Summary of HEALTHCARE REALTY TRUST INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Disclosure Regarding Forward-Looking Statements This report and other materials Healthcare Realty Trust Incorporated (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 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 the risk, as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 and in this report 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, 2008 and in Item 1A of Part II of this quarterly report on Form 10-Q. Business Overview
The Company is a self-managed and self-administered REIT that owns, manages and develops 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
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 March 31, 2009, the Company's leverage ratio [debt divided by (debt plus stockholders' equity less intangible assets plus accumulated depreciation)] was approximately 44.5%, with 65.1% of its debt portfolio maturing after 2010. The Company had borrowings outstanding under its Unsecured Credit Facility totaling $325.0 million at March 31, 2009, with a capacity remaining under its financial covenants of $75.0 million.
Despite the continued economic downturn and financial markets upheaval, the Company's first quarter performance was characterized by solid operations and leasing. Overall portfolio occupancy remained stable, while rental rates on renewing leases showed strong increases consistent with previous quarters. The Company also signed several major leases at several of its recently completed developments.
The capital and credit markets continue to be volatile as a result of adverse economic conditions. Limited access to debt and equity markets could impact the Company's cost of capital and its ability to refinance maturing indebtedness, as well as its ability to engage in acquisition and development activity. The Company's ability to access capital could be impacted by various factors including general market conditions and the slowdown in the economy, increasing interest rates, changes in the credit ratings on the Company's senior notes, the market price of the Company's capital stock, the performance of its portfolio, tenants and operators, the perception of the Company's potential future earnings and cash

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distributions, any unwillingness on the part of lenders to make loans to the Company and any deterioration in the financial position of lenders that might make them unable to meet their current commitments to the Company. The Company continues to monitor the ongoing credit crisis and could address any resulting capital constraints through one or more of the following, as conditions permit:
(i) accessing the public debt and/or equity markets; (ii) obtaining mortgage financing or a credit facility secured by a portion of the Company's $1.9 billion of unencumbered real estate assets; (iii) obtaining new lending commitments from the banks in the Company's Unsecured Credit Facility, or other banks, to fund a new credit facility; (iv) decreasing distributions to stockholders; and/or (v) reducing or delaying acquisition and development activity.
Trends and Matters Impacting Operating Results Management monitors factors and trends important to the Company and the REIT industry in order 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, 2008 below are some of the factors and trends that management believes may impact future operations of the Company. 2009 Capital Financing Activities
The Company anticipates refinancing its Unsecured Credit Facility and may obtain unsecured debt or secured financing on certain of its unencumbered real estate assets during 2009. The Company expects that the additional interest expense related to the refinancing will negatively impact its cash flows and results from operations.
2009 Acquisitions
During the first quarter of 2009, the Company acquired the remaining equity interest in a joint venture which owns a 62,246 square foot on-campus medical office building in Oregon, for $4.4 million of cash consideration, and assumed an outstanding mortgage totaling approximately $12.8 million. The building is 97% occupied with lease expirations through 2025. During the first quarter, a joint venture in which the Company has an 80% controlling interest acquired a 33,974 square foot medical office building in Iowa for $10.7 million. The property is 100% leased to two tenants.
2009 Dispositions
During the first quarter of 2009, the Company disposed of four medical office buildings for approximately $66.1 million in net proceeds and repaid a $19.5 million mortgage note secured by one of the properties. The Company also sold a property in the second quarter of 2009 for approximately $18.5 million. Development Activity
At March 31, 2009, the Company had four construction projects underway. 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 second quarter of 2010. In addition to the projects currently under construction, the Company is financing an on-campus medical office development in Iowa comprised of six facilities, with a total budget of approximately $72 million, of which the Company expects to finance the remaining $22.8 million during 2009 and 2010. With respect to five of the six facilities, the Company will have an option to purchase each facility at a market cap rate upon its completion and attaining full occupancy. The sixth facility is under contract for sale to an unrelated party. As discussed in "2009 Acquisitions," one of the five properties was acquired during the first quarter of 2009 for $10.7 million. See Note 6 to the Condensed Consolidated Financial Statements for more information on the Company's development activities. Expiring Leases
Master leases on 14 of the Company's properties expire during 2009. The Company expects to renew three leases representing nearly one-third of the expiring square footage. The Company has opted not to renew the master leases relating to about one-half of the properties, which are located on or near hospital campuses and in locations where the Company already has existing management capabilities. These properties have existing physician subtenants, and the Company will assume these subtenant leases upon the expiration of the master leases. With respect to the remaining properties, the Company believes that it will lease the properties to another single tenant.
Approximately 440 of the Company's leases in its multi-tenanted buildings expire during 2009, with each tenant lessee occupying an average of approximately 3,188 square feet. Approximately 86% of the leases expiring are located in on-campus properties, which traditionally have a high probability of renewal. Nearly half of the leases expiring in these multi-tenant facilities are with hospital-related entities, a result of the Company's numerous

