Disclosure Regarding Forward-Looking Statements

This report and other materials Healthcare Realty 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 senior 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" 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 those set forth below, that could significantly affect the Company's current plans and expectations and future financial condition and results.

Such risks and uncertainties include, among other things, the following:

• The unavailability of equity and debt capital, volatility in the credit markets, changes in interest rates, or changes in the Company's debt ratings;

• The financial health of the Company's tenants and sponsors and their ability to make loan and rent payments to the Company;

• The ability and willingness of the Company's lenders to make their funding commitments to the Company;

• The Company's long-term master leases and financial support agreements may expire and not be extended;

• The construction of properties generally requires various government and other approvals which may not be received;

• Unsuccessful development opportunities could result in the recognition of direct expenses which could impact the Company's results of operations;

• Construction costs of a development property may exceed original estimates, which could impact its profitability to the Company;

• Time required to lease up a completed development property may be greater than originally anticipated, thereby adversely affecting the Company's cash flow and liquidity;

• Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company;

• Favorable capital sources to fund the Company's development activities may not be available when needed;

• Changes in the financial condition or corporate strategy of the Company's tenants and sponsors;

• Adverse trends in the healthcare service industry that could negatively affect the Company's lease revenues and the values of its investments; and

• Changes in the Company's dividend policy.

Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are detailed in Item 1A "Risk Factors" of this report and in other reports filed by the Company with the SEC from time to time.

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.

Overview

Business Overview

The Company, a self-managed and self-administered REIT, integrates owning, managing and developing income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. Management believes that by providing a complete spectrum of real estate services, the Company can differentiate its competitive market position, expand its asset base and increase revenues over time.

The Company's revenues are generally derived from rentals on its healthcare real estate properties. The Company incurs operating and administrative expenses, including compensation, office rent and other related occupancy costs, as well as various expenses incurred in connection with managing its existing portfolio and acquiring additional properties. The Company also incurs interest expense on its various debt instruments and depreciation and amortization expense on its real estate portfolio.

Executive Overview

Over the last few years, the market for quality medical office and other outpatient-related facilities attracted many non-traditional and/or highly-leveraged buyers, which resulted in a significant increase in the competition for these assets. The recent and ongoing turmoil in the credit markets, however, has resulted in the Company seeing fewer buyers competing for such properties, which has provided more opportunities to acquire real estate properties with attractive risk-adjusted returns. While management has observed only a slight decrease in asset prices, the Company's relatively conservative capital structure positions it well to take advantage of the current credit market dislocation and any resulting future decline in asset prices. In 2008, the Company acquired approximately $335.6 million in real estate assets and funded $8.0 million in a new mortgage note receivable. In January 2009, the Company acquired the remaining membership interest in a joint venture in which it previously held a minority interest for approximately $4.4 million and assumed related debt of approximately $12.8 million. The entity acquired by the Company owns a 62,246 square foot on-campus medical office building. See Note 4 to the Consolidated Financial Statements for more details on these acquisitions.

The Company believes that its construction projects will provide solid, long-term investment returns and high quality buildings. As of December 31, 2008, the Company had four construction projects underway with budgets totaling approximately $174.0 million. The Company expects completion of the core and shell of three of the projects with budgets totaling approximately $88.0 million during 2009 and expects completion of the fourth project with a budget totaling approximately $86.0 million in the first quarter of 2010. In addition to the projects currently under construction, the Company is financing an on-campus medical office development of an outpatient campus comprised of six facilities, with a total budget of approximately $72 million, of which the Company has already advanced $42.2 million. The Company expects to finance the remaining $29.8 million during 2009 and 2010. With respect to five of the six facilities, the Company will have an option to purchase each such facility at a market cap rate upon its completion and full occupancy. The sixth facility is being acquired by the tenant.

The Company's real estate portfolio, diversified by facility type, geography, tenant and payor mix, helps mitigate its exposure to fluctuating economic conditions, tenant and sponsor credit risks, and changes in clinical practice patterns. At December 31, 2008, the Company's leverage ratio [debt divided by (debt plus

stockholders' equity less intangible assets plus accumulated depreciation)] was approximately 45.0% with 64.6% of its debt portfolio maturing after 2010. The Company had borrowings outstanding under its Unsecured Credit Facility totaling $329.0 million at December 31, 2008, with a capacity remaining of $71.0 million.

