Relationships
Results
Returns
2010 Annual Report
Contents
Relationships. Results. Returns.
Letter to Stockholders
2010 Highlights
2010 Business Environment
An Approach that Delivers
Conclusion
Relationships
Partner Timeline
Benchmark Senior Living
Brandywine Senior Living
Merrill Gardens
Senior Star Living
Silverado Senior Living
Results
Portfolio Map
Returns
Form 10-K
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27
29
Stockholder Information
(Inside Back Cover)
1
Relationships. Results. Returns.
Health Care REIT’s continuing success is derived from an investment strategy based on relationships that the
company has developed with best-in-class senior housing and post-acute operators and health systems in
desirable markets.
The results of this strategy are a diverse portfolio operated by best-in-industry partners; a steady flow of
new, off-market acquisition and development opportunities; efficient and profitable operation of high-quality
facilities; beneficial sharing of best practices and complementary product lines among partners; and the trust
and confidence of long-term relationships.
The returns resulting from our strategy are investments that generate significant earnings growth and
increasing stockholder value.
2
Letter to Stockholders
It is a particular pleasure to report to you this year. It seems appropriate that in
our 40th year, we invested an unprecedented $3.2 billion with leading senior
housing and post-acute operators and outstanding health systems. We ended
the year with an enterprise value of over $12 billion. We effectively executed
our relationship investment strategy.
During the past 40 years, Health Care REIT has created a foundation of
relationships and trust with senior housing and post-acute operators and
health systems. Our relationship investment strategy has driven a 16%
average annual return for our stockholders. We have continuously improved
our portfolio quality, built an infrastructure focused on customer needs,
strategically implemented a diversified business approach and positioned our
company for consistent future growth.
This letter focuses on the company’s business strategy to develop
relationships, create results and generate returns for our stockholders.
The remainder of the report highlights five of our new partnerships with
best-in-industry operators.
George Chapman
Chairman, Chief Executive
Officer and President
3
2010 Highlights
Before elaborating on our disciplined growth platform, I will review 2010 highlights:
Company Performance
We generated one-year and three-year total returns of 14% and 25%, respectively.
Capital
We raised $1 billion of equity capital at an average gross price of $44.57. We also issued $1.4 billion in unsecured
debt at a blended yield of 5.26%. We secured $500 million in convertible debt at a 3% yield and $81 million in
HUD financing at a 5.10% yield.
Investments
We completed gross investments of $3.2 billion, 92% of which were combination senior housing facilities and
modern medical facilities. We ended the year with 63 senior housing operators and 46 health system relationships.
Portfolio Performance
Our stable senior housing and health care real estate portfolio was resilient, maintaining property level rent coverage
of over 2.0x for 2010. Our medical office portfolio finished the year over 93% occupied with a full-year retention rate
of 85%. Our medical services group ranked in the top 25% in the Kingsley Tenant Satisfaction Index.
Dividends
Our February 2011 dividend payment was our 159th consecutive dividend. In January 2011, we announced
a 3.6% increase to our quarterly cash dividend to $0.715 per share.
4
Health Care REIT
Headquarters
Toledo, Ohio
5
2010 Business Environment
As we entered 2010, a confluence of factors resulted in an optimal environment
for our business platform. One key factor was the lack of available capital.
Banks were not actively lending. Private equity and other funds were seeking
exit strategies from investments. The capital markets were closed to smaller
initial public offerings, which had been the primary option for private operators
and their capital partners. Even in the medical facilities sector, tax-free bonds
were more difficult and more expensive to issue. Non-profit hospital foundations
had also experienced significant drops in their endowment funds.
During this period, Health Care REIT’s access to reasonably priced capital
offered us a unique opportunity for growth in an otherwise difficult economic
environment, combined with the heightened desire of operators and health
care systems to partner with a knowledgeable, long-term partner.