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acquisitions in 2004. Historically, hospital-related tenants who occupy space in on-campus buildings have a high probability of renewal. The majority of the healthcare systems who have leases expiring in 2009 have already indicated to the Company that they plan to renew substantially all of their leases. In addition, management expects that the majority of the non-hospital tenants will renew at favorable rates.
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 has the effect of decreasing FFO in the period recorded.
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 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. FFO for the three months ended March 31, 2009 was impacted favorably by a re-measurement gain of $2.7 million, or $0.05 per diluted common share, recognized in connection with the acquisition of the remaining interests in a joint venture during the first quarter of 2009. The table below reconciles FFO to net income for the three months ended March 31, 2009 and 2008:

                                                              Three Months Ended
                                                                   March 31,
 (Dollars in thousands, except per share data)               2009             2008

 Net income attributable to common stockholders         $     20,865     $      6,799

 Gain on sales of real estate properties                     (12,609 )           (637 )
 Real estate depreciation and amortization                    16,883           13,273

 Total adjustments                                             4,274           12,636


 Funds from Operations - Basic and Diluted              $     25,139     $     19,435


 Funds from Operations per Common Share - Basic         $       0.43     $       0.39

 Funds from Operations per Common Share - Diluted       $       0.43     $       0.39


 Weighted Average Common Shares Outstanding - Basic       58,130,574       49,413,058

 Weighted Average Common Shares Outstanding - Diluted     58,847,384       50,407,119

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Results of Operations
First Quarter 2009 Compared to First Quarter 2008
     Income from continuing operations for the three months ended March 31, 2009
was $7.8 million, compared to $4.9 million for the same period in 2008. Net
income for the three months ended March 31, 2009 was $20.9 million, or $0.36 per
basic common share ($0.35 per diluted common share), compared to $6.8 million,
or $0.14 per basic common share ($0.13 per diluted common share), for the same
period in 2008.

                                                      Three Months Ended
                                                          March 31,                              Change
(Dollars in thousands)                             2009               2008                $                  %

REVENUES
Master lease rent                               $  15,737          $  15,773          $    (36 )             -0.2 %
Property operating                                 42,910             32,115            10,795               33.6 %
Straight-line rent                                    351                (61 )             412              675.4 %
Mortgage interest                                     489                525               (36 )             -6.9 %
Other operating                                     3,509              3,850              (341 )             -8.9 %

                                                   62,996             52,202            10,794               20.7 %

EXPENSES
General and administrative                          6,967              6,045               922               15.3 %
Property operating                                 23,363             18,251             5,112               28.0 %
Bad debts, net of recoveries                          435                145               290              200.0 %
Depreciation                                       15,753             11,489             4,264               37.1 %
Amortization                                        1,481                585               896              153.2 %

                                                   47,999             36,515            11,484               31.5 %
OTHER INCOME (EXPENSE)
Re-measurement gain of equity interest
upon acquisition                                    2,701                  -             2,701                  -
Interest expense                                  (10,074 )          (10,878 )             804               -7.4 %
Interest and other income, net                        155                136                19               14.0 %

