Edgar Filing: HEALTHCARE REALTY TRUST INC

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________

(Mark One)



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

For the quarterly period ended: September 30, 2017



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

For the transition period from to

Commission File Number: 001-11852

____________________________________________________________

HEALTHCARE REALTY TRUST INCORPORATED

(Exact name of Registrant as specified in its charter)

____________________________________________________________



Maryland		62 – 1507028
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



	3310 West End Avenue
	Suite 700
	Nashville, Tennessee 37203
	(Address of principal executive offices)

	(615) 269-8175
	(Registrant’s telephone number, including area code)



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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o	Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 27, 2017, the Registrant had 124,890,077 shares of Common Stock outstanding.

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HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

September 30, 2017

TABLE OF CONTENTS



		Page
Part I—Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statement of Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4.	Controls and Procedures	28

Part II—Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 6.	Exhibits	30

Signature		32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Healthcare Realty Trust Incorporated

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share data)



	(Unaudited)
	September 30, 2017			December 31, 2016
ASSETS
Real estate properties:
Land	$	196,217		$	199,672
Buildings, improvements and lease intangibles	3,400,224			3,386,480
Personal property	10,300			10,291
Construction in progress	1,138			11,655
Land held for development	20,123			20,123
	3,628,002			3,628,221
Less accumulated depreciation and amortization	(888,875		)	(840,839		)
Total real estate properties, net	2,739,127			2,787,382
Cash and cash equivalents	196,981			5,409
Restricted cash	—			49,098
Assets held for sale and discontinued operations, net	8,772			3,092
Other assets, net	200,824			195,666
Total assets	$	3,145,704		$	3,040,647
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable	$	1,166,060		$	1,264,370
Accounts payable and accrued liabilities	69,918			78,266
Liabilities of properties held for sale and discontinued operations	59			614
Other liabilities	45,405			43,983
Total liabilities	1,281,442			1,387,233
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share; 50,000 shares authorized; none issued and outstanding	—			—
Common stock, $.01 par value per share; 300,000 and 150,000 shares authorized; 124,890 and 116,417 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	1,249			1,164
Additional paid-in capital	3,173,167			2,917,914
Accumulated other comprehensive loss	(1,274		)	(1,401		)
Cumulative net income attributable to common stockholders	1,055,499			995,256
Cumulative dividends	(2,364,379		)	(2,259,519		)
Total stockholders' equity	1,864,262			1,653,414
Total liabilities and stockholders' equity	$	3,145,704		$	3,040,647

The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, are an integral part of these financial statements.

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2017 and 2016

(Amounts in thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
REVENUES
Rental income	$	106,561		$	102,534		$	315,519		$	302,746
Other operating	392			1,125			1,249			3,576
	106,953			103,659			316,768			306,322
EXPENSES
Property operating	40,626			37,504			116,644			109,173
General and administrative	8,021			7,859			24,720			23,687
Acquisition and pursuit costs	507			865			1,878			3,411
Depreciation and amortization	35,873			31,985			105,148			93,668
Bad debts, net of recoveries	14			(47		)	185			(8		)
	85,041			78,166			248,575			229,931
OTHER INCOME (EXPENSE)
Gain on sales of real estate assets	(7		)	—			39,519			1
Interest expense	(14,107		)	(13,759		)	(42,694		)	(43,512		)
Pension termination	—			—			—			(4		)
Impairment of real estate assets	(5,059		)	—			(5,387		)	—
Interest and other income, net	426			123			616			301
	(18,747		)	(13,636		)	(7,946		)	(43,214		)
INCOME FROM CONTINUING OPERATIONS	3,165			11,857			60,247			33,177
DISCONTINUED OPERATIONS
Income (loss) from discontinued operations	8			(23		)	(9		)	(50		)
Gain on sales of real estate properties	—			—			5			7
INCOME (LOSS) FROM DISCONTINUED OPERATIONS	8			(23		)	(4		)	(43		)
NET INCOME	$	3,173		$	11,834		$	60,243		$	33,134
BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations	$	0.02		$	0.10		$	0.50		$	0.31
Discontinued operations	0.00			0.00			0.00			0.00
Net income	$	0.02		$	0.10		$	0.50		$	0.31
DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations	$	0.02		$	0.10		$	0.50		$	0.31
Discontinued operations	0.00			0.00			0.00			0.00
Net income	$	0.02		$	0.10		$	0.50		$	0.31
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC	119,098			114,152			116,181			106,552
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED	119,181			115,052			116,277			107,366
DIVIDENDS DECLARED, PER COMMON SHARE, DURING THE PERIOD	$	0.30		$	0.30		$	0.90		$	0.90

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2017 and 2016

(Dollars in thousands)

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
NET INCOME	$	3,173	$	11,834	$	60,243	$	33,134
Other comprehensive income:
Forward starting interest rate swaps:
Reclassification adjustment for losses included in net income (Interest expense)	43		42		127		126
Total other comprehensive income	43		42		127		126
COMPREHENSIVE INCOME	$	3,216	$	11,876	$	60,370	$	33,260

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statement of Equity

(Dollars in thousands, except per share data)

(Unaudited)



	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Cumulative Net Income Attributable to Common Stockholders		Cumulative Dividends			Total Stockholders’ Equity
Balance at December 31, 2016	$	1,164	$	2,917,914		$	(1,401	)	$	995,256	$	(2,259,519	)	$	1,653,414
Issuance of common stock	84		248,261			—			—		—			248,345
Common stock redemptions	—		(503		)	—			—		—			(503		)
Stock-based compensation	1		7,495			—			—		—			7,496
Net income	—		—			—			60,243		—			60,243
Reclassification of loss on forward starting interest rate swaps	—		—			127			—		—			127
Dividends to common stockholders ($0.90 per share)	—		—			—			—		(104,860		)	(104,860		)
Balance at September 30, 2017	$	1,249	$	3,173,167		$	(1,274	)	$	1,055,499	$	(2,364,379	)	$	1,864,262

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2017 and 2016

(Dollars in thousands)

(Unaudited)



	Nine Months Ended September 30,
	2017			2016
OPERATING ACTIVITIES
Net income	$	60,243		$	33,134
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	105,148			93,668
Other amortization	3,056			2,477
Stock-based compensation	7,496			5,649
Amortization of straight-line rent receivable	(4,867		)	(5,446		)
Amortization of straight-line rent liability	492			(93		)
Gain on sales of real estate assets	(39,525		)	(8		)
Impairment of real estate assets	5,387			—
Provision for bad debts, net	175			(8		)
Changes in operating assets and liabilities:
Other assets	(6,037		)	(1,436		)
Accounts payable and accrued liabilities	(3,301		)	(3,889		)
Other liabilities	1,098			(21,628		)
Net cash provided by operating activities	129,365			102,420
INVESTING ACTIVITIES
Acquisitions of real estate	(72,934		)	(162,702		)
Development of real estate	(11,753		)	(28,508		)
Additional long-lived assets	(52,305		)	(49,794		)
Proceeds from sales of real estate	119,425			—
Proceeds from mortgages and notes receivable repayments	15			14
Net cash used in investing activities	(17,552		)	(240,990		)
FINANCING ACTIVITIES
Net repayments on unsecured credit facility	(107,000		)	(125,000		)
Repayment on term loan	—			(50,000		)
Borrowings of notes and bonds payable	—			11,500
Repayments on notes and bonds payable	(4,654		)	(36,786		)
Dividends paid	(104,860		)	(96,998		)
Net proceeds from issuance of common stock	248,384			450,304
Common stock redemptions	(1,125		)	(1,282		)
Debt issuance and assumption costs	(84		)	(4,621		)
Net cash provided by financing activities	30,661			147,117
Increase in cash, cash equivalents and restricted cash	142,474			8,547
Cash, cash equivalents and restricted cash at beginning of period	54,507			4,102
Cash, cash equivalents and restricted cash at end of period	$	196,981		$	12,649

Supplemental Cash Flow Information:
Interest paid	$	42,136		$	43,879
Invoices accrued for construction, tenant improvements and other capitalized costs	$	6,842		$	10,014
Mortgage notes payable assumed upon acquisition (adjusted to fair value)	$	12,460		$	13,951
Capitalized interest	$	681		$	828

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Healthcare Realty Trust Incorporated

Notes to the Condensed Consolidated Financial Statements

September 30, 2017

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Business Overview

Healthcare Realty Trust Incorporated (the "Company") is a self-managed, self-administered real estate investment trust ("REIT") that integrates owning, leasing, managing, financing, developing and redeveloping income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of September 30, 2017, the Company had gross investments of approximately $3.6 billion in 197 real estate properties located in 26 states totaling approximately 14.4 million square feet. The Company provided leasing and property management services to approximately 11.2 million square feet nationwide.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2016. All material intercompany transactions and balances have been eliminated in consolidation.

