170,000   3.3   100%  12/18/08   43,000,000   3,780,000   4.3   99.5   22.28 
Marietta Health Park Marietta, GA  81,000   1.6   100%  12/22/08   15,300,000   1,071,000   1.2   88.4   13.21 
                                       
Total/Weighted Average
    5,156,000   100%         $951,416,000  $86,957,000   100%  91.3% $16.87 
                                       
Our properties include medical office buildings, specialty inpatient facilities (long term acute care hospitals or rehabilitation hospitals), and skilled nursing and assisted living facilities.
(1)Annualized rental revenue is based on contractual base rent from leases in effect as of December 31, 2008.
(2)Average annual rent per occupied square foot as of December 31, 2008.
We ownAs of December 31, 2011, we owned fee simple interests in all175 of the 248 buildings comprising our portfolio. These 175 buildings represent approximately 67.7% of our properties except: (1) Lenox Office Park, Building G, (2) Lima Medical Office Portfolio, (3) Medical Portfolio 1, (4) Medical Portfolio 4, (5) Mountain Empire Portfolio, (6) Oklahoma City Medical Portfolio, (7) Senior Care Portfolio 1 and (8) Tucson Medical Office Portfolio. Lenox Office Park, Building G is comprised of both Lenox Office Park, Building G, in which wetotal portfolio’s GLA. We hold along-term leasehold interest, and two vacant parcels of land, in which we own a fee simple interest. Lima Medical Office Portfolio consists of six medical office buildings, four of which we hold ground lease interests in certain condominiumsthe remaining 73 buildings within each building, and twoour portfolio, which represent approximately 32.3% of which we own a fee simple interest. Medical Portfolio 1 is comprisedour total GLA. As of five properties, one in which we hold a ground lease interest, and the other four in which we own fee simple interests. Medical Portfolio 4 is comprisedDecember 31, 2011, these leasehold interests had an average remaining term of five properties, one in which we hold a ground lease interest, and the other four in which we own fee simple interests. Mountain Empire Portfolio is comprised of 10 properties, seven in which we hold a ground lease interest, and the other three in which we own fee simple interests. Oklahoma City Medical Portfolio is comprised of two properties, both in which we hold ground lease interests. Senior Care Portfolio 1 consists of six properties, one of which we hold a partial ground lease interest and a partial fee simple interest, and five of which we own a fee simple interest. Tucson

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Medical Office Portfolio is comprised of two properties, one in which we hold a leasehold interest, and the other in which we own a fee simple interest.
approximately 68.5 years.
The following information generally applies to our properties:
• we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;
• our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
• depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, 39 years, and over the shorter of the lease term or useful lives of the tenant improvements.
our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, 39 years, and over the shorter of the lease term or useful lives of the tenant improvements.
Lease Expirations
The following table presents the sensitivity of our annualannualized base rent due to lease expirations for the next 10 years at our properties, by number, square feet, percentage of leased area, annualannualized base rent, and percentage of annualannualized base rent as of December 31, 2008.2011:
                     
        % of Leased
     % of Total
 
        Area
  Annual
  Annual Rent
 
  Number of
  Total Sq. Ft.
  Represented
  Rent Under
  Represented by
 
  Leases
  of Expiring
  by Expiring
  Expiring
  Expiring Leases
 
Year Ending December 31,
 Expiring  Leases  Leases  Leases  (1) 
 
2009  127   285,000   6.3% $5,724,000   6.1%
2010  115   468,000   10.4   9,204,000   9.8 
2011  114   498,000   11.1   9,835,000   10.4 
2012  117   426,000   9.5   8,380,000   8.9 
2013  103   612,000   13.6   12,928,000   13.7 
2014  40   516,000   11.5   7,976,000   8.4 
2015  31   188,000   4.2   4,630,000   4.9 
2016  38   347,000   7.7   7,531,000   8.0 
2017  40   323,000   7.2   6,829,000   7.2 
2018  46   364,000   8.1   7,384,000   7.8 
2019  16   97,000   2.1   2,920,000   3.1 
Thereafter  35   375,000   8.3   11,094,000   11.7 
                     
Total
  822   4,499,000   100% $94,435,000   100%
                     
Year Ending December 31(2)
Number of
Leases
Expiring
 
Total Sq. Ft.
of Expiring
Leases
 
% of Leased
Area
Represented
by Expiring
Leases
 
Annualized
Base
Rent Under
Expiring
Leases (1)
 
% of Total
Annualized
Base Rent
Represented by
Expiring Leases(1)
2012280
 749,075
 7.2% $15,433,628
 7.2%
2013251
 1,049,859
 10.1
 20,875,270
 9.7
2014199
 955,059
 9.2
 17,609,997
 8.2
2015209
 861,155
 8.3
 18,451,461
 8.6
2016186
 1,033,905
 10.0
 21,730,754
 10.1
2017165
 816,087
 7.9
 16,181,483
 7.5
2018116
 707,052
 6.8
 14,731,741
 6.8
201969
 546,533
 5.3
 12,321,079
 5.7
202082
 473,373
 4.6
 9,126,161
 4.2
202170
 452,468
 4.4
 9,393,342
 4.4
Thereafter136
 2,710,444
 26.2
 59,722,860
 27.6
Total1,763
 10,355,010
 100.0% $215,577,776
 100.0%

(1)The annualannualized base rent percentage is based on the total annual contractual base rent as of December 31, 2008.2011, excluding the impact of renewals, future step-ups in rent, abatements, concessions, and straight-line rent. Amounts include any contractual rent increases over the life of the lease.

(2)Leases scheduled to expire on December 31 of a given year are included within that year in the table.

53


48


Geographic Diversification/Concentration Table
The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2008.2011:
State
Number of
Buildings(1)
  
GLA
(Square Feet)
 % of GLA 
2011 Annualized
Base Rent(2)
 
% of 2011
Annualized Base Rent
Arizona44
(3) 1,363,000
 12.1% $25,042,000
 12.1%
California5
  287,000
 2.5% 5,061,000
 2.4
Colorado3
  145,000
 1.3% 2,940,000
 1.4
Florida20
(3) 940,000
 8.4% 17,950,000
 8.7
Georgia12
  615,000
 5.5% 12,303,000
 6.0
Indiana44
(3) 1,220,000
 11.2% 16,751,000
 8.1
Kansas1
  63,000
 0.5% 1,610,000
 0.8
Maryland2
  164,000
 1.5% 3,497,000
 1.7
Massachusetts1
  47,000
 0.4% 635,000
 0.3
Minnesota2
  155,000
 1.4% 1,695,000
 0.8
Missouri5
  297,000
 2.6% 6,944,000
 3.4
North Carolina10
  241,000
 2.1% 4,808,000
 2.3
New Hampshire1
  70,000
 0.6% 1,210,000
 0.6
New Mexico2
  54,000
 0.5% 1,263,000
 0.6
Nevada1
  73,000
 0.6% 1,110,000
 0.5
New York8
  909,000
 8.1% 16,444,000
 8.0
Ohio13
  525,000
 4.7% 5,817,000
 2.8
Oklahoma2
  186,000
 1.6% 3,392,000
 1.6
Pennsylvania3
  530,000
 4.7% 11,113,000
 5.4
South Carolina22
(3) 1,104,000
 9.8% 19,880,000
 9.6
Tennessee11
  442,000
 3.9% 8,058,000
 3.9
Texas26
(3) 1,304,000
 11.6% 31,019,000
 15.0
Utah1
  112,000
 1.0% 1,800,000
 0.9
Virginia3
  64,000
 0.6% 116,000
 0.1
Wisconsin6
  315,000
 2.8% 6,306,000
 3.0
Total248
  11,225,000
 100% $206,764,000
 100.0%
                     
  Number of
  GLA
     2008 Annual
  % of 2008
 
State Properties(1)  (Square Feet)  % of GLA  Base Rent(2)  Annual Base Rent 
 
Arizona  4   343,000   6.7% $6,010,000   6.9%
California  3   242,000   4.7   4,041,000   4.6 
Colorado  1   79,000   1.5   1,607,000   1.8 
Florida  4   542,000   10.5   7,626,000   8.8 
Georgia  6   431,000   8.4   8,115,000   9.3 
Indiana  5   937,000   18.2   13,441,000   15.5 
Kansas  1   63,000   1.2   1,410,000   1.6 
Minnesota  2   156,000   3.0   1,811,000   2.1 
Missouri  2   249,000   4.8   5,917,000   6.8 
New Hampshire  1   70,000   1.4   1,140,000   1.3 
Ohio  5   518,000   10.0   6,684,000   7.7 
Oklahoma  1   186,000   3.6   3,374,000   3.9 
Pennsylvania  1   109,000   2.1   2,699,000   3.1 
Tennessee  2   308,000   6.0   5,443,000   6.3 
Texas  7   745,000   14.4   14,862,000   17.1 
Utah  1   112,000   2.2   2,188,000   2.5 
Virginia  1   66,000   1.3   589,000   0.7 
                     
Total
      5,156,000   100% $86,957,000   100%
                     

(1)Represents the number of buildings acquired within each particular state as of December 31, 2011.
Medical Portfolio 1 includes properties located in Florida and Kansas, Medical Portfolio 2 includes properties located in Missouri and Texas, Medical Portfolio 4 includes properties located in Arizona, Ohio and Texas, Mountain Empire includes properties located in Tennessee and Virginia and Senior Care Portfolio 1 includes properties located in Texas and California. As a result, each portfolio is included in the property totals for each of the states in which the properties are located.
(2)Annualized rental revenuebase rent is based on contractual base rent from leases in effect as of December 31, 2008.2011, excluding the impact of renewals, future step-ups in rent, abatements, concessions, and straight-line rent.
(3)As further discussed in Note 19, Concentration of Credit Risk, to our accompanying consolidated financial statements, we had the greatest geographic concentration as of December 31, 2011 within the following states: Texas (26 buildings), Arizona (44 buildings), South Carolina (22 buildings), Florida (20 buildings), and Indiana (44 buildings).
Indebtedness
See Note 7, Mortgage Loan Payables,Loans Payable, Net, and Unsecured Note Payables to Affiliate, to the Consolidated Financial Statements, Note 8, Derivative Financial Instruments, to the Consolidated Financial Statements,Note 9, Revolving Credit Facility, and Note 9, Line of Credit,22, Subsequent Events, to the Consolidated Financial Statementsour accompanying consolidated financial statements for a further discussiondiscussions of our indebtedness.

Item 3.  Legal Proceedings.
None.


49


Item 4.  Submission of Matters to a Vote of Security Holders.Mine Safety Disclosures
No matters were submitted to a vote of security holders during the fourth quarter of 2008.Not applicable.        


54

50



PART II
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is no established public trading market for shares of our common stock.
In order for members of the Financial Industry Regulatory Authority, or FINRA, and their associated persons to participate in the offering and saleour offerings of shares of our common stock, we are required to disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, we will prepare annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in shares of our common stock. For these purposes, our advisor’smanagement’s estimated value of the shares is $10.00 per share as of December 31, 2008.2011. The basis for this valuation is the fact that the current public offering price for shares of our common stock isin our recently completed follow-on public offering was $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). However, there is no public trading market for the shares of our common stock at this time, and there can be no assurance that stockholders could receive $10.00 per share if such a market did exist and they sold their shares of our common stock or that they will be able to receive such amount for their shares of our common stock in the future. Until 18August 28, 2012 (18 months after the later of the completion of this or any subsequentour follow-on offering of shares of our common stock,stock), we intend to continue to use the offering price of shares of our common stock in our most recent offering as the estimated per share value reported in our Annual Reports onForm 10-K distributed to stockholders. Beginning 18 months after the last offering of shares of our common stock, the value of the properties and our other assets will be determined in a manner deemed appropriate by our board of directors, and we will disclose the resulting estimated per share value in a Current Report on Form 8-K and in our subsequent Annual Reports onForm 10-K distributed to stockholders.
Stockholders
As of March 13, 2009,23, 2012, we had 23,99955,543 stockholders of record.
Distributions
Distributions
In order to continue to qualify as a REIT for federal income tax purposes, among other things, we must distribute at least 90.0% of our annual taxable income to our stockholders. The amount of the distributions we pay to our stockholders is determined by our board of directors, at its sole discretion, and is dependent on a number of factors, including funds available for the payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code, of 1986, as amended.
Our board of directors approved a 6.50% per annum, or $0.65 per common share, distribution to bewell as any liquidity alternative we may pursue. We have paid to our stockholders beginning on January 8, 2007, the date we reached our minimum offering of $2,000,000. The first distribution was paid on February 15, 2007 for the period ended January 31, 2007. Thereafter, distributions were paid on or about the 15th day of each month in respect of the distributions declared for the prior month. On February 14, 2007, our board of directors approved a 7.25% per annum, or $0.725 per common share, distribution to be paid to our stockholders beginning with ourmonthly since February 2007 monthly distribution. Distributions are paidand if our investments produce sufficient cash flow, we expect to continue to pay distributions to our stockholders on a monthly basis. However, our board of directors could, at any time, elect to pay distributions quarterly to reduce administrative costs. Because our cash available for distribution in any year may be less than 90.0% of our taxable income for the year, we may obtain the necessary funds by borrowing, issuing new securities or selling assets to pay out enough of our taxable income to satisfy the distribution requirement. Our organizational documents do not establish a limit on the amount of any offering proceeds we may use to fund distributions.
For the years ended December 31, 2011 and 2010, our board of directors authorized, and we declared and paid, monthly distributions to our stockholders, based on daily record dates, at a rate that would equal a 7.25% annualized rate, or $0.725 per common share based on a $10.00 per share price. It is our intent to continue to pay distributions. However, our board may reduce our distribution rate and we cannot guarantee the timing and amount of distributions paid in the future, if any.
If distributions are in excess of our taxable income, such distributions will result in a return of capital to our stockholders. Our distribution of amounts in excess of our taxable income havehas historically resulted in a return of capital to our stockholders.

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The following presents the amount of our distributions and the source of payment of such distributions for each of the last four quarters in the years ended December 31, 2011 and 2010:
 Three Months Ended
 
December 31,
2011

 
September 30,
2011

 
June 30,
2011

 
March 31,
2011

Distributions paid in cash$21,799,000
 $21,990,000
 $21,691,000
 $19,320,000
Distributions reinvested19,244,000
 19,477,000
 19,492,000
 17,651,000
Total distributions$41,043,000
 $41,467,000
 $41,183,000
 $36,971,000
Source of distributions: 
  
  
  
Cash flow from operations$25,547,000
 $25,474,000
 $35,676,000
 $25,110,000
Offering proceeds15,496,000
 15,993,000
 5,507,000
 11,861,000
Total sources$41,043,000
 $41,467,000
 $41,183,000
 $36,971,000
 Three Months Ended
 
December 31,
2010

 
September 30,
2010

 
June 30,
2010

 
March 31,
2010

Distributions paid in cash$17,306,000
 $15,666,000
 $14,366,000
 $12,838,000
Distributions reinvested15,995,000
 14,490,000
 13,544,000
 12,522,000
Total distributions$33,301,000
 $30,156,000
 $27,910,000
 $25,360,000
Source of distributions: 
  
  
  
Cash flow from operations$8,880,000
 $17,847,000
 $19,230,000
 $12,546,000
Debt financing24,421,000
 12,309,000
 8,680,000
 12,814,000
Offering proceeds
 
 
 
Total sources$33,301,000
 $30,156,000
 $27,910,000
 $25,360,000
For the year ended December 31, 2008,2011, we paid distributions of $28,042,000$160,664,000 ($14,943,00084,800,000 in cash and $13,099,000$75,864,000 in shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP), as compared to cash flows from operations of $20,677,000.$111,807,000 and FFO of $113,135,000. From inception through December 31, 2008,2011, we paid cumulative distributions of $34,038,000$402,897,000 ($18,266,000209,795,000 in cash and $15,772,000$193,102,000 in shares of our common stock


55


pursuant to the DRIP), as compared to cumulative cash flows from operations of $27,682,000.$219,620,000 and cumulative FFO of $223,704,000. The difference between our cumulative distributions paid and our cumulative cash flows from operations is indicative of our high volume of acquisitions completed since our date of inception. The distributions paid in excess of our cash flows from operations in 2011 were paid using proceeds from our offering.offerings, including the DRIP, and proceeds of debt financing.
As of December 31, 2008, we had an amount payable of $1,043,000 to our advisor and its affiliates for operating expenses,on-site personnel and engineering payroll, lease commissions and asset and property management fees, which will be paid from cash flows from operations in the future as they become due and payable by us in the ordinary course of business consistent with our past practice.
As of December 31, 2008, no amounts due to our advisor or its affiliates have been deferred or forgiven. Our advisor and its affiliates have no obligations to defer or forgive amounts due to them. In the future, if our advisor or its affiliates do not defer or forgive amounts due to them, this would negatively affect our cash flows from operations, which could result in us paying distributions, orFFO is a portion thereof, with proceeds from our offering or borrowed funds. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds.
For the years ended December 31, 2008 and 2007, our FFO was $8,745,000 and $2,124,000, respectively. FFO was reduced by noncash losses caused by the reduced fair market value of interest rate swaps of $12,821,000 and $1,377,000 for the years ended December 31, 2008 and 2007, respectively. For the years ended December 31, 2008 and 2007, we paid distributions of $28,042,000 and $5,996,000, respectively. Such amounts were covered by FFO of $8,745,000 in 2008 and $2,124,000 in 2007, which is net of the noncash losses described below. The distributions paid in excess of our FFO were paid using proceeds from our offering. Excluding such noncash losses, FFO would have been $21,566,000 and $3,501,000, respectively. From inception through December 31, 2008, our FFO was $10,627,000, which was reduced by noncash losses caused by the reduced fair market value of interest rate swaps of $14,198,000, as described below. From inception through December 31, 2008, we paid cumulative distributions of $34,038,000. Of this amount, $10,627,000, was covered by our FFO which is net of the noncash losses described below. The distributions paid in excess of our FFO were paid using proceeds from our offering. Excluding such noncash losses, FFO would have been $24,825,000.
In order to manage interest rate risk, we enter into interest rate swaps to fix interest rates, which are derivative financial instruments. These interest rate swaps are required to be recorded at fair market value, even if we have no intention of terminating these instruments prior to their respective maturity dates. Our FFO reflects cumulative noncash losses on derivative financial instruments related to our interest rate swaps from inception through December 31, 2008 in the amount of $14,198,000 resulting from fluctuations in variable interest rates. This change in fair value is an adjustment to reconcile net loss to net cash provided by operating activities. This is shown in our accompanying consolidated statements of cash flows as a noncash adjustment. See Note 8, Derivative Financial Instruments, to the Consolidated Financial Statements, for a further discussion of our derivative financial instruments. All interest rate swaps are marked-to-market with changes in value included in net income (loss) each period until the instrument matures. We have no intentions of terminating these instruments prior to their respective maturity dates. The value of our interest rate swaps will fluctuate until the instrument matures and will be zero upon maturity of the instruments. Therefore, any gains or losses on derivative financial instruments will ultimately be reversed.
non-GAAP measure. See our disclosure regarding FFO in Item 7.7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds Fromfrom Operations and Normalized Funds from Operations. Note that our computation of FFO changed in 2009 as a result of a change in GAAP that required, effective January 1, 2009, that acquisition-related expenditures be expensed. As a result, acquisition-related expenditures, which had previously been capitalized and added back to FFO through depreciation, are now expensed immediately and not adjusted through FFO. The cumulative amount of acquisition-related expenses incurred since January 1, 2009 was approximately $29.4 million.
Securities Authorized for Issuance under Equity Compensation Plans
See Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information, for a discussion of our equity compensation plan information.
Use of Public Offering Proceeds
On September 20, 2006, we commenced a best efforts initial public offering, or our initial public offering, in which we are offering a minimum of 200,000 shares of our common stock aggregating at least $2,000,000, and a maximum of


56


offered up to 200,000,000 shares of our common stock for $10.00 per share in a primary offering 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. TheOn March 19, 2010, we terminated our initial offering and commenced a best efforts follow-on public offering, or our follow-on offering, in which we offered up to 200,000,000 shares offered have been registered withof our common stock for $10.00 per share in a primary offering and up to 21,052,632 shares of our common stock pursuant to the SECDRIP at $9.50 per share, aggregating up to $2,200,000,000. We stopped offering shares in the primary offering on a Registration Statement onForm S-11 (FileNo. 333-133652) under the Securities Act of 1933, as amended, which was declared effective by the SEC on September 20, 2006. Our offering will terminate no later than September 20, 2009.
As of December 31, 2008,February 28, 2011. In aggregate, we had received and accepted subscriptions in our initial and follow-on offerings for 73,824,809220,673,545 shares of our common stock, or $737,398,000. As of December 31, 2008, a total of $15,772,000 in distributions were reinvested and 1,660,176$2,195,655,000, excluding shares of our common stock were issued under the DRIP.

As

52


The ratio of the costs we incurred in connection with our offerings as of December 31, 2008,2011 to the total amount of capital we have incurred marketing support fees of $18,410,000, selling commissions of $50,875,000 and due diligence expense reimbursements of $181,000. We have also incurred organizational and offering expenses of $8,800,000. Such fees and reimbursements are charged to stockholders’ equity (deficit)raised in the offerings as such amounts are reimbursed from the gross proceeds of our offering. The cost of raising funds in our offering as a percentage of funds raised will not exceed 11.5%.
As of December 31, 2008,2011 was approximately 10.0%.s of December 31, 2011, we have used $524,756,000$1,760,763,000 in offering proceeds to purchasemake our 4279 geographically diverse properties and other real estate related assetsportfolio acquisitions and repay debt incurred in connection with such acquisitions. We also used a portion of these proceeds to pay distributions.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our share repurchase plan allows for share repurchases by us when certain criteria are met by our stockholders. Share repurchases will be made at the sole discretion of our board of directors. Funds for the repurchase of shares of our common stock will come exclusively from the proceeds we receive from the sale of shares under the DRIP.

During the three months ended December 31, 2008,2011, we repurchased shares of our common stock as follows:
                 
           Maximum
 
           Approximate
 
           Dollar Value
 
        Total Number of
  of Shares that May
 
        Shares Purchased
  Yet be Purchased
 
        as Part of
  Under the
 
  Total Number of
  Average Price
  Publicly Announced
  Plans or
 
Period Shares Purchased  Paid per Share  Plan or Program(1)  Programs 
 
October 1, 2008 to October 31, 2008  46,322  $       9.58   46,322  $            (2)
November 1, 2008 to November 30, 2008    $     $ 
December 1, 2008 to December 31, 2008    $     $ 
Period 
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plan or Program(1)
 
Maximum
Approximate
Dollar Value
of Shares that May
Yet be Purchased
Under the
Plans or
Programs
October 1, 2011 to October 31, 2011 997,415
 $9.78
 997,415
 (2)
November 1, 2011 to November 30, 2011 13,510
 $9.97
 13,510
 (2)
December 1, 2010 to December 31, 2011 7,000
 $10.00
 7,000
 (2)

(1)Our board of directors adopted a share repurchase plan effective September 20, 2006. Our board of directors adopted, and we publicly announced, an amended share repurchase plan effective August 25, 2008. ThroughOn November 24, 2010, we amended and restated our share repurchase plan again, with an effective date of January 1, 2011. From inception through December 31, 2008,2011, we had repurchased 109,748approximately 11,170,600 shares of our common stock pursuant to our share repurchase plan. Our share repurchase plan does not have an expiration date but may be suspended or terminated at our board of directors’ discretion.
(2)SubjectRepurchases under our share repurchase plan are subject to the discretion of our board of directors. The plan provides that repurchases are subject to funds being available we will limit the number of shares of our common stock repurchased duringand are limited in any calendar year to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year. The plan also provides that we will fund a maximum of $10 million of share repurchase requests per quarter, subject to available funding, and that funding for repurchases will come exclusively from and will be limited to proceeds we receive from the sale of shares under our DRIP during such quarter.

Securities Authorized for Issuance under Equity Compensation Plans
The Amended and Restated 2006 Incentive Plan authorizes the granting of awards in any of the following forms: options, stock appreciation rights, restricted stock, restricted or deferred stock units, performance awards, dividend equivalents, other stock-based awards, including units in operating partnership, and cash-based awards. Subject to adjustment as provided in the Amended and Restated 2006 Incentive Plan, the aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the Amended and Restated 2006 Incentive Plan is 10,000,000 (which includes 2,000,000 shares originally reserved for issuance under the plan and 8,000,000 new shares added pursuant to the amendment and restatement).

57



Item 6.  Selected Financial Data.
The following should be read with Item 1A. Risk Factors and Item 7.7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the notes thereto. Our historical results are not necessarily indicative of results for any future period.
The following tables present summarized consolidated financial information, including balance sheet data, statement of operations data reflecting the results of our operating properties, and statement of cash flows data in a format consistent with our consolidated financial statements under Item 15. Exhibits, Financial Statement SchedulesSchedules.

53



                 
  December 31,  April 28, 2006
 
Selected Financial Data 2008  2007  2006  (Date of Inception) 
 
BALANCE SHEET DATA:                
Total assets $1,113,923,000  $431,612,000  $385,000  $       202,000 
Mortgage loan payables, net $460,762,000  $185,801,000  $  $ 
Stockholders’ equity (deficit) $599,320,000  $175,590,000  $(189,000) $2,000 
                 
        Period from
    
        April 28, 2006
    
        (Date of Inception)
    
  Years Ended December 31,  through
    
  2008  2007  December 31, 2006    
 
STATEMENT OF OPERATIONS DATA:                
Total revenues $80,418,000  $17,626,000  $            —     
Loss from continuing operations $(28,448,000) $(7,666,000) $(242,000)    
Net loss $(28,448,000) $(7,666,000) $(242,000)    
Loss per share — basic and diluted(1):                
Loss from continuing operations $(0.66) $(0.77) $(149.03)    
Net loss $(0.66) $(0.77) $(149.03)    
STATEMENT OF CASH FLOWS DATA:                
Cash flows provided by operating activities $20,677,000  $7,005,000  $     
Cash flows used in investing activities $(526,475,000) $(385,440,000) $     
Cash flows provided by financing activities $628,662,000  $383,700,000  $202,000     
OTHER DATA:                
Distributions declared $31,180,000  $7,250,000  $     
Distributions declared per share $0.73  $0.70  $     
Funds from operations(2) $8,745,000  $2,124,000  $(242,000)    
Net operating income(3) $52,244,000  $11,589,000  $     
 December 31,
 2011 2010 2009 2008 2007
BALANCE SHEET DATA: 
  
  
  
  
Real estate assets, net$1,863,930,000
 $1,854,554,000
 $1,204,552,000
 $826,280,000
 $352,994,000
Total assets$2,291,629,000
 $2,271,795,000
 $1,673,535,000
 $1,113,923,000
 $431,612,000
Mortgage loans payable, net$639,149,000
 $699,526,000
 $540,028,000
 $460,762,000
 $185,801,000
Stockholders’ equity$1,567,340,000
 $1,487,246,000
 $1,071,317,000
 $599,320,000
 $175,590,000
 Years Ended December 31,
 2011 2010 2009 2008 2007
STATEMENT OF OPERATIONS DATA: 
  
  
  
  
Total revenues$274,438,000
 $203,081,000
 $129,486,000
 $80,418,000
 $17,626,000
Net income (loss)$5,593,000
 $(7,919,000) $(24,773,000) $(28,409,000) $(7,674,000)
Net income (loss) attributable to controlling interest$5,541,000
 $(7,903,000) $(25,077,000) $(28,448,000) $(7,666,000)
Income (loss) per share — basic and diluted(1): 
  
  
  
  
Net income (loss)$0.02
 $(0.05) $(0.22) $(0.66) $(0.77)
Net income (loss) attributable to controlling interest$0.02
 $(0.05) $(0.22) $(0.66) $(0.77)
STATEMENT OF CASH FLOWS DATA: 
  
  
  
  
Cash flows provided by operating activities$111,807,000
 $58,503,000
 $21,628,000
 $20,677,000
 $7,005,000
Cash flows used in investing activities$(65,958,000) $626,849,000
 $455,105,000
 $526,475,000
 $385,440,000
Cash flows provided by financing activities$(5,628,000) $378,615,000
 $524,147,000
 $628,662,000
 $383,700,000
OTHER DATA: 
  
  
  
  
Distributions declared$162,597,000
 $120,507,000
 $82,221,000
 $31,180,000
 $7,250,000
Distributions declared per share$0.73
 $0.73
 $0.73
 $0.73
 $0.73
Distributions paid in cash to stockholders$84,800,000
 $60,176,000
 $39,500,000
 $14,943,000
 $3,323,000
Distributions reinvested$75,864,000
 $56,551,000
 $38,559,000
 $13,099,000
 $2,673,000
Funds from operations(2)$113,135,000
 $70,642,000
 $28,822,000
 $8,989,000
 $2,116,000
Normalized funds from operations(2)$114,704,000
 $84,250,000
 $42,716,000
 $21,592,000
 $2,113,000
Net operating income(3)$185,678,000
 $137,419,000
 $84,462,000
 $52,244,000
 $11,589,000

(1)Net lossincome (loss) per share is based upon the weighted average number of shares of our common stock outstanding. Distributions by us of our current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder’s basis in the shares of our common stock to the extent thereof (a return of capital for tax purposes) and, thereafter, as taxable gain. These distributions in excess of earnings and profits will have the effect of deferring taxation of the distributions until the sale of the stockholder’s common stock.


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(2)For additional information on FFO and normalized funds from operations, or Normalized FFO, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Funds from Operations and Normalized Funds From Operations, which includes a reconciliation of our GAAP net income(loss)loss to FFO and Normalized FFO for the years ended December 31, 20082011, 2010 and 2007 and for the period2009. Neither FFO nor Normalized FFO should be considered as alternatives to net loss or other measurements under GAAP as indicators of our operating performance, nor should they be considered as alternatives to cash flow from April 28, 2006 (Dateoperating activities or other measurements under GAAP as indicators of Inception) through December 31, 2006.our liquidity.
(3)For additional information on net operating income, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Operating Income, which includes a reconciliation of our GAAP net income(loss) to net operating income for the years ended December 31, 20082011, 2010 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.2009.


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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The use of the words “we,” “us” or “our” refers to Grubb & Ellis Healthcare REIT,Trust of America, Inc. and its subsidiaries, including Grubb & Ellis Healthcare REITTrust of America Holdings, L.P.,LP, except where the context otherwise requires.
The following discussion should be read in conjunction with our consolidated financial statements and notes appearing elsewhere in this Annual Report onForm 10-K. Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 20082011 and 2007,2010, together with our results of operations and cash flows for the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.2009.
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 terms such as “expect,” “project,” “may,” “will,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology. 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 laws governing the taxation of real estate investment trusts, or REITs;REITs and changes to laws governing the healthcare industry; the success of our assessment of strategic alternatives, including potential liquidity alternatives; 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 and our ongoing relationship with Grubb & Ellis Company, or Grubb & Ellis, or our sponsor, and its affiliates.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, including but not limited to the risks described under Part I, Item 1A. Risk Factors, is included herein and in our other filings with the United States Securities and Exchange Commission, or the SEC.
Overview and Background
Grubb & Ellis Healthcare REIT,Trust of America, Inc., a Maryland corporation, was incorporated on April 20, 2006. Upon or prior to the completion of our transition to self-management, we intend to change our name to Healthcare Trust of America, Inc. We were initially capitalized on April 28, 2006, and therefore we consider that our date of inception.
We are a fully integrated, self-administered, and self-managed REIT. Accordingly, our internal management team employs a hands-on approach to managing our day-to-day operations. We have approximately 60 employees focused on acquiring, owning, and operating high-quality medical office buildings that are predominantly located on campuses of nationally recognized healthcare systems in major U.S. metropolitan areas. We are a full-service real estate company with acquisitions and asset management services performed internally, 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.
Through our management's experience and our portfolio acquisitions, we have developed numerous long-term relationships with healthcare systems, physician groups, developers, lenders, brokers, and other real estate professionals. We believe these strong relationships with our hospital systems and physician tenants drive incremental demand for our medical office building space and increased tenant retention rates, as well as serve to further our efforts of being the landlord of choice for our tenants. Additionally, we believe these relationships will provide us with further investment opportunities. We provide our stockholders the potential for income and growth through our investment in a diversified portfolio of real estate properties, focusingproperties. We focus primarily on medical office buildings and other facilities that serve the healthcare related facilities.industry. We may also invest to a limited extent in other real estate relatedestate-related assets, such as mortgage loans receivable. However, we do not presently intend to invest more than 15% of our total assets in such other real estate-related assets. We focus primarily on investments that produce recurring income. We conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership.



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We are one of the largest public healthcare REITs, based on GLA, focused primarily on high-quality medical office buildings in the United States, and we own an approximately $2.3 billion healthcare real estate portfolio (based on purchase price) consisting predominantly of institutional quality medical office buildings. Our portfolio of 11.2 million square feet of GLA is focused on strategically-located medical office buildings that are on the campuses of or are adjacent to/aligned with recognized healthcare systems situated in locations with high barriers to entry. Approximately 57% of our annualized base rent is derived from tenants that have qualifieda credit rating as determined by a nationally recognized rating agency, and electedapproximately 38% of our annualized base rent is derived from tenants that have an investment grade credit rating as determined by nationally recognized rating agencies, including, but not limited to, Greenville Hospital System, Community Health Systems, Aurora Healthcare, West Penn Allegheny Health System, Indiana University Health, Hospital Corporation of America, and Banner Health. As of December 31, 2011, none of our tenants at our consolidated properties accounted for 7% or more of our aggregate annual rental revenue. Our existing lease fundamentals provide for stable in-place revenue and rent growth. With our stable occupancy rate and minimal near-term lease rollover, our portfolio allows for a good balance of growth through increased occupancy and stability within our existing tenant base.
Our business strategy consists of the following: (1) achieve growth through targeted acquisition; (2) actively manage our balance sheet to maintain flexibility with conservative leverage;  and (3) maximize internal growth through proactive asset management, leasing and property management oversight. We believe that these strategies allow us to proactively identify and undertake actions that drive growth and enhance stockholder value. We believe our mission is to maintain a strong balance sheet and to buy, own and operate assets in an optimal manner. Our overall philosophy is to undertake actions which are in the best interests of our stockholders. In moving to our self-management model, we put our stockholders first and put the focus on performance-based behavior, which has saved costs and increased productivity at all levels of our company.
We own a national portfolio of high-quality medical office buildings that are geographically diversified in 25 states. Our portfolio is comprised of 11.2 million of square feet of GLA and it is concentrated in locations that we have determined to be taxedstrategic based on demographic trends and projected demand for healthcare. We have concentrations in the following key markets: Phoenix, Arizona; Greenville, South Carolina; Indianapolis, Indiana; Albany, New York; Houston, Texas; Atlanta, Georgia; Pittsburgh, Pennsylvania; Dallas, Texas; Raleigh, North Carolina; and Oklahoma City, Oklahoma. We believe our portfolio provides stable and growing in-place revenue. With occupancy, including leases signed, but which have not yet commenced, of approximately 91% as of December 31, 2011, our portfolio also provides built-in value-add opportunities, including increased occupancy and future development opportunities. Growth opportunities are complemented and enhanced by our proven and disciplined acquisition capability, high-quality and stable existing tenant base, conservative and 27.9% leveraged balance sheet, experienced senior management team, and strong degree of financial flexibility.
During the year ended December 31, 2011, we completed the acquisition of two new, two-building portfolios and expanded two of our existing portfolios through the purchase of an additional building in each. The aggregate purchase price of these acquisitions was $68,314,000, and they had a REIT underweighted average acquisition-day capitalization rate of 8.04%. Capitalization rates are calculated by dividing the Internal Revenue Codeproperty's estimated annualized first year net operating income, existing at the date of 1986, as amended, oracquisition, by the Code,contract purchase price of the property, excluding closing costs and acquisition expenses. Estimated first year net operating income on our real estate investments represents total estimated gross income (rental income, tenant reimbursements, and other property-related income) derived from the terms of in-place leases at the time we acquire the property, less property and related expenses (including property operating and maintenance expenses, real estate taxes, property insurance, and management fees) based on the operating history of the property. Estimated first year net operating income on new acquisitions excludes other non-property income and expenses, interest expense from financings, depreciation and amortization, and our company-level general and administrative expenses. Historical operating income for federal income tax purposes andthese properties is not necessarily indicative of future operating results.
On September 20, 2006, we intend to continue to be taxed as a REIT.
We are conductingcommenced a best efforts initial public offering, or our initial offering, in which we are offeringoffered up to 200,000,000 shares of our common stock for $10.00 per share in a primary offering and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, forat $9.50 per share, aggregating up to


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$2,200,000,000. We will sell $2,200,000,000. On March 19, 2010, we terminated our initial offering and commenced a best efforts follow-on public offering, or our follow-on offering, in which we offered up to 200,000,000 shares of our common stock for $10.00 per share in a primary offering and up to 21,052,632 shares of our common stock pursuant to the DRIP at $9.50 per share, aggregating up to $2,200,000,000. We stopped offering untilshares in the earlier of September 20, 2009, or the dateprimary offering on which the maximum amount has been sold. As of December 31, 2008,February 28, 2011. In aggregate, we had received and accepted subscriptions in our offeringinitial and follow-on offerings for 73,824,809220,673,545 shares of our common stock, or $737,398,000,$2,195,655,000, excluding shares of our common stock issued under the DRIP.
We conduct substantially all of our operations through Grubb & Ellis Healthcare REIT Holdings, L.P.,continue to be renamed Healthcare Trust of America Holdings, L.P., or our operating partnership. We are currently externally advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our advisor,offer shares pursuant to the DRIP; however, we may terminate the DRIP at any time.



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Company Highlights
Portfolio Operating Performance
For the year ended December 31, 2011, our cash flow from operations was $111,807,000 representing an advisory agreement,91.1% increase over our cash flow from operations of $58,503,000 for the year ended December 31, 2010 and a 417.0% increase over our cash flow from operations of $21,628,000 for the year ended December 31, 2009.
For the year ended December 31, 2011, net income increased by 170.6% to $5,593,000 from a loss of $7,919,000 for the year ended December 31, 2010, and by 122.6% from a loss of $24,773,000 for the year ended December 31, 2009.
Our portfolio performance, coupled with our disciplined acquisition activity, for the year ended December 31, 2011 has resulted in net operating income, or NOI, growth of approximately 35.1% as amendedcompared to the year ended December 31, 2010, and restated on November 14, 2008of approximately 119.8% as compared to the year ended December 31, 2009. NOI is a non-GAAP financial measure. For a reconciliation of NOI to net income (loss), see "Net Operating Income" below.
For the year ended December 31, 2011, Funds from Operations, or FFO, increased by 60.2% to $113,135,000 from $70,642,000 for the year ended December 31, 2010, and effective asby 292.5% from $28,822,000 for the year ended December 31, 2009. FFO is a non-GAAP financial measure. For a reconciliation of October 24, 2008,FFO to net income (loss), see "Funds from Operations and Normalized Funds from Operations" below.
For the year ended December 31, 2011, our normalized funds from operations, or Normalized FFO, was $114,704,000, compared to $84,250,000 for the Advisory Agreement, between us, our advisorprior year, and Grubb & Ellis Realty Investors, LLC or Grubb & Ellis Realty Investors, whoincrease of 36.1%. Normalized FFO is the managing membera non-GAAP financial measure. For a reconciliation of our advisor. Our advisor is affiliated with us in that weNormalized FFO to net income (loss), see "Funds from Operations and our advisor have a common officer, who also owns an indirect equity interest in our advisor. Our advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty,Normalized Funds from Operations" below.
Maximize Internal Growth through Proactive Asset Management, Leasing, and Grubb & EllisProperty Management Services, Inc. to provide various services to us, including property management services.
The Advisory Agreement expiresoccupancy rate on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement,portfolio of properties, including leases signed, but which have not yet commenced, was approximately 91% as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue a self-management program. Upon or prior to completion of our transition to self-management and/or termination of the Advisory Agreement, we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis.
At the commencement of our offering we had minimal assets and operations and we did not believe that it was efficient at that time to engage our own internal management team. As of March 26, 2009, we have acquired 43 geographically diverse properties and other real estate related assets for a total purchase price of $1,000,520,000. As a result of our growth and success, our board of directors believes that we now have the critical mass required to support a self-management structure. Our board of directors believes that self-management will enable us to better position our company for success in the future for several reasons discussed below:
Management Team.  We believe that our management team, led by Scott D. Peters, has the experience and expertise to efficiently and effectively operate our company. In addition, we have hired a Chief Accounting Officer, Kellie S. Pruitt. We have also hired three other employees and have engaged two independent consultants to assist us with acquisitions, asset management and accounting. We intend to continue to hire additional employees and engage independent consultants to expand our self-management infrastructure, assist in our transition to a self-managed company and fulfill other responsibilities, including acquisitions, accounting, asset management, strategic investing and corporate and securities compliance. Mr. Peters is leading our transition to a self-management structure. Our internal management team, led by Mr. Peters, will manage our day-to-day operations and oversee and supervise our employees and third party service providers, who will be retained on an as-needed basis. All key personnel will 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 spends 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 December 31, 2008, we incurred to our advisor and its affiliates approximately $28,479,000 in acquisition fees; approximately $7,767,000 in asset management fees; approximately $2,963,000 in property management fees; and approximately $1,513,000 in leasing fees. Although we will incur the costs associated with having our own employees and independent consultants and we expect third party property management expenses 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 the self-management program will be substantially less than the cost of external management. While our board of directors, including a majority of our independent directors,


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previously determined that the fees to our 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, we believe that by having our own employees and independent consultants manage our operations and retain third party providers, we will significantly reduce the cost structure of our company.
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 our self-management program. We believe that by not paying such fees, as well as operating more cost-effectively under our self-management program, 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 the self-management program will be substantially less than the cost of external management. Therefore, although we are incurring additional costs now related to our transition to self-management, we expect the cost of the self-management program to be effectively funded by future cost savings. Pursuant to the Advisory Agreement, as amended November 14, 2008, we have already reduced acquisition fees and asset management fees payable to our advisor, which we believe will result in substantial cost savings. In addition, we anticipate that we will achieve further cost savings in the future as a result of reducedand/or eliminated acquisition fees, asset management fees, internalization fees and other outside fees.
Dedicated Management and Increased Accountability.  Under our self-management program, our officers and employees will only work for our company and will not be associated with any outside advisor. 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.
Prior to or upon the completion of our transition to self-management, we intend to change our name to “Healthcare Trust of America, Inc.”
On December 7, 2007, NNN Realty Advisors, Inc., or NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of common stock of Grubb & Ellis in exchange for their NNN Realty Advisors shares of common stock and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of the common stock of Grubb & Ellis. As a result of the merger, we consider Grubb & Ellis to be our sponsor. Following the merger, NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office REIT Holdings, L.P., NNN Healthcare/Office REIT Advisor, LLC, NNN Healthcare/Office Management, LLC, Triple Net Properties, LLC and NNN Capital Corp. changed their names to Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, L.P., Grubb & Ellis Healthcare REIT Advisor, LLC, Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Realty Investors, LLC and Grubb & Ellis Securities, Inc., respectively.
As of December 31, 2008, we owned 41 geographically diverse properties comprising 5,156,0002011. Approximately two-thirds of our portfolio is leased to tenants under triple net leases.
Our portfolio of 11.2 million square feet of gross leasable area is focused on strategically located on-campus medical office buildings in locations with high barriers to entry. As of December 31, 2011, approximately 95% of our portfolio, based on GLA, was located on or GLA,adjacent to, or anchored by the campuses of nationally and regionally recognized healthcare systems.
We have implemented integrated asset management, budgeting, and reporting systems in order to allow us to take a tenant-focused approach in monitoring our portfolio. Additionally, during the year ended December 31, 2011, we expanded our geographic reach and increased access to our tenants by opening regional offices in Indianapolis, Indiana and Charleston, South Carolina.
During the year ended December 31, 2011, we transitioned the management for a significant portion of our Indiana property portfolios to a regionally-focused property management platform with HTA-dedicated property management personnel. The addition of this market complemented the 34% of our overall portfolio that we had already been successfully managing with our asset management team. We believe such a platform provides us with the potential to reduce costs while enhancing our relationships with our hospital systems and physician tenants. Further, it allows us to improve the efficiency and effectiveness of property management and leasing. Following the success experienced with transitioning our Indiana portfolios, we have begun the transition of properties in Arizona as well as in several east coast markets to our HTA-dedicated property management platform. Upon completion of these markets currently in transition, approximately 61% of our portfolio will be managed internally. We will continue to evaluate additional markets in which to expand our internal migration efforts in the future.
As a result of the successes achieved with respect to effectively managing our portfolio of assets and in leading the transition of several of our markets toward a regionally-focused property management platform with HTA-dedicated property management personnel, on December 7, 2011, our board of directors approved the appointment of Amanda Houghton, previously our Senior Vice President--Asset Management and Finance, as our Executive Vice President--Asset Management.

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Conservative Financial Strategy and Balance Sheet Flexibility
As of December 31, 2011, we had a strong, flexible balance sheet with total assets of $2,291,629,000, cash on hand of $69,491,000, and a leverage ratio of our mortgage and secured term loans payable debt to total assets of 27.9%.
In May 2011, we successfully increased our unsecured revolving credit facility to an aggregate maximum principal of $575,000,000 from $275,000,000 as well as extended its maturity date from November 2013 to May 2014.
In July 2011, we received ratings by two nationally recognized rating agencies. We believe these ratings, along with our strong balance sheet and conservative leverage, will allow us access to multiple sources of liquidity, such as unsecured bank debt, mortgage financing, and public debt.
We completed the sale of 21,564,900 shares of our common stock for $215,649,000 during the first quarter of 2011 pursuant to our follow-on offering and closed this offering on February 28, 2011, except for the DRIP.
During the year ended December 31, 2011, we repaid four of our variable rate secured loans, which had an aggregate principal balance of $83,886,000 at December 31, 2010. Going forward, we continue to focus on migrating our capital structure toward a higher volume of unsecured debt, which will be used to pay down our secured debt maturities and for future acquisitions.
Based on our conservative and low-leveraged balance sheet with modest intermediate debt maturities, strong cash position, and full access to our $575,000,000 unsecured credit facility, as discussed below under "Financing", we have the capital capacity with increased leverage to acquire over $1,000,000,000 of medical office buildings and healthcare-related facilities (based on the current covenant requirements of our unsecured credit facility and assuming we utilize all of our cash, fully access our unsecured credit facility, and enter into new debt facilities on additional asset purchases). This strong degree of financial flexibility provides us the capacity to continue to execute a prudent growth strategy through disciplined selection of acquisition opportunities. However, there can be no assurancewe will be able to obtain such leverage or acquire such properties on attractive terms or at all.
In February 2012, JP Morgan, Deutsche Bank, and Wells Fargo signed engagement letters to serve as Joint Lead Arrangers for a new unsecured credit facility of at least $825,000,000, consisting of a $575,000,000 revolving tranche and a $250,000,000 term loan tranche. As of March 23, 2012, the Joint Lead Arrangers and other additional lenders had committed in excess of that amount to the new credit facility. This credit facility will replace our existing credit facility. It will have an initial term of 4 years, with one other real estate related asset,twelve-month extension. We anticipate closing the facility in the near future. The terms of this facility have not been finalized and there can be no assurance that we will enter into such facility on the terms or timing described herein or at all.
Execution of Relationship-Focused Growth Strategy
During the year ended December 31, 2011, we completed two new portfolio acquisitions and expanded two of our existing portfolios through the purchase of additional medical office buildings within each for an aggregate purchase price of $966,416,000.