Capital and Credit Market Conditions

The capital and credit markets have become increasingly volatile as a result of adverse conditions that have caused the failure or near failure of a number of large financial institutions. The Company believes its conservative capital structure will foster stable operations throughout this time with no debt maturities in 2009, its $400 million Unsecured Credit Facility maturing in January 2010 and its two $300 million Senior Notes maturing in 2011 and 2014. However, continued volatility in the markets could limit the Company's ability to access debt or equity markets when needed which, in turn, could impact the Company's ability to invest in real estate assets, refinance maturing debt and react to changing economic and business conditions. The Company's debt ratings could also be affected, adversely impacting its interest costs and financing sources. The Company also had unencumbered real estate assets of approximately $1.9 billion at December 31, 2008, which could serve as collateral for secured mortgage financing. Furthermore, the Company anticipates renewing its Unsecured Credit Facility during 2009 and believes that sufficient commitments will be available to the Company, but believes that the interest rate upon renewal will likely be higher than its current rate (LIBOR + 0.90%).

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and REIT industry in order to gauge the potential impact on the operations of the Company. Discussed below are some of the factors and trends that management believes may impact future operations of the Company.

As of December 31, 2008, approximately 35.7% of the Company's real estate investments consisted of properties leased to unaffiliated lessees pursuant to long-term net lease agreements or subject to financial support agreements; approximately 59.8% were multi-tenanted properties with shorter-term occupancy leases; and the remaining 4.5% of investments were related to land held for development, corporate property, mortgage notes receivable and investments in unconsolidated joint ventures which are invested in real estate properties. The Company's long-term net leases and financial support agreements are generally designed to ensure the continuity of revenues and coverage of costs and expenses relating to the properties by the tenants and the sponsoring healthcare operators. There is no assurance that the Company's leases and financial support agreements will be extended past their expiration dates which could impact the Company's operating results as described in more detail below in "Expiring Leases and Financial Support Agreements".

Acquisition Activity

During 2008, the Company acquired 27 real estate properties and funded a mortgage note receivable for approximately $294.5 million and assumed related debt of approximately $43.4 million, net of fair value adjustments, including an 80% interest in a joint venture that concurrently acquired four buildings for an investment of $28.8 million. These acquisitions were funded with net proceeds from an equity offering in September 2008 totaling $196.0 million, the assumption of existing mortgage debt, borrowings on the Unsecured Credit Facility, and proceeds from real estate dispositions. See Note 4 to the Consolidated Financial Statements for more information on these acquisitions.

Development Activity

During 2008, five buildings that were previously under construction commenced operations and one construction project was reclassified to land held for development, resulting in four construction projects remaining that were underway at December 31, 2008 with budgets totaling approximately $174.0 million. The Company expects completion of the core and shell of three of the four projects with budgets totaling approximately $88.0 million during 2009 and expects the core and shell of the fourth project with a budget totaling approximately $86.0 million to be completed during the first quarter of 2010. In addition to the

projects currently under construction, the Company is financing an on-campus medical office development of an outpatient campus comprised of six facilities, with a total budget of approximately $72 million, of which the Company has already advanced $42.2 million. The Company expects to finance the remaining $29.8 million during 2009 and 2010. With respect to five of the six facilities, the Company will have an option to purchase each such facility at a market cap rate upon its completion and full occupancy. The sixth facility is being acquired by the tenant. The Company's ability to complete, lease-up and operate these facilities in a given period of time will impact the Company's results of operations and cash flows. More favorable completion dates, lease-up periods and rental rates will result in improved results of operations and cash flows, while lagging completion dates, lease-up periods and rental rates will likely result in less favorable results of operations and cash flows. The Company's disclosures regarding projections or estimates of completion dates and leasing may not reflect actual results. See Note 14 to the Consolidated Financial Statements for more information on the Company's development activities.

Dispositions

During 2008, the Company disposed of seven real estate properties for approximately $27.1 million and disposed of two parcels of land for approximately $9.8 million. Also, a portion of the Company's preferred equity investment in a joint venture was redeemed for $5.5 million and one mortgage note receivable totaling approximately $2.5 million was repaid. Proceeds from these dispositions were used to repay amounts under the Unsecured Credit Facility and to fund additional real estate investments. See Note 4 to the Consolidated Financial Statements for more information on these dispositions.