                                                   (7,218 )          (10,742 )           3,524               32.8 %


INCOME FROM CONTINUING OPERATIONS                   7,779              4,945             2,834               57.3 %

DISCONTINUED OPERATIONS
Income from discontinued operations                   514              1,249              (735 )            -58.8 %
Impairments                                           (22 )              (29 )               7              -24.1 %
Gain on sales of real estate properties            12,609                637            11,972            1,879.4 %

INCOME FROM DISCONTINUED OPERATIONS                13,101              1,857            11,244              605.5 %


NET INCOME                                         20,880              6,802            14,078              207.0 %

Less: Net income attributable to
noncontrolling interests                              (15 )               (3 )             (12 )            400.0 %

NET INCOME ATTRIBUTABLE TO COMMON
STOCKHOLDERS $ 20,865 $ 6,799 $ 14,066 206.9 %

Total revenues from continuing operations for the three months ended March 31, 2009 increased $10.8 million, or 20.7%, compared to the same period in 2008, mainly for the reasons discussed below:
� Property operating income increased $10.8 million, or 33.6%, due mainly to approximately $9.5 million in additional revenues in the first quarter of 2009 compared to 2008 resulting from the Company's acquisitions during 2008 and 2009. Also, properties previously under construction that commenced operations during 2008 resulted in approximately $0.7 million in additional property operating income in the first quarter of 2009 compared to the same period in 2008, with the remaining increase resulting mainly from contractual rent increases.

� Straight-line rent increased $0.4 million due mainly to an increase of approximately $0.7 million related to leases on properties acquired during 2008 and 2009 that require straight-line rent accounting, partially offset by a decrease of approximately $0.3 million related to leases that have reached the midpoint of their lease terms.

� Other operating income decreased $0.3 million, or 8.9%, due mainly to the expiration of property operating agreements relating to four properties during 2008.

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Total expenses for the three months ended March 31, 2009 increased $11.5 million, or 31.5%, compared to the same period in 2008, mainly for the reasons discussed below:
� General and administrative expenses increased $0.9 million, or 15.3%, due mainly to additional expense during the first quarter of 2009 of approximately $1.0 million related to the payment of a partial pension settlement, approximately $0.5 million of additional expenses relating to compensation-related matters, offset partially by a decrease in pursuit-related expenditures of approximately $0.7 million in 2009 compared to 2008.

� Property operating expense increased $5.1 million, or 28.0%, due mainly to approximately $3.8 million in additional expenses in the first quarter of 2009 compared to 2008 resulting from the Company's acquisitions during 2008 and 2009. Also, properties previously under construction that commenced operations during 2008 resulted in approximately $0.9 million in additional property operating expense in the first quarter of 2009 compared to 2008. The remaining increase in 2009 compared to 2008 is mostly due to increases in property taxes and utility rates.

� Depreciation expense increased $4.3 million, or 37.1%, due mainly to approximately $3.0 million in additional expense in the first quarter of 2009 compared to 2008 related to the Company's acquisitions during 2008 and 2009. Also, in accordance with SFAS No. 144, the Company recorded a depreciation adjustment in the first quarter of 2009 totaling approximately $0.5 million to reduce the Company's carrying amounts on five properties to their respective adjusted net book values upon reclassification of the properties from held to sale to held for use. The remainder of the increase is related to various building and tenant improvement expenditures.

� Amortization expense increased $0.9 million, or 153.2%, due mainly to additional amortization expense of approximately $1.0 million recognized on lease intangibles acquired related to the Company's 2008 real estate acquisitions, partially offset by the decrease in amortization expense of approximately $0.1 million on lease intangibles acquired related mainly to the Company's real estate acquisitions during 2003 and 2004 which are becoming fully amortized.

Other income (expense) for the three months ended March 31, 2009 increased $3.5 million, or 32.8%, compared to the same period in 2008, mainly for the reasons discussed below:
� The Company recognized a $2.7 million gain related to the valuation and re-measurement of the Company's equity interest in a joint venture in connection with the Company's acquisition of the remaining equity interests in the joint venture.