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Business Strategies$68,314,000. These purchases consist of six buildings comprised of approximately 306,000 square feet of GLA, bringing our total portfolio value, based on purchase price, to $2,334,673,000 as of December 31, 2011.
We seek to invest in a diversified portfolioOn February 14, 2012, we completed the acquisition of real estate, focusing primarily on investments that produce recurring income. Our real estate investments focus onSt. John Providence MOB, an approximately 203,000 square foot on-campus medical office buildingsbuilding located in Novi, Michigan in an all-cash transaction for approximately $51,320,000. The St. John Providence MOB, which was 99% leased as of the date of acquisition, is connected directly to the Providence Park Hospital via an enclosed walkway. Providence Park Hospital is part of Ascension Health Systems (Moody's Investors Servies rated Aa1).
On March 6, 2012, we completed the acquisition of Penn Avenue Place in Pittsburgh, Pennsylvania for a purchase price of approximately $54,000,000 in an all-cash transaction. Penn Avenue Place is an eight story, 558,000 square foot, Class A office building which was completely renovated in 1997. The building is approximately 99.6% occupied as of the date of acquisition and healthcare related facilities. We have also invested tois anchored by Highmark, Inc. (Standard & Poor's Rating Service rated A). Highmark, Inc., which leases and occupies 92.4% of the building, is one of the largest Blue Cross affiliates in the nation. On January 1, 2012, Highmark, Inc. renewed its lease for an additional 10-year term.

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On March 9, 2012, we entered into a limited extentpurchase and sale agreement for a medical office building portfolio located in quality commercial office buildings and other real estate related assets. However, we do not presently intend to invest more than 15.0%the eastern United States for an aggregate purchase price of our total assets in other real estate related assets. Our other real estate related assets will generally focus on common and preferred stock of public or private real estate companies and certain other securities. We seek to maximize long-term stockholder value by generating sustainable growth in cash flow and$100,000,000. The portfolio, value. In order to achieve these objectives, we may invest using a number of investment structures which may include direct acquisitions, joint ventures, leveraged investments, issuing securities for property and direct and indirect investments in real estate. In order to maintain our exemption from regulation as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act, we may be required to limit our investments in other real estate related assets.
In addition, when and as determined appropriate by our advisor and management, the portfolio may also include properties in various stages of development other than those producing recurring income. These stages would include, without limitation, unimproved land, both with and without entitlements and permits, propertyis expected to be redevelopedmaster leased on a triple net basis, consists of a combination of on-campus assets and repositioned, newly constructed properties and properties inlease-up or other stabilization, all of which will have limited or no relevant operating histories and no recurring income. Our advisor and management will makeoff-campus medical office buildings. We anticipate closing this determination based upon a variety of factors, including the available risk adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio, and our objectives of realizing both recurring income and capital appreciation upon the ultimate sale of properties. For each of our investments, regardless of property type, our advisor and management seek to ensure that we invest in properties with the following attributes:
• Quality.  We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements.
• Location.  We seek to acquire properties that are located in established or otherwise appropriate markets for comparable properties, with access and visibility suitable to meet the needs of its occupants.
• Market; and Supply and Demand.  We focus on local or regional markets which have potential for stable and growing property level cash flow over the long-term. These determinations will be based in part on an evaluation of local economic, demographic and regulatory factors affecting the property. For instance, we will favor markets that indicate a growing population and employment base or markets that exhibit potential limitations on additions to supply, such as barriers to new construction. Barriers to new construction include lack of available land and stringent zoning restrictions. In addition, we will generally seek to limit our investments in areas that have limited potential for growth, except where we believe that we have a competitive advantage.
• Predictable Capital Needs.  We seek to acquire properties where the future expected capital needs can be reasonably projected in a manner that would allow us to meet our objectives of growth in cash flow and preservation of capital and stability.
• Cash Flow.  We seek to acquire properties where the current and projected cash flow, including the potential for appreciation in value, would allow us to meet our overall investment objectives. We will evaluate cash flow as well as expected growth and the potential for appreciation.
We will not invest more than 10.0% of the offering proceeds available for investment in unimproved or non-income producing properties or in other investments relating to unimproved or non-income producing property. A property: (1) not acquired for the purpose of producing rental or other operating income, or (2) with no development or construction in process or planned in good faith to commence within one year will be considered unimproved or non-income producing property for purposes of this limitation.


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We are not limited as to the geographic area where we may acquire properties. We are not specifically limitedacquisition in the number or size of properties we may acquire ornear future, though there can be no assurance that the acquisition will close on the percentage of our assets that we may invest in a single property or investment. The number and mix of properties we acquire will depend upon real estate and market conditions and other circumstances existingexpected schedule, if at the time we are acquiring our properties and making our investments and the amount of proceeds we raise in our offering and potential future offerings.all.
Critical Accounting Policies
We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to revenue recognition, allowance for uncollectible accounts, capitalization of expenditures, depreciation of assets, impairment of real estate, properties held for sale, purchase price allocation, and qualification as a REIT. These estimates are made and evaluated on an on-going basis using information that is currently available as well as recent various other assumptions believed to be reasonable under the circumstances.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
In accordance with Statement of Financial Accounting Standards, or SFAS, No. 13,Accounting for ASC 840, Leases,, or SFAS No. 13, as amended and interpreted,orASC 840, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to rent receivable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with Emerging Issues Task Force, or EITF, IssueASC 605-45, No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, or Issue ConsiderationsNo. 99-19. IssueNo. 99-19. This guidance requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property.
Rental income is reported net of amortization recorded on lease inducements.
Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements.leases. We also maintain an allowance for deferred rent receivables arising from the straight-lining of rents. Such allowance is charged to bad debt expense which is included in general and administrative expenses on our accompanying consolidated statement of operations. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors.
Capitalization of Expenditures and Depreciation of Assets
The cost of operating properties includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives of 39 years and the shorter of the lease term


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or useful life, ranging from one month to 241240 months, respectively. Furniture, fixtures and equipment is depreciated over five years. When depreciable property is retired, replaced or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss reflected in operations.
Impairment
Investments in Real Estate and Real Estate Related Assets
Our properties are carried at the lower of historical cost less accumulated depreciation or fair value less costs to sell.sell (if classified as held-for-sale). We assess the impairment of a real estate asset when events or changes in circumstances indicate its carrying amount may not be recoverable. Indicators we consider important and that we believe could trigger an impairment review include the following:

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• significant negative industry or economic trends;
• a significant underperformance relative to historical or projected future operating results; and
• 

significant negative industry or economic trends;
significant underperformance relative to historical or projected future operating results; and
a significant change in the manner in which the asset is used.
In the event that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that would be expected to result from the use and eventual disposition of the property, we would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. The fair value of the property is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding periods, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. It will require us to make assumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future sale of the property.
Also, we evaluate the carrying values of mortgage loans receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from the mortgage loan receivable when events or circumstances, such as the non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that the carrying amount of the mortgage loan receivable may not be recoverable. An impairment charge is recognized in current period earnings and is calculated as the difference between the carrying amount of the mortgage loan receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the mortgage.
Properties Held for Sale
Investment in Real Estate Held-for-Sale
We account forevaluate the held-for-sale classification of our properties held for sale in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long Livedowned real estate each quarter. Assets, or SFAS No. 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires that in a period in which a component of an entity either has been disposed of or isare classified as held forheld-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. The fair value is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding period, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. Assets are generally classified as held-for-sale once management commits to a plan to sell the properties and has determined that the sale of the income statements for currentasset is probable and prior periods shall reporttransfer of the asset is expected to occur within one year. The results of operations of the componentthese real estate properties are reflected as discontinued operations.
In accordance with SFAS No. 144, at such time as a property is held for sale, such property is carriedoperations in all periods reported, and the properties are presented separately on our balance sheet at the lower of: (1) itsof their carrying amountvalue or (2)their fair value less costs to sell. In addition, a property being held for sale ceases toAs of December 31, 2011, we determined that no building within our portfolio should be depreciated. We classify operating propertiesclassified as property held for sale in the period in which all of the following criteria are met:held-for-sale.
• management, having the authority to approve the action, commits to a plan to sell the asset;
• the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
• an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated;
• the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;
• the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
• given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.
Purchase Price Allocation
In accordance with SFAS No. 141,ASC 805, Business Combinations,,or ASC 805, we, with assistance from independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible


65


assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were to be replaced and vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expectedlease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships and above or below market debt assumed.
The value allocable to the above or below market component of the acquired in place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between: (1) the contractual amounts to be paid pursuant to the lease over its remaining termterm; and (2) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease including any bargain renewal periods, with respect to a below market lease. The amounts allocated to above market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to below market lease values are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term plus any below market renewal options of the acquired leases with each property.

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The total amount of other intangible assets acquired is further allocated to in place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The amounts allocated to in place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and will be amortized over the average remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to the value of tenant relationships are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized over the average remaining non-cancelable lease term of the acquired leases plus a market lease term.
The value allocable to above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The amounts allocated to above or below market debt are included in mortgage loan payables,loans payable, net on our accompanying consolidated balance sheets and amortized to interest expense over the remaining term of the assumed mortgage.
These allocations are subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.
On January 1, 2009, in accordance with the provisions of ASC 805, Business Combinations, we began to expense acquisition-related costs for acquisitions. Prior to this date, acquisition-related expenses had been capitalized as part of the purchase price allocations. We expensed $2,130,000, $11,317,000 and $15,997,000 for acquisition related expenses during the years ended December 31, 2011, 2010, and 2009 respectively.
Qualification as a REIT
We believe that we have qualified and elected to be taxed as a REIT under Sections 856 through 860 of the Code for federal income tax purposes beginning with our taxtaxable year ended December 31, 2007 and we intendthat our current and intended ownership and manner of operation will enable us to continue to be taxedmeet the requirements for qualification and taxation as a REIT.REIT for U.S. federal income tax purposes. To continue to qualify as a REIT for federal income tax purposes, we must meet certain organizational and operational requirements, including a requirement to pay distributions to our stockholders of at least 90.0% of our annual taxable income. As a REIT, we generally are not subject to federal income tax on net income that we distribute to our stockholders.
As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on income tax expense recognized. Adjustments to income tax expense recognized may be required as a result of, among other things, changes in tax laws or our ability to qualify as a REIT. If we fail to qualify as a REIT in any taxable year, we will then be subject to U.S. federal income taxes on our taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue ServiceIRS grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our business, financial condition, results of operations and net cash available for distribution to our stockholders.


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Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements,our accompanying consolidated financial statements for a discussion of recently issued accounting pronouncements.
Acquisitions in 2009, 2008 and 2007
See Note 3, Real Estate Investments, Net, and Note 23,22, Subsequent Events, to the Consolidated Financial Statements,our accompanying consolidated financial statements for a discussion of our acquisitions.acquisitions during 2011 and 2010.
Status and Performance of Our Offerings
On February 28, 2011, we terminated our follow-on offering, except for the DRIP. In aggregate, we have accepted subscriptions in our initial and follow-on offerings for 220,673,545 shares of our common stock, for a total of $2,195,655,000, excluding shares of our common stock issued under the DRIP. We continue to offer shares pursuant to the DRIP; however, we may terminate the DRIP at any time.


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Financing
Unsecured Credit Facility
On May 13, 2011, we increased the maximum aggregate principal amount available under our unsecured revolving credit facility, or the unsecured credit facility, from $275,000,000 to $575,000,000. Additionally, we extended the maturity date of the unsecured credit facility from November 2013 to May 2014. See Note 9, Revolving Credit Facility, to our accompanying consolidated financial statements, for further information regarding our unsecured revolving credit and term loan facility.
On July 21, 2011, we were assigned an investment-grade, BBB- corporate credit rating by Standard & Poor's Rating Services with a stable outlook. On July 21, 2011, our operating partnership was assigned a Baa3 issuer rating by Moody's Investors Service with a stable outlook. The ratings have changed the interest rate structure under our unsecured credit facility to one based on a corporate ratings-based pricing grid, with the potential to reduce borrowing costs. If our ratings are upgraded or downgraded, however, our interest rates and borrowing costs could be favorably or negatively impacted by such changes.
Secured Real Estate Term Loan
On February 1, 2011, we closed a senior secured real estate term loan in the amount of $125,500,000 from Wells Fargo Bank, National Association, or Wells Fargo Bank. The primary purposes of the term loan included refinancing four Wells Fargo Bank loans totaling approximately $89,969,000 and providing new financing on three of our existing properties. Interest is payable monthly at a rate of one-month LIBOR plus 2.35%, which equated to 2.67% as of December 31, 2011. Including the impact of the interest rate swap discussed below, the weighted average rate associated with this term loan is 3.10% per annum. This is lower than the weighted average rate of 4.18% per annum (including the impact of interest rate swaps) on the four refinanced loans. The term loan matures on December 31, 2013 and includes two 12-month extension options, subject to the satisfaction of certain conditions. The loan agreement for the term loan includes customary financial covenants for loans of this type, including a maximum ratio of total indebtedness to total assets, a minimum ratio of EBITDA to fixed charges, and a minimum level of tangible net worth. We believe we were in compliance with these financial covenants as of December 31, 2011. In addition, the term loan agreement for this secured term loan includes events of default that we believe are usual for loans and transactions of this type. The term loan is secured by 25 buildings within 12 property portfolios in 13 states and has a two year period in which no prepayment is permitted. Our operating partnership has guaranteed 25% of the principal balance and 100% of the interest under the term loan.
We have an interest rate swap with Wells Fargo Bank as counterparty for a notional amount of $75,000,000. The interest rate swap is secured by the pool of assets collateralizing the secured term loan. The effective date of the swap is February 1, 2011, and it matures no later than December 31, 2013. The swap serves to fix one-month LIBOR at 1.0725%, which when added to the spread of 2.35%, will result in a total interest rate of approximately 3.42% per annum for $75,000,000 of the term loan during the initial term.
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 and those risks listed in Part I, Item 1A. Risk Factors, 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.
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 fromWith the sale of sharestermination of our common stock,follow-on offering as of February 28, 2011, except for the DRIP, we will be limited inuse other means such as debt financing, to finance our ability to invest in a diversifiedacquisition of new real estate assets. To the extent our portfolio whichis not sufficiently diversified, we could result inhave 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

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General and Administrative Expenses
Some of our general and administrative expenses are fixed regardless of the size of our real estate portfolio. Therefore, depending on the amount of offering proceeds we raise, we would expendcould spend 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.
Scheduled Lease Expirations
As of December 31, 2008,2011, the occupancy rate of our consolidatedportfolio of properties, were 91.3% occupied. During the remainder of 2009, 6.3% of the occupied GLA will expire.including leases signed, but which have not yet commenced, was 91%. Our leasing strategy for 20092012 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 2009,2012, we anticipate, but cannot assure,provide assurance, that a majority of the tenants will renew 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 which are now required of us. 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 on-going compliance with the Sarbanes-Oxley Act, we are providing management’s assessment of our internal control over financial reporting as of December 31, 2008.
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


67


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 Years Ended December 31, 2008, 20072011, 2010, and the Period from April 28, 2006 (Date of Inception) through December 31, 2006
2009
Our operating results, as presented below, are primarily comprised of income derived from our portfolio of properties.
We had limited results of operations for the period from April 28, 2006 (Date of Inception) through December 31, 2006 and therefore our results of operations for the years ended December 31, 2008 and 2007 are not comparable. Except where otherwise noted, the change in our results of operations is primarily due to owning 42the aggregate number of geographically diverse propertiesportfolio acquisitions we had completed since our inception through the end of each of the periods discussed below: 79, 77 and other real estate related assets, 20 geographically diverse properties and zero properties53 as of December 31, 2008, 20072011, 2010, and 2006,2009, respectively. In addition, approximately $463,179,000, or 57%, of the $806,048,000 portfolio acquisitions that occurred during 2010 were completed during the fourth quarter of that year. Based on the timing of acquisitions over the past three years, our average invested assets (based on aggregate purchase price) as of December 31, 2011, 2010, and 2009 were $2,300,516,000, $1,863,335,000, and $1,230,416,000, respectively.

In addition, at the beginning of the three year period discussed below, we were initially an externally managed company until we completed our transition to self-management in the third quarter of 2009. The transition to self management significantly decreased our overall cost structure by eliminating the acquisition, asset management and property management fees we previously paid our former advisor. Such transition resulted in adding costs related to management and employee salaries, share-based compensation and corporate office overhead to our general and administrative cost structure. Such costs were approximately 53% and 58% of our total general and administrative expense for the years ended December 31, 2011 and 2010, respectively.
Rental Income
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, rental income attributable to our properties was $80,415,000, $17,626,000$269,646,000, $195,496,000, and $0,$126,333,000, respectively. For the year ended December 31, 2008,2011, rental income was primarily comprised of basecontractual rental income of $255,398,000, straight-line rent of $60,996,000$12,345,000 and expense recoveriesother operating revenue of $15,367,000.$1,903,000. For the year ended December 31, 2007,2010, rental income was primarily comprised of basecontractual rental income of $187,880,000, straight-line rent of $13,785,000$8,154,000 and expense recoveriesother operating revenue of $3,075,000.$462,000. For the year ended December 31, 2009, rental income was primarily comprised of contractual rental income of $120,043,000, straight-line rent of $5,517,000 and other operating revenue of $773,000. The increase in rental income from period to period is due to the increase in the number of properties in our portfolio discussed above.
The aggregate occupancy for our operating properties was 91.3%approximately 91% as of December 31, 2008 as compared to 88.6% as of December 31, 2007.2011, 2010, and 2009.
Rental Expenses
For the years ended December 31, 20082011, 2010, and 20072009, rental expenses attributable to our properties were $88,760,000, $65,662,000, and $45,024,000, respectively. The increase in rental expenses from period to period is due to the increase in the number of properties in our portfolio discussed above. Rental expenses as a percentage of rental income were 32.9%, 33.6% and 35.6% for the period from April 28, 2006 (Date of Inception) throughyears ended December 31, 2006,2011, 2010, and 2009. The decrease in rental expenses were $28,174,000, $6,037,000 and $0, respectively. expense as a percentage of rental income is generally due to bringing more of our properties into our regionally-focused property management platform with HTA-dedicated property management personnel.

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Rental expenses consisted of the following for the periods then ended:
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Real estate taxes $9,632,000  $1,689,000  $            — 
Utilities  5,774,000   1,534,000    
Building maintenance  5,395,000   1,321,000    
Property Management fees  2,372,000   591,000    
Administration  1,988,000   160,000    
Grounds maintenance  1,320,000   348,000    
Non-recoverable operating expenses  877,000   113,000    
Insurance  679,000   210,000    
Other  137,000   71,000    
             
Total rental expenses $28,174,000  $6,037,000  $ 
             
The increase in rental expenses is primarily due to owning 41 geographically diverse properties and one real estate related asset, 20 geographically diverse properties and zero properties as of December 31, 2008, 2007 and 2006, respectively.
  Years Ended December 31,  
  2011 % of Total 2010 % of Total 2009 % of Total
Real estate taxes $29,606,000
 33.3% $19,857,000
 30.2% $14,571,000
 32.3%
Utilities 19,142,000
 21.5
 14,679,000
 22.4
 9,771,000
 21.7
Building maintenance 17,205,000
 19.4
 15,461,000
 23.5
 9,099,000
 20.2
Property management fees 3,692,000
 4.2
 2,786,000
 4.2
 3,042,000
 6.7
Administration 4,547,000
 5.1
 4,186,000
 6.4
 3,273,000
 7.3
Grounds maintenance 4,522,000
 5.1
 3,530,000
 5.4
 2,058,000
 4.6
Non-recoverable operating expenses 7,702,000
 8.7
 3,370,000
 5.1
 2,061,000
 4.6
Insurance 1,405,000
 1.6
 1,292,000
 2.0
 982,000
 2.2
Other 939,000
 1.1
 501,000
 0.8
 167,000
 0.4
Total rental expenses $88,760,000
 100.0% $65,662,000
 100.0% $45,024,000
 100.0%


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General and Administrative Expenses

For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, general and administrative was $9,560,000, $3,297,000expenses were $28,695,000, $18,753,000, and $242,000,$12,285,000, respectively. General and administrative expenses include such costs as salaries, share-based compensation expense, corporate office overhead, professional and legal fees, and investor services expense, among others. 

In 2010, as noted above, we completed $806,048,000 in acquisitions, increasing the size of our company by 55%. More than half of the acquisitions were made in the fourth quarter of 2010. As a result, $7,132,000 of the increase in our general and administrative expenses for the year ended December 31, 2011 was primarily related to the significant organizational growth and expansion of our operations. In addition, during 2011, we focused on developing our HTA dedicated property management platform and established our regional offices in Indianapolis and Charleston to support our national platform. Also during 2011, we experienced a one-time change in accounting for our investor services costs in the amount of approximately $2,811,000 due to the close of the primary offering component of our follow-on offering in February 2011. These non-traded REIT-related investor services costs were included in general and administrative expenses rather than in offering costs within equity in 2011 as compared to 2010. We believe our general and administrative expenses as a percentage of our net operating income, on average, are consistent with the other medical office building-focused public company peers.

For the year ended December 31, 2010, as compared to the year ended December 31, 2009, the increase in total general and administrative expenses of $6,468,000 was driven primarily by having a full year of organizational costs resulting from our transition to self-management compared to only a partial year of self-management in 2009.
Asset Management Fees
For the years ended December 31, 2011, 2010, and 2009, asset management fees attributable to our properties were $0, $0, and $3,783,000, respectively. The decrease in asset management fees for the years ended December 31, 2011 and 2010, as compared to the year ended December 31, 2009, was due to our transition to a self-managed cost structure from an externally managed cost structure. We no longer pay asset management fees to our former advisor pursuant to the advisory agreement, which expired on September 20, 2009.
Acquisition-Related Expenses
For the years ended December 31, 2011, 2010, and 2009, acquisition-related expenses attributable to our properties were $2,130,000, $11,317,000 and $15,997,000, respectively. Acquisition-related expenses were expensed as incurred for acquisitions for the years ended December 31, 2011, 2010, and 2009 in accordance with ASC 805 and relate specifically to the number of acquisitions in each year as discussed above.

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Depreciation and Amortization
For the years ended December 31, 2011, 2010, and 2009, depreciation and amortization attributable to our properties was $107,542,000, $78,561,000 and $53,595,000, respectively. See Note 3, Real Estate Investments, Net to our accompanying consolidated financial statements for further information on depreciation of our properties. For information regarding the amortization recorded on our identified intangible assets and lease commissions, see Note 5, Identified Intangible Assets, Net and Note 6, Other Assets, Net, to our accompanying consolidated financial statements respectively. The increase in depreciation and amortization from period to period was due to the increase in our portfolio over the respective periods, as discussed above.
One-time Redemption, Termination, and Release Payment Made to Former Advisor
For the year ended December 31, 2010, we recorded a one-time redemption, termination, and release payment made to our former advisor, of which $7,285,000 was charged to operating expense. This pertained to an agreement entered into with our former advisor that served to purchase the limited partner interest held by our former advisor, including all associated rights, as well as resolve all remaining issues between the parties. See Note 12, Related Party Transactions, to our accompanying consolidated financial statements for further information regarding this agreement and associated payment to our former advisor.

Interest Expense and Net Change in Fair Value of Derivative Instruments
For the years ended December 31, 2011, 2010, and 2009, interest expense, which included amortization of deferred financing costs and debt premium/discount, and net change in fair value of derivative financial instruments associated with our properties were $41,892,000, $29,541,000 and $23,824,000, respectively. Interest expense and net change in fair value of derivative financial instruments associated with our properties consisted of the following for the periods then ended:
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Asset management fees $6,177,000(a) $1,590,000(a) $            — 
Professional and legal fees  1,398,000(b)  620,000(b)  68,000 
Bad debt expense  442,000   11,000    
Directors’ and officers’ insurance premiums  279,000(c)  242,000(c)  68,000 
Directors’ fees  264,000(d)  249,000(d)  55,000 
Postage  138,000(e)  24,000(e)   
Restricted stock compensation  130,000(f)  96,000(f)  51,000 
Investor services  130,000(g)  33,000(g)   
Acquisition related audit fees  122,000(h)  372,000(h)   
Bank charges  114,000(i)  4,000(i)   
Other  366,000   56,000    
             
Total general and administrative $9,560,000  $3,297,000  $242,000 
             
The increase in general and administrative of $6,263,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007, and the increase of $3,055,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006, was due to the following:
(a) Asset management fees
The increase in asset management fees was due to the increase in the number of properties and other real estate related assets discussed above.
(b) Professional and legal fees
The increase in professional and legal fees of $778,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 was primarily due to increased professional and legal fees of approximately $403,000 in connection with outside consulting in pursuit of, among other things, our self-management program, increased audit fees of $254,000 related to ourForm 10-Q andForm 10-K SEC filings due to our increase in size and consulting fees of approximately $90,000 paid to Mr. Peters for the period from August 1, 2008 through October 31, 2008, in accordance with the consulting agreement dated August 28, 2008. The increase in professional and legal fees of $552,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was primarily due to the increase of $306,000 in audit fees and the increase of $83,000 in professional fees in connection with ourForm 10-Q andForm 10-K SEC filings due to our increase in size.
(c) Directors’ and officers’ insurance premiums
The increase in directors’ and officers’ insurance premiums of $37,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 was due to increased insurance premiums in the fourth quarter of 2008 due to an increase in coverage. The increase in directors’ and officers’ insurance premiums of $174,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was due to a full year of insurance coverage expensed in 2007 as compared to less than four months of insurance coverage expensed in 2006.
(d) Directors’ fees


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The increase in directors’ fees of $15,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 was due to a full year of directors’ fees expensed in 2008 for five directors as compared to four directors for four months and five directors for eight months in 2007. The increase in directors’ fees of $194,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was due to a full year of directors’ fees expensed in 2007 as compared to less than four months of directors’ fees expensed in 2006.
(e) Postage
The increase in postage of $114,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 and the increase in postage of $24,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was primarily due to increased proxy, distributions and investor statement mailings.
(f) Restricted stock compensation
The increase in restricted stock compensation of $34,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 was due to a full year of amortization of the directors’ shares expensed in 2008 for five directors, and the expense associated with Mr. Peters’ award of 40,000 shares of restricted common stock on November 14, 2008 under our 2006 Incentive Plan, as compared to amortization of the directors’ shares expensed for four directors for four months and five directors for eight months in 2007. The increase in restricted stock compensation of $45,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was due to a full year of amortization of the directors’ shares expensed in 2007 as compared to less than four months of directors’ shares expensed in 2006.
(g) Investor services
The increase in investor services of $97,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 and the increase in investor services of $33,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was primarily due to an increased number of stockholders.
(h) Acquisition related audit fees
The decrease in acquisition related audit fees of $250,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 was due to the fact that for the year ended December 31, 2008, there were fewer acquisitions that were subject to the provisions ofArticle 3-14 ofRegulation S-X, which resulted in fewer acquisition related audits. The increase in acquisition related audit fees of $372,000 for the year ended December 31, 2007, as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was due to the fact that there were no acquisitions in 2006.
(i) Bank charges
The increase in bank charges of $110,000 for the year ended December 31, 2008, as compared to the year ended December 31, 2007 and the $4,000 increase for the year ended December 31, 2007 as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006 was primarily due to having an increase in banking activity resulting from an increase in the number of assets. We owned 42, 20 and zero geographically diverse properties and other real estate related assets as of December 31, 2008, 2007 and 2006, respectively.


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Depreciation and Amortization
For the years ended December 31, 2008 and 2007 and the period from April 28, 2006 (Date of Inception) through December 31, 2006, depreciation and amortization was $37,398,000, $9,790,000 and $0, respectively. Depreciation and amortization consisted of the following for the periods then ended:
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Depreciation of properties $20,484,000  $4,616,000  $            — 
Amortization of identified intangible assets  16,818,000   5,166,000    
Amortization of lease commissions  93,000   7,000    
Other  3,000   1,000    
             
Total depreciation and amortization $37,398,000  $9,790,000  $ 
             
Interest Expense
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, interest expense was $34,164,000, $6,400,000 and $0, respectively. Interest expense consisted of the following for the periods then ended:
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Interest expense on our mortgage loan payables $18,492,000  $4,145,000  $            — 
Interest expense on our secured revolving line of credit with LaSalle and KeyBank  1,340,000   600,000    
Loss on derivative financial instruments  12,821,000   1,377,000    
Amortization of deferred financing fees associated with our mortgage loan payables  914,000   90,000    
Amortization of deferred financing fees associated with our line of credit  377,000   80,000    
Amortization of debt discount  110,000   7,000    
Unused line of credit fees  108,000   17,000    
Interest expense on our unsecured note payable to affiliate  2,000   84,000    
             
Total interest expense $34,164,000  $6,400,000  $ 
             
  Years Ended December 31,
  2011 2010 2009
Interest expense on our mortgage and secured term loans payable and credit facility $34,048,000
 $23,892,000
 $16,835,000
Amortization of deferred financing costs associated with our mortgage loans payable 2,001,000
 1,693,000
 1,504,000
Amortization of deferred financing fees associated with our credit facility 1,627,000
 501,000
 381,000
Amortization of debt discount/premium (451,000) 395,000
 276,000
Unused credit facility fees 2,388,000
 244,000
 150,000
    Total interest expense 39,613,000
 26,725,000
 19,146,000
Interest expense related to our derivative financial instruments and net change in fair value of derivative financial instruments 2,279,000
 2,816,000
 4,678,000
Total interest expense and net change in fair value of derivative financial instruments $41,892,000
 $29,541,000
 $23,824,000
The increase in interest expense for the year ended December 31, 20082011 as compared to the year ended December 31, 20072010 was primarily due to an increase in average outstanding mortgage loans payable and outstanding balance on our mortgage loan payables to $460,762,000unsecured revolving credit facility of $669,338,000 as of December 31, 2008 from $185,801,0002011 compared to $619,777,000 as of December 31, 2007. We did not have any debt for2010. Additionally, during the period from April 28, 2006 (Date of Inception) throughyear ended December 31, 2006.
In addition, interest expense increased2011, we incurred higher unused credit facility fees as a result of the higher maximum principal amount of $575,000,000 on our unsecured credit facility relative to the prior year. Finally, during the year ended December 31, 2011, we recognized a net loss on the change in fair value of derivative financial instruments due to a net non-cash mark to market adjustmentsadjustment we made to our derivative financial instruments of $(856,000) as compared to a net gain on the change in fair value of our derivative financial instruments of $6,095,000 during the year ended December 31, 2010.
The increase in interest expense for the year ended December 31, 2010 as compared to the year ended December 31, 2009 was due to an increase in average outstanding mortgage loans payable and outstanding balance on our unsecured revolving credit facility of $619,777,000 as of December 31, 2010 compared to $500,395,000 as of December 31, 2009. Additionally, during the year ended December 31, 2010, we terminated two of our interest rate swaps. swap derivative financial instruments with an aggregate notional amount of $27,200,000 in conjunction with our prepayment of certain loan balances. There was no earnings impact to these terminations since they had previously been adjusted to their fair value in a prior quarter.

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We use interest rate swaps in order to minimize the impact to us of fluctuations in interest rates. To achieve our objectives, we borrow at fixed rates and variable rates. We also enter into derivative financial instruments such as interest rate swaps in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements.


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Interest and Dividend Income
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, interest and dividend income was $469,000, $224,000$174,000, $119,000 and $0,$249,000, respectively. For the years ended December 31, 20082011 and 2007,2010, interest and dividend income was related primarily to interest earned on our money market and cash accounts. The increase inFor the year ended December 31, 2009, interest and dividend income was duerelated primarily to having increasingly higher cash balances in 2008interest earned on our money market accounts and 2007 as compared to the period from April 28, 2006 (Date of Inception) through December 31, 2006.U.S. Treasury Bills.
Liquidity and Capital Resources
We are dependent upon the proceeds from our operating cash flows, the proceeds from debt, and the net proceeds from our offeringofferings to conduct our activities. We stopped offering shares in our primary offering as of February 28, 2011. We continue to offer shares pursuant to our DRIP; however, we may terminate our DRIP at any time. We may also conduct additional public offerings of our common stock in the future. Our ability to raise funds through our offering is dependent on general economic conditions, general market conditions for REITs, and our operating performance. The capital requiredOur total capacity to purchase real estate and other real estate related assets is obtained froma function of our offeringcurrent cash position, our borrowing capacity on our credit facility and from any from any future indebtedness that we may incur.
incur, and any possible future equity offerings. Because we are no longer receiving offering proceeds from our primary offering, we will increasingly rely on our operating cash flows and borrowings to fund our acquisitions and satisfy our other capital needs.
Our principal demands for funds continue to be for acquisitions of real estate and other real estate related assets, to pay operating expenses and principal and interest on our outstanding indebtedness, to repay our debt as appropriate, and to make distributions to our stockholders. In addition, we require resources to make certain payments to our advisor or its affiliates for reimbursement of certain organizational and offering expenses and to our dealer manager or its affiliates for selling commissions, non-accountable marketing support fees and due diligence expense reimbursements.
Generally, cash needs for items other than acquisitions of real estate and other real estate related assets continue to be met from operations borrowing, and the net proceeds of our offering.borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, including our requirements to meet our debt maturities coming due during the year ending December 31, 2012, and we do not anticipate a need to, though we may, raise funds from other than these sources within the next 12 months.
We evaluate potential additional investments and engage in negotiations with real estate sellers, developers, brokers, investment managers, lenders and others on our behalf. Until we invest the majority of the proceeds of our offering in real estate and other real estate related assets, we may invest in short-term, highly liquid or other authorized investments. Such short-term investments will not earn significant returns, and we cannot predict how long it will take to fully invest the proceeds in real estate and other real estate related assets. The number of properties we may acquire and other investments we will make will depend upon the number of shares of our common stock sold in our offering and the resulting amount of the net proceeds available for investment. However, there may be a delay between the sale of shares of our common stock and our investments in real estate and other real estate related assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investments’ operations.
When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit facility or other loan established with respect to the investment, operating cash generated by the investment, additional equity investments from us or joint venture partners or, when necessary, capital reserves. Any capital reserve would be established from the grossnet proceeds of our offering,offerings, proceeds from sales of other investments, operating cash generated by other investments, or other cash on hand. In some cases, a lender may require us to establish capital reserves for a particular investment. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.
Other Liquidity Needs
In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of distributions or the timing of the collections of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties or our advisor or its affiliates. There are currently no limits or restrictions on the use ofthrough offering proceeds, from our advisor or its affiliate which would prohibit us from making the proceeds available for distribution.including DRIP proceeds. We may


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also pay distributions from cash from capital transactions, including, without limitation, the sale of one or more of our properties.
As of December 31, 2008,2011, we estimate that our expenditures for capital improvements will require up to $4,836,000 withinapproximately $28,606,000, $14,000,000 of which is attributable to tenant improvements, for the nextcoming 12 months. As of December 31, 2008,2011, we had $5,564,000$8,979,000 of restricted cash in loan impounds and reserve accounts for such capital expenditures. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all. As of December 31, 2011, we had cash and cash equivalents of approximately $69,491,000 and had full access to our unsecured credit facility in the amount of $575,000,000. Additionally, as of December 31, 2011, we had unencumbered properties with a gross book value of approximately $1,113,714,000 that may be used as collateral to secure additional financing in future periods or as additional collateral to facilitate the refinancing of current mortgage debt as it becomes due.

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If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
CashThe following table sets forth our sources and uses of cash flows provided by operating activities for the years ended December 31, 20082011 and 20072010:
 Years Ended December 31, Change
 20112010 $
Cash and cash equivalents, beginning of period$29,270,000
$219,001,000
 $(189,731,000)
Net cash provided by operating activities111,807,000
58,503,000
 (53,304,000)
Net cash used in investing activities(65,958,000)(626,849,000) (560,891,000)
Net cash provided by (used in) financing activities(5,628,000)378,615,000
 384,243,000
Cash and cash equivalents, end of period$69,491,000
$29,270,000
 $(40,221,000)

Cash flows from operating activities primarily increased in 2011 due to the operating income from our significant 2010 acquisitions being fully reflected in our operations for 2011. In addition, due to a lower volume of acquisitions in 2011, acquisition costs were lower in 2011 compared to 2010. The increase in cash flows from operations in 2010 were primarily related to including the full year's impact of 2009 acquisitions and fora partial year of 2010 acquisitions and partially offset by the period from April 28, 2006 (Dateone-time redemption, termination, and release payment made to our former advisor in the amount of Inception) through December 31, 2006, were $20,677,000, $7,005,000 and $0, respectively. $7,285,000.
For the year ended December 31, 2008, cash flows provided by operating activities related primarily to operations from our 42 properties and real estate related assets. For the year ended December 31, 2007, cash flows provided by operating activities related primarily to operations from our 20 properties. We anticipate cash flows from operating activities will increase as we purchase more properties.
Cash flows used in investing activities for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December��31, 2006, were $526,475,000, $385,440,000 and $0, respectively. For the year ended December 31, 2008,2011, cash flows used in investing activities related primarily to the acquisition of our 21real estate properties in the amount of $503,638,000.$61,385,000 and capital expenditures of $16,034,000, offset by the release of $14,463,000 in restricted cash related to our repayment of a mortgage loan payable and to the reimbursement of a deposit placed for one of our interest rate swaps upon collateralization of the underlying secured loan. For the year ended December 31, 2007,2010, cash flows used in investing activities related primarily to cash paid for the acquisitionacquisitions of our 20 properties in the amount of $380,398,000. Cash24 new property portfolios totaling $597,097,000. We anticipate cash flows used in investing activities is heavily dependent upon the deployment of our offering proceeds in properties and real estate related assets.to increase as we purchase more properties.
Cash flows provided by financing activities for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, were $628,662,000, $383,700,000 and $202,000, respectively. For the year ended December 31, 2008,2011, net cash flows used in financing activities related primarily to principal repayments of $192,083,000 on mortgage loans payable, payments made on our unsecured revolving credit facility of $7,000,000, the payment of offering costs of $21,137,000 for our offerings, distributions to our stockholders of $84,800,000, and repurchase of common stock of $37,680,000, offset by the issuance of common stock in the amount of $214,641,000 and borrowings on our secured term loan in the amount of $125,500,000. Additional cash outflows related to debt financing costs of $3,401,000 in connection with the debt financing for our acquisitions and with the increase in our credit facility's aggregate maximum principal from $275,000,000 to $575,000,000, which occurred in May 2011. For the year ended December 31, 2010, cash flows provided by financing activities related primarily to funds raised from investors in the amount of $528,816,000 and$594,677,000, borrowings on mortgage loan payablesloans payable of $227,695,000, partially offset by net payments under our secured revolving line of credit with LaSalle and KeyBank of $51,801,000,$79,125,000, the payment of offering costs of $54,339,000,$56,621,000 for our offerings, distributions of $14,943,000$60,176,000, and principal and demand note repayments of $1,832,000$123,117,000 on mortgage loan payables.loans payable and demand notes payable. Additional cash outflows related to deferred financing costsour purchases of $3,688,000 in connection with the debt financingnoncontrolling interests held by our former advisor and held by the joint venture entity that owns Chesterfield Rehabilitation for our acquisitions. For the year ended December 31, 2007, cash flows provided by financing activities related primarily to funds raised from investors in thean aggregate amount of $210,937,000, borrowings on mortgage loan payables of $148,906,000 and net borrowings under our secured revolving line of credit with LaSalle and KeyBank of $51,801,000, partially offset by principal repayments of $151,000 on mortgage loan payables, offering costs of $22,009,000 and distributions of $3,323,000. Additional cash outflows related$4,097,000, as well as to debt financing costs of $2,496,000 in connection with the debt financing for our acquisitions. For the period from April 28, 2006 (Date$7,507,000.

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73


Distributions
The income tax treatment for distributions reportable for the years ended December 31, 2008, 20072011, 2010, and 20062009 was as follows:
                         
  Years Ended December 31, 
  2008  2007  2006 
 
Ordinary income $5,879,000   21.0% $915,000   15.3% $ —     —%
Capital gain                  
Return of capital  22,163,000   79.0   5,081,000   84.7       
                         
  $28,042,000   100% $5,996,000   100% $   %
                         
  Years Ended December 31,
  2011 2010 2009
Ordinary income $65,712,000
 40.9% $47,041,000
 40.3% $2,836,000
 3.6%
Return of capital 94,952,000
 59.1
 69,686,000
 59.7
 75,223,000
 96.4
Total $160,664,000
 100.0% $116,727,000
 100.0% $78,059,000
 100.0%

See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of our distributions.
Capital Resources
Financing
We anticipate that our aggregate borrowings, both secured and unsecured, will not exceed 60.0%approximate 30%-40% of all of our properties’ and other real estate related assets’mortgage loans receivables' combined fair market values, as determined at the end of each calendar year beginning with our first full year of operations.year. For these purposes, the fair market value of each asset will be equal to the purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the fair market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. As of December 31, 2008,2011, our aggregate borrowings were 47.9%27.9% of allnet assets at December 31, 2011. Additionally, the $17,935,000 of mortgage notes payable on various of our properties’properties which will mature in 2012 have a one-year extension option available, and otherthe $125,500,000 secured real estate related assets’ combined fair market values.
term loan, which matures in 2013, has two one-year extension options available. We anticipate utilizing the extensions available to us.
Our charter precludes us, until our shares are listed on a national securities exchange, from borrowing in excess of 300.0%300% of the value of our net assets, unless approved by a majority of our independent directors and the justification for such excess borrowing is disclosed to our stockholders in our next quarterly report. For the purposes of this determination, net assets are our total assets, other than intangibles, calculated at cost before deducting depreciation, amortization, bad debt, and other similar non-cash reserves, less total liabilities and computed at least quarterly on a consistently-applied basis. Generally, the preceding calculation is expected to approximate 75.0% of the sum of the aggregate cost of our real estate and real estate related assetsmortgage loans receivable before depreciation, amortization, bad debt, and other similar non-cash reserves. As of March 27, 200923, 2012 and December 31, 2008,2011, our leverage did not exceed 300.0%300% of the value of our net assets.
Mortgage Loans Payable, Net and Secured Real Estate Term Loan Payables, Net
See Note 7, Mortgage Loan Payables,Loans Payable, Net and Unsecured Note PayablesSecured Real Estate Term Loan, to Affiliate — Mortgage Loan Payables, Net, to the Consolidated Financial Statements,our accompanying consolidated financial statements, for a further discussion of our mortgage loans payable, net and secured real estate term loan, payables, net.which was obtained on February 1, 2011.
Unsecured Note Payables to Affiliate
Revolving Credit Facility
See Note 7, Mortgage Loan Payables, Net and Unsecured Note Payables9, Revolving Credit Facility, to Affiliate — Unsecured Note Payables to Affiliate, to the Consolidated Financial Statements,our accompanying consolidated financial statements, for a further discussion of our unsecured note payables to affiliate.revolving credit and term loan facility.
Line of Credit
See Note 9, Line of Credit, to the Consolidated Financial Statements, for a further discussion of our line of credit.


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REIT Requirements
In order to continue to qualifyremain qualified as a REIT for federal income tax purposes, we are required to make annual distributions to our stockholders of at least 90.0% of REIT taxable income.income (determined before the deduction for dividends paid and excluding any net capital gain). In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collections of receivables, we may seek to obtain capital to pay distributions by means of secured debt financing through one or more third parties. We may also pay distributions from cash from capital transactions including, without limitation, the sale of one or more of our properties.
See Note 11, Commitments and Contingencies, to our accompanying consolidated financial statements regarding the closing agreement we entered into with the IRS.


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Limitation on Total Operating Expenses
Our charter provides that our total operating expenses during any four consecutive fiscal quarters cannot exceed the greater of: (1) 2.0% of our average invested assets, as defined in our charter, or (2) 25.0% of our net income, as defined in our charter, for such year. Our board of directors is responsible for limiting our total operating expenses to that amount, unless a majority of our independent directors determine that such excess expenses are justified based on unusual and non-recurring factors and such excess expenses, if any, are disclosed in writing to our stockholders, together with an explanation of the factors the independent directors considered in determining that such excess amount was justified. Our total operating expenses did not exceed this limitation in 2011. Our total operating expenses as a percentage of our average invested assets for the year ended December 31, 2010 was 1.2%.
Commitments and Contingencies
See Note 11, Commitments and Contingencies, to the Consolidated Financial Statements,our accompanying consolidated financial statements, for a further discussion of our commitments and contingencies.
Debt Service Requirements
One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of December 31, 2008,2011, we had fixed and variable rate mortgage loans payable and our secured real estate term loan payables outstanding in the aggregate principal amount of $462,542,000 ($460,762,000, net$639,149,000, including a premium of discount) secured by our properties.$2,591,000. We are required by the terms of the applicable loan documents to meet certain financial covenants, such as a minimum net worth and liquidity amounts, andamount, as well as reporting requirements. As of December 31, 2008,2011, we believe that we were in compliance with all such covenants and requirements on our mortgage loans payable and term loan.
As of December 31, 2011, the balance on our unsecured revolving credit facility was zero. See Note 22, Subsequent Events, to our accompanying consolidated financial statements for information regarding our January and February draws of $27,000,000 and $55,000,000, respectively, on our unsecured revolving credit facility. Additionally, see Note 22 for discussion of our new proposed credit facility. As of December 31, 2011, we expect to remainbelieve that we were in compliance with all such covenants and requirements for the next 12 months.
on our unsecured revolving credit facility.
As of December 31, 2008, we did not have any amounts outstanding under our secured revolving line of credit with LaSalle and KeyBank.
As of December 31, 2008,2011, the weighted average interest rate on our outstanding debt was 4.07%5.05% per annum.
Contractual Obligations
The following table provides information with respectbelow presents our obligations and commitments to the maturitiesmake future payments under debt obligations and scheduled principal repayments of our secured mortgage loanlease agreements as of December 31, 2008. The2011:
  Payment Due by Period
  Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total
Long-term debt  
  
  
  
  
Fixed rate(1) $39,606,000
 $76,984,000
 $177,321,000
 $167,337,000
 $461,248,000
Variable rate(1) 39,955,000
 135,355,000
 
 
 175,310,000
Interest(2) 31,755,000
 51,986,000
 32,354,000
 18,026,000
 134,121,000
Credit facility borrowings 
 
 
 
 
Ground lease and other operating lease obligations(3) 3,062,000
 6,211,000
 5,422,000
 210,603,000
 225,298,000
Total $114,378,000
 $270,536,000
 $215,097,000
 $395,966,000
 $995,977,000

(1)Long-term debt obligations are related to our fixed rate and variable rate mortgage loans payable.
(2)Interest on variable rate debt is calculated using the rates in effect at December 31, 2011.
(3)Operating lease obligations include our corporate office location in Scottsdale, Arizona and our regional office location in Charleston, South Carolina.
With respect to the debt service obligations shown above, the table does not reflect any available extension options.
                     