2009 Potential Acquisitions and Dispositions

As discussed in Note 4 to the Consolidated Financial Statements, the Company had several acquisitions and dispositions pending at December 31, 2008 that will impact the Company's operating results for 2009 when or if those transactions are completed.

Purchase Option Provisions

As discussed in "Liquidity and Capital Resources," certain of the Company's leases include purchase option provisions, which if exercised, could require the Company to sell a property to a lessee or operator, which could have a negative impact on the Company's future results of operations and cash flows.

Expiring Leases and Financial Support Agreements

Master leases on 14 of the Company's properties will expire in 2009. The Company has decided not to extend the master leases relating to about one-half of these properties. The master leases the Company has decided not to extend are multi-tenanted properties on or near hospital campuses and in locations where the Company already has existing management capabilities. With respect to the remaining properties, the Company believes that either the current tenants will extend their leases or the Company will lease the property to another single tenant.

Approximately 440 of the Company's leases in its multi-tenanted buildings will expire in 2009, with each tenant lessee occupying an average of approximately 3,188 square feet. Approximately 60% of the multi-tenant leases expiring in 2009 relate to buildings acquired in 2004, in which each lessee occupies approximately 3,200 square feet. About 43% of the 2004 leases expiring were signed with hospital-related entities upon closing of the real estate property acquisitions, and the remainder of the leases are related to non-hospital tenants. Historically, hospital-related tenants who occupy space in on-campus buildings have a high probability of renewal. Also, management expects that the majority of the non-hospital tenants will renew at favorable rates.

One of the Company's financial support agreements also expires in 2009. The Company does not expect the sponsor to extend its agreement with the Company.

With the expirations discussed above, the Company expects there could be a short-term negative impact to its results of operations, but anticipates that over time it will be able to re-lease the properties or increase tenant rents to offset any short-term decline in revenue.

Discontinued Operations

In accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), discussed in more detail in Note 1 to the Consolidated Financial Statements, a company must present the results of operations of real estate assets disposed of or held for sale as discontinued operations. Therefore, the results of operations from such assets are classified as discontinued operations for the current period, and all prior periods presented are restated to conform to the current period presentation. Readers of the Company's Consolidated Financial Statements should be aware that each future disposal will result in a change to the presentation of the Company's operations in the historical Consolidated Statements of Income as previously filed. Such reclassifications to the Consolidated Statements of Income will have no impact on previously reported net income.

Amortization of In-Place Leases

As discussed in "Application of Critical Accounting Policies to Accounting Estimates" and in Note 1 to the Consolidated Financial Statements, when a building is acquired with in-place leases, SFAS No. 141, "Business Combinations" ("SFAS No. 141"), requires that the cost of the acquisition be allocated between the tangible real estate and the intangible assets related to in-place leases based on their fair values. Where appropriate, the intangible assets recorded could include goodwill, ground leases or customer relationship assets. The value of above- or below-market in-place leases is amortized against rental income or property operating expense over the average remaining term of the leases in-place upon acquisition. The amortization periods of the intangibles may be relatively short, such as with a short-term tenant lease, or may be longer, such as with a long-term ground lease. The value of at-market in-place leases and other intangible assets is amortized and reflected in amortization expense in the Company's Consolidated Statements of Income. Amortization expense related to these in-place leases may increase or decrease because of new in-place leases recorded related to new real estate acquisitions or because of in-place leases becoming fully amortized.

Funds from Operations

Funds from operations ("FFO") and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. ("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, and after adjustments for unconsolidated partnerships and joint ventures." Impairment charges may not be added back to net income in calculating FFO, which have the effect of decreasing FFO in the period recorded. In 2008, the Company recognized additional income for certain items which increased FFO, including net gains on repurchases of the Company's Senior Notes due 2011 and 2014 of approximately $4.1 million, termination fees of approximately $8.0 million and the recognition of straight-line rent income for prior years related to a joint venture of approximately $0.8 million, which were partially offset by a reserve recorded on an outstanding receivable of approximately $1.4 million and a $1.0 million accrual recorded related to a litigation settlement. These items had the net effect of increasing FFO by approximately $0.20 per share for the year ended December 31, 2008. Also, for the years ended 2008, 2007 and 2006, the Company recorded impairment charges totaling $2.5 million, $7.1 million and $5.7 million, respectively, which reduced FFO per diluted share by approximately $0.05, $0.15 and $0.12, respectively. The comparability of FFO for the three years ending December 31, 2008 is also impacted by the senior living asset dispositions during 2007, because of the elimination of the operations of the divested assets. FFO and FFO per share generated by the senior living assets disposed of during 2007 totaled approximately $10.2 million, or $0.22 per basic common share ($0.21 per diluted common share), for the year ended December 31, 2007 and approximately $29.1 million, or $0.63 per basic common share ($0.61 per diluted common share), for the year ended December 31, 2006.

