The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2008.

PORTFOLIO OVERVIEW



The following tables present an overview of our portfolio:



As of March 31, 2009                                                                                                       % of
(dollars in thousands)            # of                            Carrying Value          % of         Annualized       Annualized
                               Properties    # of Units/Beds     of Investment (1)     Investment     Current Rent     Current Rent
Facility Type
Independent living
communities (2)                        42             11,465    $         1,101,141         38.8%    $      108,029           38.0%
Assisted living facilities            121              8,531                908,621         32.0%            85,162           30.0%
Skilled nursing facilities             58              5,844                229,798          8.1%            19,954            7.1%
Rehabilitation hospitals                2                364                 57,279          2.0%            11,348            4.0%
Wellness centers (3)                   10                  -                180,017          6.3%            17,069            6.0%
MOBs (4)                               39                  -                361,895         12.8%            42,355           14.9%
Total                                 272             26,204    $         2,838,751        100.0%    $      283,917          100.0%

Tenant/Operator
Five Star (Lease No. 1)               100              8,600    $           718,621         25.3%    $       63,764           22.4%
Five Star (Lease No. 2)                32              7,639                765,062         27.0%            81,942           28.9%
Five Star (Lease No. 3)                44              3,251                311,167         11.0%            23,746            8.4%
Five Star (Lease No. 4)                 7                614                 66,608          2.3%             7,596            2.7%
Sunrise/Marriott (5)                   14              4,091                325,165         11.5%            32,547           11.5%
Brookdale Senior
Living, Inc.                           18                894                 61,122          2.2%             8,000            2.8%
6 private companies
(combined)                              8              1,115                 49,094          1.6%             6,898            2.4%
Starmark (3)                            6                  -                 80,008          2.8%             6,519            2.3%
Life Time Fitness (3)                   4                  -                100,009          3.5%            10,550            3.7%
Multi-tenant MOBs (4)                  39                  -                361,895         12.8%            42,355           14.9%
Total                                 272             26,204    $         2,838,751        100.0%    $      283,917          100.0%

Tenant Operating Statistics (Quarter Ended December 31, 2008) (6)



                                                            Percentage of Operating Revenue Sources
                        Rent Coverage     Occupancy      Private Pay           Medicare        Medicaid
                        2008     2007    2008   2007    2008      2007      2008      2007    2008   2007
Five Star (Lease
No. 1) (7)              1.22x    1.37x    89%    90%      65%       63%       13%       13%    22%    24%
Five Star (Lease
No. 2)                  1.40x    1.56x    87%    90%      68%       69%       29%       28%     3%     3%
Five Star (Lease
No. 3) (7)              1.19x    2.07x    85%    85%      55%       23%       14%       24%    31%    53%
Five Star (Lease
No. 4)                  0.83x    1.36x    83%    81%      98%      100%         -         -     2%      -
Sunrise/Marriott (5)    1.31x    1.90x    91%    90%      77%       79%       19%       17%     4%     4%
Brookdale Senior
Living, Inc.            2.01x    1.85x    95%    91%      99%       98%         -         -     1%     2%
6 private companies
(combined)              1.97x    2.09x    83%    88%      23%       24%       24%       24%    53%    52%
Starmark (3)            1.91x    1.93x   100%   100%       NA        NA        NA        NA     NA     NA
Life Time Fitness
(3)                     2.59x       NA   100%     NA       NA        NA        NA        NA     NA     NA
Multi-tenant MOBs
(4)                        NA       NA    99%     NA       NA        NA        NA        NA     NA     NA

Tenant Operating Statistics (Twelve Months Ended December 31, 2008) (6)



                                                            Percentage of Operating Revenue Sources
                        Rent Coverage     Occupancy      Private Pay           Medicare        Medicaid
                        2008     2007    2008   2007    2008      2007      2008      2007    2008   2007
Five Star (Lease
No. 1) (7)              1.27x    1.33x    89%    90%      65%       64%       13%       13%    22%    23%
Five Star (Lease
No. 2)                  1.46x    1.53x    88%    90%      69%       69%       28%       28%     3%     3%
Five Star (Lease
No. 3) (7)              1.41x    2.73x    85%    86%      45%       24%       17%       24%    38%    52%
Five Star (Lease
No. 4)                  1.10x    1.40x    84%    88%      99%      100%         -         -     1%      -
Sunrise/Marriott (5)    1.47x    1.42x    91%    89%      79%       79%       17%       18%     4%     3%
Brookdale Senior
Living, Inc.            2.11x    2.05x    93%    89%      99%       98%         -         -     1%     2%
6 private companies
(combined)              1.95x    1.92x    84%    88%      26%       24%       23%       24%    51%    52%
Starmark (3)            2.00x       NA   100%     NA       NA        NA        NA        NA     NA     NA
Life Time Fitness
(3)                        NA       NA     NA     NA       NA        NA        NA        NA     NA     NA
Multi-tenant MOBs
(4)                        NA       NA     NA     NA       NA        NA        NA        NA     NA     NA