  Payments Due by Period 
  Less than 1 Year
  1-3 Years
  4-5 Years
  More than 5 Years
    
  (2009)  (2010-2011)  (2012-2013)  (After 2013)  Total 
 
Principal payments — fixed rate debt $  9,475,000  $3,380,000  $17,559,000  $  110,644,000  $141,058,000 
Interest payments — fixed rate debt  8,192,000   15,184,000   14,375,000   17,139,000   54,890,000 
Principal payments — variable rate debt  2,425,000   319,059,000         321,484,000 
Interest payments — variable rate debt (based on rates in effect as of December 31, 2008)  10,999,000   15,107,000         26,106,000 
                     
Total $31,091,000  $352,730,000  $31,934,000  $127,783,000  $543,538,000 
                     
The table above does not reflect all available extension options. OfWe have a one-year extension available on the amounts maturing$17,935,000 of our debt that matures in 20102012, and 2011, $245,427,000we have two one yearone-year extensions available and $54,717,000 have a one year extension available.on the $125,500,000 of our debt that matures in 2013.

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Off-Balance Sheet Arrangements
As of December 31, 20082011 and 2007,2010, we had no off-balance sheet transactions nor do we currently have any such arrangements or obligations.


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Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of inflation. These provisions include rent steps,escalations, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of the leases, among other factors, the leases may not re-set frequently enough to cover inflation.
Funds from Operations
One of our objectives is to provide cash distributions to our stockholders and Normalized Funds from cash generated by our operations. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as Funds From Operations or FFO, which it believes more accurately reflects the operating performance of a REIT such as us. FFO is not equivalent to our net income or loss as determined under GAAP.
We define funds from operations, or FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property but including assetand impairment writedowns,write downs of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.
The We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical accounting convention used forcost depreciation and amortization of real estate and related assets, requires straight-line depreciation of buildings and improvements, which impliesassumes that the value of real estate assets diminishes predictablyratably over time. SinceHistorically, however, real estate values historically rise and fallhave risen or fallen with market conditions, presentations ofconditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating results for a REIT, using historical accounting for depreciation, could be less informative. The use ofcosts, development activities and interest costs, providing perspective not immediately apparent from net income.
We compute FFO is recommendedin accordance with the current standards established by the REIT industry as a supplemental performance measure.
PresentationBoard of this information is intended to assistGovernors of the reader in comparingNational Association of Real Estate Investment Trusts, or NAREIT, which may differ from the operating performance of differentmethodology for calculating FFO utilized by other equity REITs although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITsand, accordingly, may not be meaningful. Furthermore,comparable to such other REITs. NAREIT recently issued updated reporting guidance that directs companies, for the computation of NAREIT FFO, isto exclude impairments of depreciable real estate and impairments to investments in affiliates when write-downs are driven by measurable decreases in the fair value of depreciable real estate held by the affiliate. FFO does not necessarily indicativerepresent amounts available for management's discretionary use because of cash flow available to fund cash needsneeded capital replacement or expansion, debt service obligations or other commitments and uncertainties. FFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicationindicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay distributions.
Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-operating items included in FFO, as defined. Therefore, we use normalized funds from operations, or Normalized FFO, which excludes from FFO transition charges, acquisition-related expenses the net change in fair value of derivative financial instruments, and proceeds received from lease terminations, to further evaluate how our portfolio might perform after our acquisition stage is complete and the sustainability of our distributions in the future. Normalized FFO should not be considered as an alternative to net income or to cash flows from operating activities and is not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements. Management considers the following items in the calculation of Normalized FFO:


Acquisition-related expenses: Prior to 2009, acquisition-related expenses were capitalized and have historically been added back to FFO over time through depreciation; however, beginning in 2009, acquisition-related expenses related to business combinations are expensed. These acquisition-related expenses have been and will continue to be funded from the proceeds of our debt and our offerings and not from operations. We believe by excluding expensed acquisition-related expenses Normalized FFO provides useful supplemental information that is comparable for our real estate investments.
Transition-related charges: FFO includes certain charges related to the cost of our transition to self-management. These items include, but are not limited to, the majority of the one-time redemption and termination payment made to our former advisor, as further discussed in Note 12, Related Party Transactions, to our consolidated financial statements, as well as additional legal expenses, system conversion costs and non-recurring employment costs. Because Normalized FFO excludes such costs, management believes Normalized FFO provides useful supplemental information by focusing on the changes in our

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fundamental operations that will be comparable rather than on such transition charges. We do not believe such costs will recur now that our transition to a self-management infrastructure has been completed.
Net change in fair value of derivative financial instruments: FFO includes a noncash charge representing the net change in fair value of our derivative financial instruments. Because Normalized FFO excludes this item, management believes Normalized FFO provides useful supplemental information as it allows for greater focus on the year over year changes that result from our core operational performance.
Lease termination fee revenue: FFO includes proceeds received as a result of early lease termination arrangements. Because Normalized FFO excludes this item, management believes Normalized FFO provides useful supplemental information as it allows for greater focus on the year over year changes that result from our core operational performance.
Our calculation of Normalized FFO reporting complies with NAREIT’s policy described above.
may have limitations as an analytical tool because it reflects the costs unique to our transition to a self-management model, which may be different from that of other healthcare REITs. Additionally, Normalized FFO reflects features of our ownership interests in our medical office buildings and other facilities that serve the healthcare industry that are unique to us. Companies that are considered to be in our industry may not have similar ownership structures; and therefore those companies may not calculate Normalized FFO in the same manner that we do, or at all, limiting its usefulness as a comparative measure. We compensate for these limitations by relying primarily on our GAAP and FFO results and using our Normalized FFO as a supplemental measure.
The following is the calculation of FFO and Normalized FFO for the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006:2009:

    
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Net loss $(28,448,000) $(7,666,000) $       (242,000)
Add:            
Depreciation and amortization — consolidated properties  37,398,000   9,790,000    
Less:            
Depreciation and amortization related to minority interests  (205,000)      
             
FFO $8,745,000  $2,124,000  $(242,000)
             
FFO per share — basic and diluted $0.20  $0.21  $(149.20)
             
Weighted average common shares outstanding — basic and diluted  42,844,603   9,952,771   1,622 
             
FFO reflects losses on derivative financial instruments related to our interest rate swaps in the amount of $12,821,000, $1,377,000 and $0 for
 Years Ended December 31,
 2011 2010 2009
Net income (loss)$5,593,000
 $(7,919,000) $(24,773,000)
Depreciation and amortization — consolidated properties107,542,000
 78,561,000
 53,595,000
FFO$113,135,000
 $70,642,000
 $28,822,000
FFO per share — basic$0.51
 $0.43
 $0.26
FFO per share — diluted$0.50
 $0.43
 $0.26
Acquisition-related expenses2,130,000
 11,317,000
 15,997,000
Transition-related charges
 8,400,000
 3,718,000
Net change in fair value of derivative financial instruments856,000
 (6,095,000) (5,523,000)
Lease termination fee revenue(1,417,000) (14,000) (298,000)
Normalized FFO$114,704,000
 $84,250,000
 $42,716,000
Normalized FFO per share — basic and diluted$0.51
 $0.51
 $0.38
Weighted average common shares outstanding — basic223,900,167
 165,952,860
 112,819,638
Weighted average common shares outstanding — diluted224,391,553
 165,952,860
 112,819,638

For the years ended December 31, 2008, 20072010 and 2009, Normalized FFO per share was impacted by the increase in net proceeds realized from our initial and follow-on offerings. For the year ended December 31, 2010, we sold 61,191,096 shares of our common stock, increasing our outstanding shares by 43.5%, and for the period from


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April 28, 2006 (Date of Inception) throughyear ended December 31, 2006. See Note 8, Derivative Financial Instruments, to the Consolidated Financial Statements, for a further discussion2009, we sold 62,696,254 shares of our interest rate swaps.common stock, increasing our outstanding shares by 83.1%.

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Net Operating Income
Net operating income is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from our total portfolio of properties before interest expense, general and administrative expenses, depreciation, amortization, acquisition-related expenses, and interest and dividend income and minority interests.income. We believe that net operating income provides an accurate measure of the operating performance of our operating assets because net operating income excludes certain items that are not associated with management of the properties. Additionally, we believe that net operating income is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term net operating income may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.
To facilitate understanding of this financial measure, a reconciliation of net loss to net operating income has been provided for the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006:2009:
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Net loss $(28,448,000) $(7,666,000) $       (242,000)
Add:            
General and administrative  9,560,000   3,297,000   242,000 
Depreciation and amortization  37,398,000   9,790,000    
Interest expense  34,164,000   6,400,000    
Less:            
Interest and dividend income  (469,000)  (224,000)   
Minority interests  39,000   (8,000)   
             
Net operating income $52,244,000  $11,589,000  $ 
             
  Years Ended December 31,
  2011 2010 2009
Net income (loss) $5,593,000
 $(7,919,000) $(24,773,000)
Add:  
  
  
General and administrative expense 28,695,000
 18,753,000
 12,285,000
Asset management fees 
 
 3,783,000
Acquisition-related expenses 2,130,000
 11,317,000
 15,997,000
Depreciation and amortization 107,542,000
 78,561,000
 53,595,000
Interest expense 41,892,000
 29,541,000
 23,824,000
One-time redemption, termination, and release payment to former advisor 
 7,285,000
 
Less:  
  
  
Interest and dividend income (174,000) (119,000) (249,000)
Net operating income $185,678,000
 $137,419,000
 $84,462,000

Subsequent Events
See Note 23,22, Subsequent Events, to the Consolidated Financial Statements,our accompanying consolidated financial statements, for a further discussion of our subsequent events.

Item 7A.  Quantitative and Qualitative Disclosures Aboutabout Market Risk.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, the primary market risk to which we are exposed is interest rate risk.
We are exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we borrow at fixed rates and variable rates.
We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. To the extent we do,enter into such derivative financial instruments, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and,


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therefore, it does not possess credit risk. It is our policy to enter into these transactions with the same party providing the underlying financing. In the alternative, we will seek to minimize the credit risk associated with derivative instruments by entering into transactions with what we believe are high-quality counterparties. We believe the likelihood of realized losses from counterparty non-performance is remote. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. We manage the market risk associated with interest rate contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We do not enter into derivative or interest rate transactions for speculative purposes.

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We have, and may in the future enter into, derivative instruments for which we have not and may not elect hedge accounting treatment. Because we have not elected to apply hedge accounting treatment to these derivatives, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in interest expense on our consolidated statements of operations.
Our interest rate risk is monitored using a variety of techniques.
The table below presents, as of December 31, 2008,2011, the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.changes:
                                 
  Expected Maturity Date 
  2009  2010  2011  2012  2013  Thereafter  Total  Fair Value 
 
Fixed rate debt — principal payments $9,475,000  $1,466,000  $1,914,000  $2,047,000  $15,512,000  $110,644,000  $141,058,000  $137,754,000 
Weighted average interest rate on maturing debt  5.78%  5.68%  5.72%  5.72%  5.88%  5.76%  5.76%   
Variable rate debt — principal payments $2,425,000  $121,944,000  $197,115,000  $  $  $  $321,484,000  $318,852,000 
Weighted average interest rate on maturing debt (based on rates in effect as of December 31, 2008)  3.14%  2.87%  3.61%  %  %  %  3.33%   
 Expected Maturity Date
 2012 2013 2014 2015 2016 Thereafter Total
Fixed rate debt — principal payments$39,606,000
 $26,993,000
 $49,991,000
 $72,625,000
 $104,696,000
 $167,337,000
 $461,248,000
Weighted average interest rate on maturing debt6.46% 5.81% 6.42% 5.41% 5.99% 6.12% 6.02%
Variable rate debt — principal payments$39,955,000
 $126,365,000
 $8,990,000
 $
 $
 $
 $175,310,000
Weighted average interest rate on maturing debt (based on rates in effect as of December 31, 2011)2.33% 2.92% 2.35% % % % 2.75%
Mortgage loans and secured term loan payablespayable were $462,542,000$636,558,000 ($460,762,000, net of discount)639,149,000, including premium) as of December 31, 2008.2011. As of December 31, 2008,2011, we had fixed and variable rate mortgage loans and our secured real estate term loan with effective interest rates ranging from 1.90%1.77% to 12.75% per annum and a weighted average effective interest rate of 4.07%5.05% per annum. We had $141,058,000$461,248,000 ($139,278,000, net of discount)463,839,000, including premium) of fixed rate debt, or 30.5%72.5% of mortgage loans and secured term loan payables,payable, at a weighted average interest rate of 5.76%6.02% per annum and $321,484,000$175,310,000 of variable rate debt, or 69.5%27.5% of mortgage loans and secured term loan payables,payable, at a weighted average interest rate of 3.33%2.49% per annum.
annum as of December 31, 2011.
As of December 31, 2008,2011, the fair value of our fixed rate debt was $513,372,000 and the fair value of our variable rate debt was $174,490,000.
As of December 31, 2011, we had fixed rate interest rate swaps or caps on allthree of our variable mortgage loans, thereby effectively fixing our interest rate on those mortgage loan payables.
loans payable.
As of December 31, 2008, there were no amounts2011, the outstanding underbalance on our securedunsecured revolving linecredit facility was zero. As discussed within Note 22, Subsequent Events, in the notes to our accompanying consolidated financial statements, in January and February 2012, we drew $27,000,000 and $55,000,000, respectively, on this credit facility in order to fund the acquisition of credit with LaSalle and KeyBank.
operating properties.
In addition to changes in interest rates, the value of our future properties is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.

Item 8.  Financial Statements and Supplementary Data.
See the indexdisclosure listed at Item 15. Exhibits, Financial Statement Schedules.Schedules subsections (a)(1) and (a)(2).

Item 9.  Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure.
None.



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Item 9A(T).  9A.  Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities


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Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief AccountingFinancial Officer as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As of December 31, 2008,2011, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, of the effectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief AccountingFinancial Officer concluded that our disclosure controls and procedures were effective.effective as of December 31, 2011.
(b) Management’s Reportreport on internal control over financial reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) and15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.
Based on our evaluation under the Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2008.2011.
(c) Changes in internal control over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2008of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report onForm 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report wasis not subjectrequired to be subjected to attestation by our independent registered public accounting firm pursuant to temporary rulesthe Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-accelerated filers from the auditor attestation requirement of section 404(b) of the SEC that permit us to provide only management’s report in this Annual Report onForm 10-K.Sarbanes-Oxley Act.

Item 9B.  Other Information.
None.


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PART III
Item 10.  Directors, Executive Officers and Corporate Governance.
The following table and biographical descriptions set forth information with respectrequired by this Item 10 is incorporated by reference to the individuals who are our officers and directors.
Name
Age*
Position
Term of Office
Scott D. Peters51Chief Executive Officer, President and Chairman of the BoardSince 2006
Kellie S. Pruitt43Chief Accounting OfficerSince 2009
Andrea R. Biller59Executive Vice President and SecretarySince 2006
Danny Prosky43Executive Vice President — AcquisitionsSince 2006
W. Bradley Blair, II65Independent DirectorSince 2006
Maurice J. DeWald69Independent DirectorSince 2006
Warren D. Fix70Independent DirectorSince 2006
Larry L. Mathis65Independent DirectorSince 2007
Gary T. Wescombe66Independent DirectorSince 2006
As of March 27, 2009
There are no family relationships between any directors, executive officers or between any director and executive officer.
Scott D. Petershas served as our Chairman of the Board since July 2006, Chief Executive Officer since April 2006 and President since June 2007. He served as the Chief Executive Officer of our advisor from July 2006 until July 2008. He served as the Executive Vice President of Grubb & Ellis Apartment REIT, Inc. from January 2006 to November 2008 and served as a director from April 2007 to June 2008. He also served as the Chief Executive Officer, President and a Director of Grubb & Ellis from December 2007 to July 2008, and as the Chief Executive Officer, President and Director of NNN Realty Advisors, a wholly owned subsidiary of Grubb & Ellis, from its formation in September 2006 and as its Chairman of the Board since its merger with Grubb & Ellis in December 2007 to July 2008. Mr. Peters also served as the Chief Executive Officer of Grubb & Ellis Realty Investors from November 2006 to July 2008, having served from September 2004 to October 2006, as the Executive Vice President and Chief Financial Officer. From December 2005 to January 2008, Mr. Peters also served as the Chief Executive Officer and President of G REIT, Inc., having previously served as its Executive Vice President and Chief Financial Officer since September 2004. Mr. Peters also served as the Executive Vice President and Chief Financial Officer of T REIT, Inc. from September 2004 to December 2006. From February 1997 to February 2007, Mr. Peters served as Senior Vice President, Chief Financial Officer and a Director of Golf Trust of America, Inc., a publicly traded REIT. Mr. Peters received a B.B.A. degree in accounting and finance from Kent State University.
Kellie S. Pruitthas served as our Chief Accounting Officer since January 2009. She also served as our Controller for a portion of January 2009. From September 2007 to December 2008, she served as the Vice President, Financial Reporting and Compliance, for Fender Musical Instruments Corporation. Prior to joining Fender Musical Instruments Corporation in 2007, Ms. Pruitt served as Senior Manager at Deloitte & Touche LLP, from 1995 to 2007, serving both public and privately held companies primarily concentrated in the real estate and consumer business industries. She graduated from the University of Texas, where she received a B.A. degree in Accounting and is a member of the AICPA. Ms. Pruitt is a Certified Public Accountant licensed in Arizona and Texas.
Andrea R. Billerhas served as our Executive Vice President and Secretary since April 2006 and as the Executive Vice President of our advisor since July 2006. Ms. Biller also served as the Executive Vice President and Secretary REIT II and as the Executive Vice President of Grubb & Ellis Healthcare REIT II Advisor, LLC, or REIT II Advisor, since January 2009. She has also served as the General Counsel, Executive Vice President and Secretary of Grubb & Ellis, our sponsor, since December 2007, and NNN Realty Advisors, since its formation in September 2006 and as a Director of NNN Realty Advisors since December 2007. She


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has served as General Counsel for Grubb & Ellis Realty Investors since March 2003 and as Executive Vice President since January 2007. Ms. Biller has also served as the Secretary of Grubb & Ellis Securities since March 2004. Ms. Biller has also served as the Secretary and Executive Vice President of G REIT, Inc. from June 2004 and December 2005, respectively, until January 2008, the Secretary of T REIT, Inc. from May 2004 to July 2007, the Secretary of Grubb & Ellis Apartment REIT, Inc. from January 2006 through February 2009 and a Director of Grubb & Ellis Apartment REIT, Inc. since June 2008. Ms. Biller practiced as a private attorney specializing in securities and corporate law from 1990 to 1995 and 2000 to 2002. She practiced at the SEC from 1995 to 2000, including two years as special counsel for the Division of Corporation Finance. Ms. Biller received a B.A degree in Psychology from Washington University, an M.A. degree in Psychology from Glassboro State University and a J.D. degree from George Mason University School of Law, where she graduated first with distinction. Ms. Biller is a member of the California, Virginia and the District of Columbia State Bar Associations.
Danny Proskyhas served as our Executive Vice President — Acquisitions since April 2008, having served as our Vice President — Acquisitions since September 2006. Mr. Prosky has also served as the President and Chief Operating Officer of REIT II and as the President and Chief Operating Officer of REIT II Advisor since January 2009. He has served as Grubb & Ellis Realty Investors’ Executive Vice President, Healthcare Real Estate since May 2008, having served as its Managing Director — Healthcare Properties since March 2006. He is responsible for all medical property acquisitions, management and dispositions. Mr. Prosky previously worked with Health Care Property Investors, Inc., a healthcare-focused REIT where he served as the Assistant Vice President — Acquisitions & Dispositions from 2005 to March 2006, and as Assistant Vice President — Asset Management from 1999 to 2005. From 1992 to 1999, he served as the Manager, Financial Operations, Multi-tenant Facilities for American Health Properties, Inc. Mr. Prosky received a B.S. degree in Finance from the University of Colorado and an M.S. degree in Management from Boston University.
W. Bradley Blair, IIhas served as an Independent Director since September 2006. Mr. Blair served as the Chief Executive Officer, President and Chairman of the board of directors of Golf Trust of America, Inc. from the time of its formation and initial public offering in 1997 as a REIT until his resignation and retirement in November 2007. During such term, Mr. Blair managed the acquisition, operation, leasing and disposition of the assets of the portfolio. From 1993 until February 1997, Mr. Blair served as Executive Vice President, Chief Operating Officer and General Counsel for The Legends Group. As an officer of The Legends Group, Mr. Blair was responsible for all aspects of operations, including acquisitions, development and marketing. From 1978 to 1993, Mr. Blair was the Managing Partner at Blair Conaway Bograd & Martin, P.A., a law firm specializing in real estate, finance, taxation and acquisitions. Currently, Mr. Blair operates the Blair Group consulting practice, which focuses on real estate acquisitions and finance. Mr. Blair received a B.S. degree in Business from Indiana University and a J.D. degree from the University of North Carolina School of Law.
Maurice J. DeWaldhas served as an Independent Director since September 2006. He has served as the Chairman and Chief Executive Officer of Verity Financial Group, Inc., a financial advisory firm, since 1992, where the primary focus has been in both the healthcare and technology sectors. Mr. DeWald also serves as a Director of Mizuho Corporate Bank of California, Advanced Materials Group, Inc., Aperture Health, Inc. and as Chairman of Integrated Healthcare Holdings, Inc. Mr. DeWald also previously served as a Director of Tenet Healthcare Corporation as well as ARV Assisted Living, Inc. From 1962 to 1991, Mr. DeWald was with the international accounting and auditing firm of KPMG, LLP, where he served at various times as an Audit Partner, a member of their board of directors as well as the Managing Partner of Orange County and Los Angeles California offices as well as its Chicago office. Mr. DeWald has served as Chairman and Director of both the United Way of Greater Los Angeles and the United Way of Orange County California. Mr. DeWald received a B.B.A. degree in Accounting and Finance from the University of Notre Dame and is a member of its Mendoza School of Business Advisory Council. Mr. DeWald is a Certified Public Accountant.
Warren D. Fixhas served as an Independent Director since September 2006. He is the Chairman of FDW, LLC, a real estate investment and management firm. Mr. Fix also serves as a Director of Clark Investment Group, Clark Equity Capital, The Keller Financial Group, First Foundation Bank and Accel Networks. Until November of 2008, when he completed a process of dissolution, he served for five years as the Chief Executive Officer of WCH, Inc., formerly Candlewood Hotel Company, Inc., having served as its Executive


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Vice President, Chief Financial Officer and Secretary since 1995. From July 1994 to October 1995, Mr. Fix was a Consultant to Doubletree Hotels, primarily developing debt and equity sources of capital for hotel acquisitions and refinancing. Mr. Fix has been a Partner in The Contrarian Group, a business management company since December 1992. From 1989 to December 1992, Mr. Fix served as President of The Pacific Company, a real estate investment and a development company. From 1964 to 1989, Mr. Fix held numerous positions, including Chief Financial Officer, within The Irvine Company, a major California-based real estate firm. He received a B.A. degree from Claremont McKenna College in California and is a graduate of the UCLA Executive Management Program, the Stanford Financial Management Program and the UCLA Anderson Corporate Director Program.
Larry L. Mathishas served as an Independent Director since April 2007. Since 1998 he has served as an Executive Consultant with D. Peterson & Associates in Houston, Texas, providing counsel to select clients on leadership, management, governance, and strategy and is the author ofThe Mathis Maxims, Lessons in Leadership.For over 35 years, Mr. Mathis has held numerous leadership positions in organizations charged with planning and directing the future of healthcare delivery in the United States. Mr. Mathis is the founding President and Chief Executive Officer of The Methodist Hospital System in Houston, Texas, having served that institution in various executive positions for 27 years, the last 14 years before his retirement in 1997 as CEO. During his extensive career in the healthcare industry, he has served as a member of the board of directors of a number of national, state and local industry and professional organizations, including Chairman of the board of directors of the Texas Hospital Association, the American Hospital Association, and the American College of Healthcare Executives, and has served the federal government as chairman of the National Advisory Council on Health Care Technology Assessment and as a member of the Medicare Prospective Payment Assessment Commission. From 1997 to 2003, Mr. Mathis was a member of the board of directors and Chairman of the compensation committee of Centerpulse, Inc., and from 2004 to present a member of the board and Chairman of the nominating and governance committee of Alexion Pharmaceuticals, Inc., both U.S. publicly traded companies. Mr. Mathis received a B.A. degree in Social Sciences from Pittsburg State University in Kansas and an M.A. degree in Health Administration from Washington University in St. Louis.
Gary T. Wescombehas served as an Independent Director since October 2006. He manages and develops real estate operating properties through American Oak Properties, LLC, where he is a Principal. He is also Director, Chief Financial Officer and Treasurer of the Arnold and Mabel Beckman Foundation, a nonprofit foundation established for the purpose of supporting scientific research. From October 1999 to December 2001, he was a Partner in Warmington Wescombe Realty Partners in Costa Mesa, California, where he focused on real estate investments and financing strategies. Prior to retiring in 1999, Mr. Wescombe was a Partner with Ernst & Young, LLP (previously Kenneth Leventhal & Company) from 1970 to 1999. In addition, Mr. Wescombe also served as a Director of G REIT, Inc. from December 2001 to January 2008 and has served as Chairman of the Trustees of G REIT Liquidating Trust since January 2008. Mr. Wescombe received a B.S. degree in Accounting and Finance from California State University, San Jose in 1965 and is a member of the American Institute of Certified Public Accountants and California Society of Certified Public Accountants.
Our Advisor
Management
The following table and biographical descriptions set forth information with respect to our advisor’s executive officers.
Name
Age *
Position
Jeffrey T. Hanson38Chief Executive Officer
Andrea R. Biller59Executive Vice President
As of March 27, 2009
Jeffrey T. Hansonhas served as the Chief Executive Officer of our advisor since January 2009. Mr. Hanson has also served as the Chief Executive Officer and Chairman of the Board of REIT II and as the


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Chief Executive Officer of REIT II Advisor since January 2009. He has also served as the Executive Vice President, Investment Programs, of Grubb & Ellis since December 2007. In addition, he has served as the President and Chief investment Officer of Grubb & Ellis Realty Investors since December 2007 and January 2007, respectively, and has served as the President and Chief Executive Officer of Realty since July 2006 and as its Chairman of the board of directors since April 2007. Mr. Hanson’s responsibilities include managing Grubb & Ellis’ real estate portfolio and directing acquisitions and dispositions nationally for Grubb & Ellis’ public and private real estate programs. He has also served as the Chief Investment Officer of NNN Realty Advisors, a wholly owned subsidiary of Grubb & Ellis, since September 2006 and as a Director of NNN Realty Advisors since November 2008. From 1996 to July 2006, Mr. Hanson served as Senior Vice President with Grubb & Ellis Company’s Institutional Investment Group in the firm’s Newport Beach office. While with that entity, he managed investment sale assignments throughout Southern California and other Western U.S. markets for major private and institutional clients. Mr. Hanson is a member of the Sterling College Board of Trustees and formerly served as a member of the Grubb & Ellis President’s Counsel and Institutional Investment Group Board of Advisors. Mr. Hanson received a B.S. degree in Business from the University of Southern California with an emphasis in Real Estate Finance.
For biographical information regarding Ms. Biller, see — Directors, Executive Officers and Corporate Governance, above.
Grubb & Ellis Realty Investors owns a 75.0% managing member interest in our advisor. Grubb & Ellis Healthcare Management, LLC owns a 25.0% non-managing member interest in our advisor. The members of Grubb & Ellis Healthcare Management, LLC include Andrea R. Biller, our Executive Vice President and Secretary, our advisor’s Executive Vice President, our advisors’ Executive Vice President, Grubb & Ellis’ Executive Vice President, Secretary and General Counsel, NNN Realty Advisors’ Executive Vice President, Secretary, General Counsel, and Director, Grubb & Ellis Realty Investors’ Executive Vice President and General Counsel, and Grubb & Ellis Securities’ Secretary; Jeffrey T. Hanson, our advisor’s Chief Executive Officer, Grubb & Ellis’ Executive Vice President, Investment Programs, Grubb & Ellis Realty Investors’ President and Chief Investment Officer, NNN Realty Advisors’ Chief Investment Officer and Director and Realty’s Chief Executive Officer, Chairman of the board of directors; and Grubb & Ellis Realty Investors for the benefit of other employees who perform services for us. Ms. Biller own 18.0% membership interests in Grubb & Ellis Healthcare Management, LLC. Grubb & Ellis Realty Investors owns a 64.0% membership interest in Grubb & Ellis Healthcare Management, LLC.
We rely on our advisor to manage our day-to-day activities and to implement our investment strategy. We, our advisor and Grubb & Ellis Realty Investors are parties to an advisory agreement, as amended and restated on November 14, 2008 and effective as of October 24, 2008, or the Advisory Agreement, pursuant to which our advisor performs its duties and responsibilities as our fiduciary.
The Advisory Agreement expires on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement, as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue a self-management program.
Grubb & Ellis, NNN Realty Advisors and Grubb & Ellis Realty Investors
Our current sponsor Grubb & Ellis, headquartered in Santa Ana, California, is one of the nation’s leading commercial real estate services and investment companies. Drawing on the resources of nearly 5,500 real estate professionals, including a brokerage sales force of approximately 1,800 brokers nationwide, Grubb & Ellis and its affiliates combine local market knowledge with a national service network to provide innovative, customized solutions for real estate owners, corporate occupants and investors.
On December 7, 2007, NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of our current sponsor, Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of Grubb & Ellis in exchange


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for their NNN Realty Advisors shares and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of Grubb & Ellis.
The merger combined one of the world’s leading full-service commercial real estate organization with a leading sponsor of commercial real estate programs to create a diversified real estate services business providing a complete range of transaction, management and consulting services, and possessing a strong platform for continued growth. Grubb & Ellis continues to use the “Grubb & Ellis” name and continues to be listed on the New York Stock Exchangematerial under the ticker symbol “GBE.”
As a resultheadings "Proposal 1: Election of the merger, we consider Grubb & Ellis to be our sponsor. Upon Grubb & Ellis becoming our sponsor, we changed our name from NNN Healthcare/Office REIT, Inc. to Grubb & Ellis Healthcare REIT, Inc.
Grubb & Ellis Realty Investors, the parentDirectors," "Executive Officers," "Corporate Governance" and manager of our advisor and an indirect wholly owned subsidiary of our sponsor, offers a diverse line of investment products as well as a full-range of services including asset and property management, brokerage, leasing, analysis and consultation. Grubb & Ellis Realty Investors is also an active seller of real estate, bringing many of its investment programs full cycle.
Upon completion of our transition to self-management, we will no longer be advised by our advisor or consider our sponsor to be Grubb & Ellis.
Committees of Our Board of Directors
Our board of directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full board meeting, provided that the majority of the members of each committee are independent directors. Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and an investment committee.
Audit Committee.  Our audit committee’s primary function is to assist the board with oversight of the integrity of our financial statements, compliance with legal and regulatory financial disclosure requirements, independent auditor’s qualifications and independence and the performance of our internal audit function and independent auditor. The audit committee is responsible for the selection, evaluation and, when necessary, replacement of our independent registered public accounting firm. Under our audit committee charter, the audit committee will always be comprised solely of independent directors. The audit committee is currently comprised of W. Bradley Blair, II, Warren D. Fix, and Gary T. Wescombe, all of whom are independent directors. Mr. DeWald currently serves as the chairman and has been designated as the audit committee financial expert.
The audit committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Compensation Committee.  The primary responsibilities of our compensation committee are to advise the board on compensation policies, establish performance objectives for our executive officers, prepare the report on executive compensation for inclusion in our annual proxy statement, review and recommend to our board of directors the appropriate level of director compensation and annually review our compensation strategy and assess its effectiveness. The compensation committee is currently comprised of W. Bradley Blair, II, Warren D. Fix and Gary T. Wescombe, all of whom are independent directors. Mr. Wescombe currently serves as the chairman.
The compensation committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Nominating and Corporate Governance Committee.  The nominating and corporate governance committee’s primary purposes are to identify qualified individuals to become board members, to recommend to the board the selection of director nominees for election at the annual meeting of stockholders, to make recommendations regarding the composition of our board of directors and its committees, to assess director independence and board effectiveness, to develop and implement corporate governance guidelines and to oversee our compliance and ethics program. The nominating and corporate governance committee is currently


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comprised of W. Bradley Blair, II, Warren D. Fix and Larry L. Mathis, all of whom are independent directors. Mr. Fix currently serves as the chairman.
The nominating and corporate governance committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Investment Committee.  Our investment committee’s primary function is to assist the board of directors in fulfilling its responsibilities with respect to investments in specific real estate assets proposed by our advisor, reviewing and overseeing the performance of our assets, reviewing and overseeing the capital raising activities and performance of our dealer manager and reviewing our investment policies and procedures on an ongoing basis. The investment committee is currently comprised of W. Bradley Blair, II, Warren D. Fix, Scott D. Peters and Gary T. Wescombe. Messrs. Blair, Fix and Wescombe are independent directors. Mr. Blair currently serves as the chairman.
The investment committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
2006 Incentive Plan and Independent Directors Compensation Plan
We have adopted an incentive stock plan, which we use to attract and retain qualified independent directors, employees and consultants providing services to us who are considered essential to our long-term success by offering these individuals an opportunity to participate in our growth through awards in the form of, or based on, our common stock.
The incentive stock plan provides for the granting of awards to participants in the following forms to those independent directors, employees, and consultants selected by the plan administrator for participation in the incentive stock plan:
• options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the U.S. tax code;
• stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price;
• performance awards, which are payable in cash or stock upon the attainment of specified performance goals;
• restricted stock, which is subject to restrictions on transferability and other restrictions set by the committee;
• restricted stock units, which give the holder the right to receive shares of our common stock, or the equivalent value in cash or other property, in the future;
• deferred stock units, which give the holder the right to receive shares of our common stock, or the equivalent value in cash or other property, at a future time;
• dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of our common stock underlying an award; and/or
• other stock based awards in the discretion of the plan administrator, including unrestricted stock grants.
Any such awards will provide for exercise prices, where applicable, that are not less than the fair market value of our common stock on the date of the grant. Any shares issued under the incentive stock plan will be subject to the ownership limits contained in our charter.
Our board of directors or a committee of its independent directors will administer the incentive stock plan, with sole authority to select participants, determine the types of awards to be granted and all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. No awards will be granted under the plan if the grant,


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vestingand/or exercise of the awards would jeopardize our status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under our charter.
The maximum number of shares of our common stock that may be issued upon the exercise or grant of an award under the incentive stock plan is 2,000,000. In the event of a nonreciprocal corporate transaction that causes the per-share value of our common stock to change, such as a stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend, the share authorization limits of the incentive stock plan will be adjusted proportionately.
Unless otherwise provided in an award certificate, upon the death or disability of a participant, or upon a change in control, all of such participant’s outstanding awards under the incentive stock plan will become fully vested. The plan will automatically expire on the tenth anniversary of the date on which it is adopted, unless extended or earlier terminated by the board of directors. The board of directors may terminate the plan at any time, but such termination will have no adverse impact on any award that is outstanding at the time of such termination. The board of directors may amend the plan at any time, but any amendment would be subject to stockholder approval if, in the reasonable judgment of the board, stockholder approval would be required by any law, regulation or rule applicable to the plan. No termination or amendment of the plan may, without the written consent of the participant, reduce or diminish the value of an outstanding award determined as if the award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination. The board may amend or terminate outstanding awards, but those amendments may require consent of the participant and, unless approved by the stockholders or otherwise permitted by the antidilution provisions of the plan, the exercise price of an outstanding option may not be reduced, directly or indirectly, and the original term of an option may not be extended.
Under Section 162(m) of the Code, a public company generally may not deduct compensation in excess of $1 million paid to its Chief Executive Officer and the four next most highly compensated executive officers. Until the annual meeting of our stockholders in 2010, or until the incentive stock plan is materially amended, if earlier, awards granted under the incentive stock plan will be exempt from the deduction limits of Section 162(m). In order for awards granted after the expiration of such grace period to be exempt, the incentive stock plan must be amended to comply with the exemption conditions and be resubmitted for approval by our stockholders.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, or the Code of Ethics, which contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions and all members of our board of directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Stockholders may request a copy of the Code of Ethics, which will be provided without charge, by writing to Grubb & Ellis Healthcare REIT, Inc. at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705, Attention: Secretary.
Indemnification Agreements
We have entered into indemnification agreements with each of our independent directors, non-independent director and officers. Pursuant to the terms of these indemnification agreements, we will indemnify and advance expenses and costs incurred by our directors and officers in connection with any claims, suits or proceedings brought against such directors and officers as a result of his or her service. However, our indemnification obligation is subject to the limitations set forth in the indemnification agreements and in our charter.


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Section"Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)Compliance" in our definitive Proxy Statement for the 2012 Annual Meeting of the Exchange Act requires each director, officer, and individual beneficially owning more than 10.0% of a registered security of the company toStockholders, which we will file with the SEC within specified time frames, initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of common stock of the company. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to us during and with respect to the year ended December 31, 2008 or written representations that no additional forms were required, to the best of our knowledge, all required Section 16(a) filings were timely and correctly made by reporting persons during 2008, except that Messrs. Blair, DeWald, Fix, Mathis and Wescombe did not timely file one Form 4.later than April 29, 2012.

Item 11.  Executive Compensation.
COMPENSATION DISCUSSION AND ANALYSIS
In the paragraphs that follow, we provide an overview ofThe information required by this Item 11 is incorporated by reference to the material compensation decisions that we have made with respect to Mr. Peters, our Chief Executive Officer and President, andunder the material factors that we considered in making those decisions. Following this Compensationheadings "Compensation Discussion and Analysis, under Summary Compensation Table, you will find a series" "Compensation Committee Report," and "Compensation of tables containing specific data about the compensation earned by Mr. PetersDirectors and Executive Officers" in 2008.
Compensation Program Objectives
During 2008, Mr. Peters was the only executive officer employed by us - each of our other executive officers was employed by our advisor or its affiliates, and was compensated by these entities for their services to us. Mr. Peters served as our Chief Executive Officer and President on a non-employee basis until November 2008, when we entered into an employment agreement with him as part of our transition to self-management. Our compensation committee was formed in August 2008. As a result,definitive Proxy Statement for the majority2012 Annual Meeting of 2008,Stockholders, which we did not have, nor did our board of directors consider, a compensation policy or program for our executive officers. As we complete our transition to self-management and expand our employee base, our compensation committee expects to continue to develop and refine our compensation program and objectives.
In designing Mr. Peters’ initial compensation package, our objective was to provide compensation that directly relates to and rewards his contribution to our operating and financial performance, and its transition toward self-management. We also are mindful of the importance of retaining qualified leadership.
How We Determined Mr. Peters’ Initial Compensation Package
In setting the terms of Mr. Peters’ compensation package, our compensation committee considered Mr. Peters’ past, present and anticipated future contributions to us, as well as the pay practices within the REIT industry.
• Mr. Peters has played an integral role with our Company since 2006, and his experience and length of service with our Company was the primary factor considered by our compensation committee in setting his initial pay. Our compensation committee also considered Mr. Peters’ leadership role in our transition to a self-management structure, as described elsewhere in this Annual Report onForm 10-K.
• The compensation committee reviewed the NAREIT 2008 Compensation Survey for the chief executive officer position (the “NAREIT Survey”), as well as a report provided by Christenson Advisors, LLC, the compensation consultant engaged by the compensation committee. The compensation consultant’s report provided information regarding the compensation packages of chief executive officers of REITs with a total capitalization of approximately $1 billion to $2 billion. The compensation consultant’s report was not based on a formal benchmarking analysis but rather upon surveys and its knowledge of the industry. The committee did not target Mr. Peters’ compensation to be at the median or any other


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specific level of compensation within the surveyed group(s). Rather, the committee used both the NAREIT Survey and the consultant’s report to evaluate whether Mr. Peters’ compensation would be reasonable as compared to the compensation provided by the Company’s competitors.
As we transition to self-management, our compensation committee feels that it is important to preserve discretion to change Mr. Peters’ compensation arrangement, including, among other things, to implement performance guidelines and objectives. As a result, in connection with its approval of Mr. Peters’ initial compensation package, our compensation committee reserved the right to review and revise the terms of such arrangement. Our compensation committee may change the terms of his employment arrangement and compensation; provided, however, that the committee agreed not to decrease Mr. Peters’ base salary by more than twenty percent.
Elements of Mr. Peters’ Compensation
Currently, the key elements of compensation for Mr. Peters are base salary, annual bonus and long-term equity incentive awards, as described in more detail below. In addition to these key elements, Mr. Peters is entitled to severance in the event we terminate his employment without cause before November 1, 2010.
Base Salary.  Base salary provides the fixed portion of compensation for Mr. Peters and is intended to reward core competence in his role relative to skill, experience and contributions to our Company. Mr. Peters’ initial base salary is $350,000. As noted above, in determining Mr. Peters’ 2008 base salary, our compensation committee considered his history with our Company, his increased responsibilities and oversight, with a particular focus on his role in our transition to self-management, as well as salary practices in the REIT industry.
Annual Bonus.  Pursuant to the terms of his employment agreement, Mr. Peters is eligible to earn an annual bonus, up to a maximum of 100% of his base salary. In determining Mr. Peters’ annual bonus for the year ended December 31, 2008, our compensation committee made a subjective assessment of Mr. Peters’ individual performance and increased responsibilities, particularly in connection with our transition towards self-management. His bonus for 2008 was prorated based on the number of days that he was employed by us during such year. Mr. Peters’ 2008 bonus is shown in the “Bonus” column of the Summary Compensation Table below.
Long-Term Equity Incentives.  In connectionwill file with the commencement of his employment with us, Mr. Peters received 40,000 shares of restricted common stock, which vest as to one-third of the shares on each of the first, second and third anniversaries of the date of grant. Our compensation committee chose restricted common stock as the equity component of Mr. Peters’ arrangement because it both aligns his interests with those of our stockholders and provides a strong retentive component to his compensation arrangement. In addition, we currently use restricted common stock as the equity component of our director compensation program. Based on its knowledge of the industry and its review of peer practices, our compensation committee believes that the size of the restricted stock award is in line with current market practices.SEC not later than April 29, 2012.

Other Benefits.  As discussed above, on November 14, 2008, we entered into an employment agreement with Mr. Peters. Pursuant to his employment agreement, if we terminate Mr. Peters’ employment for other than cause or disability prior to November 1, 2010, he will be entitled to receive a severance payment equal to 50% of his base salary, and a pro-rata bonus for the year of termination.
REPORT OF THE COMPENSATION COMMITTEE
Our compensation committee of our board of directors oversees our compensation program on behalf of our board. In fulfilling its oversight responsibilities, the committee reviewed and discussed with management the above Compensation Discussion and Analysis included in this report.
In reliance on the review and discussion referred to above, our compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our Annual Report onForm 10-K for the year ended December 31, 2008, and our proxy statement on Schedule 14A to be filed in


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connection with our 2009 annual meeting of stockholders, each of which has been or will be filed with the SEC.
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Annual Report onForm 10-K into any filing under the Securities Act of 1933, as amended, or the Exchange Act and shall not otherwise be deemed filed under such acts. This report is provided by the following independent directors, who constitute the committee:
Gary T. Wescombe, Chair
W. Bradley Blair, II
Warren D. Fix
Summary Compensation Table
The summary compensation table below reflects the total compensation earned by Mr. Peters, our Chief Executive Officer and President for the year ended December 31, 2008. We did not employ any other officer for the year ended December 31, 2008.
                         
              All Other
    
Name and Principal Position Year  Salary ($)(1)  Bonus ($)  Stock Awards ($)(2)  Compensation ($)(3)  Total ($) 
 
Scott D. Peters                        
Chief Executive Officer and President  2008   148,333   58,333   17,037   2,252   225,955 
(1)Reflects (a) $90,000 received pursuant to Mr. Peters’ consulting arrangement with us from August 1, 2008, through October 31, 2008, and (b) $58,333 received as base salary pursuant to his employment agreement from November 1, 2008, through December 31, 2008.
(2)The amounts in this column represent the proportionate amount of the total fair value of stock awards recognized by us in 2008 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The amount included in the table includes the amount recorded as expense in our statement of operations for the year ended December 31, 2008. The fair values of these awards and the amounts expensed in 2008 were determined in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R),Share-Based Payment,or SFAS No. 123(R).
(3)Reflects our payment of Mr. Peters’ monthly premium for two months under COBRA for participation in Grubb & Ellis’s group medical, dental, vision and/or prescription drug plans.
Grants of Plan-Based Awards
The following table presents information concerning plan-based awards granted to Mr. Peters for the year ended December 31, 2008.
Grants of Plan-Based Awards For Fiscal Year 2008
             
     All Other Stock
  Grant Date Fair
 
     Awards: Number of
  Value of Stock and
 
     Shares of Stock or
  Option Awards
 
Name   
 Grant Date  Units (#)(1)  ($)(2) 
 
Scott D. Peters  11/14/08   40,000   400,000 
(1)Reflects shares of restricted common stock granted to Mr. Peters under our 2006 Incentive Plan.
(2)Reflects the grant date fair value of Mr. Peters’ restricted stock award, determined pursuant to SFAS No. 123(R). The fair value of each share of restricted common stock was estimated at the date of grant at $10.00 per share, the per share price of shares of our common stock in our offering.


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Outstanding Equity Awards
The following table presents information concerning outstanding equity awards held by Mr. Peters as of December 31, 2008.
Outstanding Equity Awards at 2008 Fiscal Year-End
         
  Stock Awards 
  Number of Shares or Units of
  Market Value of Shares or
 
  Stock That Have
  Units of Stock That Have Not
 
Name   
 Not Vested (#)  Vested ($)(2) 
 
Scott D. Peters  40,000(1)  400,000 
(1)Reflects shares of restricted common stock granted to Mr. Peters on November 14, 2008, which 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.
(2)Calculated using the per share price of shares of our common stock as of the close of business on December 31, 2008 ($10.00).
Potential Payments Upon Termination or Change in Control
Benefits Upon Termination of Employment.  Our employment agreement with Mr. Peters provides that in the event that, during the two-year employment period, we terminate his employment other than for cause or disability (as such terms are defined in the employment agreement), Mr. Peters will be entitled to receive a lump sum severance payment equal to 50.0% of his annual base salary and a payment equal to a pro-rata portion of his annual bonus for the year in which his date of termination occurs. In addition, pursuant to the terms of his restricted stock award on November 14, 2008, his shares of restricted common stock will become fully vested upon his termination of employment by reason of death or disability. If Mr. Peters voluntarily terminates his employment, retires or if we terminate him for cause, he is not entitled to any payments or benefits under any plan or arrangement of our Company.
The following table summarizes the approximate value of the termination payments and benefits that Mr. Peters would receive if his employment had terminated at the close of business on December 31, 2008.
Termination of Employment By our Company other than for Cause or Disability$233,333(1)
Termination of Employment By Reason of Death or Disability$400,000(2)
(1)Reflects (a) a payment equal to a pro-rata portion of his annual bonus for 2008 ($58,333), and (b) a lump sum cash severance payment equal to 50% of his current annual base salary ($175,000).
(2)Reflects the value of Mr. Peters’ unvested restricted stock award which, pursuant to our 2006 Incentive Plan, vests upon his termination of employment by reason of death or disability. The restricted stock award is valued based upon the price of our common stock on December 31, 2008 ($10.00).
Benefits Upon Change in Control.  Pursuant to the terms of our 2006 Incentive Plan, if a change in control of our Company had occurred on December 31, 2008, Mr. Peters’ shares of restricted common stock would have become fully vested, regardless of whether his employment was terminated. The value of Mr. Peters’ unvested restricted stock award is $400,000, based upon the price of our common stock on December 31, 2008 ($10.00).
2008 Director Compensation
Pursuant to the terms of our director compensation program, which are contained in our 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan, our independent directors received the following forms of compensation during 2008:
• Annual Retainer.  Our independent directors receive an annual retainer of $36,000.