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 generally accepted accounting principles, ("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 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. Management uses FFO and FFO per share to compare and evaluate its own operating results from period to period, and to monitor the operating results of the Company's peers in the REIT industry. 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 as an indicator of the Company's operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

The table below reconciles net income to FFO for the three years ended December 31, 2008.

                                                                   Year Ended December 31,
(Dollars in thousands, except per share data)              2008              2007              2006

Net income                                             $     41,692      $     60,062      $     39,719
Gain on sales of real estate properties                     (10,227 )         (40,405 )          (3,275 )
Real estate depreciation and amortization                    53,972            53,499            64,662

Total adjustments                                            43,745            13,094            61,387

Funds from operations - Basic and Diluted              $     85,437      $     73,156      $    101,106

Weighted average common shares outstanding - Basic       51,547,279        47,536,133        46,527,857

Weighted average common shares outstanding - Diluted     52,564,944        48,291,330        47,498,937

Funds from operations per common share - Basic         $       1.66      $       1.54      $       2.17

Funds from operations per common share - Diluted       $       1.63      $       1.51      $       2.13

Results of Operations

2008 Compared to 2007

The Company's net income for 2008 compared to 2007 was impacted by senior living asset dispositions in 2007 and the resulting gain on sale. However, the comparability of revenues and income from continuing operations for 2007 and 2006 was not impacted by the disposition because the results of operations of the assets disposed of are included in discontinued operations for both periods. Included in the sale were 56 real estate properties in which the Company had investments totaling approximately $328.4 million ($259.9 million, net), 16 mortgage notes and notes receivable in which the Company had investments totaling approximately $63.2 million, and certain other assets and liabilities related to the assets. The Company received cash proceeds from the sale of approximately $369.4 million, recorded a deferred gain of approximately $5.7 million and recognized a net gain of approximately $40.2 million. The proceeds were used to pay a special dividend to the Company's stockholders of approximately $227.2 million, or $4.75 per share, to repay amounts outstanding on the Company's Unsecured Credit Facility, to pay transaction costs and were used for general corporate purposes. The transaction also included the sale of all 21 of the properties associated with the

Company's variable interest entities ("VIEs"), including the six VIEs the Company had previously consolidated. Revenues, including the revenues from the VIEs, were approximately $27.4 million and net income was approximately $8.4 million for the senior living assets for the year ended December 31, 2007, which are included in discontinued operations on the Consolidated Statement of Income.

For the year ended December 31, 2008, net income was $41.7 million, or $0.81 per basic common share ($0.79 per diluted common share), compared to net income of $60.1 million, or $1.26 per basic common share ($1.24 per diluted common share), for the year ended December 31, 2007. Revenues from continuing operations were $214.2 million for the year ended December 31, 2008 compared to revenues from continuing operations of $197.4 million for the year ended December 31, 2007. FFO was $85.4 million, or $1.66 per basic common share ($1.63 per diluted common share), for the year ended December 31, 2008 compared to $73.2 million, or $1.54 per basic common share ($1.51 per diluted common share), in 2007.

                                                                              Change
 (Dollars in thousands)                      2008          2007            $            %

 Revenues
 Master lease rent                         $  58,412     $  56,401     $   2,011         3.6 %
 Property operating                          136,745       121,644        15,101        12.4 %
 Straight-line rent                              622           934          (312 )     (33.4 )%
 Mortgage interest                             2,207         1,752           455        26.0 %
 Other operating                              16,255        16,640          (385 )      (2.3 )%

                                             214,241       197,371        16,870         8.5 %
 Expenses
 General and administrative                   23,514        20,619         2,895        14.0 %
 Property operating                           82,420        71,671        10,749        15.0 %
 Impairment                                    1,600             -         1,600           -
 Bad debts, net of recoveries                  1,833           222         1,611       725.7 %
 Depreciation                                 48,283        42,254         6,029        14.3 %
 Amortization                                  2,849         4,528        (1,679 )     (37.1 )%

                                             160,499       139,294        21,205        15.2 %
. . .