An Approach that Delivers
During the early phases of the economic downturn, Health Care REIT
remained steady and disciplined by preserving liquidity and completing all
committed investments. Our operational teams focused on delivering better
services and broader capabilities, while our business development teams
deepened existing relationships and developed new ones with senior housing
operators and health systems. As we moved into 2010 and a more favorable
economic environment for health care REITs generally, this effort was rewarded
with a number of relationship-based investments. These transactions, together
with our focus on continuous operational improvement, position us to deliver
substantial returns for our stockholders well into the future.
Our business
development teams
deepened existing
relationships and
developed new ones
with senior housing
operators and
health systems.
6
Developing and Strengthening Relationships
A key element in developing and strengthening relationships is ensuring
that we have the capabilities to meet the needs of our partners. In order to
enhance our full-service capabilities, we added experienced and talented
employees to our team.
We also enhanced the capabilities of our team by moving into a new
headquarters building that takes advantage of proven, progressive design
and technologies that make it a model for green, productive office buildings.
We relocated our headquarters to the former corporate campus of Dana
Corporation, a longstanding Toledo company. The move energized our team,
enhanced our recruitment efforts and fostered teamwork and interaction.
Most important, it offered us the opportunity to grow cost-effectively in an
environment that encourages employee well-being and productivity.
The building showcases our design and development capabilities, which
include environmental sustainability and energy expertise. We installed a
two-acre solar field that provides between 15% and 20% of our electrical
needs, state-of-the-art energy conservation systems, a green roof and other
features. We expect the building to receive LEED gold or better certification,
the nationally accepted benchmark for design, construction and operation
of high-performance green buildings.
At the same time that we were enhancing our capabilities to serve our partners,
we also expanded, deepened and converted our relationships with key
portfolio companies. Merrill Gardens, Senior Star Living and Silverado Senior
Living transitioned into partnership structures that take advantage of the REIT
Investment Diversification and Empowerment Act of 2007 (RIDEA). Moreover,
we formed new, significant relationships with Brandywine Senior Living, a triple-
net lease structure, which can be converted to a RIDEA in three years, and
Benchmark Senior Living, a RIDEA partnership, subject to certain conditions.
Additionally, we demonstrated our commitment to diversify our portfolio across
the health care acuity spectrum. We formed a new relationship with Genesis
HealthCare, an industry-leading provider of post-acute, rehabilitation, assisted
living and skilled nursing care. Brandywine Senior Living, Benchmark Senior
Living and Genesis HealthCare are three of the most highly regarded
The move into our
new headquarters
affirms our strong
commitment to
innovation and
cutting-edge
green buildings.
Health Care REIT
Headquarters
Toledo, Ohio
7
operators in the Northeast and Mid-Atlantic states. These new partnerships
create exciting opportunities for collaboration, including potential referral
relationships and best practice sharing. Additional information about some of
these new partnerships follows later in this report.
During this period of new partnership development, we continued to grow
existing relationships with our highly valued, longstanding operator partners,
including Emeritus, Brookdale Senior Living, Capital Senior Living and Life
Care Centers of America, as well as numerous and notable regional operator
partners. In fact, we now have 63 senior housing and care operators in our
portfolio – a reliable, well-diversified and high-quality platform for investment
and FFO growth.
In our medical facilities division, we made investments totaling $1.2 billion this
year, with major investments in 17 medical office buildings master-leased by
Aurora Health Care, an A-rated, highly-regarded Wisconsin health care system.
We also invested with Forest City in seven premier life science buildings in
Cambridge, Massachusetts. Late in the year, we completed investments in five
Florida medical office buildings and 17 medical office buildings in the Midwest.
We now have investments with 46 health systems with the potential to produce
further investment opportunities in the future.
Creating Results
Our relationship investment strategy has resulted in a strong, high-quality
portfolio. The balance between operating and triple-net lease investments,
along with operator and property type diversification, will produce one of
the best risk-adjusted returns in the sector. We ended the year with 2.12x
portfolio coverage, the highest in company history. In addition, we experienced
strong same-store growth with increases in net operating income across our
business lines.