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• Meeting Fees.  Our independent directors receive $1,000 for each board meeting attended in person or by telephone and $500 for each committee meeting attended in person or by telephone. An additional $500 is paid to the audit committee chair for each audit committee meeting attended in person or by telephone. If a board meeting is held on the same day as a committee meeting, an additional fee will not be paid for attending the committee meeting.
• Equity Compensation.  Upon initial election to our board of directors, each independent director receives 5,000 shares of restricted common stock, and an additional 2,500 shares of restricted common stock upon his or her subsequent election each year. The shares of restricted common stock vest as to 20% of the shares on the date of grant and on each anniversary thereafter over four years from the date of grant.
• Expense Reimbursement.  We reimburse our directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings, including committee meetings, of our board of directors.
Independent directors do not receive other benefits from us. Our non-independent director, Mr. Peters, does not receive any compensation in connection with his service as a director of our Company.
The following table sets forth the compensation earned by our independent directors for the year ended December 31, 2008:
             
  Fees Earned
       
  or Paid in Cash
  Stock Awards
    
Name          ($)(1)  ($)(2)  Total ($) 
 
W. Bradley Blair, II  54,000   22,681   76,681 
Maurice J. DeWald  55,000   22,681   77,681 
Warren D. Fix  53,000   22,681   75,681 
Larry L. Mathis  49,000   22,681   71,681 
Gary T. Wescombe  52,500   22,681   75,181 
(1)Consists of the amounts described below:
         
  Basic Annual
  Meeting
 
  Retainer
  Fees
 
Name     ($)  ($) 
 
Blair  36,000   18,000 
DeWald  36,000   19,000 
Fix  36,000   17,000 
Mathis  36,000   13,000 
Wescombe  36,000   16,500 
(2)The amounts in this column represent the proportionate amount of the total fair value of stock awards we recognized in 2008 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The amounts included in the table for each award include the amount recorded as expense in our statement of operations for the year ended December 31, 2008. The fair values of these awards and the amounts expensed in 2008 were determined in accordance with SFAS No. 123(R).


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The following table shows the shares of restricted common stock awarded to each independent director for the year ended December 31, 2008, and the aggregate grant date fair value for each award (computed in accordance with SFAS No. 123(R)).
             
        Full Grant
 
     Number of
  Date Fair
 
     Restricted
  Value of
 
Director Grant Date  Shares (#)  Award ($) 
 
Blair  06/17/08   2,500   25,000 
DeWald  06/17/08   2,500   25,000 
Fix  06/17/08   2,500   25,000 
Mathis  06/17/08   2,500   25,000 
Wescombe  06/17/08   2,500   25,000 
The following table shows the aggregate number of nonvested shares of restricted common stock held by each independent director as of December 31, 2008:
Nonvested
DirectorRestricted Stock (#)
Blair5,500
DeWald5,500
Fix5,500
Mathis6,500
Wescombe5,500
Key Changes to the Director Compensation Program for 2009.  On December 30, 2008, we amended the 2006 Independent Directors Compensation Plan as follows, which amendments became effective as of January 1, 2009:
• Annual Retainer.  The annual retainer for independent directors was increased to $50,000.
• Annual Retainer, Committee Chairman.  The chairman of each board committee (including the audit committee, the compensation 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 meeting attended in person of 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, rather than 2,500 shares.
We amended the 2006 Independent Directors Compensation Plan primarily as a result of two factors. First, in connection with our transition to self-management, our board of directors is required to spend a substantially greater amount of time overseeing our company and the transition. As a result, we believed that a greater level of compensation was appropriate. Second, our board reviewed a survey from an independent consultant of the compensation paid to the independent directors of both traded and non-traded REITs and determined that our prior compensation structure was below average. As amended, we believe our compensation to be paid to our independent directors is consistent with the average compensation paid to independent directors of traded and non-traded REITs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2008, W. Bradley Blair, II, Maurice J. DeWald, Warren D. Fix, Larry L. Mathis and Gary T. Wescombe, all of whom are independent directors, served on our compensation committee. None of them was an officer or employee of our Company in 2008 or any time prior thereto. During 2008, none of the members of the compensation committee had any relationship with our Company requiring disclosure under Item 404 of


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Regulation S-K. None of our executive officers served as a member of the board of directors or compensation committee, or similar committee, of any other company whose executive officer(s) served as a member of our board of directors or our compensation committee.
Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
PRINCIPAL STOCKHOLDERS
The following table shows, asinformation required by this Item 12 is incorporated by reference to the material under the headings "Equity Compensation Plans" and "Security Ownership of March 13, 2009,Certain Beneficial Owners and Management" in our definitive Proxy Statement for the number2012 Annual Meeting of shares of our common stock beneficially owned by: (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock, (2) our directors, (3) our named executive officers and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 91,264,688 shares of our common stock outstanding as of March 13, 2009. Beneficial ownership is determined in accordanceStockholders, which we will file with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days.not later than April 29, 2012.

Number of Shares
Name of Beneficial Owners(1)Beneficially OwnedPercentage
Scott D. Peters(2)40,000 *
Shannon K S Johnson(3)*
W. Bradley Blair, II(2)10,000*
Maurice J. DeWald(2)10,000*
Warren D. Fix(2)11,371*
Larry L. Mathis(2)15,525*
Gary T. Wescombe(2)10,000*
All directors and executive officers as a group (9 persons)96,896*
Represents less than 1.0% of our outstanding common stock.
(1)The address of each beneficial owner listed isc/o Grubb & Ellis Healthcare REIT, Inc., The Promenade, 16427 North Scottsdale Road, Suite 440, Scottsdale, Arizona 85254, except for Shannon K S Johnson, whose address is 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705.
(2)Includes vested and non-vested shares of restricted common stock.
(3)Served as our Chief Financial Officer until March 2009.
EQUITY COMPENSATION PLAN INFORMATION
Under the terms of our 2006 Incentive Plan, as amended January 1, 2009, the aggregate number of shares of our common stock subject to options, shares of restricted common stock, 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.
Number of Securities
Number of
to be Issued Upon
Weighted Average
Securities
Exercise of
Exercise Price of
Remaining
Outstanding Options,
Outstanding Options,
Available for Future
Plan Category                  
Warrants and RightsWarrants and RightsIssuance
Equity compensation plans approved by security holders(1)1,910,000
Equity compensation plans not approved by security holders
Total1,910,000


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(1)On September 20, 2006, October 4, 2006, April 12, 2007, June 12, 2007 and June 17, 2008, we granted 15,000 shares, 5,000 shares, 5,000 shares, 12,500 shares and 12,500 shares, respectively, of restricted common stock, as defined in our 2006 Incentive Plan, to our independent directors under the 2006 Independent Directors Compensation Plan. On November 14, 2008, we also granted 40,000 shares of restricted common stock to Scott D. Peters, our Chief Executive Officer, President and Chairman of the board of directors, under our 2006 Incentive Plan. Such shares are not shown in the chart above as they are deemed outstanding shares of our common stock; however such grants reduce the number of securities remaining available for future issuance.
Item 13.  Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 is incorporated by reference to the material under the heading "Certain Relationships Among Our Affiliates
Some of our executive officers are also executive officers and employeesand/or holders of a direct or indirect interestRelated Party Transactions" in our advisor, our sponsor, Grubb & Ellis Realty Investors, or other affiliated entities.
Grubb & Ellis Realty Investors, which is an indirect wholly owned subsidiary of our sponsor Grubb & Ellis, owns a 75.0% managing member interest in our advisor. Grubb & Ellis Healthcare Management, LLC owns a 25.0% non-managing member interest in our advisor. The members of Grubb & Ellis Healthcare Management, LLC include Andrea R. Biller, our Executive Vice President and Secretary, our advisor’s Executive Vice President, Grubb & Ellis’ Executive Vice President, Secretary and General Counsel, NNN Realty Advisors’ Executive Vice President, Secretary, General Counsel and Director, Grubb & Ellis Realty Investors’ Executive Vice President and General Counsel and Grubb & Ellis Securities’ Secretary; and Grubb & Ellis Realty Investorsdefinitive Proxy Statement for the benefit2012 Annual Meeting of other employees who perform services for us. As of March 27, 2009, Ms. Biller owns an 18.0% membership interest in Grubb & Ellis Healthcare Management, LLC and Grubb & Ellis Realty Investors owns a 64.0%, membership interest in Grubb & Ellis Healthcare Management, LLC. See Item 1. Business — Our Structure for an organizational chart.
Fees and Expenses Paid to Affiliates
See Note 12, Related Party Transactions, to the Consolidated Financial Statements, for a further discussion of our related party transactions.
Certain Conflict Resolution Restrictions and Procedures
In order to reduce or eliminate certain potential conflicts of interest, our charter and the Advisory Agreement contain restrictions and conflict resolution procedures relating to: (1) transactionsStockholders, which we enter into with our advisor, our directors or their respective affiliates, (2) certain future offerings and (3) allocation of properties among affiliated entities. Each of the restrictions and procedures that apply to transactions with our advisor and its affiliates will also apply to any transaction with any entity or real estate program advised, managed or controlled by Grubb & Ellis and its affiliates. These restrictions and procedures include, among others, the following:
• Except as otherwise described in our Registration Statement on FormS-11 (FileNo. 333-133652, effective September 20, 2006) filed with the SEC, or our offering prospectus, we will not accept goods or services from our advisor or its affiliates unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transactions, approve such transactions as fair, competitive and commercially reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.
• We will not purchase or lease any asset (including any property) in which our advisor, any of our directors or any of their respective affiliates has an interest without a determination by a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction, that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to our advisor, such director or directors or any such affiliate, unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to


94


be reasonable. In no event will we acquire any such asset at an amount in excess of its appraised value. We will not sell or lease assets to our advisor, any of our directors or any of their respective affiliates unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, determine the transaction is fair and reasonable to us, which determination will be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors.
• We will not make any loans to our advisor, any of our directors or any of their respective affiliates. In addition, any loans made to us by our advisor, our directors or any of their respective affiliates must be approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties.
• Our advisor and its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by them on our behalf or on behalf of joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2.0% of our average invested assets or 25.0% of our net income, as described above.
• The Advisory Agreement provides that if Grubb & Ellis Realty Investors identifies an opportunity to make an investment in one or more office buildings or other facilities for which greater than 50.0% of the gross leaseable area is leased to, or reasonably expected to be leased to, one or more medical or healthcare related tenants, either directly or indirectly through an affiliate or in a joint venture or other co-ownership arrangement, for itself or for any other Grubb & Ellis program, then Grubb & Ellis Realty Investors will provide us with the first opportunity to purchase such investment. Grubb & Ellis Realty Investors will provide all necessary information related to such investment to our advisor, in order to enable our board of directors to determine whether to proceed with such investment. Our advisor will present the information to our board of directors within three business days of receipt from Grubb & Ellis Realty Investors. If our board of directors does not affirmatively authorize our advisor to proceed with the investment on our behalf within seven days of receipt of such information from our advisor, then Grubb & Ellis Realty Investors may proceed with the investment opportunity for its own account or offer the investment opportunity to any other person or entity. This right of first opportunity will remain in effect after the end of our offering so long as monies raised by our advisor are available for funding new acquisitions of properties for which our advisor will continue to receive an acquisition fee pursuant to the Advisory Agreement.
• The Advisory Agreement provides that our advisor and Grubb & Ellis Realty Investors agree to coordinate the timing, marketing and other activities for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates so as not to negatively impact our company. In addition, the equity raising for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates shall not begin until after the end of our offering, provided that consistent with industry practice and standards and without there being any negative impact on our equity raise, such new healthcare REIT may initiate a limited equity raise from a limited broker dealer group, commencing August 1, 2009 or later, to satisfy the escrow requirements applicable to such new healthcare REIT.
Director Independence
We have a six-member board of directors. One of our directors, Scott D. Peters, is affiliated with us and we do not consider him to be an independent director. Our remaining directors qualify as “independent directors” as defined in our charter in compliancefile with the requirements of the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts. Our charter provides that a majority of the directors must be “independent directors.” As defined in our charter, the term “independent director” means a director who isSEC not on the date of determination, and within the last two years from the date of determination has not been, directly or indirectly associated with our sponsor or our advisor by virtue of: (1) ownership of an interest in our sponsor, our advisor or any of their affiliates, otherlater than the Corporation; (2) employment by our sponsor, our advisor or any of their affiliates; (3) service as an officer orApril 29, 2012.


95


director of our sponsor, our advisor or any of their affiliates; (4) performance of services, other than as a director for us; (5) service as a director or trustee of more than three REITs organized by our sponsor or advised by our advisor; or (6) maintenance of a material business or professional relationship with our sponsor, our advisor or any of their affiliates.
Each of our independent directors would also qualify as independent under the rules of the New York Stock Exchange and our Audit Committee members would qualify as independent under the New York Stock Exchange’s rules applicable to Audit Committee members. However, our stock is not listed on the New York Stock Exchange.
Item 14.  Principal Accounting Fees and Services.
Deloitte & Touche, LLP has served asThe information required by this Item 14 is incorporated by reference to the material under the heading "Relationship with Independent Registered Public Accounting Firm: Audit and Non-Audit Fees" in our independent auditors since April 24, 2006 and audited our consolidated financial statementsdefinitive Proxy Statement for the years ended December 31, 2008 and 2007.
The following table lists2012 Annual Meeting of Stockholders, which we will file with the fees for services billed by our independent auditors for 2008 and 2007:SEC not later than April 29, 2012.

75
         
Services 2008  2007 
 
Audit Fees(1) $448,000  $428,000 
Audit related fees(2)     8,000 
Tax fees(3)  19,000   2,000 
All other fees      
         
Total $467,000  $438,000 
         
(1)Audit fees billed in 2008 and 2007 consisted of the audit of our annual consolidated financial statements, a review of our quarterly consolidated financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC, including filings related to our offering. These amounts include fees paid by our advisor and its affiliates for costs in connection with our offering and to the extent cumulative other organizational and offering expenses exceed 1.5% of the gross proceeds of our offering, these amounts are not included within our consolidated financial statements, as they are subject to the accounting policy described in Note 11 to the Consolidated Financial Statements, Commitments and Contingencies — Other Organizational and Offering Expenses.
(2)Audit related fees consist of financial accounting and reporting consultations.
(3)Tax services consist of tax compliance and tax planning and advice.
The audit committee preapproves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC.


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PART IV
Item 15.  Exhibits, Financial Statement Schedules.
(a)(1)Financial Statements:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page
98
99
100
101
102
103
(a)(2)Financial Statement Schedule:
Schedules:
The following financial statement scheduleschedules for the year ended December 31, 20082011 are submitted herewith:
 Page
140
(a)(3)Exhibits:
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference ininto this annual report.
(b) Exhibits:
See itemItem 15(a)(3) above.
(c) Financial Statement Schedule:
See Item 15(a)(2) above.
Page
Real Estate Operating Properties and Accumulated Depreciation (Schedule III)140


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76


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Grubb & Ellis Healthcare REIT,Trust of America, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of Grubb & Ellis Healthcare REIT,Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 20082011 and 20072010, and the related consolidated statements of operations,income, stockholders’ equity, (deficit) and cash flows for each of the three years in the period ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.2011. Our audits also included the consolidated financial statement scheduleschedules listed in the indexIndex at Item 15. These consolidated financial statements and the consolidated financial statement scheduleschedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe financial statements and the consolidated financial statement scheduleschedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Grubb & Ellis Healthcare REIT,Trust of America, Inc. and subsidiaries as of December 31, 20082011 and 2007,2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule,schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presentspresent fairly in all material respects the information set forth therein.

/s/Deloitte & Touche LLP
Los Angeles, CaliforniaPhoenix, Arizona
March 27, 200926, 2012


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Grubb & Ellis 77


Healthcare REIT,Trust of America, Inc.
CONSOLIDATED BALANCE SHEETS
As of December 31, 20082011 and 20072010
         
  December 31, 
  2008  2007 
 
ASSETS
    
Real estate investments:        
Operating properties, net $810,920,000  $352,994,000 
Real estate note receivables, net  15,360,000    
Cash and cash equivalents  128,331,000   5,467,000 
Accounts and other receivables, net  5,428,000   1,233,000 
Restricted cash  7,747,000   4,605,000 
Identified intangible assets, net  134,623,000   62,921,000 
Other assets, net  11,514,000   4,392,000 
         
Total assets $1,113,923,000  $431,612,000 
         
     
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
    
Liabilities:        
Mortgage loan payables, net $460,762,000  $185,801,000 
Line of credit     51,801,000 
Accounts payable and accrued liabilities  21,919,000   7,983,000 
Accounts payable due to affiliates, net  3,063,000   2,356,000 
Derivative financial instruments  14,198,000   1,377,000 
Security deposits, prepaid rent and other liabilities  4,582,000   1,974,000 
Identified intangible liabilities, net  8,128,000   1,639,000 
         
Total liabilities  512,652,000   252,931,000 
         
Commitments and contingencies (Note 11)         
         
Minority interest of limited partner in operating partnership  1,000    
Minority interest of limited partner — redemption value of $3,133,000 (Note 11)  1,950,000   3,091,000 
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; 75,465,437 and 21,449,451 shares issued and outstanding as of December 31, 2008 and 2007, respectively  755,000   214,000 
Additional paid-in capital  673,351,000   190,534,000 
Accumulated deficit  (74,786,000)  (15,158,000)
         
Total stockholders’ equity  599,320,000   175,590,000 
         
Total liabilities, minority interest and stockholders’ equity $1,113,923,000  $431,612,000 
         
 December 31,
 2011 2010
ASSETS
Real estate investments, net$1,806,471,000
 $1,797,463,000
Real estate notes receivable, net57,459,000
 57,091,000
Cash and cash equivalents69,491,000
 29,270,000
Accounts and other receivables, net12,658,000
 16,385,000
Restricted cash and escrow deposits16,718,000
 26,679,000
Identified intangible assets, net272,390,000
 304,355,000
Other assets, net56,442,000
 40,552,000
Total assets$2,291,629,000
 $2,271,795,000
LIABILITIES AND EQUITY
Liabilities: 
  
Mortgage and secured term loans payable, net$639,149,000
 $699,526,000
Outstanding balance on unsecured revolving credit facility
 7,000,000
Accounts payable and accrued liabilities47,801,000
 43,033,000
Derivative financial instruments — interest rate swaps1,792,000
 1,527,000
Security deposits, prepaid rent and other liabilities19,930,000
 16,168,000
Identified intangible liabilities, net11,832,000
 13,428,000
Total liabilities720,504,000
 780,682,000
Commitments and contingencies (Note 11)

 

Redeemable noncontrolling interest of limited partners (Note 13)3,785,000
 3,867,000
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; 228,491,312 and 202,643,705 shares issued and outstanding as of December 31, 2011 and 2010, respectively2,284,000
 2,026,000
Additional paid-in capital2,032,305,000
 1,795,413,000
Accumulated deficit(467,249,000) (310,193,000)
Total stockholders’ equity1,567,340,000
 1,487,246,000
Total liabilities and equity$2,291,629,000
 $2,271,795,000

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


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78


Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 20082011, 2010 and 2007 and
for the Period from April 28, 2006 (Date of Inception) through December 31, 2006
2009
             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
Revenues:
            
Rental income $80,415,000  $17,626,000  $            — 
Interest income from real estate note receivables  3,000       
             
Total revenues  80,418,000   17,626,000    
Expenses:
            
Rental expenses  28,174,000   6,037,000    
General and administrative  9,560,000   3,297,000   242,000 
Depreciation and amortization  37,398,000   9,790,000    
             
Total expenses  75,132,000   19,124,000   242,000 
             
Income (loss) before other income (expense)
  5,286,000   (1,498,000)  (242,000)
Other income (expense):            
Interest expense (including amortization of deferred financing costs and debt discount):            
Interest expense related to unsecured note payables to affiliate  (2,000)  (84,000)   
Interest expense related to mortgage loan payables and line of credit  (21,341,000)  (4,939,000)   
Loss on derivative financial instruments  (12,821,000)  (1,377,000)   
Interest and dividend income  469,000   224,000    
             
Loss before minority interests
 $(28,409,000) $(7,674,000) $(242,000)
             
Minority interests  (39,000)  8,000    
             
Net loss
 $(28,448,000) $(7,666,000) $(242,000)
             
Net loss per share — basic and diluted
 $(0.66) $(0.77) $(149.03)
             
Weighted average number of shares outstanding — basic and diluted
  42,844,603   9,952,771   1,622 
             
 Years Ended December 31,
 2011 2010 2009
Revenues: 
  
  
Rental income$269,646,000
 $195,496,000
 $126,333,000
Interest income from mortgage notes receivable and other income4,792,000
 7,585,000
 3,153,000
Total revenues274,438,000
 203,081,000
 129,486,000
Expenses: 
  
  
Rental expenses88,760,000
 65,662,000
 45,024,000
General and administrative expenses28,695,000
 18,753,000
 12,285,000
Asset management fees to former advisor (Note 12)
 
 3,783,000
Acquisition-related expenses (Note 2)2,130,000
 11,317,000
 15,997,000
Depreciation and amortization107,542,000
 78,561,000
 53,595,000
Redemption, termination, and release payment to former advisor (Note 12)
 7,285,000
 
Total expenses227,127,000
 181,578,000
 130,684,000
Income (loss) before other income (expense)47,311,000
 21,503,000
 (1,198,000)
Other income (expense): 
  
  
Interest expense (including amortization of deferred financing costs and debt premium/discount): 
  
  
Interest expense related to mortgage and secured term loans payable and credit facility(39,613,000) (26,725,000) (19,146,000)
Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments(2,279,000) (2,816,000) (4,678,000)
Interest and dividend income174,000
 119,000
 249,000
Net income (loss)$5,593,000
 $(7,919,000) $(24,773,000)
Less: Net (income) loss attributable to noncontrolling interest of limited partners(52,000) 16,000
 (304,000)
Net income (loss) attributable to controlling interest$5,541,000
 $(7,903,000) $(25,077,000)
Net income (loss) per share attributable to controlling interest on distributed and undistributed earnings — basic:$0.02
 $(0.05) $(0.22)
Net income (loss) per share attributable to controlling interest on distributed and undistributed earnings — diluted:$0.02
 $(0.05) $(0.22)
Weighted average number of shares outstanding 
  
  
Basic223,900,167
 165,952,860
 112,819,638
Diluted224,391,553
 165,952,860
 112,819,638

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


100



79


Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 20082011, 2010 and 2007 and
for the Period from April 28, 2006 (Date of Inception) through December 31, 2006
2009
                         
  Common Stock           Total
 
  Number of
     Additional
  Preferred
  Accumulated
  Stockholders’
 
  Shares  Amount  Paid-In Capital  Stock  Deficit  Equity (Deficit) 
 
BALANCE — April 28, 2006 (Date of Inception)    $  $  $     —  $  $ 
Issuance of common stock  200      2,000         2,000 
Issuance of vested and nonvested restricted common stock  20,000      40,000         40,000 
Amortization of nonvested common stock compensation        11,000         11,000 
Net loss              (242,000)  (242,000)
                         
BALANCE — December 31, 2006  20,200      53,000      (242,000)  (189,000)
Issuance of common stock  21,130,370   211,000   210,835,000         211,046,000 
Issuance of vested and nonvested restricted common stock  17,500      35,000         35,000 
Offering costs        (23,120,000)        (23,120,000)
Amortization of nonvested common stock compensation        61,000         61,000 
Issuance of common stock under the DRIP  281,381   3,000   2,670,000         2,673,000 
Distributions              (7,250,000)  (7,250,000)
Net loss              (7,666,000)  (7,666,000)
                         
BALANCE — December 31, 2007  21,449,451   214,000   190,534,000      (15,158,000)  175,590,000 
Issuance of common stock  52,694,439   528,000   525,824,000         526,352,000 
Issuance of vested and nonvested restricted common stock  52,500      25,000         25,000 
Offering costs        (55,146,000)        (55,146,000)
Amortization of nonvested common stock compensation        105,000         105,000 
Issuance of common stock under the DRIP  1,378,795   14,000   13,085,000         13,099,000 
Repurchase of common stock  (109,748)  (1,000)  (1,076,000)        (1,077,000)
Distributions              (31,180,000)  (31,180,000)
Net loss              (28,448,000)  (28,448,000)
                         
BALANCE — December 31, 2008  75,465,437  $755,000  $673,351,000  $  $(74,786,000) $599,320,000 
                         
 Common Stock     
Total
Stockholders’
Equity
 
Number of
Shares
 Amount 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
BALANCE — December 31, 200875,465,437
 755,000
 673,351,000
 (74,786,000) 599,320,000
Issuance of common stock62,696,254
 627,000
 622,025,000
 
 622,652,000
Offering costs
 
 (64,793,000) 
 (64,793,000)
Issuance of restricted common stock100,000
 
 
 
 
Amortization of nonvested share-based compensation
 
 816,000
 
 816,000
Issuance of common stock under the DRIP4,059,006
 40,000
 38,519,000
 
 38,559,000
Repurchase of common stock(1,730,011) (17,000) (16,249,000) 
 (16,266,000)
Distributions
 
 
 (82,221,000) (82,221,000)
Adjustment to redeemable noncontrolling interests
 
 (1,673,000) 
 (1,673,000)
Net loss attributable to controlling interest
 
 
 (25,077,000) (25,077,000)
BALANCE — December 31, 2009140,590,686
 $1,405,000
 $1,251,996,000
 $(182,084,000) $1,071,317,000
Issuance of common stock61,191,096
 615,000
 594,062,000
 
 594,677,000
Offering costs
 
 (56,621,000) 
 (56,621,000)
Issuance of restricted common stock357,500
 
 
 
 
Amortization of nonvested share-based compensation
 
 1,313,000
 
 1,313,000
Issuance of common stock under the DRIP5,952,683
 60,000
 56,491,000
 
 56,551,000
Repurchase of common stock(5,448,260) (54,000) (51,802,000) 
 (51,856,000)
Distributions
 
 
 (120,507,000) (120,507,000)
Adjustment to redeemable noncontrolling interests
 
 (26,000) 301,000
 275,000
Net loss attributable to controlling interest
 
 
 (7,903,000) (7,903,000)
BALANCE — December 31, 2010202,643,705
 $2,026,000
 $1,795,413,000
 $(310,193,000) $1,487,246,000
Issuance of common stock21,682,071
 216,000
 214,425,000
 
 214,641,000
Offering costs
 
 (18,896,000) 
 (18,896,000)
Issuance of restricted common stock62,500
 1,000
 (1,000) 
 
Amortization of nonvested share-based compensation
 
 3,221,000
 
 3,221,000
Issuance of common stock under the DRIP7,985,655
 80,000
 75,784,000
 
 75,864,000
Repurchase of common stock(3,882,619) (39,000) (37,641,000) 
 (37,680,000)
Distributions
 
 
 (162,597,000) (162,597,000)
Net income attributable to controlling interest
 
 
 5,541,000
 5,541,000
BALANCE — December 31, 2011228,491,312
 $2,284,000
 $2,032,305,000
 $(467,249,000) $1,567,340,000

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


101



80


Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 20082011, 2010 and 2007 and for the Period from2009
      
 Years Ended December 31,
 2011 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES 
  
  
Net income (loss)$5,593,000
 $(7,919,000) $(24,773,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities: 
  
  
Depreciation and amortization (including deferred financing costs, above/below market leases, debt premium/discount, leasehold interests, deferred rent receivable, note receivable closing costs and discount, and lease inducements)104,045,000
 72,678,000
 48,808,000
Share-based compensation, net of forfeitures3,221,000
 1,313,000
 816,000
Loss on property insurance settlements
 
 6,000
Bad debt expense1,447,000
 1,022,000
 965,000
Change in fair value of derivative financial instruments856,000
 (6,095,000) (5,523,000)
Changes in operating assets and liabilities: 
  
  
Accounts and other receivables, net2,424,000
 (7,102,000) (5,167,000)
Other assets(5,388,000) (3,207,000) (3,332,000)
Accounts payable and accrued liabilities295,000
 7,815,000
 4,856,000
Accounts payable due to affiliates, net
 (4,776,000) 3,631,000
Security deposits, prepaid rent and other liabilities(686,000) 4,774,000
 1,341,000
Net cash provided by operating activities111,807,000
 58,503,000
 21,628,000
CASH FLOWS FROM INVESTING ACTIVITIES 
  
  
Acquisition of real estate operating properties(61,385,000) (597,097,000) (402,268,000)
Acquisition of real estate notes receivable
 
 (37,135,000)
Acquisition costs related to real estate notes receivable
 
 (555,000)
Capital expenditures(16,034,000) (14,888,000) (9,060,000)
Restricted cash and escrow deposits(4,502,000) (12,614,000) (6,318,000)
Release of restricted cash14,463,000
 
 
Real estate deposits
 (2,250,000) (250,000)
Real estate deposits paid(4,500,000) 
 
Real estate deposits used6,000,000
 
 
Proceeds from insurance settlement
 
 481,000
Net cash used in investing activities(65,958,000) (626,849,000) (455,105,000)
CASH FLOWS FROM FINANCING ACTIVITIES 
  
  
Borrowings on mortgage loans payable and secured real estate term loan125,500,000
 79,125,000
 37,696,000
Purchase of noncontrolling interest
 (4,097,000) 
(Payments) borrowings under the unsecured revolving credit facility(7,000,000) 7,000,000
 
Payments on mortgage loans payable and demand note(192,083,000) (123,117,000) (11,671,000)
Derivative financial instrument termination payments
 (793,000) 
Proceeds from issuance of common stock214,641,000
 594,677,000
 622,652,000
Deferred financing costs(3,401,000) (7,507,000) (792,000)
Security deposits596,000
 2,144,000
 767,000
Repurchase of common stock(37,680,000) (51,856,000) (16,266,000)
Payment of offering costs(21,137,000) (56,621,000) (68,360,000)
Distributions(84,800,000) (60,176,000) (39,500,000)
Distributions to noncontrolling interest of limited partners(264,000) (164,000) (379,000)
Net cash used in financing activities(5,628,000) 378,615,000
 524,147,000
NET CHANGE IN CASH AND CASH EQUIVALENTS40,221,000
 (189,731,000) 90,670,000
CASH AND CASH EQUIVALENTS — Beginning of period29,270,000
 219,001,000
 128,331,000
CASH AND CASH EQUIVALENTS — End of period$69,491,000
 $29,270,000
 $219,001,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 
  
  
Cash paid for: 
  
  
Interest$38,288,000
 $30,438,000
 $27,623,000
Income taxes$1,045,000
 $345,000
 $337,000
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: 
  
  
Investing Activities: 
  
  
Accrued capital expenditures$5,448,000
 $2,768,000
 $1,783,000
The following represents the significant increase in certain assets & liabilities in connection with our acquisitions of real estate investments & notes receivable: 
  
  
Assumed mortgage loan payable, net$6,657,000
 $190,294,000
 $52,965,000

April 28, 2006 (Date
81


             
        Period from
 
        April 28, 2006
 
        (Date of Inception)
 
  Years Ended December 31,  through
 
  2008  2007  December 31, 2006 
 
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net loss $(28,448,000) $(7,666,000) $      (242,000)
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 and lease inducements)  35,617,000   9,466,000    
Stock based compensation, net of forfeitures  130,000   96,000   51,000 
Loss on property insurance settlements  90,000       
Bad debt expense  442,000       
Change in fair value of derivative financial instruments  12,822,000   1,377,000    
Minority interests  39,000   (8,000)   
Changes in operating assets and liabilities:            
Prepaid expenses        (180,000)
Accounts and other receivables, net  (4,261,000)  (1,114,000)   
Other assets  (1,076,000)  (655,000)  (3,000)
Accounts payable and accrued liabilities  5,578,000   4,721,000   62,000 
Accounts payable due to affiliates, net  (176,000)  927,000   312,000 
Security deposits, prepaid rent and other liabilities  (80,000)  (139,000)   
             
Net cash provided by operating activities  20,677,000   7,005,000    
             
CASH FLOWS FROM INVESTING ACTIVITIES
            
Acquisition of real estate operating properties  (503,638,000)  (380,398,000)   
Acquisition of real estate note receivables  (15,000,000)      
Acquisition costs related to real estate note receivables  (338,000)      
Capital expenditures  (4,478,000)  (437,000)   
Restricted cash  (3,142,000)  (4,605,000)   
Proceeds from insurance settlement  121,000       
             
Net cash used in investing activities  (526,475,000)  (385,440,000)   
             
CASH FLOWS FROM FINANCING ACTIVITIES
            
Borrowings on mortgage loan payables  227,695,000   148,906,000    
Borrowings on unsecured note payables to affiliate  6,000,000   19,900,000    
(Payments) borrowings under the line of credit, net  (51,801,000)  51,801,000    
Payments on mortgage loan payables  (1,832,000)  (151,000)   
Payments on unsecured note payables to affiliate  (6,000,000)  (19,900,000)   
Proceeds from issuance of common stock  528,816,000   210,937,000   2,000 
Deferred financing costs  (3,688,000)  (2,496,000)   
Security deposits  127,000   35,000    
Repurchase of common stock  (1,077,000)      
Minority interest contributions to our operating partnership        200,000 
Payment of offering costs  (54,339,000)  (22,009,000)   
Distributions  (14,943,000)  (3,323,000)   
Distributions to minority interest limited partner  (296,000)      
             
Net cash provided by financing activities  628,662,000   383,700,000   202,000 
             
NET CHANGE IN CASH AND CASH EQUIVALENTS
  122,864,000   5,265,000   202,000 
CASH AND CASH EQUIVALENTS — Beginning of period  5,467,000   202,000    
             
CASH AND CASH EQUIVALENTS — End of period $128,331,000  $5,467,000  $202,000 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
            
Cash paid for:            
Interest $19,323,000  $4,328,000  $ 
Income taxes $45,000  $2,000  $ 
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
            
Investing Activities:
            
Accrued capital expenditures $2,112,000  $609,000  $ 
The following represents the increase in certain assets and liabilities in connection with our acquisitions of operating properties and note receivables:
            
Accounts and other receivables, net $  $10,000  $ 
Other assets, net $415,000  $715,000  $ 
Mortgage loan payables, net $48,989,000  $37,039,000  $ 
Accounts payable and accrued liabilities $2,542,000  $1,459,000  $ 
Accounts payable due to affiliates, net $77,000  $5,000  $ 
Security deposits, prepaid rent and other liabilities $2,416,000  $1,952,000  $ 
Minority interests $  $2,899,000  $ 
Financing Activities:
           
Issuance of common stock under the DRIP $13,099,000  $2,673,000  $ 
Distributions declared but not paid $4,393,000  $1,254,000  $ 
Accrued offering costs $1,918,000  $1,111,000  $ 
Accrued deferred financing costs $29,000  $  $ 
Receivable from transfer agent for issuance of common stock $  $109,000  $ 
Net change in security deposits, prepaid rent, and other liabilities$
 $14,552,000
 $
Issuance of operating partnership units in connection with Fannin acquisition$
 $1,557,000
 $
Financing Activities: 
  
  
Issuance of common stock under the DRIP$75,864,000
 $56,551,000
 $38,559,000
Distributions declared but not paid including stock issued under the DRIP$14,120,000
 $12,317,000
 $8,555,000
Adjustment to redeemable noncontrolling interests$
 $(275,000) $1,673,000

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


102




Grubb & Ellis 82


Healthcare REIT,Trust of America, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 20082011, 2010, and 2007 and for the Period from April 28, 2006
(Date of Inception) through December 31, 2006
2009
The use of the words “we,” “us” or “our” refers to Grubb & Ellis Healthcare REIT,Trust of America, Inc. and its subsidiaries, including Grubb & Ellis Healthcare REITTrust of America Holdings, L.P.,LP, except where the context otherwise requires.

1.    
Organization and Description of Business
Grubb & Ellis Healthcare REIT,Trust of America, Inc., a Maryland corporation, was incorporated on April 20, 2006.2006. We were initially capitalized on April 28, 2006 and therefore we consider that to be our date of inception.
We are a fully integrated, self-administered, and self-managed 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, focusingproperties. We focus primarily on medical office buildings and other facilities that serve the healthcare related facilities.industry. We may also invest to a limited extent in other real estate relatedestate-related assets, such as mortgage loans receivable. 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. WeSubject to the discussion in Note 11, Commitments and Contingencies, we believe that we have qualified and elected to be taxed as a real estate investment trust, or REIT under the Internal Revenue Code of 1986, as amended, or the Code, 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 December 31, 2011, we had made 79 portfolio acquisitions, which includes 248 buildings and two mortgage loans receivable. The aggregate purchase price of these acquisitions was $2,334,673,000.
We are conductingOn September 20, 2006, we commenced a best efforts initial public offering, or our initial offering, in which we are offeringoffered up to 200,000,000 shares of our common stock for $10.00$10.00 per share and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50at $9.50 per share, aggregating up to $2,200,000,000.$2,200,000,000. On March 19, 2010, we commenced a best efforts follow-on public offering, or our follow-on offering, in which we offered 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 pursuant to the DRIP at $9.50 per share, aggregating up to $2,200,000,000. We will sellstopped offering shares in ourthe primary offering untilon February 28, 2011. We continue to offer shares pursuant to the earlier of September 20, 2009, orDRIP; however, we may terminate the date on which the maximum amount has been sold. As of December 31, 2008,DRIP at any time. In aggregate, we had received and accepted subscriptions in our offeringinitial and follow-on offerings for 73,824,809220,673,545 shares of our common stock, or $737,398,000,$2,195,655,000, excluding shares of our common stock issued under the DRIP.
Our principal executive offices are located 16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona, 85254. Our telephone number is (480) 998-3478. For investor services, contact DST Systems, Inc. by telephone at (888) 801-0107.

We conduct substantially all of our operations through Grubb & Ellis Healthcare REIT Holdings, L.P., or our operating partnership. We are currently externally advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our advisor, pursuant to an advisory agreement, as amended and restated on November 14, 2008 and effective as of October 24, 2008, or the Advisory Agreement, between us, our advisor and Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, who is the managing member of our advisor. Our advisor is affiliated with us in that we and our advisor have a common officer, who also owns an indirect equity interest in our advisor. Our advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, and Grubb & Ellis Management Services, Inc. to provide various services to us, including property management services.
The Advisory Agreement expires on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement, as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue aself-management program. Upon or prior to completion of our transition to self-management and/or the termination of the Advisory Agreement, we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis Company, or Grubb & Ellis.
Self-management is a corporate model based on internal management rather than external management. In general, non-traded REITs are externally managed. With external management, a REIT is dependent upon an external advisor. An externally-managed REIT typically pays acquisition fees, asset management fees, property management fees and other fees to its advisor for services provided as we do under our Advisory Agreement. In contrast, under our self-management program, we will be managed internally 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. By pursuing self-management, we have effectively eliminated the potential need for us to pay any fee to our advisor in the future to “internalize” certain of the functions that


103


Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
they currently provide to us. The Advisory Agreement, as amended November 14, 2008, recognizes our self-management as the alternative to internalization.
The Advisory Agreement, as amended November 14, 2008, also resulted in the substantial reduction of the acquisition fees and the asset management fees payable to our advisor, potentially offsetting the various costs of self-management. Upon completion of our transition to self-management, we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis Company, or Grubb & Ellis.
On December 7, 2007, NNN Realty Advisors, Inc., or NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of common stock of Grubb & Ellis in exchange for their NNN Realty Advisors shares of common stock and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of the common stock of Grubb & Ellis. As a result of the merger, we consider Grubb & Ellis to be our sponsor. Following the merger, NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office REIT Holdings, L.P., NNN Healthcare/Office REIT Advisor, LLC, NNN Healthcare/Office Management, LLC, Triple Net Properties, LLC and NNN Capital Corp. changed their names to Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, L.P., Grubb & Ellis Healthcare REIT Advisor, LLC, Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Realty Investors, LLC and Grubb & Ellis Securities, Inc., respectively.
As of December 31, 2008, we owned 41 geographically diverse properties comprising 5,156,000 square feet of gross leasable area, or GLA, and one real estate related asset, for an aggregate purchase price of $966,416,000.
2.    Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such financial statements and the accompanying notes 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 consolidated financial statements.
Basis of Presentation
Our accompanying consolidated financial statements include our accounts and those of our operating partnership, the wholly ownedwholly-owned subsidiaries of our operating partnership and any variable interest entities, or VIEs, as defined in the Financial Accounting Standards Board, Interpretation, or FIN, No. 46,Consolidation of Variable Interest Entities, an Interpretation ofthe FASB, Accounting Research Bulletin No. 51,as revised,Standard Codification, or FIN No. 46(R)ASC, 810, Consolidation, that weor ASC 810. All significant intercompany balances and transactions have concluded should be consolidated.been eliminated in the consolidated financial statements. We operate and intend to continue to operate in an umbrella partnership REIT, or UPREIT, structure in which our operating partnership, or wholly ownedwholly-owned subsidiaries of our operating partnership own substantially all of the properties we acquire.acquired on our behalf. We are the sole general partner of our operating partnership and as of December 31, 20082011 and 2007,December 31, 2010, we owned a 99.99%an approximately 99.93% and an approximately 99.92%, respectively, general partnershippartner interest in our operating partnership. Our advisor is a limited partnerAs of December 31, 2011 and 2010, approximately 0.07% and 0.08%, respectively, of our operating partnership and aswas owned by certain physician investors who obtained limited partner interests in connection with the Fannin acquisition (see Note 13).

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Healthcare Trust of December 31, 2008 and 2007, owned a 0.01% limited partnership interest in our operating partnership. Our advisor is also entitled to certain subordinated distribution rights under the partnership agreement for our operating partnership. America, Inc.
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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 significant intercompany accounts
In our previously issued statements of operations for the years ended December 31, 2010 and transactions2009, interest expense related to our derivative financial instruments in the amounts of $8,911,000 and $10,201,000, respectively, was presented within the line item entitled "Interest expense related to mortgage loans payable, credit facility, and derivative instruments". These amounts have been reclassified to conform to current-period presentation and are eliminatednow included within the line item entitled "Interest expense related to derivative financial instruments and net change in consolidation.


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fair value of derivative financial instruments" in our consolidated statements of operations.
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Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased.
Restricted Cash
Restricted cash is comprised of impound reserve accounts for property taxes, insurance, capital improvements and tenant improvements.improvements as well as collateral accounts for debt and interest rate swaps.
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
In accordance with Statement of Financial Accounting Standards, or SFAS No. 13,Accounting for ASC 840, Leases, or SFAS No. 13, as amended and interpreted,ASC 840, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amount contractually due under the lease agreements will be credited or charged, as applicable, to rent receivable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with Emerging Issues Task Force, or EITF, IssueASC 605-45, No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, or Issue ConsiderationsNo. 99-19. IssueNo. 99-19. This guidance requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees if there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Rental income is reported net of amortization recorded on lease inducements.
Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements.leases. We maintain an allowance for deferred rent receivables arising from the straight-lining of rents. Such allowance is charged to bad debt expense which is included in general and administrative expense on our accompanying consolidated statement of operations. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of December 31, 20082011, 2010, and 2007,2009, we had $416,000$1,498,000, $1,926,000 and $7,000,$1,222,000, respectively, in allowances for uncollectible accounts as determined to be necessary to reduce receivables to our estimate of the amount recoverable. During the years ended December 31, 20082011, 2010 and 2007, $442,0002009, $1,447,000, $1,022,000 and $11,000,$965,000, respectively, of receivables was directly written off to bad debt expense. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, there was no bad debt expense recorded.


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Purchase Price Allocation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Properties Held for Sale
We account for our properties held for sale in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long Lived Assets, or SFAS No. 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires that, in a period in which a component of an entity either has been disposed of or is classified as held for sale, the statements of operations for current and prior periods shall report the results of operations of the component as discontinued operations.
In accordance with SFAS No. 144, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amountASC 805, Business Combinations, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as property held for sale in the period in which all of the following criteria are met:
• management, having the authority to approve the action, commits to a plan to sell the asset;
• the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;
• an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated;
• the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;
• the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
• given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn.
As of December 31, 2008 and 2007, we did not have any properties held for sale.
Purchase Price Allocation
In accordance with SFAS, No. 141,Business Combinations,ASC 805, we, with the assistance of independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were to be replaced and vacant using discounted cash flow models similar to those used by independent

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appraisers. Factors considered by us include an estimate of carrying costs during the expectedlease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships and above or below market debt assumed.
The value allocable to the above or below market component of the acquired in place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between: (1) the contractual amounts to be paid pursuant to the lease over its remaining term, and (2) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease including any bargain renewal periods, with respect to a below market lease. The amounts allocated to above market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to below market lease values are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term plus any below market renewal options of the acquired leases with each property.


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The total amount of other intangible assets acquired is further allocated to in place lease costs and the value of tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The amounts allocated to in place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and will be amortized over the average remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to the value of tenant relationships are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized over the average remaining non-cancelable lease term of the acquired leases plus a market lease term.
The value allocable to above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The amounts allocated to above or below market debt are included in mortgage loan payables,loans payable, net on our accompanying consolidated balance sheets and are amortized to interest expense over the remaining term of the assumed mortgage.
These allocations are subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.
On January 1, 2009, in accordance with the provisions of ASC 805, Business Combinations, we began to expense acquisition-related costs for acquisitions. Prior to this date, acquisition-related expenses had been capitalized as part of the purchase price allocations. We expensed $2,130,000, $11,317,000 and $15,997,000 for acquisition related expenses during the years ended December 31, 2011, 2010, and 2009 respectively.
Operating Properties,Real Estate Investments, Net
Operating properties are carried at the lower of historical cost less accumulated depreciation or fair value less costs to sell. The cost of operating properties includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of buildings is depreciated on a straight-line basis over the estimated useful lives of the buildings up to 39 years and for tenant improvements, the shorter of the lease term or useful life, ranging from one month to 241240 months, respectively. Furniture, fixtures and equipment is depreciated over five years. When depreciable property is retired, replaced or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.
Investment in Real Estate Held-for-Sale
We evaluate the held-for-sale classification of our owned real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. The fair value is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding period, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. Assets are generally classified as held-for-sale once management commits to a plan to sell the properties and has determined that the sale of the asset is probable and transfer of the asset is expected to occur within one year. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported, and the properties are presented separately on our balance sheet at the lower of their carrying value or their fair value less costs to sell. As of December 31, 2011, we determined that no building within our portfolio should be classified as held-for-sale.