RESULTS OF OPERATIONS



Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008:



                                          2009           2008         Change    % Change
                                            (in thousands, except per share amounts)
 Rental income                         $    68,377    $    49,039    $ 19,338     39.4 %
 Interest and other income                     208            514        (306 )  (59.5 )%

 Property operating expenses                 2,955              -       2,955        -
 Interest expense                           10,776          9,518       1,258     13.2 %
 Depreciation expense                       18,389         13,023       5,366     41.2 %
 Acquisition costs                             112              -         112        -
 General and administrative expense          4,820          3,696       1,124     30.4 %

 Net income                            $    31,533    $    23,316    $  8,217     35.2 %

 Weighted average shares outstanding       117,853         91,080      26,773     29.4 %

 Net income per share                  $      0.27    $      0.26    $   0.01      3.8 %

Rental income increased because of rents earned from our real estate acquisitions since April 1, 2008, including $10.4 million of rental income in the first quarter of 2009 due to our acquisition of 39 MOBs, offset by rent reductions resulting from the sale of three properties during the third quarter of 2008. Interest and other income decreased as a result of lower levels of investable cash in money market funds and lower interest rates.

Property operating expenses for the quarter ended March 31, 2009 is the result of our acquisition of 39 MOBs since June 2008 and principally includes expenses related to real estate taxes, utilities, cleaning costs and property management fees paid to Reit Management & Research LLC, or RMR.

Interest expense increased because of greater amounts outstanding under our revolving credit facility offset by lower interest rates under our revolving credit facility. Our weighted average balance outstanding and interest rate under our revolving credit facility was $216.2 million and 1.3% and $24.0 million and 4.6% for the three months ended March 31, 2009 and 2008, respectively. This increase was also due to $61.3 million of debt assumed as part of our third quarter 2008 acquisitions offset by our prepayment of a mortgage of $12.6 million on April 1, 2008.

Depreciation expense for the first quarter of 2009 increased because of acquisitions since April 1, 2008. Acquisition costs represent the closing costs associated with our acquisitions that are expensed under Statement of Financial Accounting Standards No. 141(R), "Business Combinations", commencing January 1, 2009. General and administrative expenses increased in 2009 principally due to our acquisitions since April 1, 2008, and higher legal fees and accounting fees.

Net income increased because of the changes in revenues and expenses described above. Net income per share increased because of the changes in revenues and expenses described above offset by the effect of an increase in the weighted average number of shares outstanding resulting from our issuance of common shares in February and June 2008 and February 2009.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds to meet operating expenses, debt service and pay planned distributions on our shares is rental income from our properties. This flow of funds has historically been sufficient to pay operating expenses and debt service relating to our properties. We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and planned distributions on our shares for the foreseeable future. Our future cash flows from operating activities will depend primarily upon our ability to:

† maintain or improve the occupancy of and the current rent rates at our properties;

†          control operating cost increases at our properties; and



†          purchase additional properties which produce positive cash flows from
operations.

Our Operating Liquidity and Resources

Rents from our properties are our principal sources of funds for current expenses, debt service and distributions to shareholders. We generally receive minimum rents monthly or quarterly from our tenants and we receive percentage rents monthly, quarterly or annually. This flow of funds has historically been sufficient for us to pay our operating expenses, debt service and distributions to shareholders. During the three months ended March 31, 2009, we generated $52.6 million of cash from operations and at March 31, 2009, we had $5.6 million of cash and cash equivalents. We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and expected distribution payments for the foreseeable future.

Our Investment and Financing Liquidity and Resources

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipts of rents and our need or desire to pay operating expenses and distributions to our shareholders, we maintain a revolving credit facility with a group of institutional lenders. The facility matures in December 2010. The revolving credit facility permits us to borrow up to $550.0 million. Borrowings under our revolving credit facility are unsecured. We may borrow, repay and reborrow funds until maturity. No principal repayment is due until maturity. We pay interest on borrowings under the revolving credit facility at LIBOR plus a premium. At March 31, 2009, the weighted average interest rate payable on our revolving credit facility was 1.3%. As of March 31, 2009, we had $181.0 million outstanding under this credit facility and as of May 6, 2009, we had $165.0 million outstanding under this credit facility. Subject to certain conditions, at our option, this credit facility's maturity date can be extended to December 31, 2011 upon payment of a fee.