This interim financial information should be read in conjunction with the financial statements included in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2017 for many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and uncertainties.

Use of Estimates in the Condensed Consolidated Financial Statements

Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents includes short-term investments with original maturities of three months or less when purchased. Restricted cash includes cash held in escrow in connection with proceeds from the sales of certain real estate properties. These sales proceeds were disbursed as the Company acquired real estate investments in like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company's Consolidated Balance Sheets to the combined amounts shown on the Company's Consolidated Statements of Cash Flows:



(Dollars in thousands)	9/30/2017		12/31/2016
Cash and cash equivalents	$	196,981	$	5,409
Restricted cash	—		49,098
Total cash, cash equivalents and restricted cash	$	196,981	$	54,507

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Reclassifications

Condensed Consolidated Statements of Income

Certain reclassifications have been made on the Company's Condensed Consolidated Statements of Income. The Company reclassified acquisition and pursuit costs from the general and administrative line item to a separate line item. The acquisition and pursuit costs line item includes direct third party and travel costs related to the Company's pursuit of acquisitions and developments. In addition, the Company combined the line items labeled depreciation and amortization into one line item. These reclassifications are as follows:



	September 30, 2016
	Three Months Ended				Nine Months Ended
(in thousands)	As Previously Reported		As Reclassified		As Previously Reported		As Reclassified
General and administrative	$	8,724	$	7,859	$	27,098	$	23,687
Acquisition and pursuit costs	—		865		—		3,411
Total	$	8,724	$	8,724	$	27,098	$	27,098

Depreciation	$	29,273	$	—	$	85,494	$	—
Amortization	2,712		—		8,174		—
Depreciation and amortization	—		31,985		—		93,668
Total	$	31,985	$	31,985	$	93,668	$	93,668

New Accounting Pronouncements

Accounting Standards Update No. 2014-09 and No. 2015-14

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers," a comprehensive new revenue recognition standard that supersedes most existing revenue recognition guidance, including sales of real estate. This standard's core principle is that a company will recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. However, leasing contracts, representing the major source of the Company's revenues, are not within the scope of the new standard and will continue to be accounted for under other standards.

In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606); Deferral of the Effective Date." This standard is effective for the Company for annual and interim periods beginning after December 15, 2017 with early adoption permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company plans to adopt this standard by using the full retrospective adoption method beginning on January 1, 2018. The Company's revenue-producing contracts are primarily leases that are not within the scope of this standard. As a result, the Company does not expect the adoption of this standard to have a material impact on the timing and measurement of the Company's leasing revenues. The Company has identified that parking income, rental lease guaranty income and management fee income will be within the scope of Topic 606. The Company is continuing to assess the impact of this standard and does expect additional disclosures that are required from the adoption of this standard.

Accounting Standards Update No. 2016-02

In February 2016, the FASB issued ASU No. 2016-02, "Leases." For lessees, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company expects that all of the leases where the Company is the lessee will be recorded on the Company's balance sheet. For lessors, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor doesn't convey risks and rewards or control, then the lease would be classified as an operating lease.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the initial stages of evaluating the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes.

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Accounting Standards Update No. 2016-13

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This update is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. This update requires that financial statement assets measured at an amortized cost and certain other financial instruments be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. This standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company is in the initial stages of evaluating the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes.

Accounting Standards Update No. 2016-15

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments." This update clarifies whether the following items should be classified as operating, investing or financing in the statement of cash flows: (i) debt prepayments and extinguishment costs, (ii) settlement of zero-coupon debt, (iii) settlement of contingent consideration, (iv) insurance proceeds, (v) settlement of corporate-owned life insurance and bank-owned life insurance policies, (vi) distributions from equity method investees, (vii) beneficial interest in securitization transactions and (viii) receipts and payments with aspects of more than one class of cash flows.

This standard is effective for the Company for annual and interim periods beginning on January 1, 2018 with early adoption permitted on a retrospective transition method to each period presented. The Company adopted this standard effective January 1, 2017. There was not a material impact on the Company's Consolidated Financial Statements and related notes resulting from the adoption of this standard.

Accounting Standards Update No. 2017-01

In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations: Clarifying the Definition of a Business." This update modifies the requirements to meet the definition of a business under Topic 805, "Business Combinations." The amendments provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The Company believes that this amendment will result in most of its real estate acquisitions being accounted for as asset acquisitions rather than business combinations. This standard is effective for the Company for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The Company adopted this standard effective January 1, 2017 and has accounted for acquisitions that occurred during the nine months ended September 30, 2017 as asset acquisitions. The impact to the Consolidated Financial Statements and related notes as a result of the adoption of this standard is primarily related to the difference in the accounting of acquisition costs. When accounting for these costs as a part of an asset acquisition, the Company will be permitted to capitalize the costs. The adoption of this standard did not have a material impact on the Consolidated Financial Statements and related notes.

Accounting Standards Update No. 2017-04

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This update eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. This standard is effective for the Company for annual and interim periods beginning after December 15, 2019. The Company does not expect a material impact on the Consolidated Financial Statements and related notes from the adoption of this standard.

Accounting Standards Update No. 2017-05

In February 2017, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets." This update defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. This standard is effective for the Company for annual and interim periods beginning after December 15, 2017 with early adoption permitted. The Company does not expect a material impact on the Consolidated Financial Statements and related notes from the adoption of this standard.

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Accounting Standards Update No. 2017-09

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation - Scope of Modification Accounting." This update provides guidance about which changes to the terms and conditions of share-based awards require an entity to apply modification accounting in Topic 718. This standard is effective for the Company for the annual and interim periods beginning after December 15, 2017 with early adoption permitted. The Company does not expect a material impact on the Consolidated Financial Statements and related notes from the adoption of this standard.

Accounting Standards Update No. 2017-12

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities." The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The transition guidance allows for early adoption of the new standard using a modified retrospective transition method in any interim period after issuance of the update, or alternatively requires adoption for fiscal years beginning after December 15, 2018. The modified retrospective transition method will require the Company to recognize the cumulative effect of initially applying this standard as an adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the update. While the Company continues to assess all potential impacts of the standard, the Company currently does not expect adoption to have a material impact on the Company's Consolidated Financial Statements.