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Recoverability of Real Estate Investments
An operating property is evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded on an operating property when indicators of impairment are present and the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by that asset. We would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. The fair value of the property is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding periods, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, there were no impairment losses recorded.
Real Estate Notes Receivable, Net
Real estate notes receivable consist of mortgage loans. Interest income from loans is recognized as earned based upon the principal amount outstanding. Mortgage loans are collateralized by interests in real property. We record loans at cost. We evaluate the collectability of both interest and principal for each of our loans to determine whether they are impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the allowance is calculated by comparing the recorded investment to either the value determined by discounting the expected future cash flows using the loans effective interest rate or to the fair value of the collateral if the loan is collateral dependent.
Derivative Financial Instruments
We are exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts is to add stability to interest expense and to manage our exposure to interest rate movements. We utilize derivative instruments, including interest rate swaps and caps, to effectively convert a portion of our variable-ratevariable rate debt to fixed-ratefixed rate debt. We do not enter into derivative instruments for speculative purposes.
Derivatives are recognized as either assets or liabilities in our consolidated balance sheets and are measured at fair value in accordance with SFAS No. 133,Derivative InstrumentsASC 815, Derivatives and Hedging, Activities,or


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SFAS No. 133. ASC 815. Since our derivative instruments are not designated as hedge instruments, they do not qualify for hedge accounting under SFAS No. 133,ASC 815, and accordingly, changes in fair value are included as a component of interest expense in our consolidated statements of operations in the period of change.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures,
On January 1, 2008, we adopted SFAS No. 157,Fair Value Measurements, or SFAS No. 157. SFAS No. 157ASC 820, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. We have provided these disclosures in Note 15, Fair Value of Financial Instruments.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Other Assets, Net
Other assets consist primarily of deferred rent receivables, lease inducements, leasing commissions, prepaid expenses, deposits and deferred financing costs. Costs incurred for property leasing have been capitalized as deferred assets. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease. Deferred financing costs include amounts paid to lenders and others to obtain financing. Such costs are amortized using the straight-line method over the term of the related loan, which approximates the effective interest rate method. Amortization of deferred financing costs is included in interest expense in our accompanying consolidated statements of operations. This section also includes depreciation of fixed assets not associated with our portfolio of properties.
Stock Compensation
We follow ASC 718, Compensation — Stock Compensation
We follow SFAS No. 123(R),Share-Based Payment, to account for our stock compensation pursuant to our 2006 Incentive Plan and the 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan. See Note 14, Stockholders’ Equity (Deficit) — 2006 Incentive Plan and Independent Directors Compensation Plan, for a further discussion of grants under our 2006 Incentive Plan.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Redeemable Noncontrolling Interests
Minority Interests
MinorityRedeemable noncontrolling interests relate to the interests in our consolidated entities that are not wholly owned by us. As these redeemable noncontrolling interests provide for redemption features not solely within the control of the issuer, we classify such interests outside of permanent equity in accordance with ASC 480-10, Distinguishing Liabilities from Equity.
Income Taxes
WeSubject to the discussion in Note 11, Commitments and Contingencies, regarding the closing agreement that we have entered into with the IRS, we believe that we have qualified and elected to be taxed as a REIT beginning with our taxable year ended December 31, 2007 under Sections 856 through 860 of the Code, for federal income tax purposes and we intend to continue to qualify to be taxed as a REIT. To continue to qualify as a REIT for federal income tax purposes, we must meet certain organizational and operational requirements, including a requirement to pay distributions to our stockholders of at least 90.0% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). As a REIT, we generally are not subject to federal income tax on net income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our results of operations and net cash available for distribution to stockholders.
In July 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48,Accounting for Uncertainty inWe follow ASC 740-10, Income Taxes, or FIN No. 48. We adopted FIN No. 48 effective January 1, 2007,ASC 740-10, and as a result we did not have any liability for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We follow FIN No. 48requires us to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on aon. We do not have any liability for uncertain tax return.positions that we believe should be recognized in our consolidated financial statements.
Segment Disclosure
ASC 280, Segment DisclosureReporting
The Financial Accounting Standards Board,, or FASB, issued Statement of Financial Accounting Standards, SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information,ASC 280, which establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments.segment. We have determined that we have one reportable segment, with activities related to investing in medical office buildings, healthcare relatedhealthcare-related facilities, quality commercial office properties and other real estateestate- related assets. Our investments in real estate and other real estate relatedestate-related assets are geographically diversified and managementour chief operating decision maker evaluates operating performance on an individual portfolioasset level. However, asAs each of our assets has similar economic characteristics, tenants, and products and services, our assets have been aggregated into one reportable segment for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.segment.
Recently Issued Accounting Pronouncements
Below are the recently issued accounting pronouncements and our evaluation of the impact of such pronouncements.
Fair Value Pronouncements
In September 2006,January 2010, the FASB issued SFAS No. 157,Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), or ASU 2010-06, which will be appliedprovides amendments to other accounting pronouncementsSubtopic 820-10 that require or permit fair value measurements, defines fair value, establishes a framework for measuring fair valuenew disclosures and that clarify existing disclosures in generally accepted accounting principlesorder to increase transparency in financial reporting with regard to recurring and provides for expanded disclosure aboutnonrecurring fair value measurements. SFAS No. 157 was issuedASU 2010-06 requires new disclosures with respect to increase consistencythe amounts of significant transfers in and comparability inout 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 expandprovide 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 measurements. In February 2008, the FASB issued FASB Staff Position, or FSP,SFAS No. 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13for both recurring and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,or FSPFAS No. 157-1. FSPSFAS No. 157-1 excludes from the scope of SFAS No. 157 certain leasing transactions accounted for under SFAS No. 13,Accounting for Leases. In February 2008, the FASB also issued FSPSFAS No. 157-2,Effective Date of FASB Statement


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No. 157,or FSPSFAS No. 157-2. FSPSFAS No. 157-2 defers the effective date of SFAS No. 157 for allnon-financial assets and non-financial liabilities, except those that are recognized or disclosed atnonrecurring 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 financial statements on a recurring basis, torollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after November 1, 2008. In October 2008, the FASB issued FSPSFAS No. 157-3,Determining the Fair Value of a Financial Asset When the MarketDecember 15, 2010. Accordingly, ASU 2010-06 became effective for That Asset Is Not Active,or FSPSFAS No. 157-3. FSPSFAS No. 157-3 amends SFAS No. 157 by providing an example to illustrate key considerations and the emphasis on measurement principles when applying SFAS No. 157 to financial assets when the market for those financial assets is not active. We adopted SFAS No. 157 and FSPSFAS 157-1 on a prospective basisus on January 1, 2008.2010 (except for the Level 3 activity disclosures, which became effective for us on January 1, 2011). The adoption of SFAS No. 157 and FSPSFAS No. 157-1 didASU 2010-06 has not havehad a material impact on our consolidated financial statements exceptstatements.
In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Included in ASC 820, Fair Value Measurement), or ASU 2011-04, which amends existing guidance to provide common fair value measurements and related disclosure requirements between GAAP and International Financial Reporting Standards, or IFRS. Additional disclosure requirements in the

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amendment include: (1) for Level 3 fair value measurements, a description of the valuation processes used by the entity and a discussion of the sensitivity of the fair value measurements to changes in unobservable inputs; (2) discussion of the use of a nonfinancial asset that differs from the asset's highest and best use; and (3) the level of the fair value hierarchy of financial instruments for items that are not measured at fair value but for which disclosure of fair value is required. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, with regards to enhanced disclosures (see Note 8, Derivative Financial Instruments).early adoption not permitted. We adopted FSPSFAS No. 157-3 upon issuance, which did notwill adopt ASU 2011-04 in fiscal 2012. We are currently evaluating the impact ASU 2011-04 will have a material impact on our consolidated financial statements. We adopted FSPSFAS No. 157-2 on a prospective basis on January 1, 2009. The implementation of FSPSFAS No. FAS 157-2 did not have and is not anticipated to have a material effect on the methods or processes we use to value these non-financial assets and non-financial liabilities or information disclosed.
Business Combination Pronouncements
In February 2007,On December 21, 2010, the FASB issued SFAS No. 159,ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to address differences in the ways entities have interpreted the requirements of ASC 805, Business Combinations, or ASC 805, for disclosures about pro forma revenue and earnings in a business combination. The Fair Value Option for Financial AssetsASU states that “if a public entity presents comparative financial statements, the entity should disclose revenue and Financial Liabilities,or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objectiveearnings of the guidance is to improve financial reporting by providing entities withcombined entity as though the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We adopted SFAS No. 159 on a prospective basis on January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements since we did not elect to applybusiness combination(s) that occurred during the fair value option for any of our eligible financial instruments or other items on the January 1, 2008 effective date.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, or SFAS No. 141(R), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51, or SFAS No. 160. SFAS No. 141(R) and SFAS No. 160 will significantly change the accounting for, and reporting of, business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS No. 141(R) requires an acquiring entity to recognize acquired assets and liabilities assumed in a transaction at fair valuecurrent year had occurred as of the acquisition date, changesbeginning of the disclosure requirements for business combination transactionscomparable prior annual reporting period only.” In addition, the ASU “expand[s] the supplemental pro forma disclosures under ASC 805 to include a description of the nature and changes the accounting treatment for certain items, including contingent consideration agreements which will be required to be recorded at acquisition date fair value and acquisition costs which will be required to be expensed as incurred. SFAS No. 160 requires that noncontrolling interests be presented as a component of consolidated stockholders’ equity, eliminates minority interest accounting such that the amount of net incomematerial, nonrecurring pro forma adjustments directly attributable to the noncontrolling interests will be presented as part of consolidated net income in our accompanying consolidated statements of operations and not as a separate component of income and expense, and requires that upon any changes in ownership that resultbusiness combination included in the loss of control of the subsidiary, the noncontrolling interest be re-measured at fair value with the resultant gain or loss recordedreported pro forma revenue and earnings.” The amendments in net income. SFAS No. 141(R) and SFAS No. 160 require simultaneous adoption andthis ASU are to be appliedeffective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption of either standard was prohibited. We have adopted SFAS No. 141(R) and SFAS No. 160 on a prospective basis on January 1, 2009.2010. The adoption of SFAS No. 160 isASU 2010-29 has not expected to have a material impact on our consolidated statements of operations or cash flows. However, we are currently evaluating whether the adoption of SFAS No. 160 could have a material impact on the consolidated balance sheets and statements of stockholders’ equity. The adoption of SFAS No. 141(R) will have a material impact on our results of operations when we acquire real estate properties.
In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, or SFAS No. 161. SFAS No. 161 is intended to improve financial reporting about derivative


110


Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, SFAS No. 161 requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 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 SFAS No. 161 on a prospective basis on January 1, 2009. The adoption of SFAS No. 161 did not havehad a material impact on our consolidated financial statements.
Other Pronouncements
In April 2008,December 2011, the FASB issued FSPASU 2011-11, SFAS No. 142-3,Balance Sheet Determination(Topic 210) Disclosures about Offsetting Assets and Liabilities, or ASU 2011-11, the intention of which is to enhance current disclosures with respect to offsetting (netting) assets and liabilities and to minimize differences in presentation on the Useful Lifestatement of Intangible Assets,financial position prepared in accordance with U.S. GAAP as compared to the statement of financial position prepared in accordance with International Financial Reporting Standards, or FSPSFAS No. 142-3. FSPSFAS No. 142-3 is intendedIFRS. Entities are required to improvedisclose both gross information and net information about both instruments and transactions eligible for offset in the consistency between the useful lifestatement of recognized intangible assets under SFAS No. 142,Goodwillfinancial position and Other Intangible Assets,or SFAS No. 142,instruments and the period of expected cash flows usedtransactions subject to measure the fair value of the assets under SFAS No. 141(R). FSPSFAS No. 142-3 amends the factors an entity should consideragreement similar to a master netting agreement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in developing renewal or extension assumptions in determining the useful life of recognized intangible assets. FSPSFAS No. 142-3 requiresASU 2011-11 will require an entity to considerprovide enhanced disclosures of information about offsetting and related arrangements to enable users of its own historical experience in renewing or extending similar arrangements, or to consider market participant assumptions consistent with the highest and best use of the assets if relevant historical experience does not exist. In addition to the required disclosures under SFAS No. 142, FSPSFAS No. 142-3 requires disclosure of the entity’s accounting policy regarding costs incurred to renew or extend the term of recognized intangible assets, the weighted average period to the next renewal or extension, and the total amount of capitalized costs incurred to renew or extend the term of recognized intangible assets. FSPSFAS No. 142-3 is effective for financial statements issuedto understand the effect of those arrangements on its financial position. Entities are required to apply the amendments for fiscal yearsannual reporting periods beginning on or after January 1, 2013, and interim periods beginning after December 15, 2008. Whilewithin those annual periods. An entity must provide the standarddisclosures required by those amendments retrospectively for determiningall comparative periods presented. We will adopt ASU 2011-11 in fiscal 2013. We are currently evaluating the useful life of recognized intangible assets is to be applied prospectively only to intangible assets acquired after the effective date, the disclosure requirements shall be applied prospectively to all recognized intangible assets as of, and subsequent to, the effective date. Early adoption is prohibited. Weimpact ASU 2011-11 will have adopted FSPSFAS No. 142-3 on a prospective basis on January 1, 2009. The adoption of FSPSFAS No. 142-3 did not have a material impact on our consolidated financial statements.

3.    Real Estate Investments, Net
In June 2008, the FASB issued FSP Emerging Issues Task Force, or EITF, IssueNo. 03-6-1,Determining Whether Instruments GrantedInvestment in Share-Based Payment Transactions Are Participating Securities,or FSP EITFNo. 03-6-1. FSP EITFNo. 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 EITFNo. 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 EITFNo. 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 EITFNo. 03-6-1. FSP EITFNo. 03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. FSP EITFNo. 03-6-1 is effective for quarterly interim periods beginning after December 15, 2008, and fiscal years that include those quarterly interim periods. Early adoption was prohibited. We have adopted FSP EITFNo. 03-6-1 on a prospective basis on January 1, 2009. The adoption of FSP EITFNo. 03-6-1 did not have a material impact on our consolidated financial statements because we do not have any material share-based payment transactions.


111


Operating Properties
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3.  Real Estate Investments
Our investments in our consolidated properties consisted of the following as of December 31, 20082011 and 2007:2010:
         
  December 31, 
  2008  2007 
 
Land $107,389,000  $52,428,000 
Building and improvements  728,171,000   305,150,000 
Furniture and equipment  10,000   5,000 
         
   835,570,000   357,583,000 
         
Less: accumulated depreciation  (24,650,000)  (4,589,000)
         
  $810,920,000  $352,994,000 
         
 December 31,
 2011 2010
Land$168,065,000
 $167,123,000
Building and improvements1,803,174,000
 1,735,453,000
Furniture and equipment15,000
 10,000
 1,971,254,000
 1,902,586,000
Less: accumulated depreciation(164,783,000) (105,123,000)
Total$1,806,471,000
 $1,797,463,000
Depreciation expense related to our portfolio of properties for the years ended December 31, 2011, 2010, and 2009 was $65,053,000, $48,724,000, and $32,456,000, respectively. Additionally, for the years ended December 31, 20082011, 2010, and 20072009, we recorded $513,000, $105,000, and for the period from April 28, 2006 (Date$31,000, respectively, in depreciation expense related to furniture and equipment used in our corporate and regional offices.

88

Healthcare Trust of Inception) throughAmerica, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


At December 31, 20062010, we determined that four buildings within our Senior Care 1 portfolio, which is a portfolio consisting of six buildings located in various cities throughout Texas and California, met the criteria for classification as held for sale properties. Accordingly, we separately presented the assets and liabilities of these buildings on our consolidated balance sheet and included the operations of such properties within discontinued operations on our consolidated statement of operations for all periods presented. Additionally, we ceased recording depreciation and amortization related to these properties following their held for sale designation. During the third quarter of 2011, further communication with the potential buyer indicated that the buyer was $20,487,000, $4,616,000not going to purchase the properties, and $0, respectively.we were not actively marketing these properties for sale to other third parties.
Based on these circumstances, on September 30, 2011, we deemed it appropriate to reclassify the assets and liabilities of these properties out of held for sale on our consolidated balance sheet and to include the results of their operations within those of our operating properties on our consolidated statement of operations for all periods presented. We measured the assets to be reclassified at the lower of their carrying amounts before they were classified as held for sale (adjusted for any depreciation and amortization expense that would have been recognized had the assets been continuously classified as held and used) or their fair value at the date of the subsequent decision not to sell. As a result of this reclassification, on September 30, 2011, we recorded catch-up depreciation and amortization expense of $851,000, which represented depreciation and amortization on these properties from January 1, 2011 through September 30, 2011.
Property Acquisitions in 20082011
During the year ended December 31, 2008,2011, we completed the acquisition of 21 properties.two new property portfolios as well as purchased additional buildings within two of our existing portfolios. The aggregate purchase price of these properties was $542,976,000,$68,314,000. See Note 18, Business Combinations, for the allocation of which $254,135,000 was initially financed through our secured revolving linethe purchase price of credit with LaSalle Bank National Association, or LaSalle,the acquired properties to tangible assets and KeyBank National Association, or KeyBank, or our secured revolving line of credit with LaSalleto identified intangible assets and KeyBank (see Note 9), and $6,000,000 was initially financed through an unsecured note payable to NNN Realty Advisors (see Note 7).liabilities based on their respective fair values. A portion of the aggregate purchase price for these acquisitions was also initially financed or subsequently secured by $278,477,000$6,581,000 in mortgage loan payables. We paid $16,001,000 in acquisitionloans payable. Total acquisition-related expenses of $2,130,000 include amounts for legal fees, to our advisorclosing costs, due diligence and its affiliates in connection with these acquisitions.other costs. Acquisitions completed during the year ended December 31, 2011 are set forth below:
                                
              Borrowings Incurred in
    
              Connection with the Acquisition  Acquisition
 
              Mortgage
  Line
  Unsecured
  Fee to our
 
    Date
  Ownership
   Purchase
  Loan
  of
  Note Payable
  Advisor and
 
Property Property Location Acquired  Percentage   Price  Payables(1)  Credit(2)  to Affiliate(3)  its Affiliate 
 
Medical Portfolio 1 Overland, KS and
Largo, Brandon
and Lakeland, FL
  02/01/08   100 % $36,950,000  $22,000,000  $16,000,000  $  $1,109,000 
Fort Road Medical Building St. Paul, MN  03/06/08   100 %  8,650,000   5,800,000   3,000,000      260,000 
Liberty Falls Medical Plaza Liberty Township, OH  03/19/08   100 %  8,150,000      7,600,000      245,000 
Epler Parke Building B Indianapolis, IN  03/24/08   100 %  5,850,000   3,861,000   6,100,000      176,000 
Cypress Station Medical Office Building Houston, TX  03/25/08   100 %  11,200,000   7,300,000   4,500,000      336,000 
Vista Professional Center Lakeland, FL  03/27/08   100 %  5,250,000      5,300,000      158,000 
Senior Care Portfolio 1 Arlington, Galveston,
Port Arthur and
Texas City, TX and
Lomita and
El Monte, CA
  Various   100 %  39,600,000   24,800,000   14,800,000   6,000,000   1,188,000 
Amarillo Hospital Amarillo, TX  05/15/08   100 %  20,000,000      20,000,000      600,000 
5995 Plaza Drive Cypress, CA  05/29/08   100 %  25,700,000   16,830,000   26,050,000      771,000 
Nutfield Professional Center Derry, NH  06/03/08   100 %  14,200,000   8,808,000   14,800,000      426,000 


112


Property Property Location 
Date
Acquired
 
Ownership
Percentage
 
Purchase
Price
 
Mortgage
Loans
Payable(1)
Phoenix Portfolio--Paseo (2)
Phoenix, AZ
2/11/2011
100%
$3,762,000

$2,147,000
Columbia Portfolio--Northern Berkshire (2)
North Adams, MA
2/16/2011
100
9,182,000

4,434,000
Holston Medical Portfolio
Bristol, TN
3/24/2011
100
23,370,000


Desert Ridge Portfolio
Phoenix, AZ
10/4/2011
100
32,000,000


        $68,314,000
 $6,581,000

Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                                
              Borrowings Incurred in
    
              Connection with the Acquisition  Acquisition
 
              Mortgage
  Line
  Unsecured
  Fee to our
 
    Date
  Ownership
   Purchase
  Loan
  of
  Note Payable
  Advisor and
 
Property Property Location Acquired  Percentage   Price  Payables(1)  Credit(2)  to Affiliate(3)  its Affiliate 
 
SouthCrest Medical Plaza Stockbridge, GA  06/24/08   100 %  21,176,000   12,870,000         635,000 
Medical Portfolio 3 Indianapolis, IN  06/26/08   100 %  90,100,000   58,000,000   32,735,000      2,703,000 
Academy Medical Center Tucson, AZ  06/26/08   100 %  8,100,000   5,016,000   8,200,000      243,000 
Decatur Medical Plaza Decatur, GA  06/27/08   100 %  12,000,000   7,900,000   12,600,000      360,000 
Medical Portfolio 2 O’Fallon and
St. Louis, MO and
Keller and
Wichita Falls, TX
  Various   100 %  44,800,000   30,304,000         1,344,000 
Renaissance Medical Centre Bountiful, UT  06/30/08   100 %  30,200,000   20,495,000         906,000 
Oklahoma City Medical Portfolio Oklahoma City, OK  09/16/08   100 %  29,250,000      29,700,000      878,000 
Medical Portfolio 4 Phoenix, AZ,
Parma and Jefferson
West, OH, and
Waxahachie,
Greenville, and
Cedar Hill, TX
  Various   100 %  48,000,000   29,989,000   40,750,000      1,440,000 
Mountain Empire Portfolio Kingsport and
Bristol, TN and
Pennington Gap
and Norton, VA
  09/12/08   100 %  25,500,000   17,304,000   12,000,000      765,000 
Mountain Plains Portfolio San Antonio
and Webster, TX
  12/18/08   100 %  43,000,000            1,075,000 
Marietta Health Park Marietta, GA  12/22/08   100 %  15,300,000   7,200,000         383,000 
                               
Total
            $542,976,000  $278,477,000  $254,135,000  $6,000,000  $16,001,000 
                               
(1)Represents the amount of the mortgage loan payable assumed by us or newly placed on the property in connection with the acquisition or secured by the property subsequent to acquisition.
(2)Borrowings under our secured revolving line
Represent purchases of credit with LaSalle and KeyBank.
(3)Represents our unsecured note payable to affiliate evidenced by an unsecured promissory note. Our unsecured note payable to affiliate bears interest at a fixed rate and requires monthly interest-only payments foradditional medical office buildings during the term of the unsecured note payable to affiliate.year ended December 31, 2011 that are within portfolios we had previously acquired.
Property Acquisitions in 20072010
During the year ended December 31, 2007,2010, we completed the acquisition of 20 properties.24 new property portfolios as well as purchased additional buildings within six of our existing portfolios. Additionally, we purchased the remaining 20.0% interest that we previously did not own in HTA-Duke Chesterfield Rehab, LLC, the JV Company that owns Chesterfield Rehabilitation Center. The aggregate purchase price of these properties was $408,440,000, of which $115,471,000 was initially financed through our secured revolving line of credit with LaSalle Bank National Association, or LaSalle, and KeyBank National Association, or KeyBank, or our secured revolving line of credit with LaSalle and KeyBank (see Note 9), and $19,900,000 was initially financed through unsecured note payables to NNN Realty Advisors (see Note 7)$806,048,000. A portion of the aggregate purchase price for these acquisitions was also initially financed or subsequently secured by $186,050,000$218,538,000 in mortgage loan payables. We paid $12,255,000 in acquisitionloans payable. Total acquisition-related expenses of $11,317,000 include amounts for legal fees, to our advisorclosing costs, due diligence and its affiliates in connection with these acquisitions.other costs. Acquisitions completed during the year ended December 31, 2010 are set forth below:

89

Healthcare Trust of America, Inc.

113


Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                
              Borrowings Incurred in
    
              Connection with the Acquisition  Acquisition
 
              Mortgage
  Line
  Unsecured
  Fee to our
 
    Date
  Ownership
   Purchase
  Loan
  of
  Note Payables
  Advisor and
 
Property Property Location Acquired  Percentage   Price  Payables(1)  Credit(2)  to Affiliate(3)  its Affiliate 
 
Southpointe Office Parke
and Epler Parke I(4)
 Indianapolis, IN  01/22/07   100 % $14,800,000  $9,146,000  $  $5,115,000  $444,000 
Crawfordsville Medical
Office Park and Athens
Surgery Center(4)
 Crawfordsville, IN  01/22/07   100 %  6,900,000   4,264,000      2,385,000   207,000 
The Gallery Professional Building(4) St. Paul, MN  03/09/07   100 %  8,800,000   6,000,000      1,000,000   264,000 
Lenox Office Park, Building G(4) Memphis, TN  03/23/07   100 %  18,500,000   12,000,000         555,000 
Commons V Medical Office Building Naples, FL  04/24/07   100 %  14,100,000   10,000,000         423,000 
Yorktown Medical Center and Shakerag Medical Center Fayetteville and Peachtree City, GA  05/02/07   100 %  21,500,000   13,530,000         645,000 
Thunderbird Medical Plaza Glendale, AZ  05/15/07   100 %  25,000,000   14,000,000         750,000 
Triumph Hospital Northwest and Triumph Hospital Southwest Houston and
Sugar Land, TX
  06/08/07   100 %  36,500,000         4,000,000   1,095,000 
Gwinnett Professional Center Lawrenceville, GA  07/27/07   100 %  9,300,000   5,734,000         279,000 
1 and 4 Market Exchange Columbus, OH  08/15/07   100 %  21,900,000   14,500,000         657,000 
Kokomo Medical Office Park Kokomo, IN  08/30/07   100 %  13,350,000   8,300,000      1,300,000   401,000 
St. Mary Physicians Center Long Beach, CA  09/05/07   100 %  13,800,000   8,280,000      6,100,000   414,000 
2750 Monroe Boulevard Valley Forge, PA  09/10/07   100 %  26,700,000      27,870,000      801,000 
East Florida Senior Jacksonville, Winter                             
Care Portfolio Park and Sunrise, FL  09/28/07   100 %  52,000,000   30,500,000   11,000,000      1,560,000 
Northmeadow Medical Center Roswell, GA  11/15/07   100 %  11,850,000   8,000,000   12,400,000      356,000 
Tucson Medical Office Portfolio Tucson, AZ  11/20/07   100 %  21,050,000      22,000,000      632,000 
Lima Medical Office Portfolio Lima, OH  12/07/07   100 %  25,250,000      26,000,000      758,000 
Highlands Ranch Medical Plaza Highlands Ranch, CO  12/19/07   100 %  14,500,000   8,853,000   2,901,000      435,000 
Chesterfield Rehabilitation Center Chesterfield, MO  12/20/07   80.0 %  36,440,000   22,000,000   12,800,000      1,093,000 
Park Place Office Park Dayton, OH  12/20/07   100 %  16,200,000   10,943,000   500,000      486,000 
                               
Total
            $408,440,000  $186,050,000  $115,471,000  $19,900,000  $12,255,000 
                               

Property Property Location 
Date
Acquired
 
Ownership
Percentage
 
Purchase
Price
 
Mortgage
Loans
Payable(1)
 
Camp Creek
Atlanta, GA
3/2/2010
100%
$19,550,000

$
 
King Street
Jacksonville, FL
3/9/2010
100

10,775,000

6,602,000
 
Sugarland
Houston, TX
3/23/2010
100

12,400,000


 
Deaconess
Evansville, IN
3/23/2010
100

45,257,000

21,250,000
 
Chesterfield Rehabilitation Center(2)
Chesterfield, MO
3/24/2010
100

3,900,000


 
Pearland — Cullen
Pearland, TX
3/31/2010
100

6,775,000


 
Hilton Head — Heritage
Hilton Head, SC
3/31/2010
100

8,058,000


 
Triad Technology Center
Baltimore, MD
3/31/2010
100

29,250,000

12,000,000
 
Mt. Pleasant (E. Cooper)
Mount Pleasant, SC
3/31/2010
100

9,925,000


 
Federal North
Pittsburgh, PA
4/29/2010
100

40,472,000


 
Balfour Concord Portfolio
Lewisville, TX
6/25/2010
100

4,800,000


 
Cannon Park Place
Charleston, SC
6/28/2010
100

10,446,000


 
7900 Fannin(3)
Houston, TX
6/30/2010
84

38,100,000

22,687,000
 
Balfour Concord Portfolio(4)
Denton, TX
6/30/2010
100

8,700,000

4,657,000
 
Pearland — Broadway(4)
Pearland, TX
6/30/2010
100

3,701,000

2,381,000
 
Overlook
Stockbridge, GA
7/15/2010
100

8,140,000

5,440,000
 
Sierra Vista
San Luis Obispo, CA
8/4/2010
100

10,950,000


 
Hilton Head — Moss Creek(4)
Hilton Head, SC
8/12/2010
100

2,652,000


 
Orlando Portfolio
Orlando & Oviedo, FL
9/29/2010
100

18,300,000


 
Santa Fe Portfolio — Building 440
Santa Fe, NM
9/30/2010
100

9,560,000


 
Rendina Portfolio — San Martin and St. Francis
Las Vegas, NV and Poughkeepsie, NY
9/30/2010
100

40,204,000


 
Allegheny Admin Headquarters
Pittsburgh, PA
10/29/2010
100

39,000,000


 
Rendina Portfolio — Des Peres(4)
St. Louis, MO
11/12/2010
100

14,034,000


 
Raleigh Medical Center
Raleigh, NC
11/12/2010
100

16,500,000


 
Columbia Portfolio — Washington Medical Arts I & II
Albany, NY
11/19/2010
100

23,533,000


 
Columbia — 1092 Madison & Patroon Creek(4)
Albany, NY
11/22/2010
100

36,254,000

26,057,000
 
Columbia Portfolio — Capital Region Health Park & FL Orthopaedic(4)
Latham, NY and Temple Terrace, FL
11/23/2010
100

63,254,000

29,432,000
 
Rendina Portfolio — Gateway(4)
Tucson, AZ
12/7/2010
100

16,349,000

10,613,000
 
Florida Orthopaedic ASC
Temple Terrace, FL
12/8/2010
100

5,875,000


 
Select Medical LTACH Portfolio
Orlando and Tallahassee, FL, Augusta, GA, and Dallas, TX
12/17/2010
100

102,045,000


 
Santa Fe Portfolio — Building 1640(4)
Santa Fe, NM
12/22/2010
100

6,232,000

3,555,000
 
Phoenix Portfolio — Estrella & MOB IV
Phoenix, AZ
12/22/2010
100

35,809,000

25,050,000
 
Rendina Portfolio — Wellington(4)
Wellington, FL
12/23/2010
100

12,825,000

8,303,000
 
Columbia Portfolio — Putnam(4)
Carmel, NY
12/29/2010
100

28,216,000

19,329,000
 
Columbia Portfolio — CDPHP Corporate Headquarters(4)
Albany, NY
12/30/2010
100

36,207,000

21,182,000
 
Medical Park of Cary
Cary, NC
12/30/2010
100

28,000,000


 
Total      
 $806,048,000
 $218,538,000
 

(1)Represents the amount of the mortgage loan payable assumed by us or newly placed on the property in connection with the acquisition or secured by the property subsequent to acquisition.
(2)Represents our purchase of the remaining 20% interest we previously did not own in the JV Company that owns Chesterfield Rehabilitation Center.
Borrowings under our secured revolving line of credit with LaSalle and KeyBank.
(3)Represents our unsecured note payables to affiliate evidenced by unsecured promissory notes. Our unsecured note payables to affiliate bears interest at a fixed rate and require monthly interest-only payments for the termpurchase of the unsecured note payables to affiliate.majority interest in the Fannin partnership, which owns the 7900 Fannin medical office building, the value of which is approximately $38,100,000. We acquired both the general partner interest and the majority of the limited partner interests in the Fannin partnership. The transaction provided the original physician

114



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Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


investors with the right to remain in the Fannin partnership, to receive limited partnership units in our operating partnership, and/or receive cash. Ten investors elected to remain in the Fannin partnership, which represents a 16% noncontrolling interest in the property.
(4)This property was acquired from an affiliate and as such an independent appraiser was engaged to valueRepresent purchases of additional medical office buildings during the property and the transaction was approved and determined by a majority of our board of directors, including a majority of our independent directors, as fair and reasonable to us, and at a price no greater than the cost of the investment to our affiliate or the property’s appraised value.year ended December 31, 2010 that are within portfolios we had previously acquired.

4.  Real Estate Note Receivables,
4.    Real Estate Notes Receivable, Net
On December 31, 2008,1, 2009, we acquired a real estate relatednote receivable secured by the Rush Medical Office Building, or the Rush Presbyterian Note Receivable, for a total purchase price of $37,135,000, plus closing costs. The note may be repaid within ninety days prior to the maturity date or during a thirty-day period occurring during June 2012 for $37,135,000. Otherwise, it may be repaid for the full face amount of $41,150,000. We acquired this asset infrom an unaffiliated third party. We have determined that this note receivable is due from a variable interest entity for which we hold a significant variable interest but for which we are not the primary beneficiary. Therefore, we do not consolidate the entity. We do not expect to incur any losses based on our variable interest and any potential exposure to loss on this variable interest is limited to a 30-day period during which we could be required to purchase the property. Additionally, we do not expect to have any variable interest loss exposures on our other Notes Receivable.
On December 31, 2008, we acquired four note receivablesnotes receivable secured by two buildings located in Phoenix, Arizona and Berwyn, Illinois, or the Presidential Note Receivable, for a total purchase price of $15,000,000,$15,000,000, plus closing costs. We acquired the real estate related assetthese assets from an unaffiliated third party. On November 1, 2011, we entered into amendments to extend the maturity dates of these notes from November 1, 2011 to May 1, 2012. We financedexpect that we will collect the purchase priceaggregate principal balance of these notes in full upon the real estate related asset with funds raised through our offering. An acquisition feematurity date of $225,000, or approximately 1.5% of the purchase price, was paid to our advisor and its affiliate.May 1, 2012.
Real estate note receivables,notes receivable, net consisted of the following as of December 31, 20082011 and 2007:2010:
                  
Property Name
       December 31,    Contractual    December 31,
Location of Property Property Type Interest Rate Maturity Date 2008 2007  Property Type Interest Rate  Maturity Date 2011 2010
MacNeal Hospital Medical Office Building
Berwyn, Illinois
 Medical Office Building  5.95%  11/01/11  $7,500,000  $     —  Medical Office
Building
 10.95%(1) 5/1/2012 $7,500,000
 $7,500,000
MacNeal Hospital Medical Office Building
Berwyn, Illinois
 Medical Office Building  5.95%  11/01/11   7,500,000     Medical Office
Building
 10.95%(1) 5/1/2012 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     Medical Office
Building
 10.85%(2) 5/1/2012 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     Medical Office
Building
 10.85%(2) 5/1/2012 1,250,000
 1,250,000
     
Rush Presbyterian Medical Office
Building Oak Park, Illinois
 Medical Office
Building
 7.76%(3) 12/1/2014 41,150,000
 41,150,000
Total real estate note receivable            20,000,000        
    61,150,000
 61,150,000
Add: Note receivable closing costs            360,000    
Less: discount            (5,000,000)   
     
Real estate note receivables, net           $15,360,000  $ 
     
Add: Note receivable closing costs, net    
    324,000
 540,000
Less: discount, net (4)    
    (4,015,000) (4,599,000)
Real estate notes receivable, net    
    $57,459,000
 $57,091,000


115


(1)
The effective interest rate associated with these interest-only notes as of December 31, 2011 is 8.77%.
(2)
The effective interest rate associated with these interest-only notes as of December 31, 2011 is 8.63%.
(3)Represents an average contractual interest rate for the life of this interest-only note with an effective interest rate of 8.60%.
(4)The closing costs and discount are amortized on a straight-line basis over the respective life, and impact the yield, of each note.

We monitor the credit quality of our real estate notes receivable portfolio on an ongoing basis by tracking possible credit quality indicators. As of December 31, 2011, all of our real estate notes receivable are current and we have not provided for any allowance for losses on notes receivable, and as of December 31, 2011 we have had no impairment with respect to our notes receivable. We made no significant purchases or sales of notes or other receivables during the year ended December 31, 2011.


5.    Identified Intangible Assets, Net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.  
Identified Intangible Assets, Net
Identified intangible assets, net for our properties consisted of the following as of December 31, 20082011 and 2007:2010:
         
  December 31, 
  2008  2007 
 
In place leases, net of accumulated amortization of $13,350,000 and $3,326,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 91 months and 79 months as of December 31, 2008 and 2007, respectively). $55,144,000  $25,540,000 
Above market leases, net of accumulated amortization of $1,513,000 and $265,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 99 months and 119 months as of December 31, 2008 and 2007, respectively).  10,482,000   3,083,000 
Tenant relationships, net of accumulated amortization of $6,479,000 and $1,527,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 140 months and 140 months as of December 31, 2008 and 2007, respectively).  64,881,000   31,184,000 
Leasehold interests, net of accumulated amortization of $45,000 and $3,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 982 months and 1,071 months as of December 31, 2008 and 2007, respectively).  3,998,000   3,114,000 
Master lease, net of accumulated amortization of $231,000 and $0 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 8 months and 0 months as of December 31, 2008 and 2007, respectively).  118,000    
         
  $134,623,000  $62,921,000 
         
  December 31,
  2011 2010
In place leases, net of accumulated amortization of $47,243,000 and $43,185,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 146 months and 154 months as of December 31, 2011 and 2010, respectively). $109,335,000
 $124,330,000
Above market leases, net of accumulated amortization of $8,040,000 and $5,971,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 81 months and 89 months as of December 31, 2011 and 2010, respectively). 14,545,000
 17,943,000
Tenant relationships, net of accumulated amortization of $41,309,000 and $23,937,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 164 months and 168 months as of December 31, 2011 and 2010, respectively). 122,533,000
 136,021,000
Below market leasehold interests, net of accumulated amortization of $1,346,000 and $526,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 834 months and 855 months as of December 31, 2011 and 2010, respectively). 25,977,000
 26,061,000
 Total $272,390,000
 $304,355,000
Amortization expense recorded on the identified intangible assets related to our operating properties for the years ended December 31, 20082011, 2010, and 20072009 was $45,264,000, $32,479,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 was $18,229,000, $5,435,000 and $0,$22,724,000, respectively, which included $1,369,000, $265,000$3,607,000, $3,046,000, and $0,$1,889,000, respectively, of amortization recorded against rental income for above market leases and $42,000, $3,000$820,000, $423,000, and $0,$58,000, respectively, of amortization recorded against rental expenses for below market leasehold interests.
Estimated amortization expense on the identified intangible assets associated with our operating properties for each of the next five years and thereafter is as follows:
Year Amount
2012 $38,597,000
2013 32,340,000
2014 28,893,000
2015 25,467,000
2016 22,169,000
Thereafter 124,924,000
Total $272,390,000

6.    Other Assets, Net
Other assets, net for our operating properties consisted of the following as of December 31, 20082011 and 2010:
  December 31,
  2011 2010
Deferred financing costs, net of accumulated amortization of $4,710,000 and $5,015,000 as of December 31, 2011 and 2010, respectively $8,473,000
 $8,620,000
Lease commissions, net of accumulated amortization of $2,006,000 and $1,132,000 as of December 31, 2011 and 2010, respectively 7,755,000
 4,275,000
Lease inducements, net of accumulated amortization of $654,000 and $527,000 as of December 31, 2011 and 2010, respectively 1,166,000
 1,284,000
Deferred rent receivable (net of allowance) 29,627,000
 17,422,000
Prepaid expenses, deposits, and other assets 9,421,000
 8,951,000
Total $56,442,000
 $40,552,000


Amortization expense recorded on deferred financing costs, lease commissions, lease inducements and note receivable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


closing costs for the years ended December 31, 2011, 2010, and 2009 was $5,002,000, $3,163,000, and $2,064,000, respectively, of which $3,628,000, $2,195,000, and $1,885,000, respectively, of amortization was recorded as interest expense for deferred financing costs and $235,000, $248,000, and $153,000, respectively, of amortization was recorded against rental income for lease inducements.
Estimated amortization expense on the deferred financing costs, lease commissions and lease inducements for each of the next five years ending December 31 and thereafter is as follows:
     
Year Amount 
 
2009 $20,897,000 
2010 $17,882,000 
2011 $15,140,000 
2012 $13,802,000 
2013 $11,897,000 
Thereafter $55,005,000 


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Grubb & Ellis Healthcare REIT, Inc.
Year Amount
2012 $4,769,000
2013 4,371,000
2014 2,371,000
2015 1,482,000
2016 1,130,000
Thereafter 3,271,000
Total $17,394,000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6.  Other Assets, Net
Other assets, net consisted of the following as of December 31, 2008 and 2007:
         
  December 31, 
  2008  2007 
 
Deferred financing costs, net of accumulated amortization of $1,461,000 and $170,000 as of December 31, 2008 and 2007, respectively $4,751,000  $2,334,000 
Lease commissions, net of accumulated amortization of $99,000 and $7,000 as of December 31, 2008 and 2007, respectively  1,009,000   275,000 
Lease inducements, net of accumulated amortization of $107,000 and $19,000 as of December 31, 2008 and 2007, respectively  753,000   773,000 
Deferred rent receivable  3,928,000   534,000 
Prepaid expenses and deposits  1,073,000   476,000 
         
  $11,514,000  $4,392,000 
         
Amortization expense recorded on deferred financing costs, lease commissions, lease inducements and note receivable closing costs for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 was $1,472,000, $196,000 and $0, respectively, of which $1,291,000, $170,000 and $0, respectively, of amortization was recorded as interest expense for deferred financing costs and $88,000, $19,000 and $0, respectively, of amortization was recorded against rental income for lease inducements and note receivable closing costs.
Estimated amortization expense on the deferred financing costs, lease commissions and lease inducements as of December 31, 2008 for each of the next five years ending December 31 and thereafter is as follows:
     
Year Amount 
 
2009 $2,152,000 
2010 $1,803,000 
2011 $860,000 
2012 $411,000 
2013 $366,000 
Thereafter $921,000 
7.    Mortgage Loan Payables, Net and Unsecured Note Payables to Affiliate
Mortgage Loan Payables,Loans Payable, Net
Mortgage loan payablesLoans Payable, Net
Mortgage loans payable were $462,542,000$636,558,000 ($460,762,000, net of discount)639,149,000, including premium) and $185,899,000$696,558,000 ($185,801,000,699,526,000, net of discount) as of December 31, 20082011 and 2007,2010, respectively. As of December 31, 2008,2011, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.90%1.77% to 12.75% per annum and a weighted average effective interest rate of 4.07%5.05% per annum. As of December 31, 2008,2011, we had $141,058,000$461,248,000 ($139,278,000, net of discount)463,839,000, including premium) of fixed rate debt, or 30.5%72.5% of mortgage loan payables,loans payable, at a weighted average interest rate of 5.76%6.02% per annum and $321,484,000$175,310,000 of variable rate debt, or 69.5%27.5% of mortgage loan payables,loans payable, at a weighted average interest rate of 3.33%2.51% per annum. As of December 31, 2007,2010, we had fixed and variable rate mortgage loans with effective interest rates ranging from 5.52%1.61% to 6.78%12.75% per annum and a weighted average effective interest rate of 6.07%4.95% per annum. As of December 31, 2007,2010, we had $90,919,000$470,815,000 ($90,821,000 net of discount)473,783,000, including premium) of fixed rate debt, or 48.9%67.6% of mortgage loan payables,loans payable, at a weighted average interest rate of 5.79%6.02% per annum and $94,980,000$225,743,000 of variable rate debt, or 51.1%32.4% of mortgage loan payables,loans payable, at a weighted average interest rate of 6.35%2.72% per annum.


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On February 1, 2011, we closed a senior secured real estate term loan in the amount of $125,500,000 from Wells Fargo Bank, National Association, or Wells Fargo Bank. The primary purposes of the term loan included refinancing four Wells Fargo Bank loans totaling approximately $89,969,000 and providing new financing on three of our existing properties. Interest is payable monthly at a rate of one-month LIBOR plus 2.35%, which, as of December 31, 2011, equated to 2.65%. Including the impact of the interest rate swap discussed below, the weighted average rate associated with this term loan is 3.10%. The weighted average rate on these four loans prior to the refinancing was 4.18% (including the impact of interest rate swaps). The term loan matures on December 31, 2013 and includes two 12-month extension options, subject to the satisfaction of certain conditions. The loan agreement for the term loan includes customary financial covenants for loans of this type, including a maximum ratio of total indebtedness to total assets, a minimum ratio of EBITDA to fixed charges, and a minimum level of tangible net worth. In addition, the term loan agreement for this secured term loan includes events of default that we believe are usual for loans and transactions of this type. The term loan is secured by 25 buildings within 12 property portfolios in 13 states and has a two year period in which no prepayment is permitted. Our operating partnership has guaranteed 25% of the principal balance and 100% of the interest under the term loan.
We are required by the terms of the applicable loan documents related to our mortgage loans payable and secured term loan to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As of December 31, 2008 and 2007,2011, we believe that we were in compliance with all such financial covenants and requirements.requirements on our mortgage loans payable and secured term loan. As of December 31, 2010, we were in compliance with all such financial covenants and requirements on $638,558,000 of our mortgage loans payable and had made appropriate adjustments to comply with such covenants on $58,000,000 of our mortgage loans payable by maintaining a deposit of $12,000,000 within a restricted collateral account. On May 3, 2011, we paid off this $58,000,000 principal balance and thus withdrew our deposit of $12,000,000 from the restricted collateral account.