In May 2008, we entered into a series of agreements to acquire 48 MOBs from HRPT Properties Trust, or HRP, for an aggregate purchase price of approximately $565.0 million. To date, we have acquired 38 of these properties containing 1.6 million square feet for approximately $366.0 million, excluding closing costs. One of the remaining buildings with an allocated value of $3.0 million is no longer subject to our purchase agreement. We expect the closings of the remaining nine buildings to occur in 2010. We and HRP may mutually agree to accelerate the closings of these acquisitions. We funded these acquisitions using cash on hand, proceeds from equity issuances, borrowings under our revolving credit facility and by assuming three mortgage loans on two properties totaling $10.8 million with a weighted average interest rate of 7.1% per annum and a weighted average maturity in 2018. Our obligations to complete the remaining purchases from HRP are subject to various conditions typical of commercial real estate purchases. We can provide no assurance that we will purchase all of these buildings or that the remaining purchases will be completed in 2010 or sooner. As of March 31, 2009, the 47 buildings acquired and to be acquired were 98% leased to approximately 210 tenants for an average lease term of 7.8 years. As part of this transaction, we also acquired rights of first refusal to purchase any of 45 additional buildings (containing approximately 4.6 million square feet of rental space) from HRP that are leased to tenants in medical related businesses. HRP was formerly our parent company, and both we and HRP are managed by RMR. Because we and

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

HRP are both managed by RMR, the terms of these transactions were negotiated by special committees of our and HRP's boards of trustees composed solely of independent trustees who were not also independent trustees of both companies.

In February 2009, we issued 5.9 million common shares in a public offering, raising net proceeds of approximately $96.8 million. We used the net proceeds from this offering to repay borrowings outstanding on our revolving credit facility, to fund the real estate acquisitions described above and for general business purposes.

During the three months ended March 31, 2009, we purchased $12.7 million of improvements made to our properties that are leased to Five Star Quality Care, Inc., or Five Star. We used cash on hand and borrowings under our revolving credit facility to fund these purchases.

At March 31, 2009, we had $5.6 million of cash and cash equivalents and $369.0 million available under our revolving credit facility. We expect to use cash balances, borrowings under our revolving credit facility and net proceeds of offerings of equity or debt securities to fund future working capital requirements, property acquisitions and expenditures related to the repair, maintenance or renovation of our properties.

In 2008, we entered into an agreement to sell one of our properties to an unaffiliated party for approximately $1.2 million. In April 2009, we entered into another agreement to sell one of our properties to an unaffiliated party for approximately $3.1 million. These properties are classified as held for sale as of March 31, 2009. The sales of these properties are subject to various contingencies, and we can provide no assurance that we will sell these properties.

When significant amounts are outstanding under our revolving credit facility or as the maturity dates of our revolving credit facility and term debts approach, we will explore alternatives for the repayment of amounts due. Such alternatives may include incurring additional debt and issuing new equity securities. We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

Recent capital markets conditions have been challenging. The availability and cost of credit have been and may continue to be adversely affected by illiquid capital markets and wide credit rate spreads, and equity markets have been extremely volatile. While we believe we will have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, there can be no assurance that we will be able to complete any debt or equity offerings or that our cost of any future financings will be reasonable. If current market conditions continue or worsen, one or more lenders under our revolving credit facility may be unable or unwilling to fund advances which we request, our lenders may be unable or unwilling to renew our credit facilities and we may not be able to access additional capital. Our ability to continue to access capital could be impacted by various factors, including general market conditions and the continuing slowdown in the economy, interest rates, credit ratings on our securities, the market price of our capital stock and the financial performance of our tenants. Also, the current market conditions have led to materially increased credit spreads which, if they continue, may result in material increases in the interest costs under our floating rate debts and our fixed rate debts when we refinance or when we incur new debt. These interest cost increases could have material and adverse impact on our results of operations and financial conditions.

On February 13, 2009, we paid a $0.35 per common share, or $40.1 million, distribution to our common shareholders for the quarter ended December 31, 2008. On April 7, 2009, we declared a distribution of $0.35 per common share, or $42.2 million, to be paid to our common shareholders of record on April 17, 2009 with respect to our results for the quarter ended March 31, 2009. We expect to pay this distribution on or about May 15, 2009, using cash on hand and borrowings under our revolving credit facility.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

We are currently negotiating terms of a mortgage financing that may be sold to Fannie Mae in the amount of approximately $500.0 million. We may determine not to continue to pursue this financing or to pursue other financings, in this amount or in materially higher or lower amounts, and in any event there can be no assurance that this financing will occur, especially in view of current conditions in the debt capital markets.

As of May 6, 2009, we have no off balance sheet arrangements, commercial paper, derivatives, swaps, hedges, joint ventures or partnerships.