Note 2. Real Estate Investments

2017 Acquisitions

The following table details the Company's acquisitions for the nine months ended September 30, 2017 (dollars in millions):



Location	Type ⁽¹⁾	Date Acquired	Purchase Price		Mortgage Note Payable Assumed ⁽²⁾			Cash Consideration ⁽³⁾		Real Estate		Other ⁽⁴⁾			Square Footage
St. Paul, Minnesota	MOB	3/6/17	$	13.5	$	—		$	13.5	$	13.3	$	0.2		34,608
San Francisco, California	MOB	6/12/17	26.8		—			26.8		26.8		—			75,649
Washington, D.C.	MOB	6/13/17	24.0		(12.1		)	12.5		24.8		(0.2		)	62,379
Los Angeles, California	MOB	7/31/17	16.3		—			16.7		16.9		(0.2		)	42,780
Total acquisitions			$	80.6	$	(12.1	)	$	69.5	$	81.8	$	(0.2	)	215,416

______


(1)	MOB = medical office building


(2)	The mortgage note payable assumed in the acquisition does not reflect the fair value adjustments totaling $0.4 million recorded by the Company upon acquisition (included in Other).


(3)	Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.


(4)	Includes assets acquired, liabilities assumed, and intangibles recognized at acquisition.

Subsequent Acquisitions

The Company is under contract to purchase eight medical office buildings in the Atlanta, Georgia market from Meadows & Ohly, LLC and its affiliates for a total purchase price of $193.8 million. On November 1, 2017, the Company acquired four of these properties totaling 288,880 square feet for a total purchase price of $112.1 million. The Company expects to close on the remaining four properties in December 2017.

On November 1, 2017, the Company acquired a 26,345 square foot medical office building in Seattle, Washington for a purchase price of $12.7 million.

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2017 Dispositions

The following table details the Company's dispositions for the nine months ended September 30, 2017 (dollars in millions):



Location	Type ⁽¹⁾	Date Disposed	Sales Price		Closing Adjustments			Net Proceeds		Net Real Estate Investment		Other (including receivables)⁽³⁾		Gain/(Impairment)			Square Footage
Evansville, Indiana	OTH	3/6/17	$	6.4	$	—		$	6.4	$	1.1	$	—	$	5.3		29,500
Columbus, Georgia ⁽²⁾	MOB	3/7/17	0.6		—			0.6		0.6		—		—			12,000
Las Vegas, Nevada ⁽²⁾	MOB	3/30/17	5.5		(0.7		)	4.8		2.2		0.3		2.3			18,147
Texas (3 properties)	IRF	3/31/17	69.5		(1.6		)	67.9		46.9		5.2		15.8			169,722
Chicago, Illinois ^{(2) (4)}	MOB	6/16/17	0.5		(0.1		)	0.4		0.4		—		—			5,100
San Antonio, Texas ⁽²⁾	IRF	6/29/17	14.5		(0.2		)	14.3		5.1		0.9		8.3			39,786
Roseburg, Oregon	MOB	6/29/17	23.2		(0.6		)	22.6		14.5		0.3		7.8			62,246
St. Louis, Missouri	MOB	9/7/17	2.5		(0.1		)	2.4		7.4		0.1		(5.1		)	79,980
Total dispositions			$	122.7	$	(3.3	)	$	119.4	$	78.2	$	6.8	$	34.4		416,481

______


(1)	OTH = other; MOB = medical office building; IRF = inpatient rehabilitation facility


(2)	Previously classified as held for sale.


(3)	Includes straight-line rent receivables, leasing commissions and lease inducements.


(4)	The Company recorded an impairment of approximately $0.3 million in the first quarter of 2017 upon management’s decision to sell.

Potential Disposition

In October 2017, the Company received notice that a tenant is exercising a purchase option on seven buildings, including five medical office buildings. The seven properties are covered by one purchase option with a stated purchase price of approximately $45.2 million, subject to certain contractual adjustments. The buildings are located in Roanoke, Virginia, and the Company's aggregate net investment was approximately $24.0 million as of September 30, 2017. The closing is expected to occur in April 2018.

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Assets Held for Sale

At September 30, 2017 and December 31, 2016, the Company had one and two properties, respectively, classified as held for sale. During the nine months ended September 30, 2017, the Company reclassified four properties to held for sale and five properties were sold. A summary of each of the properties reclassified as held for sale is below:


•	a 78,731 square foot inpatient rehabilitation facility located in Pittsburgh, Pennsylvania reclassified to held for sale in connection with management's decision to sell the property;


•	a 39,786 square foot inpatient rehabilitation facility located in San Antonio, Texas reclassified to held for sale in connection with management's decision to sell the property. The Company sold this property in the second quarter of 2017 and recognized an $8.3 million gain on the disposition;


•	a 5,100 square foot medical office building located in Chicago, Illinois reclassified to held for sale in connection with management's decision to sell the property. In the first quarter of 2017, the Company recorded an impairment charge of $0.3 million. The Company sold this property in the second quarter of 2017 and recognized an immaterial impairment loss on the disposition; and


•	a 79,980 square foot medical office building located in St. Louis, Missouri reclassified to held for sale when the sale became probable based on the expiration of the due diligence period. The Company sold this property in the third quarter of 2017 and recognized a $5.1 million impairment on the disposition.

The table below reflects the assets and liabilities of the properties classified as held for sale and discontinued operations as of September 30, 2017 and December 31, 2016:



(Dollars in thousands)	September 30, 2017			December 31, 2016
Balance Sheet data:
Land	$	1,125		$	1,362
Buildings, improvements and lease intangibles	18,231			4,410
	19,356			5,772
Accumulated depreciation	(10,657		)	(2,977		)
Real estate assets held for sale, net	8,699			2,795
Other assets, net (including receivables)	73			297
Assets held for sale and discontinued operations, net	$	8,772		$	3,092

Accounts payable and accrued liabilities	$	49		$	22
Other liabilities	10			592
Liabilities of properties held for sale and discontinued operations	$	59		$	614

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Discontinued Operations

The following table represents the results of operations of the properties included in discontinued operations on the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016.



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2017			2016			2017			2016
Statements of Income data:
Revenues
Rental income	$	—		$	—		$	—		$	—
	—			—			—			—
Expenses
Property operating	2			23			19			50
Bad debts, net of recoveries	(10		)	—			(10		)	—
	(8		)	23			9			50
Other Income (Expense)
Interest and other income, net	—			—			—			—
	—			—			—			—
Discontinued Operations
Income (Loss) from discontinued operations	8			(23		)	(9		)	(50		)
Gain on sales of real estate assets	—			—			5			7
Income (Loss) from Discontinued Operations	$	8		$	(23	)	$	(4	)	$	(43	)

Note 3. Notes and Bonds Payable

The table below details the Company’s notes and bonds payable.



	Maturity Dates	Balance as of				Effective Interest Rate as of
(Dollars in thousands)	Maturity Dates	September 30, 2017		December 31, 2016		September 30, 2017
Unsecured Credit Facility	7/20	$	—	$	107,000	2.23	%
Unsecured Term Loan Facility, net of issuance costs	2/19	149,667		149,491		2.43	%
Senior Notes due 2021, net of discount and issuance costs	1/21	397,653		397,147		5.97	%
Senior Notes due 2023, net of discount and issuance costs	4/23	247,601		247,296		3.95	%
Senior Notes due 2025, net of discount and issuance costs	5/25	247,987		247,819		4.08	%
Mortgage notes payable, net of discounts and issuance costs and including premiums	1/18-5/40	123,152		115,617		5.06	%
		$	1,166,060	$	1,264,370

Changes in Debt Structure

On May 1, 2017, the Company repaid in full a mortgage note payable bearing interest at a rate of 6.50% per annum with outstanding principal of $0.2 million. The mortgage note encumbered a 60,476 square foot medical office building located in Minnesota.

On June 13, 2017, in connection with the acquisition of a 62,379 square foot medical office property in Washington D.C., the Company assumed a $12.1 million mortgage note payable (excluding a fair value premium adjustment of $0.4 million). The mortgage note payable has a contractual interest rate of 4.69% per annum (effective rate of 4.27% per annum).