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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Mortgage loan payables,loans payable, net consisted of the following as of December 31, 20082011 and 2007:2010:
                 
        December 31, 
Property/ Loan Interest Rate  Maturity Date  2008  2007 
 
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   9,939,000   10,000,000 
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   14,000,000   14,000,000 
Gwinnett Professional Center  5.88%  01/01/14   5,604,000   5,699,000 
St. Mary Physicians Center  5.80%  09/04/09   8,280,000   8,280,000 
Northmeadow Medical Center  5.99%  12/01/14   7,866,000   8,000,000 
Medical Porfolio 2  5.91%  07/01/13   14,408,000    
Renaissance Medical Centre  5.38%  09/01/15   19,078,000    
Renaissance Medical Centre  12.75%  09/01/15   1,245,000    
Medical Porfolio 4  5.50%  06/01/19   6,771,000    
Medical Porfolio 4  6.18%  06/01/19   1,727,000    
Marietta Health Park  5.11%  11/01/15   7,200,000    
                 
           141,058,000   90,919,000 
Variable Rate Debt:
                
Senior Care Portfolio 1  4.75%(a)  03/31/10   24,800,000(b)   
1 and 4 Market Exchange  1.93%(a)  09/30/10   14,500,000(b)  14,500,000(c)
East Florida Senior Care Portfolio  1.90%(a)  10/01/10   29,917,000(b)  30,384,000(c)
Kokomo Medical Office Park  1.98%(a)  11/30/10   8,300,000(b)  8,300,000(c)
Chesterfield Rehabilitation Center  3.54%(a)  12/30/10   22,000,000(b)  22,000,000(c)
Park Place Office Park  2.13%(a)  12/31/10   10,943,000(b)  10,943,000(c)
Highlands Ranch Medical Plaza  2.13%(a)  12/31/10   8,853,000(b)  8,853,000(c)
Medical Portfolio 1  2.26%(a)  02/28/11   21,340,000(b)   
Fort Road Medical Building  3.09%(a)  03/06/11   5,800,000(b)   
Medical Portfolio 3  3.69%(a)  06/26/11   58,000,000(b)   
SouthCrest Medical Plaza  2.78%(a)  06/30/11   12,870,000(b)   
Wachovia Pool Loan(d)  4.65%(a)  06/30/11   50,322,000(b)   
Cypress Station Medical Office Building  2.26%(a)  09/01/11   7,235,000(b)   
Medical Portfolio 4  3.25%(a)  09/24/11   21,400,000(b)   
Decatur Medical Plaza  3.25%(a)  09/26/11   7,900,000(b)   
Mountain Empire Portfolio  3.97%(a)  09/28/11   17,304,000(b)   
                 
           321,484,000   94,980,000 
                 
Total fixed and variable debt          462,542,000   185,899,000 
                 
Less: discount          (1,780,000)  (98,000)
                 
Mortgage loan payables, net         $460,762,000  $185,801,000 
                 
      December 31,
Property Interest Rate Maturity Date 2011 2010 
Fixed Rate Debt:  
    
  
 
Southpointe Office Parke and Epler Parke I 6.11% 9/1/2016 $9,017,000
 $9,121,000
 
Crawfordsville Medical Office Park and Athens Surgery Center 6.12
 10/1/2016 4,208,000
 4,256,000
 
The Gallery Professional Building 5.76
 3/1/2017 5,948,000
 6,000,000
 
Lenox Office Park, Building G 5.88
 2/1/2017 11,881,000
 12,000,000
 
Commons V Medical Office Building 5.54
 6/11/2017 9,528,000
 9,672,000
 
Yorktown Medical Center and Shakerag Medical Center 5.52
 5/11/2017 13,257,000
 13,434,000
 
Thunderbird Medical Plaza 5.67
 6/11/2017 13,553,000
 13,740,000
 
Gwinnett Professional Center 5.88
 1/1/2014 5,311,000
 5,417,000
 
Northmeadow Medical Center 5.99
 12/1/2014 7,375,000
 7,545,000
 
Medical Portfolio 2 5.91
 7/1/2013 13,813,000
 14,024,000
 
Renaissance Medical Centre 5.38
 9/1/2015 18,118,000
 18,464,000
 
Renaissance Medical Centre 12.75
 9/1/2015 1,237,000
 1,240,000
 
Medical Portfolio 4 5.50
 6/1/2019 6,202,000
 6,404,000
 
Medical Portfolio 4 6.18
 6/1/2019 1,593,000
 1,625,000
 
Marietta Health Park 5.11
 11/1/2015 7,200,000
 7,200,000
 
Hampden Place 5.98
 1/1/2012 
 8,551,000
 
Greenville — Patewood 6.18
 1/1/2016 35,157,000
 35,609,000
 
Greenville — Greer 6.00
 2/1/2017 8,304,000
 8,413,000
 
Greenville — Memorial 6.00
 2/1/2017 4,396,000
 4,454,000
 
Greenville — MMC 6.25
 6/1/2020 22,467,000
 22,743,000
 
Sun City-Note B 6.54
 9/1/2014 14,598,000
 14,819,000
 
Sun City-Note C 6.50
 9/1/2014 4,291,000
 4,412,000
 
Sun City Note D 6.98
 9/1/2014 13,657,000
 13,839,000
 
King Street 5.88
 3/5/2017 6,185,000
 6,429,000
 
Wisconsin MOB II — Mequon 6.25
 7/10/2017 9,832,000
 9,952,000
 
Balfour Concord — Denton 7.95
 8/10/2012 4,454,000
 4,592,000
 
Pearland-Broadway 5.57
 9/1/2012 2,318,000
 2,361,000
 
7900 Fannin-Note A 7.30
 1/1/2021 21,571,000
 21,783,000
 
7900 Fannin-Note B 7.68
 1/1/2016 812,000
 819,000
 
Deaconess — Evansville 4.90
 8/6/2015 20,842,000
 21,151,000
 
Overlook 6.00
 11/5/2016 5,324,000
 5,408,000
 
Triad 5.60
 9/1/2022 11,800,000
 11,961,000
 
Santa Fe — Building 1640 5.57
 7/1/2015 3,489,000
 3,555,000
 
Rendina — Wellington 5.97
 12/1/2016 8,201,000
 8,296,000
 
Rendina — Gateway 6.49
 9/1/2018 10,397,000
 10,596,000
 
Columbia — Patroon Creek Note A 6.10
 6/1/2016 22,732,000
 23,123,000
 
Columbia — Patroon Creek Note B 6.10
 6/1/2016 841,000
 890,000
 
Columbia — 1092 Madison 6.25
 2/1/2018 1,964,000
 2,006,000
 
Columbia — FL Orthopaedic 5.45
 7/10/2013 6,795,000
 7,041,000
 
Columbia — Capital Region Health Park 6.51
 7/10/2012 21,535,000
 22,309,000
 
Columbia — Putnam 5.33
 5/1/2015 19,005,000
 19,329,000
 
Columbia — CDPHP 5.40
 6/1/2016 20,851,000
 21,182,000
 
Phoenix — Estrella 6.26
 8/1/2017 20,449,000
 20,695,000
 
Phoenix — MOB IV 6.01
 6/11/2017 4,291,000
 4,355,000
 
Phoenix — Paseo 6.32
 10/11/2016 2,118,000
 
 
Columbia — N. Berkshire 6.01
 12/11/2012 4,331,000
 
 
Total fixed rate debt  
   461,248,000
 470,815,000
 


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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


      December 31, 
Property Interest Rate Maturity Date 2011 (a) 2010 (b) 
Variable Rate Debt:  
      
  
 
Chesterfield Rehabilitation Center
1.95% (c) 12/30/2012 21,120,000
 22,000,000
 
Park Place Office Park
1.85
 (c) 12/31/2010 
(d)10,943,000
 
Highlands Ranch Medical Plaza
1.85
 (c) 12/31/2010 
(e)8,853,000
 
Medical Portfolio 1
1.98
 (c) 2/28/2011 
(e)19,580,000
 
Medical Portfolio 3
2.55
 (c) 6/26/2011 
(d)58,000,000
 
SouthCrest Medical Plaza
2.50
 (c) 6/30/2011 
(e)12,870,000
 
Wachovia Pool Loans(d)
4.65
 (c) 6/30/2011 
(e)48,666,000
 
Cypress Station Medical Office Building
2.05
 (c) 9/1/2011 
(d)7,043,000
 
Decatur Medical Plaza
2.30
 (c) 9/26/2011 
(d)7,900,000
 
Mountain Empire Portfolio
2.48
 (c) 9/27/2012 17,935,000
 18,408,000
 
Wells Fargo Secured Real Estate Term Loan
2.65
 (c) 12/31/2013 125,500,000


 
Sun City-Sun 1
1.77
 (c) 12/31/2014 1,438,000
 2,000,000
 
Sun City-Sun 2
1.77
 (c) 12/31/2014 9,317,000
 9,480,000
 
Total variable rate debt  
     175,310,000
 225,743,000
 
Total fixed and variable debt  
     636,558,000
 696,558,000
 
Add: Net premium  
     2,591,000
 2,968,000
 
Mortgage loans payable, net  
     $639,149,000
 $699,526,000
 

(a)Represents the interest rate in effect as
As of December 31, 2008.
(b)As of December 31, 2008,2011, we had variable rate mortgage loans on 20three of our properties with effective interest rates ranging from 1.90%1.77% to 4.75%2.67% per annum and a weighted average effective interest rate of 3.33%2.51% per annum. However, asAs of December 31, 2008,2011, we had fixed rate interest rate swaps ranging from


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4.51% to 6.02%,and caps on the entire principal balances of our Mountain Empire and Sun City-Sun 2 variable rate mortgage loan payablesloans payable as well as on 20$75,000,000 of our properties,Wells Fargo secured real estate term loan, thereby effectively fixing our interest raterates on those mortgage loan payables.loans payable at 5.87%, 2.00%, and 3.42% respectively.
(c)(b)
As of December 31, 2007,2010, we had variable rate mortgage loans on six15 of our properties with effective interest rates ranging from 6.15%1.76% to 6.78%4.65% per annum and a weighted average effective interest rate of 6.35%2.72% per annum. However, asAs of December 31, 2007,2010, we had fixed rate interest rate swaps ranging from 5.52% to 6.02%,and caps on all of our Medical Portfolio 1, Decatur, Mountain Empire, and Sun City-Sun 2 variable rate mortgage loan payables,loans payable, thereby effectively fixing our interest raterates on those mortgage loan payables.loans payable at 5.23%, 5.16%, 5.87%, and 2.00%, respectively.
(c)
Represents the interest rate in effect as of December 31, 2011.
(d)We
Represent loan balances that have a mortgage loan inmatured or that we have paid off during the principal amount of $50,322,000 secured by Epler Parke Building B, 5995 Plaza Drive, Nutfield Professional Center, Medical Portfolio 2 and Academy Medical Center.year ended December 31, 2011.
(e)Represent bank loans, the aggregate principal balance of, which as of December 31, 2010, was $89,969,000, which were refinanced using the proceeds of our $125,500,000 senior secured real estate term loan. We closed on this term loan with Wells Fargo Bank, N.A., on February 1, 2011, as discussed above within this Note 7.
The principal payments due on our mortgage loan payables as of December 31, 2008loans payable for each of the next five years ending December 31 and thereafter is as follows:
     
Year Amount 
 
2009 $11,900,000 
2010 $123,410,000 
2011 $199,029,000 
2012 $2,047,000 
2013 $15,512,000 
Thereafter $110,644,000 
Year Amount
2012 $79,561,000
2013 153,358,000
2014 58,981,000
2015 72,625,000
2016 104,696,000
Thereafter 167,337,000
Total $636,558,000
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 $54,717,0002012, $17,935,000 have a one year extension option available. Of the amounts maturing in 2011, $180,831,0002013, $125,500,000 have twoa one year extensionsextension available.

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Healthcare Trust of America, Inc.
Unsecured Note Payables to AffiliateNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



8.    Derivative Financial Instruments
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we entered into, and subsequently paid down, the following unsecured note payables with NNN Realty Advisors, evidenced by unsecured promissory notes:
                 
Date of Note
 Amount  Maturity Date  Interest Rate  Date Paid in Full 
 
06/30/08 $6,000,000   12/30/14   4.96%  07/07/08 
09/05/07 $6,100,000   03/05/08   6.86%  09/11/07 
08/30/07 $1,300,000   03/01/08   6.85%  09/04/07 
06/08/07 $4,000,000   12/08/07   6.82%  06/18/07 
03/09/07 $1,000,000   09/09/07   6.84%  03/28/07 
01/22/07 $7,500,000   07/22/07   6.86%  03/28/07 
The unsecured note payables to affiliate bore interest at a fixed rate and required monthly interest-only payments for the terms of the unsecured note payables to affiliate. As of December 31, 2008 and 2007, there were no amounts outstanding under the unsecured note payables to affiliate.
Because these loans were related party loans, the terms of the unsecured note payables to affiliate were approved by our board of directors, including a majority of our independent directors, and deemed fair, competitive and commercially reasonable by our board of directors.
8.  Derivative Financial Instruments
SFAS No. 133,Accounting for Derivative InstrumentsASC 815, Derivatives and Hedging Activities, or SFAS No. 133, as amended and interpreted,ASC 815, establishes accounting and reporting standards for derivative instruments, including


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Consistent with SFAS No. 133ASC 815, we record derivative financial instruments on our accompanying consolidated balance sheets as either an asset or a liability measured at fair value. SFAS No. 133ASC 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.
In anticipation of the $125,500,000 senior secured real estate term loan that we closed on February 1, 2011, we purchased an interest rate swap with Wells Fargo Bank as counterparty, for a notional amount of $75,000,000. The interest rate swap was amended on January 25, 2011. The interest rate swap is secured by the pool of assets collateralizing the secured term loan. The effective date of the swap is February 1, 2011, and matures no later than December 31, 2013. The swap will fix one-month LIBOR at 1.0725%, which, when added to the spread of 2.35%, will result in a total interest rate of approximately 3.42% for $75,000,000 of the term loan during the initial term. We have not designated this swap as an accounting hedge. As of December 31, 20082010, we had $2,400,000 on deposit in a collateral account related to this interest rate swap. This amount was reimbursed to us in full upon the closing of the term loan on February 1, 2011.
As of December 31, 2011 and 2007,December 31, 2010, 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 SFAS No. 133.ASC 815. Changes in the fair value of derivative financial instruments are recorded in loss onthe line item entitled "Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments" in our accompanying consolidated statements of operations.
The following table lists the derivative financial instruments held by us as of December 31, 2008:2011:
                      
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 
Notional Amount Index Rate Fair Value Instrument Maturity

$16,578,000
 LIBOR 5.87% $(946,000) Swap 9/28/2013
75,000,000
 LIBOR 3.42
 (846,000) Swap 12/31/2013
9,330,000
 LIBOR 2.00
 89,000
 Cap 12/31/2014
The following table lists the derivative financial instruments held by us as of December 31, 2007:2010:
                      
Notional Amount   Index Rate  Fair Value  Instrument  Maturity 
 
$      14,500,000   LIBOR  5.97% $(306,000)  Swap   09/28/10 
$8,300,000   LIBOR  5.86% $(164,000)  Swap   11/30/10 
$8,853,000   LIBOR  5.52% $(23,000)  Swap   12/31/10 
$10,943,000   LIBOR  5.52% $(65,000)  Swap   12/31/10 
$22,000,000   LIBOR  5.59% $(117,000)  Swap   12/30/10 
$30,384,000   LIBOR  6.02% $(702,000)  Swap   10/01/10 
Notional Amount Index Rate Fair Value Instrument Maturity

$19,507,000

LIBOR
5.23%
$(109,000)
Swap
1/31/2011
7,900,000

LIBOR
5.16

(185,000)
Swap
9/26/2011
16,912,000

LIBOR
5.87

(1,233,000)
Swap
9/28/2013
75,000,000

LIBOR
3.42

297,000

Swap
12/31/2013
9,480,000

LIBOR
2.00

383,000

Cap
12/31/2014
As of December 31, 20082011 and 2007,December 31, 2010, the fair value of our derivative financial instruments was $(14,198,000) and $(1,377,000), respectively.as follows:
  Asset Derivatives Liability Derivatives
Derivatives Not December 31, 2011 December 31, 2010 December 31, 2011 December 31, 2010
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 Other Assets $
 Other Assets $297,000
 Derivative Financial Instruments $1,792,000
 Derivative Financial Instruments $1,527,000
Interest Rate Cap Other Assets $89,000
 Other Assets $383,000
    
    
       
For the years ended December 31, 2008 and 2007 and for the period April 28, 2006 (Date

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Healthcare Trust of Inception) through December 31, 2006, we recorded $12,821,000, $1,377,000 and $0, respectively, as an increase to


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America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


For the years ended December 31, 2011, 2010, and 2009, the derivative financial instruments associated with our operating properties had the following effect on our consolidated statements of operations:
    Recognized
Derivatives Not Designated Location of Gain (Loss) For the Year Ended
as Hedging Instruments Under: Recognized: December 31, 2011 December 31, 2010 December 31, 2009
Interest Rate Swaps Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments $(562,000) $6,461,000
 $5,279,000
Interest Rate Cap Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments $(294,000) $(507,000) $
We have agreements with each of our interest expenserate 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 December 31, 2011 and December 31, 2010, there have been no termination events or events of default related to the change in the fair value of our derivative financial instruments. See Note 16, Fair Value Measurements forinterest rate swaps.


9.    Revolving Credit Facility
On November 22, 2010, we entered into a further discussion of the fair value of our derivative financial instruments.
9.  Line of Credit
We have a loancredit agreement, or the Loan Agreement,credit agreement, with LaSalleJPMorgan Chase Bank, N.A., as administrative agent, or JPMorgan, Wells Fargo Bank and KeyBank, in which we obtained a securedDeutsche Bank Securities Inc., as syndication agents, U.S. Bank National Association and Fifth Third Bank, as documentation agents, and the lenders named therein to obtain an unsecured revolving line of credit with LaSalle and KeyBankfacility in an aggregate maximum principal amount of $80,000,000. $275,000,000, or the unsecured credit facility. In anticipation of this new credit facility, on August 19, 2010, we voluntarily closed the $80,000,000 secured revolving facility we originally entered into in 2007. No borrowings were made on this previous credit facility during the years ended December 31, 2010 or 2009.
On May 13, 2011, we increased the unsecured credit facility from an aggregate maximum principal amount of $275,000,000 to $575,000,000 as well as extended its maturity date from November 2013 to May 2014, pursuant to an amendment to the credit agreement.
The actual amount of credit available under the Loan Agreementcredit agreement is a function of certain loan to cost, loan to valueloan-to-cost, loan-to-value and debt service coverage ratios contained in the Loan Agreement. Thecredit agreement. Subject to the terms of the credit agreement, the maximum principal amount of the Loan Agreementcredit agreement may be increased, to $120,000,000 subject to the terms of the Loan Agreement. Also,such additional financial institutions may becomefinancing being offered and provided by existing lenders under the Loan Agreement. The initial maturity date of the Loan Agreement is September 10, 2010, which may be extended by one12-month period subject to satisfaction of certain conditions, including payment of an extension feecredit agreement. Borrowings under this unsecured credit facility accrue interest at a rate per annum 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: (1) the London Interbank OfferedAdjusted LIBO Rate or LIBOR, plus a margin ranging from 2.50% to 3.50% based on our operating partnership's total leverage ratio, which we refer to as Eurodollar loans. Our operating partnership is required to pay a fee on the unused portion of 1.50%, (2) the greaterlenders' commitments under the credit agreement at a rate dependent on the proportion of LaSalle’s prime rate or the Federal Funds Rate (as definedaverage daily used amount to the lenders' commitments. The margin associated with borrowings during the year ended December 31, 2011 was 2.50% and the average daily commitment fee for both the year ended December 31, 2011 was 0.5%. As of December 31, 2011 and December 31, 2010, we had $0 and $7,000,000, respectively, outstanding on our unsecured revolving credit facility. The $7,000,000 drawn as of December 31, 2010 for the purpose of funding the acquisition of operating properties was repaid in the Loan Agreement) plus 0.50%, or (3) a combination of these rates.
full on January 31, 2011.
The Loan Agreementcredit agreement contains various affirmative and negative covenants that we believe are usual and customary for facilities and transactions of this type, including limitations on the incurrence of debt by us, our operating partnership and ourits subsidiaries that own properties that serve as collateral for the Loan Agreement,unencumbered assets, limitations on the nature of our operating partnership's business, and limitations on distributions by our operating partnership and its subsidiaries that own properties that serve as collateralunencumbered assets. Pursuant to the credit agreement, beginning with the quarter ending September 30, 2011, our operating partnership may not make cash distribution payments to us and we may not make cash distributions to our stockholders in excess of the greater of: (i) 100% of normalized adjusted FFO (as defined in the credit agreement) for the Loan Agreement. The Loan Agreementperiod of four quarters ending September 30, 2011 and December 31, 2011, (ii) 95% of normalized adjusted FFO for the period of four quarters ending March 31, 2012 and (iii) 90% of normalized

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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


adjusted FFO for the period of four quarters ending June 30, 2012 and thereafter. Shares of our common stock issued under the DRIP are not subject to the limitation on distribution payments. Additionally, the credit agreement also imposes the followinga number of financial covenants on us and our operating partnership, as applicable: (1)including: a maximum ratio of total indebtedness to total asset value; a minimum ratio of operating cash flowEBITDA to interest expense, (2)fixed charges; a minimum tangible net worth covenant; a maximum ratio of unsecured indebtedness to unencumbered asset value; a minimum ratio of unencumbered net operating cash flowincome to fixed charges, (3)unsecured indebtedness; and a maximumminimum ratio of liabilities tounencumbered asset value (4) a maximum distribution covenantto total commitments. As of December 31, 2011 and (5) a minimum net worth covenant,December 31, 2010, we were in compliance with all of which are defined in the Loan Agreement.applicable covenants. In addition, the Loan Agreementcredit agreement includes events of default that we believe are customaryusual for facilities and transactions of this type. Astype, including restricting us from making distributions to our stockholders in the event we are in default under the credit agreement, except to the extent necessary for us to maintain our REIT status.
See Note 22, Subsequent Events, for information regarding our January and February 2012 draws of December 31, 2008$27,000,000 and 2007, we were in compliance with all such covenants and requirements.$55,000,000, respectively, on our unsecured revolving credit facility. Additionally, see Note 22 for discussion of our proposed new credit facility.

10.    Identified Intangible Liabilities, Net
As of December 31, 2008 and 2007, borrowings under our secured revolving line of credit with LaSalle and KeyBank totaled $0 and $51,801,000, respectively. Borrowings as of December 31, 2007 bore interest at a weighted average interest rate of 6.93% per annum.
10.  Identified Intangible Liabilities, Net
Identified intangible liabilities, net for our properties consisted of the following as of December 31, 20082011 and 2007:2010:
         
  December 31, 
  2008  2007 
 
Below market leases, net of accumulated amortization of $1,400,000 and $245,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 113 months and 55 months as of December 31, 2008 and 2007, respectively). $8,128,000  $1,639,000 
         
  $8,128,000  $1,639,000 
         
  December 31,
  2011 2010
Below market leases, net of accumulated amortization of $4,214,000 and $4,735,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 208 months and 213 months as of December 31, 2011 and 2010, respectively). $8,164,000
 $9,640,000
Above market leasehold interests, net of accumulated amortization of $159,000 and $40,000 as of December 31, 2010 and 2009, respectively, (with a weighted average remaining life of 730 months and 738 months as of December 31, 2011 and 2010, respectively). 3,668,000
 3,788,000
Total $11,832,000
 $13,428,000
Amortization expense recorded on the identified intangible liabilities attributable to our properties for the years ended December 31, 2011, 2010 and 2009 was $1,744,000, $1,737,000, and $1,783,000, respectively. Of these amounts, for the years ended December 31, 20082011, 2010, and 20072009, $1,624,000, $1,697,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006$1,783,000, respectively was $1,280,000, $255,000recorded to rental income and $120,000, $40,000, and $0, respectively which iswas recorded toagainst rental incomeexpense in our accompanying consolidated statements of operations.


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated amortization expense on the identified intangible liabilities as of December 31, 2008associated with our properties for each of the next five years ending December 31 and thereafter is as follows:
     
Year Amount 
 
2009 $1,751,000 
2010 $1,441,000 
2011 $1,013,000 
2012 $841,000 
2013 $704,000 
Thereafter $2,378,000 
11.  Commitments and Contingencies
Litigation
Year Amount
2012 $1,459,000
2013 1,259,000
2014 861,000
2015 683,000
2016 572,000
Thereafter 6,998,000
Total $11,832,000

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 position, results of operations or cash flows.
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,

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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


results of operations or cash flows. Further, we are not aware of any material 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 otherDuring the time that we were offering shares under our initial and follow-on offerings as a self-managed company, we were responsible for all of our organizational and offering expenses are being paid by our advisor or its affiliates on our behalf.expenses. These other organizational and offering expenses includeincluded all expenses (other than selling commissions and the marketing support feedealer manager fees, which generally representrepresented 7.0% and 2.5%3.0% of our gross offering proceeds, respectively) to be paid by us in connection with our offering. These expenses will only becomeinitial and follow-on offerings.
Tax Status
We have entered into a closing agreement with the IRS, or the Closing Agreement, pursuant to which (i) the IRS agreed not to challenge our liabilitydividends as preferential for our taxable years 2007, 2008, 2009, and 2010, and (ii) we paid a compliance fee in an immaterial amount to the extent other organizational and offering expenses do not exceed 1.5% of the gross proceeds of our offering. As of December 31, 2008, our advisor and its affiliates have not incurred other organizational and offering expenses that exceed 1.5% of the gross proceeds of our offering. As of December 31, 2007, our advisor and its affiliates had incurred other organizational and offering expenses of $1,086,000 in excess of 1.5% of the gross proceeds of our offering, and therefore these expenses are not recorded in our accompanying consolidated financial statements as of December 31, 2007, however, these expenses were recorded and have been paid in 2008.IRS. In the future, to the extent our advisor or its affiliates incur additional other organizational and offering expenses in excess of 1.5% of the gross proceeds of our offering, these amounts may become our liability. 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


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$3,900,000. We anticipate exercising our right to purchase the 20.0% membership interest. However, 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 the greater of $10.00 or the fair market value as determined in accordance with the operating agreement.terms of the Closing Agreement, any reimbursement to us for our payment of this compliance fee will be considered gross income. As a result of December 31, 2008 the estimated redemption value is $3,133,000.Closing Agreement, we continue to qualify as a REIT and to satisfy our distribution requirements.
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 Affiliates
12.    Related Party Transactions
Transition: Self-Management
SomeUpon the effectiveness of our executive officers are also executive officersinitial offering on September 20, 2006, we entered into an advisory agreement with our former advisor, or the Advisory Agreement, and employeesand/or holders of a direct or indirect interest in our advisor, our sponsor, Grubb & Ellis Realty Investors, LLC, or other affiliated entities. Upon the effectiveness of our offering, we entered into the Advisory AgreementGERI, and a dealer manager agreement or the Dealer Manager Agreement, with Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities, or our former dealer manager. These agreements entitleentitled our former advisor, our former dealer manager and their affiliates to specified compensation for certain services as well as reimbursement of certain expenses.
OnIn 2008, we announced our plans to transition to a self-managed company. As part of our transition to self management, on November 14, 2008, we amended and restated the Advisory Agreement with our advisor and Grubb & Ellis Realty Investors. The Advisory Agreement, as amended November 14, 2008, was effective as of October 24, 2008, to reduce acquisition and expiresasset management fees, eliminate the need to pay disposition or internalization fees, to set the framework for our transition to self-management and to create an enterprise value for our company. On November 14, 2008, we also amended the partnership agreement for our operating partnership. Pursuant to the terms of the partnership agreement as amended, our former advisor had the ability to 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 upon certain liquidity events if specified stockholder return thresholds were met. This right was subject to a number of conditions and had been the subject of dispute between the parties, as well as monetary and other claims.
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, Realty Capital Securities, LLC, or RCS, an unaffiliated third party, assumed the role of dealer manager for the remainder of the offering period. The Advisory Agreement expired in accordance with its terms on September 20, 2009.
On October 18, 2010, we and our former advisor and certain of its affiliates entered into a redemption, termination and release agreement, or the Redemption Agreement. Pursuant to the Redemption Agreement, we purchased the limited partner interest, including all rights with respect to a subordinated distribution upon the occurrence of specified liquidity events and other rights held by our former advisor in our operating partnership, for $8,000,000, of which $7,285,000 is reflected in our Consolidated Statement of Operations for the year ended December 31, 2010. In addition, pursuant to the Redemption Agreement the parties resolved all monetary claims and other matters between them, and entered into certain mutual and other releases of the parties. We believe that the execution of the Redemption Agreement represented the final stage of our successful separation from our former advisor.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Fees and Expenses Paid to Former Affiliates
In the aggregate, for the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $82,622,000, $38,283,000 and $312,000, respectively,fees to our former advisor orand its affiliates as detailed below.of $0, $0, and $71,194,000, respectively.
Offering Stage
Selling Commissions
OurPrior to the transition of the dealer manager receivesfunction 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 may re-allowre-allowed all or a portion of these fees to participating broker-dealers. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $36,307,000, $14,568,000$0, $0, and $0,$35,337,000, respectively, in selling commissions to our former dealer manager. Such selling commissions are charged to stockholders’ equity (deficit) as such amounts arewere reimbursed to our former dealer manager from the gross proceeds of our initial offering.
Marketing Support FeeFees and Due Diligence Expense Reimbursements
Our former dealer manager receivesreceived 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 may re-allowre-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 may reimbursereimbursed 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 accountable bona fide due diligence expenses.broker-dealers. For the years ended December 31, 20082011, 2010, and 20072009, we incurred $0, $0, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$13,209,000, $5,382,000 and $0,$12,786,000, respectively, in marketing support fees and due diligence expense reimbursements to our former dealer manager. Such fees and reimbursements are charged to stockholders’ equity (deficit) 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 arewere paid by our former advisor or Grubb & Ellis Realty Investorsits affiliates, who we generally refer to as our former advisor, on our behalf. Our former advisor or Grubb & Ellis Realty Investors arewas 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 years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $5,630,000, $3,170,000$0, $0, and $0,$2,557,000, respectively, in offering expenses to our advisor and its affiliates.former advisor. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity (deficit) 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,We paid 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, as amended November 14, 2008, the acquisition fee payable to our 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 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, as amended November 14, 2008, 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 advisor or its affiliate will be entitled to receive these acquisition fees for real estateproperties and other real estate related assets acquired with funds raised in our initial offering includingby our former dealer manager for such acquisitions completed after the terminationexpiration of the Advisory Agreement, as amended November 14, 2008, subjectAgreement. We are no longer required to certain conditions.pay such fees to our former advisor.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $16,226,000, $12,253,000$0, $0, and $0,$10,738,000, respectively, in acquisition fees to our advisor or its affiliates. Through December 31, 2008, acquisitionformer advisor. Acquisition fees are capitalized as partincluded in acquisition-related expenses in our accompanying consolidated statements of the purchase price allocations.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reimbursement of Acquisition Expenses
Our advisor or its affiliates are reimbursedoperations 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 determined to be commercially competitive, fair and reasonable to us by a majority of our directors not interested in the transaction and by a majority of our independent directors not interested in the transaction. For the years ended December 31, 200820112010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $24,000, $12,000 and $0, respectively, for such expenses to our advisor and its affiliates, excluding amounts our advisor and its affiliates paid directly to third parties. Through December 31, 2008, acquisition expenses are capitalized as part of the purchase price allocations.2009.
Operational Stage
Asset Management Fee
For the period from September 20, 2006 through October 24, 2008,Prior to our transition to self-management, our former advisor or its affiliates werewas paid a monthly fee for services rendered in connection with the management of our assets in an amount equalassets. As part of our transition 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, subjectself-management, this fee 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 is calculated and payable monthly in cash or shares of our common stock at the option of ourformer advisor or one of its affiliates.
In connection with the Advisory Agreement, as amended November 14, 2008, the monthly asset management fee we pay to our advisorwas eliminated in connection with the managementexpiration 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.the Advisory Agreement.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $6,177,000, $1,590,000$0, $0, and $0,$3,783,000, respectively, in asset management fees to our advisor and its affiliates, which is included in general and administrative in our accompanying consolidated statementsformer advisor.


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Healthcare Trust of operations.America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Property Management Fee
Our former advisor or its affiliates arewas paid a monthly property management fee equal to 4.0% of the monthly gross cash receipts from each property managed.of our properties through August 31, 2009. For properties managed by other third parties besides our former advisor, or its affiliates, our former advisor or its affiliates will bewas paid up to 1.0% of the gross cash receipts from the property foras a monthly oversight fee. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $2,372,000, $591,000$0, $0, and $0,$2,289,000, respectively, in property management fees and oversight fees to our former advisor, and its affiliates, which is included in rental expenses in our accompanying 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, or its affiliates, as the property manager, may receivewas 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 years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $1,248,000, $265,000$0, $0, and $0,$1,665,000, respectively, to Triple Net Properties Realty, Inc., or Realty and its affiliates in lease fees.


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fees, which are capitalized and included in other assets, net, in our accompanying consolidated balance sheets.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On-site Personnel and Engineering Payroll
For the years ended December 31, 20082011, 2010, and 20072009, GERI incurred $0, $0, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, Grubb & Ellis Realty Investors incurred payroll for$1,827,000 respectively, in on-site personnel and engineering on our behalf of $1,012,000, $162,000 and $0, respectively,payroll, which is included in rental expenses in our accompanying consolidated statements of operations.
Operating Expenses
We reimbursereimbursed our former advisor or its affiliates for operating expenses incurred in rendering its services to us, subject to certain limitations on our operating expenses. However, we cannotWe did not reimburse our former advisor or its affiliates for operating expenses that in the four consecutive fiscal quarters then ended exceedexceeded 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 determinedetermined that such excess expenses were justified based on unusual and non-recurring factors they deem sufficient. For the 12 months ended December 31, 2008, ourfactors. Our operating expenses did not exceed this limitation. Our operating expenses as a percentagelimitation during the term of average invested assets and as a percentage of net income were 1.2% and 81.4%, respectively, for the 12 months ended December 31, 2008.Advisory Agreement.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, Grubb & Ellis Realty Investors2009, GERI incurred on our behalf $278,000, $203,000$0, $0, and $312,000,$35,000, respectively, in operating expenses which is included in general and administrative expenses in our accompanying consolidated statements of operations.
Related Party Services Agreement
We entered into a services agreement, effective January 1, 2008, with Grubb & Ellis Realty InvestorsGERI for subscription agreement processing and investor services. The services agreement had an initial one year term and is automatically renewed forwas subject to successive one year terms. Since Grubb & Ellis Realty Investors isrenewals. On March 17, 2009, GERI provided notice of its termination of the managing memberservices agreement. The termination was to be effective September 20, 2009; however as part of our advisor,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 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. The services agreement requires Grubb & Ellis Realty Investors to provide us with a 180 day advance written notice for any termination, while we have the right to terminate upon 30 days advance written notice.GERI terminated on August 9, 2009.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $130,000,$0, $0, and $0,$177,000, respectively, for investor services that Grubb & Ellis Realty InvestorsGERI provided to us, which is included in general and administrative expenses in our accompanying consolidated statements of operations.
Liquidity Stage
ForDisposition Fee
We paid no disposition fees to our former advisor under the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Dateterms of Inception) through December 31, 2006, our advisor and its affiliates incurred $172,000, $0 and $0, 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 cumulative other organizational and offering expenses do not exceed 1.5% of the gross proceeds of our offering.
Compensation for Additional Services
Our advisor or its affiliates are paid for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rateIn addition, we have no obligation to pay any disposition fees to our former advisor in the future.

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America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $7,000, $3,000 and $0, respectively, for tax services that Grubb & Ellis Realty Investors provided to us, which is included in general and administrative in our accompanying consolidated statements of operations.
Liquidity Stage
Disposition Fee
Our advisor or its affiliates will be paid, for services relating to a sale of one or more properties, a disposition fee up to the lesser of 1.75% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, as determined by our board of directors, which will not exceed market norms. The amount of disposition fees paid, plus any real estate commissions paid to unaffiliated parties, will not exceed the lesser of a customary competitive real estate disposition fee given the circumstances surrounding the sale or an amount equal to 6.0% of the contract sales price. For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such disposition fees.
Subordinated Participation Interest
Subordinated Distribution of Net Sales Proceeds
Upon liquidation of our portfolio, our advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the net proceeds from the sales of properties, after subtracting distributions to our stockholders of: (1) their initial contributed capital (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase program) plus (2) an annual cumulative, non-compounded return of 8.0% on average invested capital. Actual amounts depend upon the sales prices of properties upon liquidation.
For the years ended December 31, 2008 and 2007 and for the period April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distribution.
Subordinated Distribution upon Listing
Upon the listing of shares of our common stock on a national securities exchange, our advisor will be paid a distribution equal to 15.0% of the amount by which: (1) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on average invested capital through the date of listing. Actual amounts depend upon the market value of shares of our common stock at the time of listing, among other factors. For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distribution.
Subordinated Distribution upon Termination
Upon termination of the Advisory Agreement, other than a termination by us for cause, our advisor will 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 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


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. However, our advisor will not be entitled to this distribution if our shares have been listed on a national securities exchange prior to the termination of the Advisory Agreement.
Pursuant to the terms of the Partnership Agreement Amendment,partnership agreement for our operating partnership, as amended on November 14, 2008, our former advisor may elect to defer itshad the right to receive a subordinated distribution fromupon the occurrence of certain liquidity events based on the value of our operating partnership afterassets owned at the termination oftime the Advisory Agreement subject to certain conditions.
On November 14, 2008, we entered into an amendment to the partnership agreement for our operating partnership, or the Partnership Agreement Amendment. The Partnership Agreement Amendment provides that after the termination of the Advisory Agreement without cause, if there is a listing of our shares of common stock on a national securities exchange or a merger in which our stockholders receive in exchange for shares of our common stock shares of a company that are tracked on a national securities exchange, our advisor will 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 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,was terminated plus any assets acquired after such termination for which our former advisor was entitled to receivereceived 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 byfee. On October 18, 2010, this right was purchased along with our former advisor’s partnership units in 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 offering) (less amounts paid to redeem shares pursuant to the Redemption Agreement as discussed above. As a result, our share repurchase plan) plus an annual 8.0% cumulative, noncompounded return on such invested capital andformer advisor no longer has the capital value of such partnership units measured for the period from inception through the listing date or merger date, as applicable.
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur suchright to receive any subordinated distribution.

Accounts Payable Due to Affiliates, Net
The following amounts were outstanding to affiliates as13.    Redeemable Noncontrolling Interest of December 31, 2008 and 2007:
           
    December 31, 
Entity Fee 2008  2007 
 
Grubb & Ellis Realty Investors Operating Expenses $33,000  $79,000 
Grubb & Ellis Realty Investors Offering Costs  797,000   798,000 
Grubb & Ellis Realty Investors Due Diligence     25,000 
Grubb & Ellis Realty Investors On-site Payroll and Engineering  207,000   51,000 
Grubb & Ellis Realty Investors Acquisition Related Expenses  103,000   4,000 
Grubb & Ellis Securities Selling Commissions
and Marketing Support Fees
  1,120,000   288,000 
Realty Asset and Property Management Fees  726,000   941,000 
Realty Lease Commissions  77,000   170,000 
           
    $3,063,000  $2,356,000 
           


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unsecured Note Payables to Affiliate
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $2,000, $84,000 and $0, respectively, in interest expense to NNN Realty Advisors. See Note 7, Mortgage Loan Payables, Net and Unsecured Note Payables to Affiliate — Unsecured Note Payables to Affiliate, for a further discussion.
13.  Minority Interests
Limited Partners
As of December 31, 20082011 and 2007,2010, we owned a 99.99%an approximately 99.93% and an approximately 99.92%, respectively, general partnership interest in our operating partnership and our advisor owned a 0.01% limited partnershippartner interest in our operating partnership. As such, 0.01%of December 31, 2011, and December 31, 2010, approximately 0.07% and 0.08% of our operating partnership was owned by individual 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, as of December 31, 2011, approximately 0.07% of the earnings of our operating partnership are allocated to minority interests.the redeemable noncontrolling interest of limited partners.
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 84% of the limited partner interests in the Fannin partnership. The original investors, each of whom was a physician practicing at the Fannin medical office building at the time of acquisition, 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 investors elected to remain in the Fannin partnership post-closing as limited partners. Those investors electing to remain in the Fannin partnership or to receive limited partner units in our operating partnership were provided opportunities for future redemption of their interests/units, exercisable at the option of the holder during periods specified within the agreement.
In addition, asAs of December 31, 2008 and 2007,2009, we owned an 80.0% interest in the JV Company that owns the Chesterfield Rehabilitation Center, which was originally purchased on December 20, 2007. As ofThe redeemable noncontrolling interest balance related to this arrangement at December 31, 2008 and 2007, the balance2009 was comprised of the minority interest’snoncontrolling interest's initial contribution, and 20.0% of the earnings at the Chesterfield Rehabilitation Center. 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, 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.
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. Additionally, as the noncontrolling interests provide for redemption features not solely within the control of the issuer, we classify such interests outside of permanent equity. As of December 31, 2011 and 2010, redeemable noncontrolling interest of limited partners was $3,785,000 and $3,867,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Balance as of December 31, 2009$3,549,000
Net loss attributable to noncontrolling interest of limited partners(16,000)
Distributions(145,000)
Valuation adjustments to noncontrolling interests570,000
Redemption of limited partner interest of former advisor(197,000)
Purchase of Chesterfield 20% interest(3,900,000)
Addition of noncontrolling interest attributable to the Fannin acquisition4,006,000
Balance as of December 31, 2010$3,867,000
  
Balance as of December 31, 2010$3,867,000
Net income attributable to noncontrolling interest of limited partners52,000
Distributions(134,000)
Balance as of December 31, 2011$3,785,000
For the year ended December 31, 2008, we recorded a purchase price allocation adjustment related2011, the $52,000 in net income attributable to noncontrolling interest shown on our December 31, 2011 consolidated statement of operations reflects net income attributable to the Chesterfield Rehabilitation Center.
14.  Stockholders’ Equity (Deficit)
Common Stock
ThroughFannin partnership. For the year ended December 31, 2008,2010, the ($16,000) in net loss attributable to noncontrolling interest shown on our December 31, 2010 consolidated statement of operations reflects $64,000 in net income earned by the noncontrolling interest in the JV Company prior to our purchase of this noncontrolling interest on March 24, 2010 and $18,000 in net income attributable to our former advisor's limited partner interest, offset by a net loss of ($98,000) attributable to the Fannin partnership following our purchase of the majority interest in this partnership on June 30, 2010.

14.    Stockholders’ Equity
Common Stock
Through December 31, 2011, we granted an aggregate of 90,200961,687 shares of restricted common stock to our independent directors, Chief Executive Officer, Chief Financial Officer, Executive Vice President — Acquisitions, Executive Vice President — Asset Management, and affiliatesother employees pursuant to the terms and conditions of our 2006 Incentive Plan.Plan, Employment Agreements, and the employee retention program described below. Through December 31, 2008,2011, we issued 73,824,809219,394,430 shares of our common stock in connection with our initial offering and 1,660,176follow-on offering and 19,657,520 shares of our common stock under the DRIP, and we repurchased 109,74811,170,638 shares of our common stock under our share repurchase plan. As of December 31, 20082011 and 2007,2010, we had 75,465,437228,491,312 and 21,449,451202,643,705 shares of our common stock outstanding, respectively.
We arePursuant to our follow-on offering, and sellingwe offered 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. On February 28, 2011, we stopped offering shares in our primary offering. However, for noncustodial accounts, subscription agreements signed on or before February 28, 2011 with all documents and funds received by end of business March 15, 2011 were accepted. For custodial accounts, subscription agreements signed on or before February 28, 2011 with all documents and funds received by end of business March 31, 2011 were accepted.
On December 20, 2010, our stockholders approved an amendment to our charter to provide for the reclassification and conversion of our common stock in the event our shares are listed on a national securities exchange to implement a phased in liquidity program. We proposed these amendments and submitted them for approval by our stockholders to prepare our company in the event we pursue a listing. Under the phased in liquidity program, our common stock would reclassify and convert into shares of Class A common stock and Class B common stock immediately prior to a listing. In the event of a listing, the shares of Class A common stock would be immediately listed on a national securities exchange. The shares of Class B common stock would not be listed. Rather, those shares would convert into shares of Class A common stock and become listed in defined phases, over a defined period of time within 18 months of a listing. The phased in liquidity program is intended to provide for our stock to be transitioned into the public market in a way that minimizes the stock-pricing instability that could result from concentrated sales of our stock.


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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Preferred Stock
Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. As of December 31, 20082011 and 2007,2010, no shares of preferred stock were issued and outstanding.
Distribution Reinvestment Plan
We adopted the DRIP that allows stockholders to purchase additional shares of 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 and we registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in our follow-on offering. For the years ended December 31, 20082011, 2010 and 20072009, $75,864,000, $56,551,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, $13,099,000, $2,673,000 and $0,$38,559,000, respectively, in distributions were reinvested and 1,378,795, 281,3817,985,655, 5,952,683, and 04,059,006 shares of our common stock, respectively, were issued under the DRIP. As of December 31, 2008 and 2007, a total of $15,772,000 and $2,673,000, respectively, in distributions were reinvested and 1,660,176 and 281,381 sharesWith the termination of our common stock, respectively, were issuedfollow-on offering on February 28, 2011, except for the DRIP, we will periodically review potential alternatives for our DRIP, including the amendment, suspension or termination of the plan.
On August 1, 2011, our board of directors adopted an amended and restated distribution reinvestment plan, or the amended DRIP, which became effective August 11, 2011.
The DRIP originally provided that the purchase price for shares under the DRIP.DRIP be offered at $9.50 per share for up to 12 months subsequent to the close of our last public offering of shares prior to the potential listing of the shares on a national securities exchange, or a listing. Certain rules and regulations promulgated by the Financial Industry Regulatory Authority, Inc., or FINRA, require that we or a third party firm establish a per share estimated valuation not based on the price to acquire our shares in a public offering not later than 18 months after the conclusion of a public offering.
Our board has determined that it is in the best interests of the company and its stockholders to ensure that we have adequate time to undertake procedures necessary to calculate an estimated value per share as required by FINRA. Accordingly, the amended DRIP provides that the purchase price for shares under the DRIP will initially be offered at $9.50 per share for up to 18 months subsequent to the close of our last public offering of shares prior to a listing. We stopped offering shares in our follow-on offering on February 28, 2011 and therefore we currently anticipate that we will establish a per share valuation for our shares by August 28, 2012. After we publish such valuation, under the amended DRIP participants may acquire shares at 95% of the per share valuation determined by the Company or another firm chosen for that purpose until a listing. From and after the date of a listing, participants may acquire shares at a price equal to 100% of the average daily open and close price per share on the distribution payment date, as reported by the national securities exchange on which the shares are traded.
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


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for share repurchases by us when certain criteria are met by the requesting stockholders. Share repurchases will be made at the sole discretion of our board of directors. On November 24, 2010, we, with the approval of our board of directors, elected to amend and restate our share repurchase plan. Starting in the first calendar quarter of 2011, we will fund a maximum of $10 million of share repurchase requests per quarter, subject to available funding. Funds for the repurchase of shares of our common stock will come exclusively from the proceeds we receive from the sale of shares of our common stock under the DRIP.
Our board In addition, with the termination of directors adopted and approved certain amendments toour follow-on offering on February 28, 2011, except for the DRIP, we are conducting an ongoing review of potential alternatives for our share repurchase plan, which became effective August 25, 2008. The primary purposeincluding the suspension or termination of the amendments is 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.
plan.
For the year ended December 31, 2008,2011, we repurchased 109,7483,882,619 shares of our common stock, at an average price of $9.70 per share, for an aggregate amount of $1,077,000. During$37,680,000. For the year ended December 31, 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2010, we did not repurchase any sharerepurchased 5,448,260 shares of our common stock.stock, at an average price of $9.52 per share, for an aggregate amount of $51,856,000. For the year ended December 31, 2009, we repurchased 1,730,011 shares of our common stock, at an average price of $9.40 per share, for an aggregate amount of $16,266,000. As of December 31, 2011 and 2010, we had repurchased a total of 11,170,638 shares of our common stock, at an average price of $9.57 per share, for an aggregate amount of $106,879,000 and 7,288,019 shares of our common stock, at an average price of $9.49 per share, for an aggregate amount of $69,199,000, respectively.