Debt Covenants

Our principal debt obligations at March 31, 2009, were our unsecured revolving credit facility, two public issues totaling $322.5 million of unsecured senior notes and $136.0 million of mortgage debt and bonds secured by 33 of our properties. Our senior notes are governed by an indenture. The indenture for our unsecured senior notes and related supplements and our revolving credit facility contain a number of financial ratio covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties in excess of calculated amounts, require us to maintain a minimum net worth, restrict our ability to make distributions under certain circumstances and require us to maintain other ratios. As of March 31, 2009, we were in compliance with all of the covenants under our indenture and related supplements, our revolving credit facility and other debt obligations.

None of our indentures and related supplements, our revolving credit facility or our other debt obligations contains provisions for acceleration which could be triggered by our debt ratings. However, in certain circumstances, our revolving credit facility uses our senior debt rating to determine the fees and the interest rate payable.

Our public debt indenture and related supplements contain cross default provisions to any other debts of $10.0 million or more. Similarly, our revolving credit facility contains a cross-default provision to any other debts of $25.0 million or more that are recourse debts and to any other debts of $75.0 million or more that are non-recourse debts.

Related Person Transactions

In May 2008, we entered into a series of agreements to acquire 48 MOBs from HRP for an aggregate purchase price of approximately $565.0 million. To date, we have acquired 38 of these properties containing 1.6 million square feet for approximately $366.0 million, excluding closing costs. One of the remaining buildings with an allocated value of $3.0 million is no longer subject to our purchase agreement. We expect the closings of the remaining nine buildings to occur in 2010. We and HRP may mutually agree to accelerate the closings of these acquisitions. Our obligations to complete our outstanding purchases from HRP are subject to various conditions typical of commercial real estate purchases. We can provide no assurance that we will purchase all of these buildings or that the remaining purchases will be completed in 2010 or sooner. As of March 31, 2009, the 47 buildings acquired and to be acquired were 98% leased to approximately 210 tenants for an average lease term of 7.8 years.

HRP was formerly our parent. We were spun off to HRP's shareholders in 1999 and, at the time of this spin off, we and HRP entered into a transaction agreement which, among other things, prohibited us from purchasing MOBs. Concurrently with the execution and delivery of the purchase agreements described above, we and HRP entered into an amendment to that transaction agreement, or the first amendment agreement, to permit us, rather than HRP, to invest in medical office, clinic and

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

biomedical, pharmaceutical and laboratory buildings. The first amendment agreement is subject, in the case of mixed use buildings, to HRP's retaining the right to invest in any mixed use building for which the rentable square footage is less than 50% medical office, clinic and biomedical, pharmaceutical and laboratory use. Also, concurrently with the execution and delivery of the purchase agreements, we entered into a right of first refusal agreement under which we were granted a right of first refusal to purchase up to 45 additional identified other properties (containing approximately 4.6 million square feet of rental space) HRP owns which are leased to tenants in medical related businesses in the event HRP determines to sell such properties or in the event of an indirect sale as a result of HRP's change of control or a change of control of HRP's subsidiary which owns such properties.

Both we and HRP are managed by RMR, Barry Portnoy and Adam Portnoy are managing trustees of both us and HRP and Frederick Zeytoonjian is an Independent Trustee of both us and HRP. Because of these relationships, the terms of our agreements entered in 2008 with HRP were negotiated and approved by special committees of our and HRP's boards composed of independent trustees of each company who are not independent trustees of both. For more information about the terms of the purchase agreements, the first amendment agreement and the right of first refusal agreement between us and HRP, please read these agreements, copies of which are filed as exhibits to our Current Report on Form 8-K dated May 9, 2008.

Five Star is our largest tenant. Five Star is our former subsidiary. In addition to being our manager, RMR also provides management services to Five Star. One of our trustees, Mr. Barry Portnoy, is currently a Managing Director of Five Star. Because of these and other relationships we and Five Star may be considered related persons. As of March 31, 2009, we leased 181 senior living communities and two rehabilitation hospitals to Five Star for total annual minimum rent of $177.0 million. Because of the relationships between us and Five Star, all of our transactions with Five Star are separately approved by our Independent Trustees and Five Star's independent directors.

During the three months ended March 31, 2009, pursuant to the terms of our existing leases with Five Star, we purchased $12.7 million of improvements made to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star was increased by approximately $1.0 million.

Under the terms of our business management agreement with RMR, on April 8, 2009 we issued 55,814 common shares in payment of an incentive fee of approximately $789,000 for services rendered by RMR during 2008.

In February 2009 we invested $25,000 in an insurance company with RMR and other companies to which RMR provides management services, and in April 2009 we invested an additional $5.0 million in this insurance company. We currently own approximately 16.67% of this insurance company.

For more information about our dealings with our managing trustees, Five Star, HRP and their affiliates and the insurance company in which we have invested and about the risks which may arise as a result of these related party transactions please see our Annual Report on Form 10-K for the year ended December 31, 2008.