On September 28, 2017, the Company repaid in full a mortgage note payable bearing interest at a rate of 5.55% per annum with an outstanding principal of $1.3 million. The mortgage note encumbered a 75,000 square foot property in Tennessee.

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Subsequent Activity

On October 2, 2017, the Company repaid in full a mortgage note payable bearing interest at a rate of 5.53% per annum with an outstanding principal of $0.2 million. The mortgage note encumbered a 73,331 square foot property in Ohio.

On November 1, 2017, the Company redeemed $100.0 million of its unsecured senior notes due 2021 at a redemption price equal to an aggregate of $113.4 million, consisting of outstanding principal of $100.0 million, accrued interest of $1.7 million, and a "make-whole" amount of approximately $11.7 million for the early extinguishment of debt. The unaccreted discount and unamortized costs on these notes of $0.5 million was written off upon redemption. The Company will recognize a loss on early extinguishment of debt of approximately $12.2 million related to this redemption in the fourth quarter of 2017.

Note 4. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

In addition to operational risks which arise in the normal course of business, the Company is exposed to economic risks such as interest rate, liquidity and credit risk. In certain situations, the Company may enter into derivative financial instruments such as interest rate swap and interest rate cap agreements to manage interest rate risk exposure arising from variable rate debt transactions that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's objective in using interest rate derivatives is to manage its exposure to interest rate movements on its variable rate debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without changing the underlying notional amount.

As of September 30, 2017, the Company did not have any outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk.

The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in accumulated other comprehensive income or loss (“OCI”) and is reclassified into earnings as interest expense in the period that the hedged forecasted transaction affects earnings. The effective portion of the Company’s prior interest rate swaps that was recorded in the accompanying Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016 respectively, was as follows:



(Dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Amount of loss reclassified from accumulated OCI into Interest Expense (effective portion)	$	(43	)	$	(42	)	$	(127	)	$	(126	)

The Company estimates that an additional $0.2 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense over the next 12 months.

Note 5. Commitments and Contingencies

Legal Proceedings

The Company is, from time to time, involved in litigation arising in the ordinary course of business. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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Redevelopment Activity

The Company redeveloped a medical office building in Nashville, Tennessee, which included a 70,000 square foot expansion. During the nine months ended September 30, 2017, the Company funded approximately $12.2 million on the redevelopment of this property, including approximately $3.2 million related to overages on tenant improvement projects that have been or will be reimbursed by the tenant. The Company expects to spend an additional $0.4 million throughout the remainder of 2017.

In the third quarter of 2017, the Company began the redevelopment of a medical office building in Charlotte, North Carolina, which includes a 38,000 square foot vertical expansion. The total development budget is $12.0 million. During the three months ended September 30, 2017, the Company funded approximately $0.8 million on the redevelopment of this property. The project is expected to be completed in the first quarter of 2019.

Development Activity

The Company developed a 99,957 square foot medical office building in Denver, Colorado. The total development budget is $28.2 million, of which $25.2 million has been spent as of September 30, 2017, including approximately $2.6 million related to overages on tenant improvement projects that have been or will be reimbursed by the tenant. The Company received the certificate of substantial completion on the core and shell in the second quarter of 2017. Tenants began taking occupancy in the third quarter of 2017.

Note 6. Stockholders' Equity

Common Stock

The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the nine months ended September 30, 2017 and the year ended December 31, 2016:



	September 30, 2017	December 31, 2016
Balance, beginning of period	116,416,900	101,517,009
Issuance of common stock	8,386,035	14,063,100
Nonvested share-based awards, net of withheld shares	87,034	836,791
Balance, end of period	124,889,969	116,416,900

Common Stock Authorization

On May 2, 2017, the Company's shareholders approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 300,000,000.

Equity Offering

On August 14, 2017, the Company issued 8,337,500 shares of common stock, par value $0.01 per share, at $30.90 per share in an underwritten public offering pursuant to the Company's existing effective registration statement. The net proceeds of the offering, after underwriting discount and offering expenses, were approximately $247.1 million.

At-The-Market Equity Offering Program

No shares were sold under this program during the nine months ended September 30, 2017. The Company had 5,868,697 authorized shares remaining available to be sold under the current sales agreements as of October 27, 2017.

Common Stock Dividends

During the nine months ended September 30, 2017, the Company declared and paid common stock dividends totaling $0.90 per share. On October 31, 2017, the Company declared a quarterly common stock dividend in the amount of $0.30 per share payable on November 30, 2017 to stockholders of record on November 16, 2017.

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Accumulated Other Comprehensive Loss

The following table represents the changes in balances of each component and the amounts reclassified out of accumulated other comprehensive loss related to the Company during the nine months ended September 30, 2017 and 2016:



	Forward-starting Interest Rate Swaps
(Dollars in thousands)	2017			2016
Beginning balance	$	(1,401	)	$	(1,569	)
Amounts reclassified from accumulated other comprehensive loss	127			126
Ending balance	$	(1,274	)	$	(1,443	)

Earnings Per Common Share

The Company uses the two-class method of computing net earnings per common shares. Nonvested share-based awards containing non-forfeitable rights to dividends are considered participating securities pursuant to the two-class method. The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2017 and 2016.



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2017			2016			2017			2016
Weighted average Common Shares outstanding
Weighted average Common Shares outstanding	120,895,835			115,463,220			117,981,159			107,829,287
Nonvested shares	(1,797,686		)	(1,311,074		)	(1,800,180		)	(1,277,453		)
Weighted average Common Shares outstanding—Basic	119,098,149			114,152,146			116,180,979			106,551,834
Weighted average Common Shares outstanding—Basic	119,098,149			114,152,146			116,180,979			106,551,834
Dilutive effect of nonvested share-based awards	—			788,265			—			697,219
Dilutive effect of employee stock purchase plan	83,242			111,625			96,260			116,794
Weighted average Common Shares outstanding—Diluted	119,181,391			115,052,036			116,277,239			107,365,847
Net Income
Income from continuing operations	$	3,165		$	11,857		$	60,247		$	33,177
Dividends paid on nonvested share-based awards	(538		)	—			(1,609		)	—
Income from continuing operations applicable to common stockholders	2,627			11,857			58,638			33,177
Discontinued operations	8			(23		)	(4		)	(43		)
Net income applicable to common stockholders	$	2,635		$	11,834		$	58,634		$	33,134
Basic Earnings Per Common Share
Income from continuing operations	$	0.02		$	0.10		$	0.50		$	0.31
Discontinued operations	0.00			0.00			0.00			0.00
Net income	$	0.02		$	0.10		$	0.50		$	0.31
Diluted Earnings Per Common Share
Income from continuing operations	$	0.02		$	0.10		$	0.50		$	0.31
Discontinued operations	0.00			0.00			0.00			0.00
Net income	$	0.02		$	0.10		$	0.50		$	0.31

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Incentive Plans

A summary of the activity under the Company's stock-based incentive plans for the three and nine months ended September 30, 2017 and 2016 is included in the table below.



	Three Months Ended September 30,			Nine Months Ended September 30,
	2017	2016		2017		2016
Stock-based awards, beginning of period	1,797,686	1,311,169		1,786,497		1,092,262
Granted	—	—		103,615		321,580
Vested	—	(96	)	(92,426	)	(102,769	)
Stock-based awards, end of period	1,797,686	1,311,073		1,797,686		1,311,073

During the nine months ended September 30, 2017 and 2016, the Company withheld 16,581 and 14,442 shares of common stock, respectively, from participants to pay estimated withholding taxes related to shares that vested. No such shares were withheld during the three months ended September 30, 2017 and 2016.