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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Amended and Restated 2006 Incentive Plan and 2006 Independent Directors Compensation Plan
Under the termsOn February 24, 2011, as a result of our compensation committee's and board of directors' comprehensive review of our compensation structure, our board of directors amended and restated our 2006 Incentive Plan, or the Amended and Restated 2006 Plan. Consistent with the original plan, the Amended and Restated 2006 Plan permits the grant of incentive awards to our employees, officers, non-employee directors, and consultants as selected by our board or the compensation committee. Our philosophy regarding compensation is to structure employee compensation to promote and reward performance-based behavior, which results in risk-managed, added value to our company and stockholders. The plan is designed to provide maximum flexibility to our company consistent with our current size, the stage of our life cycle, and our overall strategic plan. As and when our board and compensation committee determine various performance-based awards, the details of such awards, such as vesting terms and post-termination exercise periods, will be addressed in the individual award agreements.
The Amended and Restated 2006 Incentive Plan authorizes the granting of awards in any of the following forms: options, stock appreciation rights, restricted stock, restricted or deferred stock units, performance awards, dividend equivalents, other stock-based awards, including units in operating partnership, and cash-based awards. Subject to adjustment as provided in the Amended and Restated 2006 Incentive Plan, the aggregate number of shares of our common stock subjectreserved and available for issuance pursuant to options,awards granted under the Amended and Restated 2006 Incentive Plan is 10,000,000 (which includes 2,000,000 shares of restricted common stock, stock purchase rights, stock appreciation rights or other awards, including those issuableoriginally reserved for issuance under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.plan and 8,000,000 new shares added pursuant to the amendment and restatement).
On September 20, 2006During the years ended December 31, 2011 and October 4, 2006,2010, we granted an aggregate of 15,00037,500 and 37,500 shares, and 5,000 shares, respectively, of restricted common stock, as defined in our 2006 Incentive Plan, to our independent directors under the 2006 Independent Director Compensation Plan. On April 12, 2007, we granted 5,000 shares of restricted common stock to our newly appointed independent director. On each of June 12, 2007 and June 17, 2008, in connection with their re-election, we granted 12,500 shares of restricted common stock in the aggregate 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 vestvested and becomebecame non-forfeitable in equal annual installments of 33.3% each, on the first, second and third anniversaries of the grant date. Pursuant to the terms of his new employment agreement, on July 1, 2009, Mr. Peters was entitled to receive 50,000 shares of fully vested stock under, and pursuant to, the terms and conditions of our 2006 Incentive plan and his employment agreement. Pursuant to the terms of his new employment agreement, on July 1, 2009, Mr. Peters was also entitled to receive an annual award of 100,000 shares of restricted common stock with three additional annual awards of 100,000 shares beginning July 1, 2010, subject to board approval, under, and pursuant to, the terms and conditions of our 2006 Incentive plan and his employment agreement. On May 20, 2010, the Board approved an amendment to Mr. Peters’ employment agreement with the Company to increase the number of restricted shares Mr. Peters is entitled to receive on each of the first three anniversaries of the effective date of his employment agreement from 100,000 to 120,000. The share awards will vest and become non-forfeitable over the balance of the term of his employment agreement. The terms of his employment agreement provide Mr. Peters with the option to receive cash in lieu of stock for up to 50% of the grants made under his employment agreement at the time of issuance at the common stock fair value on the grant date, which option has been exercised with respect to all grants under his agreement. Accordingly, Mr. Peters received grants of 120,000 shares on July 1, 2011 and 2010, respectively, and elected to receive a restricted cash award in lieu of 60,000 shares during each of those years.
Employee Retention Program
On May 20, 2010, the Board approved the adoption of an employee retention program pursuant to which the Company will grant its executive officers and employees restricted shares of the Company’s common stock. The purpose of this program is to incentivize the Company’s executive officers and employees to remain with the Company for a minimum of three years, subject to meeting the Company’s performance standards.
As part of the first stage of this program, on May 24, 2010, our named executive officers were entitled to receive grants aggregating to 200,000 shares of restricted stock. Mr. Peters elected to receive a restricted cash award in lieu of half of his total grant. Additionally, on January 3, 2011, Mr. Peters, Ms. Pruitt, Mr. Engstrom, and other key employees, were entitled to receive grants of 200,000, 80,000, 80,000, and 10,000 shares of restricted stock, respectively. Mr. Peters elected to receive a restricted cash award in lieu of 100,000 shares. The restricted shares and the restricted cash award granted to Mr. Peters on January 3, 2011 vested one-fourth upon grant, and the remaining shares and cash award will vest in thirds on each anniversary of the grant date, provided that he is employed by the Company on such date. All of the shares granted to Ms. Pruitt, Mr. Engstrom, and the other employees will vest 100% on the third anniversary of the grant date, provided that the grantee is employed by the Company on such date.
In December 2010 and January 2011, we granted 110,000 and 16,000 shares, respectively, to other employees as part of the second stage of this program. Each of these grants will vest 100% on the third anniversary of the grant date, provided that the grantee is employed by the Company on such date.

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Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Share-Based Compensation
The fair value of each share of restricted common stock wasand 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 of our common stock in our offering,initial and follow-on offerings, 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 years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009 we recognized compensation expense of $130,000, $96,000$3,221,000, $1,313,000, and $51,000,$816,000, respectively, related to the restricted common stock grants, whichgrants. Such compensation expense is included in general and administrative expenses in our accompanying 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 every reporting period end with the cash redemption liability reflected on our consolidated balance sheets, if material. For the year ended December 31, 2011, 104,167 shares were settled in cash for approximately $1,042,000. For the year ended December 31, 2010, 32,500 shares were settled in cash for approximately $325,000. For the year ended December 31, 2009, 37,500 shares were settled in cash for approximately $375,000. As of December 31, 2011 and 2010, the liability balances associated with the cash awards were $663,000 and $263,000, respectively.
As of December 31, 20082011 and 2007,2010, there was $623,000approximately $3,962,000 and $228,000,$4,143,000, respectively, of total unrecognized compensation expense net of estimated forfeitures, related to nonvested shares of restricted common stock. As of December 31, 2008,2011, this expense is expected to be recognized over a remaining weighted average period of 2.82.3 years.


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 20082011 and 2007,2010, the fair value of the nonvested shares of restricted common stock and restricted common stock units was $685,000$6,165,000 and $260,000,$4,352,000, respectively. A summary of the status of the nonvested shares of restricted common stock and restricted common stock units as of December 31, 2008, 20072011, 2010, and 2006, and the changes for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009 is presented below:

         
     Weighted
 
  Restricted
  Average Grant
 
  Common
  Date Fair
 
  Stock  Value 
 
Balance — April 28, 2006 (Date of Inception)    $         — 
Granted  20,000   10.00 
Vested  (4,000)  10.00 
Forfeited      
         
Balance — December 31, 2006  16,000   10.00 
Granted  17,500   10.00 
Vested  (7,500)  10.00 
Forfeited      
         
Balance — December 31, 2007  26,000   10.00 
Granted  52,500   10.00 
Vested  (10,000)  10.00 
Forfeited      
         
Balance — December 31, 2008  68,500  $10.00 
         
Expected to vest — December 31, 2008  68,500  $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
 
Restricted
Common
Stock/Units
 
Weighted
Average Grant
Date Fair
Value
Balance — December 31, 200868,500
 $10.00
Granted, net165,000
 10.00
Vested(65,833) 10.00
Balance — December 31, 2009167,667
 $10.00
Nonvested shares expected to vest — December 31, 2009167,667
 $10.00
Granted, net357,500
 $10.00
Vested(85,157) 10.00
Forfeited(4,842) 
Balance — December 31, 2010435,168
 $10.00
Nonvested shares expected to vest — December 31, 2010435,168
 $10.00
Granted, net383,500
 $10.00
Vested(163,681) 10.00
Forfeited(38,481) 10.00
Balance — December 31, 2011616,506
 $10.00
Nonvested shares expected to vest — December 31, 2011616,506
 $10.00



106

Healthcare Trust of the Partnership Agreement Amendment, our advisor may elect to defer its right to receive a subordinated distribution from our operating partnership after the termination of the Advisory Agreement, subject to certain conditions.America, Inc.
The Partnership Agreement Amendment provides that after the termination of the Advisory Agreement if there is a listing of our shares on a national securities exchange or a merger in which our stockholders receive in exchange for shares of our common stock shares of a company that are tracked on a national securities exchange, our advisor will 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 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 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 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 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.


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


15.    Fair Value of Financial Instruments
In addition, the Partnership Agreement Amendment providesASC 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 after the termination date in the event offair value is a liquidation or sale of all or substantially allmarket-based measurement, as opposed to a transaction-specific measurement and most of the assetsprovisions 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 operating partnership,asset or an other liquidity event, then our advisor willliability, various techniques and assumptions can be entitledused to receive a distributionestimate the fair value. Financial assets and liabilities are measured using inputs from our operating partnership in an amount equal to 15.0%three levels of the net proceedsfair 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 saleextent that observable inputs are not available, reflect our assumptions about the pricing of the Included Assets, after subtracting distributions to our stockholders and the limited partners who received partnership units in connection with the acquisitionan asset or liability.
ASC 825, Financial Instruments, ASC 825, requires disclosure of the Included Assets of: (1) their initial invested capital and the capitalfair 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) anfinancial instruments in interim financial statements as well as in 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 years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we have not recorded any charges to earnings related to the subordinated participation interest.
16.  financial statements.Fair Value of Financial Instruments
We use fair value measurements to record the 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 under SFAS No. 107,Disclosure About Fair Value of Financial Instruments, or SFAS No. 107.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 the provisions of SFAS No. 157,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 derivativesthese instruments 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 December 31, 2008,2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap and interest rate cap derivative positions and have determined that the credit valuation adjustments are not significant to thetheir overall valuation of our derivatives.valuation. 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.


132





107

Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Earnout Liability

As of December 31, 2011, we owned one property, purchased during the third quarter of 2010, that is subject to an earnout provision obligating us to pay additional consideration to the seller contingent on the future leasing and occupancy of vacant space at the property. This earnout payment is based on a predetermined formula and has a set 24-month time period regarding the obligation to make these payments. If, at the end of this time period, certain space has not been leased and occupied, we will have no further obligation. Its fair value is based upon the expected probability of lease-up and subsequent payment of the earnout through the expiration of the earnout period, which ends in August 2012.

As such, valuation of this liability required utilization of Level 3 inputs, including management estimates of the timing and likelihood of lease-up, as there is no public market for this item and thus Level 1 and Level 2 inputs are unavailable for an item of this nature. As a result, we have determined that the valuation of the earnout is classified within Level 3 of the fair value hierarchy. During the year ended December 31, 2011, there have been no purchases, sales, issuances, or settlements with respect to this earnout liability.
As of December 31, 2011, there have been no transfers of assets or liabilities between levels.
Assets and liabilitiesLiabilities at fair valueFair Value
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2008,2011, aggregated by the level in the fair value hierarchy within which those measurements fall.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 $  110,330,000  $  —  $             —  $110,330,000 
                 
Total assets at fair value $110,330,000  $  $  $110,330,000 
                 
Liabilities
                
Derivative financial instruments $  $(14,198,000) $  $(14,198,000)
                 
Total liabilities at fair value $  $  (14,198,000) $  $(14,198,000)
                 
We did not have any
 
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1 )
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 Total
Assets 
  
  
  
Derivative financial instruments$
 $89,000
 $
 $89,000
Total assets at fair value$
 $89,000
 $
 $89,000
Liabilities 
  
  
  
Derivative financial instruments$
 $(1,792,000) $
 $(1,792,000)
Earnout liability$
 $
 $(2,481,000) $(2,481,000)
Total liabilities at fair value$
 $(1,792,000) $(2,481,000) $(4,273,000)
The table below presents our assets and liabilities measured at fair value measurements using significant unobservable inputs (Level 3)on a recurring basis as of December 31, 2008.2010, aggregated by the level in the fair value hierarchy within which those measurements fall:
 
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1 )
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 Total
Assets 
  
  
  
Money market funds$43,000
 $
 $
 $43,000
Derivative financial instruments(a)
 680,000
 

680,000
Total assets at fair value$43,000
 $680,000
 $

$723,000
Liabilities 
  
  
  
Derivative financial instruments$
 $(1,527,000) $
 $(1,527,000)
Earnout liability$
 $
 $(2,481,000) $(2,481,000)
Total liabilities at fair value$
 $(1,527,000) $(2,481,000) $(4,008,000)
Financial Instruments Disclosed at Fair Value
SFAS No. 107ASC 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 SFAS No. 157.
ASC 820.
Our accompanying consolidated balance sheets include the following financial instruments: real estate note receivables,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 loan payables,loans payable, net, and borrowings under the linecredit facility.

108

Healthcare Trust of credit.America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The carrying value of our note receivables, net reasonably approximates fair value based on expected interest rates for notes to similar borrowers with similar terms and remaining maturities.

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 loan payablesloans payable with similar terms and maturities. As of December 31, 2008,2011, the fair value of the mortgage loan payablesloans payable was $456,606,000,$687,862,000 compared to the carrying value of $460,762,000.$639,149,000. As of December 31, 2007,2010, the fair value of the mortgage loan payablesloans payable was $181,067,000,$727,370,000, compared to the carrying value of $185,801,000. $699,526,000.
The fair value of our secured revolving line of credit with LaSalle and KeyBank asthe notes receivable is estimated by discounting the expected cash flows on the notes at current rates at which management believes similar loans would be made. As of December 31, 2008 and 20072011, the fair value of these notes was $0 and $51,801,000,approximately $64,046,000 compared to athe carrying value of $0 and $51,801,000.


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$57,459,000. As of December 31, 2010, the fair value of these notes was approximately $67,540,000 compared to the carrying value of $57,091,000.
Grubb & Ellis Healthcare REIT, Inc.
16.    Tax Treatment of Distributions
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17.  Tax Treatment of Distributions
The income tax treatment for stockholder distributions reportable for the years ended December 31, 2008, 20072011, 2010, and 20062009 was as follows:
                         
  Years Ended December 31, 
  2008  2007  2006 
 
Ordinary income $5,879,000   21.0% $915,000   15.3% $ —     —%
Capital gain                  
Return of capital  22,163,000   79.0   5,081,000   84.7       
                         
  $28,042,000   100% $5,996,000   100% $   %
                         
18.  Future Minimum Rent
  Years Ended December 31,
  2011 2010 2009
Ordinary income $65,712,000
 40.9% $47,041,000
 40.3% $2,836,000
 3.6%
Return of capital 94,952,000
 59.1
 69,686,000
 59.7
 75,223,000
 96.4
  $160,664,000
 100.0% $116,727,000
 100.0% $78,059,000
 100.0%



17.    Future Minimum Rent
Rental Income
We have operating leases with tenants that expire at various dates through 2037 and in some cases subject to scheduled fixed increases or adjustments based on the consumer price index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 20082011 for each of the next five years ending December 31 and thereafter is as follows:
     
Year
 Amount 
 
2009 $83,797,000 
2010 $77,291,000 
2011 $68,364,000 
2012 $62,464,000 
2013 $50,866,000 
Thereafter $213,320,000 
     
Total $556,102,000 
     
YearAmount
2012$211,029,000
2013195,055,000
2014178,568,000
2015161,815,000
2016145,674,000
Thereafter672,733,000
Total$1,564,874,000
A certain amount of our rental income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the years ended December 31, 20082011, 2010 and 2007 and the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, the amount of contingent rent earned by us was not significant.

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19.  Business Combinations
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Rental Expense
We have ground leases and other operating leases with landlords that generally require fixed annual rental payments and may also include escalation clauses and renewal options. These leases have terms up to 99 years, excluding extension options. Operating lease obligations include our corporate office location in Scottsdale, Arizona and our regional office location in Charleston, South Carolina. Future minimum lease obligations under non-cancelable ground leases and other operating leases as of December 31, 2011 are as follows:
YearAmount
2012$3,062,000
20133,111,000
20143,100,000
20152,745,000
20162,677,000
Thereafter210,603,000
Total$225,298,000

18.    Business Combinations
For the year ended December 31, 2008,2011, we completed the acquisition of 21 consolidated properties, adding a totaltwo new property portfolios as well as purchased additional medical office buildings within two of approximately 2,920,000 square feet of GLA to our property portfolio.existing portfolios. The aggregate purchase price of the 21 propertiesfor these acquisitions was $542,976,000$68,314,000 plus closing costs of $14,213,000.$851,000. See Note 3, Real Estate Investments, for a listing of the properties acquired and the dates of acquisition. Results of operations for the property acquisitions are reflected in our consolidated statements of operations for the year ended December 31, 20082011 for the periods subsequent to the acquisition dates.
In accordance with SFAS No. 141, 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 asAs of December 31, 20082011, the aggregate purchase price was allocated in the amounts shown in the table below. As the acquisitions that occurred in 2011 were determined to be individually not significant but material collectively, the allocations for these acquisitions are subject to change based on information received within one yearpresented in the aggregate, in accordance with the guidance prescribed by ASC 805. The allocable portion of the aggregate purchase date relatedprice does not include $348,000 in certain credits representative of certain purchase price adjustments and liabilities assumed by us that served to one or more events atreduce the timetotal cash tendered for these acquisitions.
2011 AcquisitionsTotal
Land$945,000
Building as vacant49,631,000
Site improvements1,784,000
Unamortized tenant improvement costs2,657,000
Leasehold interest in land, net603,000
Above market debt(76,000)
Above market leases209,000
Below market leases(149,000)
Unamortized lease origination costs1,235,000
In place leases6,436,000
Tenant relationships4,691,000
Net assets acquired$67,966,000
For the year ended December 31, 2010, we completed the acquisition of 24 property portfolios, as well as purchased additional medical office buildings within six of our existing property portfolios. In addition, we purchased the remaining 20% interest in the JV Company that owns Chesterfield Rehabilitation Center. The aggregate purchase which confirmprice for these acquisitions was $806,048,000 plus closing costs of $6,253,000. The aggregate purchase price was allocated in the valueamount of an asset acquired or a$44,050,000 to land, $608,708,000 to building and improvements, $28,093,000 to tenant improvements, $22,291,000 to lease commissions, $39,713,000 to leases in place, $57,066,000 to tenant relationships, $2,004,000 to leasehold interest in land, $(272,000) to lease fee interest in land, $(5,005,000) to above market debt, $8,608,000 to above market leases, and $(4,112,000) to below market leases. Amounts presented in the allocations pertain to all acquisitions completed during the year ended December 31, 2010 except for the Chesterfield Rehabilitation Center noncontrolling interest purchase; this purchase of


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


liability assumedthe remaining 20% interest in the joint venture entity that owns the Chesterfield Rehabilitation Center was accounted for as an acquisition of a property. The following table summarizesequity transaction and thus not included within the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for our properties where theaggregate purchase price exceeded 10.0%allocation. Additionally, the allocable portion of the aggregate purchase price did not include $1,004,000 in certain credits representative of contingent purchase price adjustments and liabilities assumed by us that served to reduce the total cash tendered for these acquisitions.
In accordance with ASC 805, Business Combinations (“ASC 805”), we, with assistance from independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the 21 propertiesvalue of the property as if it were to be replaced and allvacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships, above or below market debt assumed, and any contingent consideration transferred in the combination.
As of December 31, 2011, we owned one property, purchased during the third quarter of 2010, that is subject to an earnout provision obligating us to pay additional consideration to the seller contingent on the future leasing and occupancy of vacant space at the property. This earnout payment is based on a predetermined formula and has a set 24-month time period regarding the obligation to make these payments. If, at the end of this time period, certain space has not been leased and occupied, we will have no further obligation. The total liability balance associated with the earnout at December 31, 2011, which is recorded within "Security deposits, prepaid rent, and other properties aggregated together:liabilities" in our consolidated balance sheet, was $2,481,000.
     
  Total 
 
Land $55,062,000 
Building and improvements  418,060,000 
Above market leases  8,768,000 
In place leases  41,308,000 
Tenant relationships  38,694,000 
Leasehold interest  926,000 
Master lease  349,000 
     
Total assets acquired  563,167,000 
Below market leases  (7,768,000)
     
Total liabilities assumed  (7,768,000)
     
Net assets acquired $555,399,000 
     
Brief descriptions of the property acquisitions completed in 2011 are as follows:
Medical office building located in Phoenix, Arizona, which was purchased on February 11, 2011 for $3,762,000. This acquisition represented the final building of three in our existing Phoenix portfolio; the other two buildings comprising this portfolio were purchased during the fourth quarter of 2010.
Building located in North Adams, Massachusetts, which was purchased on February 16, 2011 for $9,182,000. This building was the final building within a portfolio of nine medical office buildings located in Albany and Carmel, New York, North Adams, Massachusetts, and Temple Terrace, Florida; the other eight buildings comprising the portfolio were purchased during the fourth quarter of 2010.
A two-building portfolio located in Bristol, Tennessee, which was purchased on March 24, 2011 for an aggregate price of $23,370,000. The first building was purchased for $5,925,000 and the second was purchased for $17,445,000. Both buildings within this portfolio are located near the campus of Wellmont Health System's Bristol Regional Medical Center.
A two-building portfolio located in Phoenix, Arizona, which was purchased on October 4, 2011 for $32,000,000. This portfolio consists of two Class A medical office buildings, comprising a total of approximately 118,000 rentable square feet (unaudited).
We recorded revenues and net losses for the year ended December 31, 2011 of approximately $4,903,000 and $(498,000), respectively, related to the above acquisitions. Net losses include $283,000 in closing cost expenses related to the acquisitions.
Supplementary Pro Forma Information
Assuming the 2011 property acquisitions discussed above had occurred on January 1, 2008,2010, for the year ended December 31, 2011, pro forma revenues, net income attributable to controlling interest and net income per basic and diluted share would have been $273,512,000, $5,890,000 and $0.03, respectively. Supplemental pro forma earnings for the year ended December 31, 2008,2011 were adjusted to exclude $283,000 of acquisition-related costs incurred during the year ended December 31, 2011.
Also, assuming the 2011 property acquisitions discussed above had occurred on January 1, 2010, for the year ended December 31, 2010, pro forma revenues, net income (loss) attributable to controlling interest and net income (loss) per basic and diluted share would have been $109,346,000, $(40,590,000)$204,265,000, $(7,821,000) and $(0.95)$(0.05), respectively.
Assuming the property acquisitions discussed above had occurred on January 1, 2007, Supplemental pro forma earnings for the year ended December 31, 2007, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $75,711,000, $(32,134,000) and $(3.23), respectively.
2010 were adjusted to exclude $283,000 of acquisition-related costs incurred during the year ended December 31, 2011.
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.

20.  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


19.    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. On July 21, 2010, President Obama signed into law the sweeping financial regulatory reform act entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act”, which implements changes to the regulation of the financial services industry, including provisions that made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation, or SIPC, protection from $100,000 to $250,000, and provided unlimited federal deposit insurance until January 1, 2013, for non-interest bearing demand transaction accounts at all insured depository institutions. As of December 31, 2008 and 2007,2011, we had bank cash and cash equivalent and restricted cash accountsbalances of $3.1 million in excess of Federal Deposit Insurance Corporation, or FDIC, insured limits. We believe this risk is not significant. ConcentrationOur concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants, and security deposits or letters of credit are obtained upon lease execution. In addition, we evaluate tenants in connection with the acquisition of a property.
For the year ended As of December 31, 2008,2011, we had interests in seven consolidated properties26 buildings located in Texas, which accounted for 17.1%15.0% of our totalannualized rental income, interests in 44 buildings in Arizona, which accounted for 12.1% of our annualized rental income, interests in 22 buildings located in South Carolina, which accounted for 9.6% of our annualized rental income, interests in 20 buildings in Florida, which accounted for 8.7% of our annualized rental income, and interests in five consolidated properties located44 buildings in Indiana, which accounted for 15.5%8.1% of our annualized rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2011. Accordingly, there is a geographic concentration of risk subject to fluctuations in each of these states’ economies.
As of December 31, 2010, we had interests in 26 buildings located in Texas, which accounted for 15.3% of our total annualized rental income. Medical Portfolio 3 accountsincome, interests in 36 consolidated properties in Arizona, which accounted for 11.3%11.7% of our aggregate total annualized rental income, interests in 22 consolidated properties located in South Carolina, which accounted for 9.7% of our total annualized rental income, interests in 20 consolidated properties in Florida, which accounted for 8.8% of our total annualized rental income, and interests in 44 consolidated properties in Indiana, which accounted for 8.5% of our total annualized rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2008.2010. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.of these states’ economies.
For the year endedAs of December 31, 2008, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income


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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the year ended December 31, 2007,2009, we had interests in three consolidated properties19 buildings located in Ohio,Texas, which accounted for 15.1%16.9% of our total rental income, interests in six consolidated properties18 buildings located in Florida,South Carolina, which accounted for 14.2%13.0% of our total rental income, and interestinterests in three consolidated properties33 buildings located in Georgia,Arizona, which accounted for 12.8%12.2% of our total rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2007.2009. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.
For the yearyears ended December 31, 2007, one2011, 2010, and 2009, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income, as follows:income.

                    
     Percentage of
        Lease
 
  2007 Annual
  2007 Annual
     GLA
  Expiration
 
Tenant Base Rent *  Base Rent   Property (Square Feet)  Date 
 
Institute for Senior Living of Florida $4,095,000   11.2 % East Florida
Senior Care
Portfolio
  355,000   05/31/14 
20.    Per Share Data
*Annualized rental income is based on contractual base rent from leases in effect as of December 31, 2007. The loss of the tenant or their inability to pay rent could have a material adverse effect on our business and results of operations.
For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not own any properties.
21.  Per Share Data
We report earnings (loss) per share pursuant to SFAS No. 128,ASC 260, Earnings Per Share.Share, or ASC 260. We 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. We have two classes of common stock for purposes of calculating our earnings per share. These classes are our common stock and our restricted stock. For the years ended December 31, 2011, 2010, and 2009, all of our earnings were distributed and the calculated earnings per share amount would be the same for both classes as they all have the same rights to distributed earnings.
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. Shares of restricted common stock giveFor the year ended December 31, 2011, our potentially dilutive securities did not have a material impact to our earnings per share. For the years ended December 31, 2010 and 2009, we did not have any securities that gave rise to potentially dilutive shares of our common stock.


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For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we recorded a net loss of $28,448,000, $7,666,000 and $242,000, respectively. As of December 31, 2008, 2007 and 2006, 68,500 shares, 26,000 shares and 16,000 shares, respectively, of restricted common stock were outstanding, but were excluded from the computation of diluted earnings per share because such shares of restricted common stock were anti-dilutive during these periods.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

22.  
 Years Ended December 31,
 2011 2010 2009
Numerator:     
     Net income (loss)$5,593,000
 $(7,919,000) $(24,773,000)
     (Income) loss attributable to noncontrolling interest of limited partners(52,000) 16,000
 (304,000)
     Net income (loss) attributable to controlling interest5,541,000
 (7,903,000) (25,077,000)
Denominator:     
     Weighted average number of shares outstanding--basic223,900,167
 165,952,860
 112,819,638
     Dilutive restricted stock491,386
 
 
          Weighted average number of shares outstanding--diluted224,391,553
 165,952,860
 112,819,638
Basic earnings per common share:     
Net income per share attributable to controlling interest$0.02
 $(0.05) $(0.22)
Diluted earnings per common share:     
Net income per share attributable to controlling interest$0.02
 $(0.05) $(0.22)


21.    Selected Quarterly Financial Data (Unaudited)
Set forth below is the unaudited selected quarterly financial data. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the unaudited selected quarterly financial data when read in conjunction with our consolidated financial statements.

 Quarters Ended
 December 31, 2011 September 30, 2011 June 30, 2011 March 31, 2011
Revenues$65,532,000
 $69,940,000
 $68,074,000
 $70,892,000
Expenses(53,801,000) (58,807,000) (55,541,000) (58,978,000)
Income before other income11,731,000
 11,133,000
 12,533,000
 11,914,000
Other expense, net(9,724,000) (10,899,000) (11,371,000) (9,724,000)
Net income2,007,000

234,000

1,162,000

2,190,000
Less: net (income) loss attributable to noncontrolling interest of limited partners(12,000) (9,000) 9,000
 (40,000)
Net income attributable to controlling interest$1,995,000
 $225,000
 $1,171,000
 $2,150,000
Net income per share — basic and diluted: 
  
  
  
Net income per share attributable to controlling interest$
 $
 $0.01
 $0.01
Weighted average number of shares outstanding — 
  
  
  
Basic227,825,381
 229,390,941
 228,340,776
 214,797,450
Diluted228,316,767
 229,568,328
 228,800,828
 214,996,502

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Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                 
  Quarters Ended 
  December 31, 2008  September 30, 2008  June 30, 2008  March 31, 2008 
 
Revenues $    27,108,000  $     23,920,000  $  16,273,000  $  13,117,000 
Expenses  (24,814,000)  (22,671,000)  (15,078,000)  (12,569,000)
                 
Income before other income (expense)  2,294,000   1,249,000   1,195,000   548,000 
Other expense, net  (18,890,000)  (6,887,000)  (681,000)  (7,237,000)
                 
(Loss) income before minority interests  (16,596,000)  (5,638,000)  514,000   (6,689,000)
                 
Minority interests  117,000   (47,000)  (188,000)  79,000 
                 
Net (loss) income $(16,479,000) $(5,685,000) $326,000  $(6,610,000)
                 
Net income (loss) per share — basic $(0.25) $(0.12) $0.01  $(0.27)
                 
Net income (loss) per share — diluted $(0.25) $(0.12) $0.01  $(0.27)
                 
Weighted average number of shares outstanding —                
Basic  65,904,688   47,735,536   33,164,866   24,266,342 
                 
Diluted  65,904,688   47,735,536   33,165,015   24,266,342 
                 

                 
  Quarters Ended 
  December 31, 2007  September 30, 2007  June 30, 2007  March 31, 2007 
 
Revenues $     8,914,000  $      4,787,000  $3,183,000  $    742,000 
Expenses  (8,850,000)  (5,545,000)  (3,726,000)  (1,003,000)
                 
Income (loss) before other income (expense)  64,000   (758,000)  (543,000)  (261,000)
Other expense, net  (4,070,000)  (1,175,000)  (660,000)  (271,000)
                 
Loss before minority interests  (4,006,000)  (1,933,000)  (1,203,000)  (532,000)
                 
Minority interests  8,000          
                 
Net loss $(3,998,000) $(1,933,000) $(1,203,000) $(532,000)
                 
Loss per share — basic and diluted $(0.21) $(0.15) $(0.18) $(0.73)
                 
Weighted average number of shares outstanding — basic and diluted  18,893,438   13,223,746   6,727,995   730,986 
                 
23.  Subsequent Events
 Quarters Ended
 December 31, 2010 September 30, 2010 June 30, 2010 March 31, 2010
Revenues$57,504,000
 $52,496,000
 $47,328,000
 $45,753,000
Expenses(58,598,000) (43,806,000) (40,363,000) (38,811,000)
Income (loss) before other income (expense)(1,094,000) 8,690,000
 6,965,000
 6,942,000
Other expense, net(7,596,000) (7,682,000) (6,720,000) (7,424,000)
Net income (loss)(8,690,000) 1,008,000
 245,000
 (482,000)
Less: net (income) loss attributable to noncontrolling interest of limited partners(44,000) 125,000
 (1,000) (64,000)
Net income (loss) attributable to controlling interest$(8,734,000) $1,133,000
 $244,000
 $(546,000)
Net income (loss) per share — basic and diluted: 
  
  
  
Net loss per share attributable to controlling interest$(0.05) $
 $
 $
Weighted average number of shares outstanding — 
  
  
  
Basic191,583,752
 166,281,800
 154,594,418
 145,335,661
Diluted191,583,752
 166,480,852
 154,815,137
 145,335,661
Status
22.    Subsequent Events
The significant events that occurred subsequent to the balance sheet date but prior to the filing of our Offeringthis report that would have a material impact on the consolidated financial statements are summarized below.
Share Repurchases
FromIn January 1, 2009 through March 13, 2009,2012, we had received and accepted subscriptions in our offering for 15,206,071repurchased 1,006,188 shares of our common stock at an average price of $9.80 per share, for an aggregate amount of $151,903,000, excluding shares$9,861,000, under our share repurchase plan.
Completed Acquisitions
On January 12, 2012, we purchased a medical office building located in Novi, Michigan for $51,320,000.

On January 31, 2012, we purchased a medical office building located in Atlanta, Georgia for approximately $8,867,000.

On March 1, 2012, we purchased a medical office building located in Pittsburgh, Pennsylvania for $54,000,000.
Pending Acquisitions
On March 9, 2012, we entered into a purchase and sale agreement for a medical office building portfolio located in the eastern United States for an aggregate purchase price of our common stock issued under$100,000,000. The portfolio, which is expected to be master leased on a triple net basis, consists of a combination of on-campus assets and off-campus medical office buildings. There can be no assurance that the DRIP.acquisition will close on the expected schedule, if at all.
Financing

In February 2012, JP Morgan, Deutsche Bank, and Wells Fargo signed engagement letters to serve as Joint Lead Arrangers for a new unsecured credit facility of at least $825,000,000, consisting of a $575,000,000 revolving tranche and a $250,000,000 term loan tranche. As of March 13, 2009, we23, 2012, the Joint Lead Arrangers and other additional lenders had received and accepted subscriptionscommitted in excess of that amount to the new credit facility. This credit facility will replace our offering for 89,030,880 sharesexisting credit facility. It will have an initial term of our common stock, for an aggregate amount4 years, with one twelve-month extension. We anticipate closing the facility in the near future.


114

Healthcare Trust of $889,301,000, excluding shares of our common stock issued under the DRIP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Share Repurchases
Credit Facility Borrowing
In January 2009,and February, 2012, we repurchased 133,842drew $27,000,000 and $55,000,000, respectively, on our unsecured revolving credit facility in order to fund the acquisition of operating properties.
Distributions
On January 3, 2012, for the month ended December 31, 2011, we paid distributions of $14,100,000 ($7,562,000 in cash and $6,538,000 in shares of our common stock,stock) pursuant to the DRIP.
On February 1, 2012, for an aggregate amountthe month ended January 31, 2012, we paid distributions of $1,310,000, under$14,099,000 ($7,580,000 in cash and $6,519,000 in shares of our share repurchase plan.
Property Acquisitions
In March 2009, we acquired a medical condo and a four-building medical office property comprising 188,000 square feet of gross leasable area in two states, for an aggregate purchase price of $34,104,000.
Termination of Services Agreement
common stock) pursuant to the DRIP.
On March 17, 2009, Grubb & Ellis Realty Investors provided notice1, 2012, for the month ended February 29, 2012, we paid distributions of its termination$13,229,000 ($7,138,000 in cash and $6,091,000 in shares of the Services Agreement,our common stock) pursuant to which it provides subscription processingthe DRIP.
In December, 2011, our board of directors authorized distributions for the months of January, February, and investor relations services to us. The terminationMarch 2012. These distributions will be effective September 20, 2009.calculated based on stockholders of record each day during each such month at a rate of $0.00198630 per share per day and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.25% annualized rate based on a share price of $10.00. These distributions will be paid in February, March, and April 2012, respectively, in cash or reinvested in stock for those participating in the DRIP.


138



115



Healthcare Trust of America, Inc.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
December 31, 2011
Grubb & Ellis
  
Balance at
Beginning
of Period
 
Charged to
Expenses
 
Adjustments
to Valuation
Accounts
 Deductions 
Balance at
End of Period
Year Ended December 31, 2009  
  
  
  
  
Allowance for doubtful accounts $398,000
 $965,000
 $
 $141,000
 $1,222,000
Year Ended December 31, 2010  
  
  
  
  
Allowance for doubtful accounts $1,222,000
 $1,022,000
 $
 $318,000
 $1,926,000
Year Ended December 31, 2011  
  
  
  
  
Allowance for doubtful accounts $1,926,000
 $1,447,000
 $
 $1,875,000
 $1,498,000

116


Healthcare REIT,Trust of America, Inc.




December 31, 20082011
                                         
             Cost
  Gross Amount at Which
         
       Initial Cost to Company  Capitalized
  Carried at Close of Period         
          Buildings,
  Subsequent
     Buildings,
            
          Improvements and
  to
     Improvements and
     Accumulated
  Date of
 Date
 
    Encumbrances  Land  Fixtures  Acquisition(a)  Land  Fixtures  Total(b)  Depreciation(d)(e)  construction acquired 
 
                                         
Southpointe Office Parke and Epler Parke I (Medical Office) Indianapolis, IN $     9,146,000  $2,889,000  $       10,015,000  $     130,000  $2,889,000  $       10,145,000  $13,034,000  $         (754,000)  1991 & 1996/2002  01/22/07 
                                         
Crawfordsville Medical Office Park and Athens Surgery Center (Medical Office) Crawfordsville, IN  4,264,000   699,000   5,473,000      699,000   5,473,000   6,172,000   (364,000)  1998/2000  01/22/07 
                                         
The Gallery Professional Building (Medical Office) St. Paul, MN  6,000,000   1,157,000   5,009,000   1,008,000   1,157,000   6,017,000   7,174,000   (450,000)  1979  03/09/07 
                                         
Lenox Office Park, Building G (Office) Memphis, TN  12,000,000   1,670,000   13,626,000   23,000   1,670,000   13,649,000   15,319,000   (1,275,000)  2000  03/23/07 
                                         
Commons V Medical Office Building (Medical Office) Naples, FL  9,939,000   4,173,000   9,070,000      4,173,000   9,070,000   13,243,000   (471,000)  1991  04/24/07 
                                         
Yorktown Medical Center and Shakerag Medical Center (Medical Office) Peachtree City and Fayetteville, GA  13,530,000   3,545,000   15,792,000   49,000   3,545,000   15,841,000   19,386,000   (1,192,000)  1987/1994  05/02/07 
                                         
Thunderbird Medical Plaza (Medical Office) Glendale, AZ  14,000,000   3,842,000   19,680,000   275,000   3,842,000   19,955,000   23,797,000   (1,205,000)  1975, 1983, 1987  05/15/07 
                                         
Triumph Hospital Northwest and Triumph Hospital Southwest (Healthcare Related Facility) Houston and Sugarland, TX     3,047,000   28,550,000   (1,000)  3,047,000   28,549,000   31,596,000   (1,829,000)  1986/1989  06/08/07 
                                         
Gwinnett Professional Center (Medical Office) Lawrenceville, GA  5,604,000   1,290,000   7,246,000   198,000   1,290,000   7,444,000   8,734,000   (426,000)  1985  07/27/07 
                                         
1 and 4 Market Exchange (Medical Office) Columbus, OH  14,500,000   2,326,000   17,208,000   276,000   2,326,000   17,484,000   19,810,000   (883,000)  2001/2003  08/15/07 
                                         
Kokomo Medical Office Park (Medical Office) Kokomo, IN  8,300,000   1,779,000   9,613,000   225,000   1,779,000   9,838,000   11,617,000   (589,000)  1992, 1994, 1995, 2003  08/30/07 
                                         
St. Mary Physicians Center (Medical Office) Long Beach, CA  8,280,000   1,815,000   10,242,000   (4,000)  1,815,000   10,238,000   12,053,000   (386,000)  1992  09/05/07 
                                         
2750 Monroe Boulevard (Office) Valley Forge, PA     2,323,000   22,634,000   (3,000)  2,323,000   22,631,000   24,954,000   (1,052,000)  1985  09/10/07 
                                         
East Florida Senior Care Portfolio (Healthcare Related Facility) Jacksonville, Winter Park and Sunrise, FL  29,917,000   10,078,000   34,870,000   (1,000)  10,078,000   34,869,000   44,947,000   (1,887,000)  1985, 1988, 1989  09/28/07 
                                         
Northmeadow Medical Center (Medical Office) Roswell, GA  7,865,000   1,245,000   9,109,000   171,000   1,245,000   9,280,000   10,525,000   (441,000)  1999  11/15/07 
                                         
Tucson Medical Office Portfolio (Medical Office) Tucson, AZ     1,309,000   17,574,000   181,000   1,309,000   17,755,000   19,064,000   (738,000)  1979, 1980, 1994 1970, 1985, 1990,  11/20/07 
                                         
Lima Medical Office Portfolio (Medical Office) Lima, OH     701,000   18,336,000   37,000   701,000   18,373,000   19,074,000   (930,000)  1996, 2004, 1920  12/07/07 
                                         
Highlands Ranch Park Plaza (Medical Office) Highlands Ranch, CO  8,853,000   2,240,000   10,426,000   255,000   2,240,000   10,681,000   12,921,000   (490,000)  19,831,985  12/19/07 
                                         
Park Place Office Park (Medical Office) Dayton, OH  10,943,000   1,987,000   11,341,000   138,000   1,987,000   11,479,000   13,466,000   (603,000)  1987, 1988, 2002  12/20/07 
                                         
Chesterfield Rehabilitation Center (Medical Office) Chesterfield, MO  22,000,000   4,212,000   27,901,000      4,212,000   27,901,000   32,113,000   (807,000)  2007  12/20/07 
                                         
Medical Portfolio 1 (Medical Office) Overland, KS and Largo, Brandon, and Lakeland, FL  21,340,000   4,206,000   28,373,000   810,000   4,206,000   29,183,000   33,389,000   (1,035,000)  1978, 1986, 1997, 1995  02/01/08 

139


The following schedule presents our total real estate investments and accumulated depreciation for both our operating properties and those properties classified as held for sale as of December 31, 2011:
Grubb & Ellis
    Initial Cost to Company 
Cost
Capitalized
Subsequent
to
Acquisition(a)
 
Gross Amount at Which
Carried at Close of Period
      
  Encumbrances Land 
Buildings,
Improvements and
Fixtures
  Land 
Buildings,
Improvements and
Fixtures
 
Total(b)
 
Accumulated
Depreciation(d)(e)
 Date of construction 
Date
acquired
Southpointe Office Parke and Epler Parke I (Medical Office)Indianapolis, IN$9,017,000
 $2,889,000
 $10,015,000
 $190,000
 $2,889,000
 $10,205,000
 $13,094,000
 (1,724,000) 1991 &1996/2002 1/22/2007
Crawfordsville Medical Office Park and Athens Surgery Center (Medical Office)Crawfordsville, IN4,209,000
 699,000
 5,474,000
 102,000
 699,000
 5,576,000
 6,275,000
 (948,000) 1998/2000 1/22/2007
The Gallery Professional Building (Medical Office)St. Paul, MN5,948,000
 1,157,000
 5,009,000
 2,909,000
 1,157,000
 7,918,000
 9,075,000
 (1,568,000) 1979 3/9/2007
Lenox Office Park, Building G (Office)Memphis, TN11,881,000
 1,670,000
 13,626,000
 (959,000) 1,670,000
 12,667,000
 14,337,000
 (1,898,000) 2000 3/23/2007
Commons V Medical Office Building (Medical Office)Naples, FL9,528,000
 4,173,000
 9,070,000
 84,000
 4,173,000
 9,154,000
 13,327,000
 (1,276,000) 1991 4/24/2007
Yorktown Medical Center and Shakerag Medical Center (Medical Office)Peachtree City and Fayetteville, GA13,257,000
 3,545,000
 15,792,000
 1,882,000
 3,545,000
 17,674,000
 21,219,000
 (2,995,000) 1987/1994 5/2/2007
Thunderbird Medical Plaza (Medical Office)Glendale, AZ13,553,000
 3,842,000
 19,680,000
 1,782,000
 3,842,000
 21,462,000
 25,304,000
 (3,569,000) 1975, 1983, 1987 5/15/2007
Triumph Hospital Northwest and Triumph Hospital Southwest (Healthcare Related Facility)Houston and Sugarland, TX
 3,047,000
 28,550,000
 257,000
 3,047,000
 28,807,000
 31,854,000
 (5,294,000) 1986/1989 6/8/2007
Gwinnett Professional Center (Medical Office)Lawrenceville, GA5,311,000
 1,290,000
 7,246,000
 990,000
 1,290,000
 8,236,000
 9,526,000
 (1,312,000) 1985 7/27/2007
1 and 4 Market Exchange (Medical Office)Columbus, OH10,093,000
 2,326,000
 17,208,000
 1,138,000
 2,326,000
 18,346,000
 20,672,000
 (2,139,000) 2001/2003 8/15/2007
Kokomo Medical Office Park (Medical Office)Kokomo, IN8,147,000
 1,779,000
 9,613,000
 314,000
 1,779,000
 9,927,000
 11,706,000
 (1,773,000) 1992, 1994, 1995, 2003 8/30/2007
St. Mary Physicians Center (Medical Office)Long Beach, CA
 1,815,000
 10,242,000
 162,000
 1,815,000
 10,404,000
 12,219,000
 (1,211,000) 1992 9/5/2007
2750 Monroe Boulevard (Office)Valley Forge, PA
 2,323,000
 22,631,000
 4,864,000
 2,323,000
 27,495,000
 29,818,000
 (3,072,000) 1985 9/10/2007
East Florida Senior Care Portfolio (Healthcare Related Facility)Jacksonville, Winter Park and Sunrise,FL
 10,078,000
 34,870,000
 
 10,078,000
 34,870,000
 44,948,000
 (6,417,000) 1985, 1988, 1989 9/28/2007
Northmeadow Medical Center (Medical Office)Roswell, GA7,375,000
 1,245,000
 9,109,000
 174,000
 1,245,000
 9,283,000
 10,528,000
 (1,553,000) 1999 11/15/2007
Tucson Medical Office Portfolio (Medical Office)Tucson, AZ
 1,309,000
 17,574,000
 374,000
 1,309,000
 17,948,000
 19,257,000
 (2,666,000) 1979, 1980, 1994 1970, 1985, 1990, 11/20/2007
Lima Medical Office Portfolio (Medical Office)Lima, OH
 701,000
 19,052,000
 87,000
 701,000
 19,139,000
 19,840,000
 (3,055,000) 1996, 2004, 1920 12/7/2007
Highlands Ranch Park Plaza (Medical Office)Highlands Ranch, CO8,114,000
 2,240,000
 10,426,000
 1,103,000
 2,240,000
 11,529,000
 13,769,000
 (1,859,000) 1983, 1985 12/19/2007
Park Place Office Park (Medical Office)Dayton, OH
 1,987,000
 11,341,000
 1,087,000
 1,987,000
 12,428,000
 14,415,000
 (2,160,000) 1987, 1988, 2002 12/20/2007
Chesterfield Rehabilitation Center (Medical Office)Chesterfield, MO21,120,000
 4,212,000
 27,901,000
 770,000
 4,313,000
 28,570,000
 32,883,000
 (3,290,000) 2007 12/20/2007
Medical Portfolio 1 (Medical Office)Overland, KS and Largo, Brandon, and Lakeland, FL21,439,000
 4,206,000
 28,373,000
 1,446,000
 4,206,000
 29,819,000
 34,025,000
 (4,501,000) 1978, 1986, 1997, 1995 2/1/2008

117


Healthcare REIT,Trust of America, Inc.
SCHEDULE III — REAL ESTATE OPERATING PROPERTIESINVESTMENTS AND
ACCUMULATED DEPRECIATION — (Continued)
                                         
             Cost
  Gross Amount at Which
         
       Initial Cost to Company  Capitalized
  Carried at Close of Period         
          Buildings,
  Subsequent
     Buildings,
            
          Improvements and
  to
     Improvements and
     Accumulated
  Date of
 Date
 
    Encumbrances  Land  Fixtures  Acquisition(a)  Land  Fixtures  Total(b)  Depreciation(d)(e)  construction acquired 
 
                                         
Fort Road Medical Building (Medical Office) St. Paul, MN $      5,800,000  $  1,571,000  $          5,786,000  $          21,000  $    1,571,000  $           5,807,000  $7,378,000  $          (184,000)  1981  03/06/08 
                                         
Liberty Falls Medical Plaza (Medical Office) Liberty Township, OH     842,000   5,639,000   1,000   842,000   5,640,000   6,482,000   (155,000)  2008  03/19/08 
                                         
Epler Parke Building B (Medical Office) Indianapolis, IN  3,861,000   857,000   4,497,000   (17,000)  857,000   4,480,000   5,337,000   (183,000)  2004  03/24/08 
                                         
Cypress Station Medical Office Building (Medical Office) Houston, TX  7,235,000   1,345,000   8,312,000   11,000   1,345,000   8,323,000   9,668,000   (254,000)  1981/2004-2006  03/25/08 
                                         