� Interest expense decreased $0.8 million, or 7.4%. This decrease was mainly attributable to an increase in the capitalization of interest of approximately $0.5 million relating to the Company's construction projects, a reduction in interest expense of approximately $0.7 million due to certain repurchases of the Senior Notes due 2011 and 2014 during 2008, as well as a reduction of interest expense of approximately $0.4 million related to the Unsecured Credit Facility resulting mainly from a decrease in interest rates. These amounts were partially offset by an increase in interest expense of approximately $0.8 million related to mortgage notes assumed by the Company in connection with its investments in two joint ventures during 2008 and 2009.

Income from discontinued operations totaled $13.1 million and $1.9 million, respectively, for the three months ended March 31, 2009 and 2008, which includes the results of operations, gains on sale, and impairment charges related to assets classified as held for sale or disposed of during the first quarter of 2009 and 2008. The Company disposed of four properties during the first quarter of 2009 and had three properties classified as held for sale at March 31, 2009. Liquidity and Capital Resources
The Company derives most of its revenues from its real estate property portfolio based on contractual arrangements with its tenants and sponsors. The Company may, from time to time, also generate funds from capital market financings, sales of real estate properties or mortgages, borrowings under its Unsecured Credit Facility, secured debt borrowings, or from other private debt or equity offerings. For the three months ended March 31, 2009, the Company generated approximately $27.5 million in cash from operations which included a $2.3 million payment related to a partial pension settlement, and used approximately $19.3 million in total cash from investing and financing activities, net of $22.8 million in dividend payments, as detailed in the Company's Condensed Consolidated Cash Flow Statement.

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Capital and Credit Market Conditions
The Company may from time to time raise additional capital by issuing equity and debt securities under its currently effective shelf registration statement or in private offerings. Access to capital markets impacts the Company's ability to refinance existing indebtedness as it matures and fund future acquisitions and development through the issuance of additional securities. The Company's ability to access capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on its securities, perception of its potential future earnings and cash distributions, and the market price of its capital stock. The capital and credit markets continue to be volatile as a result of adverse economic conditions. These conditions could limit the Company's ability to access debt or equity capital, which would negatively impact the Company's cost of capital, ability to invest in real estate assets, pay its dividend at current levels, refinance maturing debt and react to changing economic and business conditions. Further, the Company is exposed to increases in interest rates, which could reduce profitability and negatively impact the Company's ability to refinance existing debt, sell assets and engage in acquisition and development activity. The Company had unencumbered real estate assets of approximately $1.9 billion at March 31, 2009, which could serve as collateral for secured financing. Furthermore, the Company anticipates entering into a new credit facility during 2009 to replace its existing credit facility. The Company anticipates that the interest rates payable on new debt will be higher than the rate on its Unsecured Credit Facility (LIBOR + 0.90%). Contractual Obligations
The Company monitors its contractual obligations to ensure funds are available to meet obligations when due. The following table represents the Company's long-term contractual obligations for which the Company was making payments as of March 31, 2009, including interest payments due where applicable. The Company is also required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to maintain its qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended. The Company's material contractual obligations for the remainder of 2009 and 2010 are included in the table below.

(Dollars in thousands)                                       2009               2010               Total

Long-term debt obligations, including interest (1)        $  43,740          $ 371,018          $ 414,758
Operating lease commitments (2)                               2,928              3,852              6,780
Construction in progress (3)                                 58,819             12,022             70,841
Tenant improvements (4)                                         440                  -                440
Deferred gain (5)                                             2,207                  -              2,207
Construction loan obligation (6)                              8,558                  -              8,558
Pension obligations (7)                                           -                  -                  -

                                                          $ 116,692          $ 386,892          $ 503,584

(1) Includes estimated interest due on total debt other than the Unsecured Credit Facility. See Note 4 to the Condensed Consolidated Financial Statements.

(2) Includes primarily two office leases and ground leases related to various properties for which the Company is currently making payments.

(3) Includes cash flow projections for the remainder of 2009 and 2010 related to the construction of four buildings. A portion of the remaining commitments is designated for tenant improvements that will generally be funded after the core and shell . . .