In addition to the stock-based incentive plans, the Company maintains the 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A summary of the activity under the Purchase Plan for the three and nine months ended September 30, 2017 and 2016 is included in the table below.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Outstanding and exercisable, beginning of period	344,572		344,908		316,321		340,958
Granted	—		—		206,824		198,450
Exercised	(5,452	)	(13,947	)	(24,482	)	(51,475	)
Forfeited	(9,291	)	(3,561	)	(36,524	)	(17,451	)
Expired	—		—		(132,310	)	(143,082	)
Outstanding and exercisable, end of period	329,829		327,400		329,829		327,400

Note 7. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value.

Cash, cash equivalents and restricted cash - The carrying amount approximates fair value due to the short term maturity of these investments.

Borrowings under the unsecured credit facility due 2020 and unsecured term loan facility due 2019 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates.

Senior Notes and Mortgage Notes payable - The fair value of notes and bonds payable is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements.

The table below details the fair values and carrying values for notes and bonds payable at September 30, 2017 and December 31, 2016.



	September 30, 2017				December 31, 2016
(Dollars in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes and bonds payable ⁽¹⁾	$	1,166.1	$	1,169.4	$	1,264.4	$	1,265.1

______


(1)	Level 3 - Fair value derived from valuation techniques in which one or more significant inputs or significant value drivers is unobservable.

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

Disclosure Regarding Forward-Looking Statements

This report and other materials the Company has filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties, including the risks described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, that could significantly affect the Company’s current plans and expectations and future financial condition and results.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.

For a detailed discussion of the Company’s risk factors, please refer to the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2016.

Liquidity and Capital Resources

Sources and Uses of Cash

The Company’s primary sources of cash include rent receipts from its real estate portfolio based on contractual arrangements with its tenants and sponsors, borrowings under the Company's unsecured credit facility due 2020, proceeds from the sales of real estate properties and proceeds from public or private debt or equity offerings.

The Company expects to continue to meet its liquidity needs, including funding additional investments, paying dividends, and funding debt service through cash on hand and restricted cash, cash flows from operations, and the cash flow sources described above. The Company had unencumbered real estate assets with a gross book value of approximately $3.3 billion at September 30, 2017, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

Investing Activities

Cash flows provided by investing activities for the nine months ended September 30, 2017 were approximately $17.6 million. Below is a summary of the significant investing activities.

2017 Acquisitions



(Dollars in millions)	Health System Affiliation	Date Acquired	Purchase Price		Mortgage Notes Payable Assumed			Square Footage	Hospital Campus Location
St. Paul, Minnesota	Fairview Health	3/6/17	$	13.5	$	—		34,608	On
San Francisco, California	Sutter Health	6/12/17	26.8		—			75,649	On
Washington, D.C.	Trinity Health	6/13/17	24.0		(12.1		)	62,379	On
Los Angeles, California	HCA	7/31/17	16.3		—			42,780	On
Total acquisitions			$	80.6	$	(12.1	)	215,416

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2017 Dispositions



(Dollars in millions)	Date Disposed	Sales Price		Square Footage	Property Type ⁽¹⁾
Evansville, Indiana	3/6/17	$	6.4	29,500	OTH
Columbus, Georgia ⁽²⁾	3/7/17	0.6		12,000	MOB
Las Vegas, Nevada ⁽²⁾	3/30/17	5.5		18,147	MOB
Texas (3 properties)	3/31/17	69.5		169,722	IRF
Chicago, Illinois ⁽²⁾	6/16/17	0.5		5,100	MOB
San Antonio, Texas ⁽²⁾	6/29/17	14.5		39,786	IRF
Roseburg, Oregon	6/29/17	23.2		62,246	MOB
St. Louis, Missouri	9/7/17	2.5		79,980	MOB
Total dispositions		$	122.7	416,481

______


(1)	MOB = medical office building, IRF = inpatient rehabilitation hospital, OTH = other


(2)	Previously classified as held for sale.

Other items funded during the nine months ended September 30, 2017 include the following:



(Dollars in millions)	Nine Months Ended September 30, 2017
Re/development	$	28.3
1st generation tenant improvements & planned capital expenditures for acquisitions	4.2
2nd generation tenant improvements	13.4
Capital expenditures	12.4
Total capital funding	$	58.3

Subsequent Acquisitions

On November 1, 2017, the Company acquired a 26,345 square foot medical office building in Seattle, Washington for a purchase price of $12.7 million.

Financing Activities

Cash flows provided by financing activities for the nine months ended September 30, 2017 were approximately $30.7 million. Inflows from equity related to the Company's common stock issuances, dividend reinvestment program and employee stock purchase plan totaled $248.4 million, net of issuance costs incurred. Aggregate cash outflows totaled approximately $217.7 million primarily associated with dividends paid to common stockholders and debt repayments. See Notes 3 and 6 to the Condensed Consolidated Financial Statements for more information about capital markets and financing activities.

Equity Offering

On August 14, 2017, the Company issued 8,337,500 shares of common stock, par value $0.01 per share, at $30.90 per share in an underwritten public offering pursuant to the Company's existing effective registration statement. The net proceeds of the offering, after underwriting and offering expenses, were approximately $247.1 million. The proceeds will be invested into acquisitions and the repayment of indebtedness.

Changes in Debt Structure

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On June 13, 2017, in connection with the acquisition of a 62,379 square foot medical office property in Washington, D.C., the Company assumed a $12.1 million mortgage note payable (excluding a fair value premium adjustment of $0.4 million). The mortgage note payable has a contractual interest rate of 4.69% per annum (effective rate of 4.27% per annum).

Subsequent Activity

Operating Activities

Cash flows provided by operating activities increased from $102.4 million for the nine months ended September 30, 2016 to $129.4 million for the nine months ended September 30, 2017. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses and receipts of tenant rent.

The Company may, from time to time, sell additional properties and redeploy cash from property sales and mortgage repayments into new investments. To the extent revenues related to the properties being sold and the mortgages being repaid exceed income from these new investments, the Company's results of operations and cash flows could be adversely affected.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

New Accounting Pronouncements

See Note 1 to the Company's Condensed Consolidated Financial Statements accompanying this report for information on new accounting standards.

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry to gauge the potential impact on the operations of the Company. In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, below are some of the factors and trends that management believes may impact future operations of the Company.

Expiring Leases

The Company expects that approximately 15% to 20% of the leases in its multi-tenanted portfolio will expire each year in the ordinary course of business. There are 200 leases totaling 0.6 million square feet in the Company's multi-tenant portfolio that will expire during the remainder of 2017. Approximately 94% of the leases expiring in 2017 are located in buildings on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of multi-tenant property tenants upon expiration, and the retention ratio for the first nine months of the year has been within this range.

Five single-tenant net leases were to expire on December 31, 2017. The Company received notice that the tenant is exercising its option to purchase the buildings. The expected closing date is April 2018. The purchase option price is greater than the Company's net investment in the properties. See "Purchase Options" below.

Property Operating Agreement Expirations

Two of the Company’s owned real estate properties as of December 31, 2016 were subject to property operating agreements between the Company and a sponsoring health system. These agreements contractually obligate the sponsoring health system to provide to the Company a minimum return on the Company’s investment in the property in exchange for the right to be involved in the operating decisions of the property, including tenancy. If the minimum return is not achieved through normal

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operations of the property, the Company calculates and accrues to property lease guaranty revenue any shortfalls due from the sponsoring health systems under the terms of the property operating agreement. One agreement expired in January 2017, resulting in a decrease of $0.2 million per quarter in property lease guaranty revenue. The remaining agreement will expire in February 2019. The Company recognized $0.2 million of property lease guaranty revenue in the third quarter of 2017.