Vista Professional Center (Medical Office) Lakeland, FL     1,082,000   3,588,000   (29,000)  1,082,000   3,559,000   4,641,000   (150,000)  1996/1998  03/27/08 
                                         
Senior Care Portfolio 1 (Healthcare Related Facility) Arlington, Galveston, Port Arthur and Texas City, TX and Lomita and El Monte, CA  24,800,000   4,871,000   30,002,000      4,871,000   30,002,000   34,873,000   (679,000)  1993, 1994, 1994, 1994/1996 1964/1969 1959/1963  Various 
                                         
Amarillo Hospital (Healthcare Related Facility) Amarillo, TX     1,110,000   17,688,000      1,110,000   17,688,000   18,798,000   (331,000)  2007  05/15/08 
                                         
5995 Plaza Drive (Office) Cypress, CA  16,830,000   5,109,000   17,961,000   58,000   5,109,000   18,019,000   23,128,000   (398,000)  1986  05/29/08 
                                         
Nutfield Professional Center (Medical Office) Derry, NH  8,808,000   1,075,000   10,320,000   38,000   1,075,000   10,358,000   11,433,000   (172,000)  1963/1990 & 1996  06/03/08 
                                         
SouthCrest Medical Plaza (Medical Office) Stockbridge, GA  12,870,000   4,259,000   14,636,000   (103,000)  4,259,000   14,533,000   18,792,000   (307,000)  2005-2006  06/24/08 
                                         
Medical Portfolio 3 (Medical Office) Indianapolis, IN  58,000,000   9,355,000   70,259,000   1,335,000   9,355,000   71,594,000   80,949,000   (1,744,000)  1995, 1993, 1994, 1996, 1993, 1995, 1989, 1988, 1989, 1992, 1989  06/26/08 
                                         
Academy Medical Center (Medical Office) Tuczon, AZ  5,016,000   1,193,000   6,106,000   154,000   1,193,000   6,260,000   7,453,000   (163,000)  1975-1985  06/26/08 
                                         
Decatur Medical Plaza (Medical Office) Decatur, GA  7,900,000   3,166,000   6,862,000   325,000   3,166,000   7,187,000   10,353,000   (118,000)  1976  06/27/08 
                                         
Medical Portfolio 2 (Medical Office) O’Fallon and St. Louis, MO and Keller and Wichita Falls, TX  30,216,000   5,360,000   33,506,000   43,000   5,360,000   33,549,000   38,909,000   (674,000)  2001, 2001, 2006, 1957/1989/2003 & 2003  Various 
                                         
Renaissance Medical Centre (Medical Office) Bountiful, UT  20,323,000   3,701,000   24,442,000      3,701,000   24,442,000   28,143,000   (345,000)  2004  06/30/08 
                                         
Oklahoma City Medical Portfolio (Medical Office) Oklahoma City, OK        25,976,000   456,000      26,432,000   26,432,000   (208,000)  1991, 1996/2007  09/16/08 
                                         
Medical Portfolio 4 (Medical Office) Phoenix, AZ, Parma and Jefferson West, OH, and Waxahachie, Greenville, and Cedar Hill, TX  29,898,000   2,632,000   38,652,000   343,000   2,632,000   38,995,000   41,627,000   (415,000)  1972/1980 & 2006, 1977, 1984, 2006, 2007, 2007  Various 
                                         
Mountain Empire Portfolio (Medical Office) Kingsport and Bristol, TN and Pennington Gap and Norton, VA  17,304,000   804,000   18,400,000      804,000   18,403,000   19,207,000     1986/1991/1993/1982/
1990,1997/1976 & 2007, 1986, 1993 & 1995, 1981 & 1987/1999
  09/12/08 
                                         
Mountain Plains — TX (Medical Office) San Antonio and Webster, TX     1,248,000   34,858,000      1,248,000   34,858,000   36,106,000   (363,000)  1998, 2005, 2006, 2006  12/18/08 
                                         
Marietta Health Park (Medical Office) Marietta, GA  7,200,000   1,276,000   12,197,000      1,276,000   12,197,000   13,473,000     2000  12/22/08 
             
             
                                         
    $462,542,000  $107,389,000  $721,775,000  $6,403,000  $107,389,000  $728,181,000  $835,570,000(c) $(24,650,000)       
             
             

    Initial Cost to Company 
Cost
Capitalized
Subsequent
to
Acquisition(a)
 
Gross Amount at Which
Carried at Close of Period
      
  Encumbrances Land 
Buildings,
Improvements and
Fixtures
  Land 
Buildings,
Improvements and
Fixtures
 
Total(b)
 
Accumulated
Depreciation(d)(e)
 Date of construction 
Date
acquired
Fort Road Medical Building (Medical Office)St. Paul, MN$
 $1,571,000
 $5,786,000
 235,000
 $1,571,000
 $6,021,000
 $7,592,000
 (798,000) 1981 3/6/2008
Liberty Falls Medical Plaza (Medical Office)Liberty Township, OH
 842,000
 5,640,000
 613,000
 842,000
 6,253,000
 7,095,000
 (982,000) 2008 3/19/2008
Epler Parke Building B (Medical Office)Indianapolis, IN3,100,000
 857,000
 4,461,000
 (135,000) 857,000
 4,326,000
 5,183,000
 (867,000) 2004 3/24/2008
Cypress Station Medical Office Building (Medical Office)Houston, TX
 1,345,000
 8,312,000
 636,000
 1,345,000
 8,948,000
 10,293,000
 (1,230,000) 1981/2004-2006 3/25/2008
Vista Professional Center (Medical Office)Lakeland, FL
 1,082,000
 3,588,000
 3,000
 1,082,000
 3,591,000
 4,673,000
 (659,000) 1996/1998 3/27/2008
Senior Care Portfolio 1 (Healthcare Related Facility)Arlington, Galveston, Port Arthur and Texas City, TX and Lomita and El Monte, CA
 4,871,000
 30,002,000
 
 4,871,000
 30,002,000
 34,873,000
 (3,547,000) 1993, 1994, 1994, 1994/1996 1964/1969 1959/1963 Various
Amarillo Hospital (Healthcare Related Facility)Amarillo, TX
 1,110,000
 17,688,000
 5,000
 1,110,000
 17,693,000
 18,803,000
 (1,825,000) 2007 5/15/2008
5995 Plaza Drive (Office)Cypress, CA14,645,000
 5,109,000
 17,961,000
 315,000
 5,109,000
 18,276,000
 23,385,000
 (2,449,000) 1986 5/29/2008
Nutfield Professional Center (Medical Office)Derry, NH9,169,000
 1,075,000
 10,320,000
 104,000
 1,075,000
 10,424,000
 11,499,000
 (1,082,000) 1963/1990 & 1996 6/3/2008
SouthCrest Medical Plaza (Medical Office)Stockbridge, GA10,917,000
 4,259,000
 14,636,000
 119,000
 4,259,000
 14,755,000
 19,014,000
 (2,258,000) 2005-2006 6/24/2008
Medical Portfolio 3 (Medical Office)Indianapolis, IN
 9,355,000
 70,259,000
 7,249,000
 9,355,000
 77,508,000
 86,863,000
 (12,508,000) 1995, 1993, 1994, 1996, 1993, 1995, 1989, 1988, 1989, 1992, 1989 6/26/2008
Academy Medical Center (Medical Office)Tucson, AZ3,166,000
 1,193,000
 6,106,000
 822,000
 1,193,000
 6,928,000
 8,121,000
 (1,055,000) 1975-1985 6/26/2008
Decatur Medical Plaza (Medical Office)Decatur, GA
 3,166,000
 6,862,000
 343,000
 3,166,000
 7,205,000
 10,371,000
 (888,000) 1976 6/27/2008
Medical Portfolio 2 (Medical Office)O’Fallon and St. Louis, MO and Keller and Wichita Falls, TX24,829,000
 5,360,000
 33,506,000
 190,000
 5,360,000
 33,696,000
 39,056,000
 (4,679,000) 2001, 2001, 2006, 1957/1989/2003 & 2003 Various
Renaissance Medical Centre (Medical Office)Bountiful, UT19,354,000
 3,701,000
 24,442,000
 65,000
 3,701,000
 24,507,000
 28,208,000
 (2,318,000) 2004 6/30/2008
Oklahoma City Medical Portfolio (Medical Office)Oklahoma City, OK
  
 25,976,000
 1,474,000
  
 27,450,000
 27,450,000
 (2,915,000) 1991, 1996/2007 9/16/2008
Medical Portfolio 4 (Medical Office)Phoenix, AZ, Parma and Jefferson West, OH, and Waxahachie, Greenville, and Cedar Hill, TX7,795,000
 2,632,000
 38,652,000
 1,377,000
 2,632,000
 40,029,000
 42,661,000
 (4,726,000) 1972/1980 & 2006, 1977, 1984, 2006, 2007, 2007 Various
Mountain Empire Portfolio (Medical Office)Kingsport and Bristol, TN and Pennington Gap and Norton, VA17,935,000
 804,000
 20,149,000
 730,000
 804,000
 20,879,000
 21,683,000
 (3,256,000) 1986/1991/1993/1982/1990,1997/1976 & 2007, 1986, 1993 & 1995, 1981 & 1987/1999 9/12/2008
Mountain Plains — TX (Medical Office)San Antonio and Webster, TX
 1,248,000
 34,857,000
 36,000
 1,248,000
 34,893,000
 36,141,000
 (3,566,000) 1998, 2005, 2006, 2006 12/18/2008
Marietta Health Park (Medical Office)Marietta, GA7,200,000
 1,276,000
 12,197,000
 215,000
 1,276,000
 12,412,000
 13,688,000
 (1,516,000) 2000 12/22/2008
Wisconsin Medical Portfolio 1Milwaukee, WI
 1,980,000
 26,032,000
 
 1,980,000
 26,032,000
 28,012,000
 (3,351,000) 1964/1969, 1983-1997 & 2007 2/27/2009
Wisconsin Medical Portfolio 2Franklin, WI9,832,000
 1,574,000
 31,655,000
 
 1,574,000
 31,655,000
 33,229,000
 (3,275,000) 2001-2004 5/28/2009
Greenville Hospital PortfolioGreenville, SC70,323,000
 3,952,000
 135,776,000
 92,000
 3,948,000
 137,222,000
 139,820,000
 (9,169,000) 1974, 1982-1999, & 2004-2009 9/18/2009

140


118


Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
SCHEDULE III — REAL ESTATE OPERATING PROPERTIESINVESTMENTS AND
ACCUMULATED DEPRECIATION — (Continued)
    Initial Cost to Company 
Cost
Capitalized
Subsequent
to
Acquisition(a)
 
Gross Amount at Which
Carried at Close of Period
      
  Encumbrances Land 
Buildings,
Improvements and
Fixtures
  Land 
Buildings,
Improvements and
Fixtures
 
Total(b)
 
Accumulated
Depreciation(d)(e)
 Date of construction 
Date
acquired
Mary Black Medical Office BuildingSpartanburg, SC
  
 12,523,000
 (3,000)  
 12,520,000
 12,520,000
 (968,000) 2006 12/11/2009
Hampden Place Medical Office BuildingEnglewood, CO
 3,032,000
 12,553,000
 (110,000) 3,032,000
 12,443,000
 15,475,000
 (925,000) 2004 12/21/2009
Dallas LTAC HospitalDallas, TX
 2,301,000
 20,627,000
 
 2,301,000
 20,627,000
 22,928,000
 (1,203,000) 2007 12/23/2009
Smyth Professional BuildingBaltimore, MD
  
 7,760,000
 (118,000)  
 7,642,000
 7,642,000
 (621,000) 1984 12/30/2009
Atlee Medical PortfolioCoriscana, TX and Ft. Wayne, IN and San Angelo, TX
  
 17,267,000
 
  
 17,267,000
 17,267,000
 (1,177,000) 2007-2008 12/30/2009
Denton Medical Rehabilitation HospitalDenton, TX
 2,000,000
 11,704,000
 
 2,000,000
 11,704,000
 13,704,000
 (805,000) 2008 12/30/2009
Banner Sun City Medical PortfolioSun City, AZ and Sun City West, AZ43,302,000
 744,000
 70,035,000
 2,090,000
 744,000
 72,125,000
 72,870,000
 (7,329,000) 1971-1997 & 2001-2004 12/31/2009
Camp CreekAtlanta, GA 
 2,022,000
 12,965,000
 (42,000) 2,022,000
 12,923,000
 14,945,000
 (1,168,000) 2006 3/2/2010
King StreetJacksonville, GA6,185,000
 
 7,232,000
 (283,000) 
 6,949,000
 6,949,000
 (404,000) 2007 3/9/2010
Deaconess Evansville Clinic PortfolioEvansville, IN20,842,000
 2,109,000
 36,180,000
 15,000
 2,109,000
 36,195,000
 38,304,000
 (2,266,000) 1952-2006/1994 3/23/2010
Sugar Land II Medical Office BuildingSugar Land, TX 
 
 9,648,000
 80,000
 
 9,728,000
 9,728,000
 (720,000) 1999 3/23/2010
East Cooper Medical CenterMount Pleasant, SC 
 2,073,000
 5,939,000
 2,000
 2,073,000
 5,941,000
 8,014,000
 (476,000) 1992 3/31/2010
Pearland Medical PortfolioPearland, TX2,318,000
 1,602,000
 7,017,000
 47,000
 1,602,000
 7,064,000
 8,666,000
 (578,000) 2003-2007 3/31/2010
Hilton Head Medical PortfolioHilton Head Island, SC 
 1,333,000
 7,463,000
 
 1,333,000
 7,463,000
 8,796,000
 (440,000) 1996-2010 3/31/2010
NIH @ Triad Technology CenterBaltimore, MD11,800,000
 
 26,548,000
 
 
 26,548,000
 26,548,000
 (1,276,000) 1989 3/31/2010
Federal North Medical Office BuildingPittsburgh, PA 
 2,489,000
 30,268,000
 8,000
 2,489,000
 30,276,000
 32,765,000
 (1,481,000) 1999 4/29/2010
Balfour Concord PortfolioDenton,TX and Lewisville,TX4,454,000
 452,000
 11,384,000
 
 452,000
 11,384,000
 11,836,000
 (594,000) 2000 6/25/2010
Cannon Park PlaceCharleston, SC 
 425,000
 8,651,000
 
 425,000
 8,651,000
 9,076,000
 (378,000) 1998 6/28/2010
7900 FanninHouston, TX22,383,000
 
 34,764,000
 54,000
 
 34,818,000
 34,818,000
 (1,519,000) 2005 6/30/2010
Overlook at Eagle’s LandingStockbridge, GA5,324,000
 638,000
 6,685,000
 34,000
 638,000
 6,719,000
 7,357,000
 (363,000) 2004 7/15/2010
Sierra Vista Medical Office BuildingSan Luis Obispo, CA 
 
 11,900,000
 1,160,000
 
 13,060,000
 13,060,000
 (575,000) 2009 8/4/2010
Orlando Medical PortfolioOrlando, FL 
 
 14,226,000
 329,000
 
 14,555,000
 14,555,000
 (722,000) 1998-2000 9/29/2010
Santa Fe Medical PortfolioSante Fe, NM3,490,000
 1,539,000
 11,716,000
 
 1,539,000
 11,716,000
 13,255,000
 (497,000) 1978/2010-1985/2004 9/30/2010
Rendina Medical PortfolioLas Vegas, NV and Poughkeepsie, NY and St. Louis, MO and Tucson, AZ and Wellington, FL18,598,000
 
 68,488,000
 524,000
 
 69,012,000
 69,012,000
 (2,493,000) 2006-2008 9/30/2010
Allegheny HQ BuildingPittsburgh, PA 
 1,514,000
 32,368,000
 (19,000) 1,514,000
 32,349,000
 33,863,000
 (1,170,000) 2002 10/29/2010
Raleigh Medical CenterRaleigh, NC 
 1,281,000
 12,530,000
 259,000
 1,281,000
 12,789,000
 14,070,000
 (552,000) 1989 11/12/2010
Columbia Medical PortfolioAlbany, NY, and Latham, NY, and Temple Terrace, FL, Carmel NY, and N. Adams, MA98,055,000
 9,567,000
 160,696,000
 566,000
 9,567,000
 161,262,000
 170,829,000
 (5,488,000) 1964-2007 11/19/2010
Florida Orthopedic ASCTemple Terrace, FL 
 752,000
 4,211,000
 
 752,000
 4,211,000
 4,963,000
 (167,000) 2001 12/8/2010
Select Medical LTACHAugusta, GA and Dallas, TX and Orlando, FL, and Tallahassee, FL 
 12,719,000
 76,186,000
 
 12,719,000
 76,186,000
 88,905,000
 (2,382,000) 2006-2007 12/17/2010
Phoenix MOB PortfolioPhoenix, AZ26,857,000
 1,058,000
 31,865,000
 868,000
 1,058,000
 32,733,000
 33,790,000
 (1,280,000) 1989-2004 12/22/2010
Medical Park of CaryCary, NC 
 2,931,000
 19,855,000
 140,000
 2,931,000
 19,995,000
 22,926,000
 (824,000) 1996 12/30/2010
Holston Medical PortfolioBristol, TN


492,000

16,374,000




492,000

16,374,000

16,866,000

(509,000)
1983
3/24/2011
Desert Ridge PortfolioPhoenix, AZ




27,738,000

60,000




27,798,000

27,798,000

(235,000)
2004-2006
10/4/2011
  $636,558,000
 $167,968,000
 $1,763,031,000
 $38,905,000
 $168,065,000
 $1,803,189,000
 $1,969,904,000
 $(164,784,000)    

119


Healthcare Trust of America, Inc.
SCHEDULE III — REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION — (Continued)
(a) The cost capitalized subsequent to acquisition is net of dispositions.
(b) The changes in total real estate for the years ended December 31, 2011, 2010 and 2009 are as follows:
 Amount
Balance as of December 31, 2008$835,570,000
Acquisitions363,679,000
Additions7,556,000
Dispositions(327,000)
Balance as of December 31, 20091,206,478,000
Acquisitions683,055,000
Additions13,358,000
Dispositions(305,000)
Balance as of December 31, 20101,902,586,000
Acquisitions55,017,000
Additions19,157,000
Dispositions(5,506,000)
Balance as of December 31, 2011$1,971,254,000
(b) (c)The changes in totalaggregate cost of our real estate  for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 are as follows:federal income tax purposes was $2,325,377,000.
     
  Amount 
 
Balance as of April 28, 2006 (Date of Inception) $ 
Acquisitions   
Additions   
Dispositions   
     
Balance as of December 31, 2006   
Acquisitions  356,565,000 
Additions  1,046,000 
Dispositions  (33,000)
     
Balance as of December 31, 2007  357,578,000 
Acquisitions  473,132,000 
Additions  6,590,000 
Dispositions  (1,730,000)
     
Balance as of December 31, 2008 $835,570,000 
     
(c) The aggregate cost of our real estate for federal income tax purposes was $994,509,000.
(d)
The changes in accumulated depreciation  for the years ended December 31, 20082011, 2010 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 20062009 are as follows:
     
  Amount 
 
Balance as of April 28, 2006 (Date of Inception) $ 
Additions   
Dispositions   
     
Balance as of December 31, 2006   
Additions  4,590,000 
Dispositions  (2,000)
     
Balance as of December 31, 2007  4,588,000 
Additions  20,523,000 
Dispositions  (461,000)
     
Balance as of December 31, 2008 $24,650,000 
     
 Amount
 Balance as of December 31, 2008$24,650,000
Additions32,189,000
Dispositions(150,000)
Balance as of December 31, 200956,689,000
Additions48,737,000
Dispositions(303,000)
Balance as of December 31, 2010105,123,000
Additions65,158,000
Dispositions(5,497,000)
Balance as of December 31, 2011$164,784,000
(e)The cost of building and improvements is depreciated on a straight-line basis over the estimated useful lives of 39 years and the shorter of the lease term or useful life, ranging from one month to 241240 months, respectively. Furniture, fixtures and equipment is depreciated over five years.


141

120



Healthcare Trust of America, Inc.
SIGNATURESSCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE ASSETS
December 31, 2011
Mortgage LoansDescription Security Interest Rate   Maturity Date 
Periodic
Payment
Terms(4)
 
Face Amount
of Mortgages
 
Carrying
Amount of
Mortgages
MacNeal Hospital Medical Office Building Berwyn, IllinoisMedical Office Building Property 10.95% (1) 5/1/2012 I $7,500,000
 $7,500,000
MacNeal Hospital Medical Office Building Berwyn, IllinoisMedical Office Building Property 10.95% (1) 5/1/2012 I 7,500,000
 7,500,000
St. Luke’s Medical Office Building Phoenix, ArizonaMedical Office Building Property 10.85% (2) 5/1/2012 I 3,750,000
 3,750,000
St. Luke’s Medical Office Building Phoenix, ArizonaMedical Office Building Property 10.85% (2) 5/1/2012 I 1,250,000
 1,250,000
Rush Presbyterian Medical Office Building Oak Park, IllinoisMedical Office Building Property 7.76% (3) 12/1/2014 I 41,150,000
 37,459,000
Total     
       $61,150,000
 $57,459,000

(1)
The effective interest rate associated with these notes as of December 31, 2011 is 8.77%.
(2)
The effective interest rate associated with these notes as of December 31, 2011 is 8.63%.
(3)Represents an average interest rate for the life of the note with an effective interest rate of 8.60%.
(4)I = Interest only
The following shows changes in the carrying amounts of mortgage loans receivable during the period:
Balance at December 31, 2010$57,091,000
Additions: 
New mortgage loans
Amortization of discount368,000
Deductions: 
Collections of principal
Balance at December 31, 2011$57,459,000

(1)See Note 4, Real Estate Notes Receivable, Net, to our accompanying consolidated financial statements for further discussion of the reversal of the previously-recognized amortization on this mortgage loan.


121


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 Healthcare Trust of America, Inc.  
 
Grubb & Ellis Healthcare REIT, Inc.(Registrant)

(Registrant)
  
By
/s/  Scott D. Peters

Scott D. Peters
 
Chief Executive Officer, President and President
Chairman of the Board
(principal executive officer)
 
 Scott D. Peters

 
DateMarch 27, 2009
26, 2012  
By
/s/  Kellie S. Pruitt

Kellie S. Pruitt
 
Chief AccountingFinancial Officer
(principal financial officer and principal
accounting officer)
 
 Kellie S. Pruitt

 
DateMarch 27, 200926, 2012 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By/s/  Scott D. Peters
Chief Executive Officer, President and Chairman of the Board
(principal executive officer)
 
Scott D. Peters

 
DateMarch 26, 2012  
By
/s/  Scott D. Peters

Scott D. PetersKellie S. Pruitt
 
Chief ExecutiveFinancial Officer and President
(principal executivefinancial officer and principal
accounting officer)
 
Kellie S. Pruitt

 
DateMarch 27, 2009
26, 2012  
By
/s/  Kellie S. Pruitt

Kellie S. Pruitt
Chief Accounting Officer
(principal financial officer and principal accounting officer)
DateMarch 27, 2009
By
/s/  Maurice J. DeWald

Maurice J. DeWald
 Director
 
Maurice J. DeWald

  
DateMarch 27, 2009
26, 2012  
By
/s/  W. Bradley Blair, II

W. Bradley Blair, II
 Director
 
W. Bradley Blair, II

  
DateMarch 27, 2009
26, 2012  
By
/s/  Warren D. Fix

Warren D. Fix
 Director
 
Warren D. Fix

  
DateMarch 27, 2009
26, 2012  
By
/s/  Larry L. Mathis

Larry L. Mathis
 Director
 
Larry L. Mathis

  
DateMarch 27, 2009
26, 2012  
By
/s/  Gary T. Wescombe

Gary T. Wescombe
 Director
 
Gary T. Wescombe

  
DateMarch 27, 200926, 2012  


142


122


EXHIBIT INDEX
Following the consummation of the merger of NNN Realty Advisors, Inc., which previously served as our sponsor, with and into a wholly owned subsidiary of Grubb & Ellis Company on December 7, 2007, NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office REIT Holdings, L.P., NNN Healthcare/Office REIT Advisor, LLC and NNN Healthcare/Office Management, LLC Triple Net Properties, LLC and NNN Capital Corp. changed their names to Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, L.P., Grubb & Ellis Healthcare REIT Advisor, LLC, and Grubb & Ellis Healthcare Management, LLC, respectively.
Following the Registrant’s transition to self-management, on August 24, 2009, Grubb & Ellis Realty Investors, LLC,Healthcare REIT, Inc. and Grubb & Ellis Securities,Healthcare REIT Holdings, L.P. changed their names to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, respectively.
The following Exhibit List refers to the entity names used prior to thesuch name changes in order to accurately reflect the names of the parties on the documents listed.
Pursuant to Item 601(a)(2) ofRegulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference, in this Annual Report onForm 10-K for the fiscal year ended December 31, 20082011 (and are numbered in accordance with Item 601 ofRegulation S-KS-K).

3.1
ThirdFourth Articles of Amendment and Restatement of NNN Healthcare/Office REIT, Inc. (included as Exhibit 3.1 to our Annual Report onForm 10-K for the year ended December 31, 2006 and incorporated herein by reference)
3.2Articles of Amendment, effective December 10, 2007 (included as Exhibit 3.1 to our Current Report onForm 8-K filed December 10, 2007)20, 2010 and incorporated herein by reference).
3.33.2
 Bylaws of NNN Healthcare/Office REIT, Inc. (included as Exhibit 3.2 to the registrant’sour Registration Statement onForm S-11 (File (Commission File. No. 333-133652) filed on April 28, 2006 and incorporated herein by reference)
4.13.3
 Amendment to the Bylaws of Grubb & Ellis Healthcare REIT, Inc., effective April 21, 2009 (included as Exhibit 3.4 to Post-Effective Amendment No. 11 to our Registration Statement on Form S-11 (File No. 333-133652) filed on April 21, 2009
3.4
Amendment to the Bylaws of Grubb & Ellis Healthcare REIT, Inc., effective January 1, 2011 (included as Exhibit 3.2 to our Current Report on Form 8-K filed August 27, 2009 and incorporated herein by reference)
4.1
Healthcare Trust of America, Inc. Share Repurchase Plan, effective August 25, 2008 (included as Exhibit 4.1C to our Current ReportPost-Effective Amendment No. 14 to the Form S-11 filed on for8-K filed August 25, 2008October 23, 2009 and incorporated herein by reference)
4.2
FormHealthcare Trust of Subscription AgreementAmerica, Inc. Distribution Reinvestment Plan, effective September 20, 2006 (included as Exhibit B to the prospectus)
4.3Distribution Reinvestment Plan (included as Exhibit Cour Post-Effective Amendment No. 14 to the prospectus)
4.4Escrow Agreement (included as Exhibit 4.4 to our Quarterly ReportForm S-11 filed on theForm 10-Q for the quarter ended September 30, 2006October 23, 2009 and incorporated herein by reference)
10.1Amended and Restated Advisory Agreement among Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, LP, Grubb & Ellis Healthcare REIT Advisory, LLC and Grubb & Ellis Realty Investors, LLC (included as Exhibit 10.1 to our Current Report onForm 8-K filed on November 19, 2008 and incorporated herein by reference)
10.2
 Agreement of Limited Partnership of NNN Healthcare/Office REIT Holdings, L.P. (included as Exhibit 10.2 to our Quarterly Report onForm 10-Q for the quarter ended September 30, 2006 and incorporated herein by reference)
10.2.110.2
 Amendment No. 1 to Agreement of Limited Partnership of Grubb & Ellis Healthcare REIT Holdings, LP (included as Exhibit 10.2 to our Current Report onForm 8-K filed on November 19, 2008 and incorporated herein by reference)
10.3†10.3
Amendment No. 2 to Agreement of Limited Partnership of Grubb & Ellis Healthcare REIT Holdings, LP by Healthcare Trust of America, Inc. (formerly known as Grubb & Ellis Healthcare REIT, Inc.) dated as of August 24, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K filed August 27, 2009 and incorporated herein by reference)
10.4†
 NNN Healthcare/Office REIT, Inc. 2006 Incentive Plan (including the 2006 Independent Directors Compensation Plan) (included as Exhibit 10.3 to the registrant’sour Registration Statement onForm S-11 (File (Commission File No. 333-133652) filed on April 28, 2006 and incorporated herein by reference)
10.4†10.5†
 Amendment to the NNN Healthcare/Office REIT, Inc. 2006 Incentive Plan (including the 2006 Independent Directors Compensation Plan) (included as Exhibit 10.4 to the registrant’sAmendment No. 6 to our Registration Statement onForm S-11 Amendment (Commission File No. 6 (FileNo. 333-133652) filed on September 12, 2006 and incorporated herein by reference)
10.510.6†Form of Indemnification agreement executed by W. Bradley Blair, II, Maurice J. DeWald, Warren D. Fix, Gary T. Wescombe, Scott D. Peters, Danny Prosky, Andrea R. Biller and Larry L. Mathis (included as Exhibit 10.1 to our Current Report onForm 8-K filed on March 5, 2007 and incorporated herein by reference)


143


10.6Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between Fort Road Associated Limited Partnership and Triple Net Properties, LLC, dated January 14, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.7First Amendment to Agreement of Sale by and among TST Overland Park, L.P., TST El Paso Properties, Ltd., TST Jacksonville II, LLC, TST Tampa Bay, Ltd., TST Largo ASC, Ltd., TST Brandon, Ltd., and TST Lakeland, Ltd. and Triple Net Properties, LLC, dated January 18, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.8ISDA Master Agreement by and between National City Bank and G&E Healthcare REIT Chesterfield Rehab Hospital, LLC, dated January 20, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed February 1, 2008 and incorporated herein by reference)
10.9First Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between Fort Road Associates Limited Partnership and Triple Net Properties, LLC, dated January 31, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.10Second Amendment to Agreement of Sale by and among TST Overland Park, L.P., TST El Paso Properties, Ltd., TST Jacksonville II, LLC, TST Tampa Bay, Ltd., TST Largo ASC, Ltd., TST Brandon, Ltd., TST Lakeland, Ltd., Triple Net Properties, LLC and LandAmerica Financial Group, Inc., dated February 1, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.11Assignment and Assumption of Agreement of Sale by and between Triple Net Properties, LLC and G&E Healthcare REIT Medical Portfolio 1, LLC, dated February 1, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.12Loan Agreement by and between G&E Healthcare REIT Medical Portfolio 1, LLC and Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.5 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.13Promissory Note by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.6 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.14Mortgage, Assignment, Security Agreement and Fixture Filing (West Bay) by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.7 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.15Mortgage, Assignment, Security Agreement and Fixture Filing (Largo) by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.8 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.16Mortgage, Assignment, Security Agreement and Fixture Filing (Central Florida) by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.9 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.17Mortgage, Assignment, Security Agreement and Fixture Filing (Brandon) by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.10 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.18Mortgage, Assignment, Security Agreement and Fixture Filing (Overland Park) by G&E Healthcare REIT Medical Portfolio 1, LLC in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.11 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)


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10.19Repayment Guaranty by Grubb & Ellis Healthcare REIT, Inc. in favor of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.12 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.20Environmental Indemnity Agreement by G&E Healthcare REIT Medical Portfolio 1, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Bank, National Association, dated February 1, 2008 (included as Exhibit 10.13 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.21ISDA Interest Rate Swap Agreement by and between Triple Net Properties, LLC and Wachovia Bank, National Association, dated February 1, 2008, as amended on February 6, 2008 (included as Exhibit 10.14 to our Current Report onForm 8-K filed February 7, 2008 and incorporated herein by reference)
10.22First Amendment to Promissory Note by and between NNN Gallery Medical, LLC, NNN Realty Advisors, Inc. and LaSalle Bank National Association, released from escrow on February 20, 2008 and effective as of February 12, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed February 26, 2008 and incorporated herein by reference)
10.23Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between NHP Cypress Station Partnership, LP and Grubb & Ellis Realty Investors, LLC, dated February 22, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.24Second Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between Fort Road Associates Limited Partnership and Triple Net Properties, LLC, dated March 5, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.25Assignment and Assumption of Purchase Agreement by and between Grubb & Ellis Realty Investors, LLC and G&E Healthcare REIT Fort Road Medical, LLC, dated March 6, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.26Promissory Note by G&E Healthcare REIT Fort Road Medical, LLC in favor of LaSalle Bank National Association, dated March 6, 2008 (included as Exhibit 10.5 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.27Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing by G&E Healthcare REIT Fort Road Medical, LLC for the benefit of LaSalle Bank National Association, dated March 6, 2008 (included as Exhibit 10.6 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.28Guaranty of Payment by Grubb & Ellis Healthcare REIT, Inc. in favor of LaSalle Bank National Association, dated March 6, 2008 (included as Exhibit 10.7 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.29Environmental Indemnity Agreement by G&E Healthcare REIT Fort Road Medical, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of LaSalle Bank National Association, dated March 6, 2008 (included as Exhibit 10.8 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.30Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between Epler Parke, LLC and Grubb & Ellis Realty Investors, LLC, dated March 6, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed March 28, 2008 and incorporated herein by reference)
10.31ISDA Interest Rate Swap Confirmation Letter Agreement by and between G&E Healthcare REIT Fort Road Medical, LLC and LaSalle Bank National Association, dated March 10, 2008 (included as Exhibit 10.9 to our Current Report onForm 8-K filed March 12, 2008 and incorporated herein by reference)
10.32Second Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between Liberty Falls, LLC, Triple Net Properties, LLC, and Dave Chrestensen and Todd Crawford, dated March 11, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed March 25, 2008 and incorporated herein by reference)


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10.33Assignment and Assumption of Purchase Agreement by and between Grubb & Ellis Realty Investors, LLC and G&E Healthcare REIT Liberty Falls Medical Plaza, LLC, dated March 19, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed March 25, 2008 and incorporated herein by reference)
10.34Assignment and Assumption of Purchase Agreement by and between Grubb & Ellis Realty Investors, LLC and G&E Healthcare REIT Epler Parke Building B, LLC, dated March 24, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed March 28, 2008 and incorporated herein by reference)
10.35Assignment and Assumption of Purchase Agreement by and between Grubb & Ellis Realty Investors, LLC and G&E Healthcare REIT Cypress Station, LLC, dated March 25, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.36Promissory Note by G&E Healthcare REIT Cypress Station, LLC in favor of National City Bank, dated March 25, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.37Deed of Trust, Security Agreement, Assignment of Leases and Rents and Financing Statement by G&E Healthcare REIT Cypress Station, LLC for the benefit of National City Bank, dated March 25, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.38Limited Guaranty of Payment by Grubb & Ellis Healthcare REIT, Inc. for the benefit of National City Bank, dated March 25, 2008 (included as Exhibit 10.5 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.39Environmental Indemnity Agreement by G&E Healthcare REIT Cypress Station, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of National City Bank, dated March 25, 2008 (included as Exhibit 10.6 to our Current Report onForm 8-K filed March 31, 2008 and incorporated herein by reference)
10.40Purchase and Sale Agreement and Escrow Instructions by and between HCP, Inc. and HCPI/Indiana, LLC and G&E Healthcare REIT Medical Portfolio 3, LLC, dated May 30, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed June 4, 2008 and incorporated herein by reference)
10.41Commercial Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing by G&E Healthcare REIT Amarillo Hospital, LLC to and for the benefit of Jeffrey C. Baker, Esq., Trustee and LaSalle Bank National Association, dated June 23, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed June 25, 2008 and incorporated herein by reference)
10.42Joinder Agreement by G&E Healthcare REIT Amarillo Hospital, LLC in favor of LaSalle Bank National Association, dated June 23, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed June 25, 2008 and incorporated herein by reference)
10.43Environmental Indemnity Agreement by Grubb and Ellis Healthcare REIT Holdings, L.P., G&E Healthcare REIT Amarillo Hospital, LLC and Grubb & Ellis Healthcare REIT, Inc. to and for the benefit of LaSalle Bank National Association, dated June 23, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed June 25, 2008 and incorporated herein by reference)
10.44Loan Agreement by and among G&E Healthcare REIT 5995 Plaza Drive, LLC, G&E Healthcare REIT Academy, LLC, G&E Healthcare REIT Epler Parke Building B, LLC, G&E Healthcare REIT Nutfield Professional Center, LLC and G&E Healthcare REIT Medical Portfolio 2, LLC and Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.45Promissory Note by G&E Healthcare REIT 5995 Plaza Drive, LLC, G&E Healthcare REIT Academy, LLC, G&E Healthcare REIT Epler Parke Building B, LLC, G&E Healthcare REIT Nutfield Professional Center, LLC and G&E Healthcare REIT Medical Portfolio 2, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)


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10.46Deed of Trust, Assignment, Security Agreement and Fixture Filing by G&E Healthcare REIT 5995 Plaza Drive, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.47Deed of Trust, Assignment, Security Agreement and Fixture Filing by G&E Healthcare REIT Academy, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 and delivered June 26, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.48Deed of Trust, Assignment, Security Agreement and Fixture Filing by G&E Healthcare REIT Medical Portfolio 2, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.5 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.49Mortgage, Assignment, Security Agreement and Fixture Filing by G&E Healthcare REIT Epler Parke Building B, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.6 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.50Mortgage, Assignment, Security Agreement and Fixture Filing (Overland Park) by G&E Healthcare REIT Nutfield Professional Center, LLC in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.7 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.51Repayment Guaranty by Grubb & Ellis Healthcare REIT, Inc. in favor of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.8 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.52Environmental Indemnity Agreement by G&E Healthcare REIT 5995 Plaza drive, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.9 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.53Environmental Indemnity Agreement by G&E Healthcare REIT Academy, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.10 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.54Environmental Indemnity Agreement by G&E Healthcare REIT Medical Portfolio 2, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.11 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.55Environmental Indemnity Agreement by G&E Healthcare REIT Epler Parke Building B, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.12 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.56Environmental Indemnity Agreement by G&E Healthcare REIT Nutfield Professional Center, LLC and Grubb & Ellis Healthcare REIT, Inc. for the benefit of Wachovia Financial Services, Inc., dated June 24, 2008 (included as Exhibit 10.13 to our Current Report onForm 8-K filed June 27, 2008 and incorporated herein by reference)
10.57Loan Agreement by and between G&E Healthcare REIT Medical Portfolio 3, LLC, The Financial Institutions Party Hereto, as Banks, and Fifth Third Bank, as Agent, dated June 26, 2008 (included as Exhibit 10.2 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.58Syndicated Promissory Note (1) by G&E Healthcare REIT Medical Portfolio 3, LLC for the benefit of Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.3 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)


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10.59Syndicated Promissory Note (2) by G&E Healthcare REIT Medical Portfolio 3, LLC for the benefit of Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.4 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.60Guaranty of Payment by Grubb & Ellis Healthcare REIT, Inc. for the benefit of Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.5 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.61Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (Boone County) by and between G&E Healthcare REIT Medical Portfolio 3, LLC and Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.6 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.62Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (Hamilton County) by and between G&E Healthcare REIT Medical Portfolio 3, LLC and Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.7 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.63Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (Hendricks County) by and between G&E Healthcare REIT Medical Portfolio 3, LLC and Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.8 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.64Mortgage, Security Agreement, Fixture Filing and Assignment of Leases and Rents (Marion County) by and between G&E Healthcare REIT Medical Portfolio 3, LLC and Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.9 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.65Environmental Indemnity Agreement by G&E Healthcare REIT Medical Portfolio 3, LLC and Grubb & Ellis Healthcare REIT, Inc. to and for the benefit of Fifth Third Bank, dated June 26, 2008 (included as Exhibit 10.10 to our Current Report onForm 8-K filed July 1, 2008 and incorporated herein by reference)
10.66Modification of Loan Agreement by and among G&E Healthcare REIT Medical Portfolio 3, LLC, Grubb& Ellis Healthcare REIT, Inc. and Fifth Third Bank, dated June 27, 2008 (included as Exhibit 10.1 to our Current Report onForm 8-K filed July 3, 2008 and incorporated herein by reference)
10.67†Employment Agreement by and between Grubb & Ellis Healthcare REIT, Inc. and Scott D. Peters (included as Exhibit 10.3 to our Current Report onForm 8-K filed on November 19, 2008 and incorporated herein by reference)
10.68† Amendment to the Grubb & Ellis Healthcare REIT, Inc. 2006 Independent DirectorsDirectors’ Compensation Plan, effective January 1, 2009 (included as Exhibit 10.68 in our Annual Report of Form 10-K filed March 27, 2009 and incorporated herein by reference)
10.7†
Amendment to the Healthcare Trust of America, Inc. 2006 Independent Directors Compensation Plan, effective as of May 20, 2010 (included as Exhibit 10.1 to our Quarterly Report on Form 10-Q filed August 16, 2010 and incorporated herein by reference).
10.8†
Healthcare Trust of America, Inc. Amended and Restated 2006 Incentive Plan, dated February 24, 2011 (included as Exhibit 10.1 to our Current Report on Form 8-K filed March 2, 2011 and incorporated herein by reference).

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10.9†
Employment Agreement between Grubb & Ellis Healthcare REIT, Inc. and Scott D. Peters, effective as of July 1, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K filed July 8, 2009 and incorporated herein by reference)
10.10†
Amendment to Employment Agreement with Scott D. Peters, effective as of May 20, 2010 (included as Exhibit 10.2 to our Quarterly Report on Form 10-Q filed August 16, 2010 and incorporated herein by reference).
10.11†
Employment Agreement between Grubb & Ellis Healthcare REIT, Inc. and Mark Engstrom, effective as of July 1, 2009 (included as Exhibit 10.2 to our Current Report on Form 8-K filed July 8, 2009 and incorporated herein by reference)
10.12†
Employment Agreement between Grubb & Ellis Healthcare REIT, Inc. and Kellie S. Pruitt, effective as of July 1, 2009 (included as Exhibit 10.3 to our Current Report on Form 8-K filed July 8, 2009 and incorporated herein by reference)
10.13
Form of Amended and Restated Indemnification Agreement executed by Scott D. Peters, W. Bradley Blair, II, Maurice J. DeWald, Warren D. Fix, Larry L. Mathis and Gary T. Wescombe (included as Exhibit 10.1 to our Current Report on Form 8-K filed December 20, 2010 and incorporated herein by reference).
10.14
Form of Indemnification Agreement executed by Kellie S. Pruitt and Mark D. Engstrom (included as Exhibit 10.2 to our Current Report on Form 8-K filed December 20, 2010 and incorporated herein by reference).
10.15
Purchase and Sale Agreement by and between Greenville Hospital System and HTA Greenville, LLC, dated July 15, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K filed July 16, 2009 and incorporated herein by reference)
10.16
First Amendment to Purchase and Sale Agreement by and between Greenville Hospital System and HTA Greenville, LLC, dated August 14, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K filed August 20, 2009 and incorporated herein by reference)
10.17
Second Amendment to Agreement of Sale and Purchase by and between Greenville Hospital System and HTA Greenville, LLC, dated August 21, 2009 (included as Exhibit 10.2 to our Current Report on Form 8-K filed August 27, 2009 and incorporated herein by reference)
10.18
Third Amendment to Agreement of Sale and Purchase by and between Greenville Hospital System and HTA Greenville, LLC, dated August 26, 2009 (included as Exhibit 10.3 to our Current Report on Form 8-K filed August 27, 2009 and incorporated herein by reference)
10.19
Fourth Amendment to Agreement of Sale and Purchase by and between Greenville Hospital System and HTA — Greenville, LLC, dated September 4, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K, filed September 11, 2009 and incorporated herein by reference)
10.20
Future Development Agreement by and between HTA — Greenville, LLC and Greenville Hospital System, dated September 9, 2009 (included as Exhibit 10.1 to our Current Report on Form 8-K, filed September 22, 2009 and incorporated herein by reference)
10.21
Right of First Opportunity by and between HTA — Greenville, LLC and Greenville Hospital System, dated September 9, 2009 (included as Exhibit 10.2 to our Current Report on Form 8-K, filed September 22, 2009 and incorporated herein by reference)
10.22
Credit Agreement by and among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., Deutsche Bank Securities Inc., U.S. Bank National Association and Fifth Third Bank and the Lenders Party Hereto, dated November 22, 2010 (included as Exhibit 10.1 to our Current Report on Form 8-K filed November 23, 2010 and incorporated herein by reference).
10.23
Guaranty for the benefit of JPMorgan Chase Bank, N.A. dated November 22, 2010 by Healthcare Trust of America, Inc. and certain Subsidiaries of Healthcare Trust of America, Inc. named therein (included as Exhibit 10.2 to our Current Report on Form 8-K filed November 23, 2010 and incorporated herein by reference).
10.24
Purchase and Sale Agreement dated October 26, 2010 by and between COLUMBIA NAH GROUP, LLC and HTA — NORTHERN BERKSHIRE, LLC (included as Exhibit 10.7 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.25
Purchase and Sale Agreement dated October 26, 2010 by and between COLUMBIA 90 ASSOCIATES, LLC and HTA — REGION HEALTH, LLC (included as Exhibit 10.8 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.26
Purchase and Sale Agreement dated October 26, 2010 by and between WASHINGTON AVE. CAMPUS, LLC and HTA — 1223 WASHINGTON, LLC (included as Exhibit 10.9 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).

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10.27
Purchase and Sale Agreement dated October 26, 2010 by and between COLUMBIA TEMPLE TERRACE, LLC and HTA — 13020 TELECOM, LLC (included as Exhibit 10.10 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.28
Purchase and Sale Agreement dated October 26, 2010 by and between PATROON CREEK BLVD, LLC and HTA — PATROON CREEK, LLC (included as Exhibit 10.11 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.29
Purchase and Sale Agreement dated October 26, 2010 by and between COLUMBIA PHC GROUP, LLC and HTA — PUTNAM CENTER, LLC (included as Exhibit 10.12 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.30
Purchase and Sale Agreement dated October 26, 2010 by and between PINSTRIPES, LLC and HTA — 1092 MADISON, LLC (included as Exhibit 10.13 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.31
Purchase and Sale Agreement dated October 26, 2010 by and between COLUMBIA WASHINGTON VENTURES, LLC and HTA — WASHINGTON MEDICAL ARTS I, LLC (included as Exhibit 10.14 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.32
Purchase and Sale Agreement dated October 26, 2010 by and between 1375 ASSOCIATES, LLC, ERLY REALTY DEVELOPMENT, INC, and HTA — WASHINGTON MEDICAL ARTS II, LLC (included as Exhibit 10.15 to Post-Effective Amendment No. 1 to the Company’s Form S-11 Registration Statement (Commission File No. 333-158418), filed on December 27, 2010 and incorporated herein by reference).
10.33
Amendment No. 1 to Credit Agreement by and among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., Compass Bank, The Bank of Nova Scotia, Union Bank, N.A., and Sumitomo Mitsui Banking Corporation and the Lenders Party Hereto, dated May 13, 2011 (included as Exhibit 10.1 to our Current Report on Form 8-K, filed May 16, 2011 and incorporated herein by reference)

21.1* Subsidiaries of Grubb & Ellis Healthcare REIT,Trust of America, Inc.
23.1*Consent of Independent Registered Public Accounting Firm
31.1* Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief AccountingFinancial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certification of Chief AccountingFinancial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**XBRL Instance Document
101.SCH**XBRL Taxomony Extension Schema Document
101.CAL**XBRL Taxomony Extension Calculation Linkbase Document
101.LAB**XBRL Taxonomy Extension Labels Linkbase Document
101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF**XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith.
**Furnished herewith.
Compensatory plan or arrangement.


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125