Operating Expenses

The Company has historically experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company has historically incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, 2017, leases for 85% of the Company's multi-tenant leased square footage allow for some recovery of operating expenses, with 54% allowing recovery of all expenses.

Purchase Options

Additional information about the Company's unexercised purchase options (except as otherwise noted) and the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):



		Gross Real Estate Investment as of September 30, 2017
Year Exercisable	Number of Properties	Fair Market Value Method ⁽¹⁾		Non Fair Market Value Method ⁽²⁾		Total
Current	4	$	94,973	$	—	$	94,973
Exercised option⁽³⁾	7	—		49,010		49,010
2018	—	—		—		—
2019	2	41,521		—		41,521
2020	—	—		—		—
2021	1	—		14,984		14,984
2022	—	—		—		—
2023	—	—		—		—
2024	—	—		—		—
2025	5	18,883		221,929		240,812
2026	—	—		—		—
2027 and thereafter	4	118,148		—		118,148
Total	23	$	273,525	$	285,923	$	559,448

_____


(1)	The purchase option price includes a fair market value component that is determined by an appraisal process.


(2)	Includes properties with stated purchase prices or prices based on fixed capitalization rates. These properties have purchase prices that are on average 13% greater than the Company's current gross investment.

(3)

In October 2017, the Company received notice that a tenant is exercising a purchase option on these seven properties, comprised of five single-tenant net leased buildings and two multi-tenant buildings, are covered by one purchase option with a stated purchase price of approximately $45.2 million, subject to certain contractual adjustments. The Company's aggregate net book value for these properties was $24.0 million at September 30, 2017. The Company recognized net operating income of approximately $4.7 million for the nine months ended September 30, 2017 from these properties. The closing is expected to occur in April 2018.

Non-GAAP Financial Measures and Key Performance Indicators

Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. Set forth below are descriptions of the non-GAAP financial measures and key performance indicators management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income (determined in accordance with GAAP), as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities (determined in accordance with GAAP) as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's consolidated

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historical operating results, these measures should be examined in conjunction with net income as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this report.

Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization related to real estate properties, leasing commission amortization and after adjustments for unconsolidated partnerships and joint ventures.” The Company follows the NAREIT definition in calculating and presenting FFO and FFO per share.

Management believes FFO and FFO per share to be supplemental measures of a REIT’s performance because they provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, FFO and FFO per share can facilitate comparisons of operating performance between periods. The Company reports FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed, and compared by research analysts in their notes and publications about REITs. For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share. However, FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income attributable to common stockholders as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

In addition to FFO and FFO per share, the Company presents Normalized FFO, Normalized FFO per share, and funds available for distribution ("FAD"). Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of deferred financing costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense and provision for bad debts, net; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. Normalized FFO and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. Normalized FFO and FAD should be reviewed in connection with GAAP financial measures.

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The table below reconciles net income attributable to common stockholders to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2017 and 2016:



	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in thousands, except per share data)	2017			2016			2017			2016
Net Income	$	3,173		$	11,834		$	60,243		$	33,134
Gain on sales of properties	7			—			(39,525		)	(8		)
Impairments of real estate assets	5,059			—			5,387			—
Real estate depreciation and amortization	36,478			32,557			107,453			95,074
Total adjustments	41,544			32,557			73,315			95,066
Funds from Operations Attributable to Common Stockholders	$	44,717		$	44,391		$	133,558		$	128,200
Acquisition and pursuit costs ⁽¹⁾	507			649			1,878			2,499
Pension termination	—			—			—			4
Revaluation of awards upon retirement	—			—			—			89
Write-off of deferred financing costs upon amendment of line of credit facility	—			81			—			81
Normalized Funds from Operations Attributable to Common Stockholders	$	45,224		$	45,121		$	135,436		$	130,873
Non-real estate depreciation and amortization	1,388			1,386			4,112			4,136
Provision for bad debt, net	4			(47		)	175			(8		)
Straight-line rent, net	(1,156		)	(1,684		)	(4,374		)	(5,539		)
Stock-based compensation	2,429			1,851			7,496			5,560
Total non-cash items	2,665			1,506			7,409			4,149
2nd generation TI	(4,481		)	(6,013		)	(13,438		)	(15,774		)
Leasing commissions paid	(1,826		)	(1,514		)	(4,394		)	(4,179		)
Capital additions	(4,203		)	(5,088		)	(12,390		)	(12,839		)
Funds Available for Distribution	$	37,379		$	34,012		$	112,623		$	102,230
Funds from Operations per Common Share—Diluted	$	0.37		$	0.39		$	1.14		$	1.19
Normalized Funds from Operations per Common Share—Diluted	$	0.38		$	0.39		$	1.16		$	1.22
FFO weighted average common shares outstanding - diluted ⁽²⁾	120,081			115,052			117,109			107,366

_____

(1)

Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments. Beginning in 2017, FFO and FAD are normalized for all acquisition and pursuit costs. Prior to 2017, FFO and FAD were normalized for acquisition and pursuit costs associated with only those acquisitions that closed in the period. These changes were prompted by the Company's adoption of ASU 2017-01 which was effective January 1, 2017.


(2)	Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2017 includes the dilutive effect of nonvested share-based awards outstanding of 899,733 and 831,647, respectively.

Net Operating Income

Net operating income ("NOI") and same store NOI are non-GAAP historical financial measures of performance. Management considers same store NOI a supplemental performance measure because it allows investors, analysts and Company management to measure unlevered property-level operating results. The Company defines NOI as operating revenues (property operating revenue, single-tenant net lease revenue, and property lease guaranty revenue) less property operating expenses related specifically to the property portfolio. NOI excludes straight-line rent, general and administrative expenses, interest expense, depreciation and amortization, gains and losses from property sales, property management fees, amortization of non-cash items, lease termination fees and other revenues and expenses not specifically related to the property portfolio. Same store NOI is historical and not necessarily indicative of future results.

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The following table reflects the Company's same store NOI for the three months ended September 30, 2017 and 2016.



				Same Store NOI for the
				Three Months Ended September 30,
(Dollars in thousands)	Number of Properties	Gross Investment at September 30, 2017		2017		2016
Multi-tenant Properties	138	$	2,547,282	$	46,266	$	44,143
Single-tenant Net Lease Properties	24	524,444		12,548		12,551
Total	162	$	3,071,726	$	58,814	$	56,694

Properties included in the same store analysis are stabilized properties that have been included in operations and were consistently reported as leased and stabilized properties for the duration of the year-over-year comparison period presented. Accordingly, properties that were recently acquired or disposed of, properties classified as held for sale, and properties in stabilization or conversion from stabilization are excluded from the same store analysis. In addition, the Company excludes properties that meet any of the following Company-defined criteria to be included in the reposition property group:


•	Properties having less than 60% occupancy that is expected to last at least two quarters;


•	Properties that experience a loss of occupancy over 30% in a single quarter;


•	Properties with negative net operating income that is expected to last at least two quarters; or


•	Condemnation.

Any recently acquired property will be included in the same store pool once the Company has owned the property for eight full quarters. Development properties will be included in the same store pool eight full quarters after substantial completion. Any property included in the reposition property group will be included in the same store analysis once occupancy has increased to 60% or greater with positive net operating income and has remained at that level for eight full quarters.

The following tables reconcile net income to same store NOI and the same store property count to the total owned real estate portfolio:

Reconciliation of Same Store NOI:

	Three Months Ended September 30,
(Dollars in thousands)	2017			2016
Net income	$	3,173		$	11,834
(Income) loss from discontinued operations	(8		)	23
Income from continuing operations	3,165			11,857
Other income (expense)	18,747			13,636
General and administrative expense	8,021			7,859
Depreciation and amortization expense	35,873			31,985
Other expenses⁽¹⁾	1,932			1,488
Straight-line rent revenue	(1,332		)	(1,223		)
Other revenue⁽²⁾	(1,353		)	(1,422		)
NOI	65,053			64,180
NOI not included in same store	(6,239		)	(7,486		)
Same store NOI	$	58,814		$	56,694

_____


(1)	Includes acquisition and pursuit costs, bad debt, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent.


(2)	Includes management fee income, storage income, interest, mortgage interest income, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

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Reconciliation of Same Store Property Count:

	Property Count as of September 30, 2017
Same Store Properties	162
Acquisitions	18
Development Conversion	2
Reposition	15
Total Owned Real Estate Properties	197

Results of Operations

Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016

The Company’s results of operations for the three months ended September 30, 2017 compared to the same period in 2016 were significantly impacted by acquisitions, developments, dispositions, gains, impairments recorded and capital markets transactions.

Revenues

Total revenues increased $3.3 million, or 3.2%, to approximately $107.0 million for the three months ended September 30, 2017 compared to $103.7 million in the prior year period and is comprised of the following:



	Three Months Ended September 30,				Change
(Dollars in thousands)	2017		2016		$			%
Property operating	$	92,424	$	85,264	$	7,160		8.4	%
Single-tenant net lease	12,805		16,047		(3,242		)	(20.2	)%
Straight-line rent	1,332		1,223		109			8.9	%
Rental income	106,561		102,534		4,027			3.9	%
Other operating	392		1,125		(733		)	(65.2	)%
Total Revenues	$	106,953	$	103,659	$	3,294		3.2	%

Property operating revenue increased $7.2 million, or 8.4%, from the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 contributed $4.9 million.


•	Leasing activity including contractual rent increases contributed $3.8 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $1.5 million.

Single-tenant net lease revenue decreased $3.2 million, or 20.2%, from the prior year period primarily as a result of the following activity:


•	Dispositions in 2016 and 2017 resulted in a decrease of $2.9 million.


•	Reduction in lease revenue of $0.5 million upon tenant vacate and classification to held for sale.


•	An acquisition in 2017 resulted in an increase of $0.2 million.

Straight-line rent increased $0.1 million, or 8.9%, from the prior year period primarily as a result of the following activity:


•	Net leasing activity including contractual rent increases and the effects of rent abatements resulted in an increase of $0.1 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $0.2 million.


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $0.2 million.

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Other operating revenue decreased $0.7 million, or 65.2%, from the prior year period primarily as a result of the expiration of four property operating agreements in 2016 and 2017.

Expenses

Property operating expenses increased $3.1 million, or 8.3%, for the three months ended September 30, 2017 compared to the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $2.1 million.


•	Increases in portfolio operating expenses as follows:


◦	property tax of approximately $0.8 million;


◦	maintenance and repair expense of approximately $0.8 million;


◦	janitorial expense of approximately $0.2 million;


◦	compensation-related expenses of approximately $0.1 million; and


◦	other expense increases of $0.1 million.


•	Decrease in utilities expense of approximately $0.4 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $0.6 million.

General and administrative expenses increased approximately $0.2 million, or 2.1%, for the three months ended September 30, 2017 compared to the prior year period primarily as a result of the following activity:


•	Increase in performance-based compensation expense of $0.2 million.


•	Increase in payroll compensation of $0.1 million.


•	Decrease in professional fees and other administrative costs of $0.1 million.

Depreciation and amortization expense increased $3.9 million, or 12.2%, for the three months ended September 30, 2017 compared to the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $3.0 million.


•	Various building and tenant improvement expenditures resulted in an increase of $3.3 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $1.6 million.


•	Assets that became fully depreciated resulted in a decrease of $0.8 million.

Other income (expense)

In the third quarter of 2017, the Company recorded an impairment of approximately $5.1 million on the sale of one property. There were no such transactions in the third quarter of 2016.

Interest expense increased $0.3 million for the three months ended September 30, 2017 compared to the prior year period. The components of interest expense are as follows:



	Three Months Ended September 30,						Change
(Dollars in thousands)	2017			2016			$			%
Contractual interest	$	13,603		$	13,379		$	224		1.7	%
Net discount/premium accretion	44			(33		)	77			(233.3	)%
Deferred financing costs amortization	615			748			(133		)	(17.8	)%
Interest rate swap amortization	42			42			—			—	%
Interest cost capitalization	(197		)	(377		)	180			(47.7	)%
Total interest expense	$	14,107		$	13,759		$	348		2.5	%

Contractual interest expense increased $0.2 million primarily due to an increase in the Unsecured Term Loan interest rate resulting in an increase of approximately $0.3 million and mortgage notes payable repayments resulting in a decrease of approximately $0.1 million.

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Results of Operations

Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

The Company’s results of operations for the nine months ended September 30, 2017 compared to the same period in 2016 were significantly impacted by acquisitions, developments, dispositions, gains, impairments recorded and capital markets transactions.

Revenues

Total revenues increased $10.4 million, or 3.4%, to approximately $316.8 million for the nine months ended September 30, 2017 compared to $306.3 million in the prior year period and is comprised of the following:



	Nine Months Ended September 30,				Change
(Dollars in thousands)	2017		2016		$			%
Property operating	$	270,852	$	249,049	$	21,803		8.8	%
Single-tenant net lease	39,800		48,251		(8,451		)	(17.5	)%
Straight-line rent	4,867		5,446		(579		)	(10.6	)%
Rental income	315,519		302,746		12,773			4.2	%
Other operating	1,249		3,576		(2,327		)	(65.1	)%
Total revenues	$	316,768	$	306,322	$	10,446		3.4	%

Property operating revenue increased $21.8 million, or 8.8%, from the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 contributed $14.4 million.


•	Leasing activity including contractual rent increases contributed $10.9 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $3.5 million.

Single-tenant net lease revenue decreased $8.5 million, or 17.5%, from the prior year period primarily as a result of the following activity:


•	Dispositions in 2016 and 2017 resulted in a decrease of $7.3 million.


•	Reduction in lease revenue of $1.6 million upon tenant vacate and classification to held for sale.


•	An acquisition in 2017 resulted in an increase of $0.4 million.

Straight-line rent decreased $0.6 million, or 10.6%, from the prior year period primarily as a result of the following activity:


•	Net leasing activity including contractual rent increases and the effects of prior year rent abatements resulted in a decrease of $1.0 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $0.2 million.


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $0.6 million.

Other operating revenue decreased $2.3 million, or 65.1%, from the prior year period primarily as a result of the expiration of four property operating agreements in 2016 and 2017.

Expenses

Property operating expenses increased $7.5 million, or 6.8%, for the nine months ended September 30, 2017 compared to the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $5.5 million.

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•	Increases in portfolio operating expenses as follows:


◦	property tax of approximately $1.5 million;


◦	maintenance and repair expense of $0.6 million;


◦	compensation-related expenses of approximately $0.3 million;


◦	janitorial and other expense of $0.7 million; and


◦	utilities expense of approximately $0.2 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $1.3 million.

General and administrative expenses increased approximately $1.0 million, or 4.4%, for the nine months ended September 30, 2017 compared to the prior year period primarily as a result of performance-based compensation expense of $0.8 million and payroll compensation of $0.2 million.

Depreciation and amortization expense increased $11.5 million, or 12.3%, for the nine months ended September 30, 2017 compared to the prior year period primarily as a result of the following activity:


•	Acquisitions and developments in 2016 and 2017 resulted in an increase of $8.2 million.


•	Various building and tenant improvement expenditures resulted in an increase of $9.1 million.


•	Dispositions in 2016 and 2017 resulted in a decrease of $3.8 million.


•	Assets that became fully depreciated resulted in a decrease of $2.0 million.

Other income (expense)

In 2017, the Company recorded gains of approximately $39.5 million on the sale of eight properties and impairment charges of approximately $5.4 million on the sale of two properties. There were no such transactions in the 2016 period.

Interest expense decreased $0.8 million for the nine months ended September 30, 2017 compared to the prior year period. The components of interest expense are as follows:



	Nine Months Ended September 30,						Change
(Dollars in thousands)	2017			2016			$			%
Contractual interest	$	41,260		$	42,097		$	(837	)	(2.0	)%
Net discount/premium accretion	149			(93		)	242			(260.2	)%
Deferred financing costs amortization	1,840			2,210			(370		)	(16.7	)%
Interest rate swap amortization	126			126			—			—	%
Interest cost capitalization	(681		)	(828		)	147			(17.8	)%
Total interest expense	$	42,694		$	43,512		$	(818	)	(1.9	)%

Contractual interest expense decreased $0.8 million primarily due to the following activity:


•	Unsecured Credit Facility repayments resulted in a decrease in interest expense of approximately $0.4 million.


•	Mortgage notes payable repayments resulted in a decrease in interest expense of approximately $0.6 million.


•	Unsecured Term Loan interest rate increases resulted in a increase in interest expense of approximately $0.2 million.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage notes. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. During the nine months ended September 30, 2017, there were no material changes in the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files or submits under the Exchange Act.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.

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Item 6. Exhibits



Exhibit		Description
Exhibit 1.1		Underwriting Agreement dated August 8, 2017 by and among the Company, J.P. Morgan Securities LLC and Barclays Capital Inc., as representatives of the several Underwriters named therein. ⁽¹⁾

Exhibit 2.1		Master Transaction Agreement, dated as of August 8, 2017, by and among Meadows & Ohly, LLC and its affiliated entities listed in the Agreement, as sellers, and the Company, as purchaser. ⁽²⁾

Exhibit 2.2		That certain Purchase and Sale Agreement, dated as of August 8, 2017, by an between Kennestone Outpatient Pavilion, L.P., as seller, and the Company, as purchaser. ⁽²⁾

Exhibit 2.3		Amended and Restated Master Transaction Agreement and Omnibus Amendment to Property Agreements, dated as of September 27, 2017, by and among Meadows & Ohly, LLC, and its affiliated entities listed as sellers, and the Company, as purchaser. ⁽³⁾

Exhibit 3.1		Second Articles of Amendment and Restatement of the Company, as amended⁽⁴⁾

Exhibit 3.2		Amended and Restated Bylaws of the Company, as amended ⁽⁵⁾

Exhibit 4.1		Specimen Stock Certificate ⁽⁶⁾

Exhibit 4.2		Indenture, dated as of May 15, 2001, by and between the Company and Branch Banking and Trust Company, as trustee (as successor to the trustee named therein) ⁽⁷⁾

Exhibit 4.3		Fourth Supplemental Indenture, dated December 13, 2010, by and between the Company and Branch Banking and Trust Company, as Trustee (as successor to the trustee named therein) ⁽⁸⁾

Exhibit 4.4		Form of 5.750% Senior Notes due 2021 (set forth in Exhibit B to the Fourth Supplemental Indenture filed as Exhibit 4.5 thereto)⁽⁸⁾

Exhibit 4.5		Fifth Supplemental Indenture, dated March 26, 2013, by and between the Company and Branch Banking and Trust Company, as Trustee (as successor to the trustee named therein)⁽⁹⁾

Exhibit 4.6		Form of 3.75% Senior Notes due 2023 (set forth in Exhibit B to the Fifth Supplemental Indenture filed as Exhibit 4.7 thereto)⁽⁹⁾

Exhibit 4.7		Sixth Supplemental Indenture, dated April 24, 2015, by and between the Company and Branch Banking and Trust Company, as Trustee (as successor to the trustee named therein)⁽¹⁰⁾

Exhibit 4.8		Form of 3.875% Senior Notes due 2025 (set forth in Exhibit B to the Sixth Supplemental Indenture filed as Exhibit 4.9 thereto)⁽¹⁰⁾

Exhibit 11		Statement re: Computation of per share earnings (filed herewith in Note 6 to the Condensed Consolidated Financial Statements)

Exhibit 31.1		Certification of the Chief Executive Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 31.2		Certification of the Chief Financial Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

Exhibit 101.INS		XBRL Instance Document (furnished electronically herewith)

Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document (furnished electronically herewith)

Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (furnished electronically herewith)

Exhibit 101.LAB		XBRL Taxonomy Extension Labels Linkbase Document (furnished electronically herewith)

Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (furnished electronically herewith)

Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (furnished electronically herewith)

_______________


(1)	Filed as an exhibit to the Company's Form 8-K filed August 9, 2017 and hereby incorporated by reference.


(2)	Filed as an exhibit to the Company's Form 8-K filed August 8, 2017 and hereby incorporated by reference. This agreement was terminated effective September 27, 2017 pursuant to the Amended and Restated Master Transaction Agreement filed as Exhibit 2.3 hereto.


(3)	Filed as an exhibit to the Company's Form 8-K filed September 28, 2017 and hereby incorporated by reference.


(4)	Filed as an exhibit to the Company's Form 8-K filed May 5, 2017 and hereby incorporated by reference.


(5)	Filed as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2015 and hereby incorporated as reference.


(6)	Filed as an exhibit to the Company’s Registration Statement on Form S-11 (Registration No. 33-60506) filed April 2, 1993 and hereby incorporated by reference.


(7)	Filed as an exhibit to the Company's Form 8-K filed May 17, 2001 and hereby incorporated as reference.


(8)	Filed as an exhibit to the Company’s Form 8-K filed December 13, 2010 and hereby incorporated by reference.

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(9)	Filed as an exhibit to the Company's Form 8-K filed March 26, 2013 and hereby incorporated by reference.


(10)	Filed as an exhibit to the Company's Form 8-K filed April 24, 2015 and hereby incorporated by reference.

Schedule of Omitted Exhibits

The following exhibits are omitted from this filing in accordance with Item 601 of Regulation S-K. The agreements in this schedule are substantially identical to Exhibit 2.2 in all material respects.

1. Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Cancer Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

2. Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Physicians Center I, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

3. Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Physicians Center II, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

4. Purchase and Sale Agreement dated as of August 8, 2017 by and between Douglas Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

5. Purchase and Sale Agreement dated as of August 8, 2017 by and between Douglas Physicians Center II, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

6. Purchase and Sale Agreement dated as of August 8, 2017 by and between Paulding Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

7. Purchase and Sale Agreement dated as of August 8, 2017 by and between Paulding Outpatient Pavilion, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

8. Purchase and Sale Agreement dated as of August 8, 2017 by and between Vinings Health Park, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

9. Purchase and Sale Agreement dated as of August 8, 2017 by and between Piedmont Physicians Plaza, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

10. Purchase and Sale Agreement dated as of August 8, 2017 by and between Piedmont Medical Plaza, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

11. Purchase and Sale Agreement dated as of August 8, 2017 by and between 340 Exchange Boulevard, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

12. Purchase and Sale Agreement dated as of August 8, 2017 by and between Gwinnett 500 Building, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

13. Purchase and Sale Agreement dated as of August 8, 2017 by and between Gwinnett Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

14. Purchase and Sale Agreement dated as of August 8, 2017 by and between Hudgens Professional Building, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser ⁽¹⁾.

(1) Terminated effective September 27, 2017 pursuant to the Amended and Restated Master Transaction Agreement filed as Exhibit 2.3 to this Quarterly Report on Form 10-Q.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		HEALTHCARE REALTY TRUST INCORPORATED

		By:	/s/ J. CHRISTOPHER DOUGLAS
			J. Christopher Douglas Executive Vice President and Chief Financial Officer

Date:	November 1, 2017