In our medical facilities portfolio, we have experienced notable results.
Our medical services group was recognized for being in the top 25% in the
Kingsley Tenant Satisfaction Index. We also have industry-leading medical
office occupancy and retention, finishing 2010 at 93% and 85%, respectively.
RIDEA* Basics
Under the statute, a Qualified
Health Care Facility can be
leased by a REIT directly to
its taxable REIT subsidiary.
The facility must be managed
by an Eligible Independent
Contractor (EIK) that is not
affiliated with the REIT.
The REIT receives rent
based on the fair market
rental value of the facility.
The taxable REIT subsidiary
receives operational profits.
The Eligible Independent
Contractor (EIK) receives a
market rate management fee.
REIT
Partner
Landlord
Lease
REIT TRS
Partner
Tenant
Management
Agreement
Manager (EIK)
* REIT Investment Diversification
and Empowerment Act of 2007
8
Generating Returns for our Stockholders
During the past 40 years, our investment strategy has created a 16% average
annual return for our stockholders. In the last three years, we generated one-year
and three-year total returns of 14% and 25%, respectively.
We believe we are the partner of choice in the senior housing and post-acute
sector and a major investor and valued partner in the medical facilities sector. Our
relationship investment strategy with embedded growth opportunities will result in
future investments that will produce significant FFO and FAD growth. For 2011,
we have provided normalized guidance for 6-9% FFO and 6-10% FAD growth.
With the addition of our RIDEA partners, our operating portfolio will be
approximately 22% of our total portfolio. These RIDEA investments, together
with our life science investments, should provide additional organic growth
for the company in excess of the stable growth that the company achieves
in its triple-net lease portfolio. In fact, we anticipate our operating portfolio to
generate annual NOI growth of 5-6%. That growth, together with the expected
5%+ NOI growth from our life science investments, provides an excellent
balance between operating investments and triple-net leases. We view this
balance as an attractive portfolio diversification that will provide an even higher
risk-adjusted return for our stockholders in the future.
Our relationship
investment strategy
with embedded
growth opportunities
will result in future
investments that will
produce significant
FFO and FAD growth.
9
Conclusion
In 2010, our relationship investment strategy and well-positioned growth
platform aligned perfectly with prevailing market conditions. We were prepared
for change; our focus on innovation enabled us to seize the opportunity. We now
have the best portfolio of operators in the senior housing and post-acute sector.
Their success will contribute to substantial FFO growth. In the acute-care sector,
we have formed key relationships that are driving investment, planning and
development, and property management opportunities.
We will remain focused on developing long-term partnerships with best-in-
industry operators and health systems with the highest quality assets and
greatest potential for external and organic growth. We will continue to
develop our capabilities in anticipation of the ever-changing health care
environment and the resulting needs of operators and health systems for
value-added services.
In a recent senior housing conference, I noted to the audience that we work
every day, week, month and year to prove our worth to our senior housing
and post-acute operators and health system partners. I make the same
pledge to you now. At all times, we will maintain our focus on creating results
and generating stockholder value, as we have during the past 40 years. Our
performance during 2010 will contribute significantly to creating stockholder
value for many years to come.
In this rewarding and tiring year of incredible investment performance,
I dedicate the 2010 Annual Report to our Health Care REIT employees for their
efforts in making 2010 an unprecedented year. I also thank them for their
commitment to continuing our success into the future.
George L. Chapman
Chairman, Chief Executive Officer and President
March 7, 2011
At all times, we will
maintain our focus
on creating results
and generating
stockholder value, as
we have during the
past 40 years. Our
performance during
2010 will contribute
significantly to creating
stockholder value for
many years to come.
10
Relationships
Senior housing and post-acute operators and health systems have many
options to fund their growth. What sets Health Care REIT apart from the
competition is a history of trust and shared values and a comprehensive
range of real estate solutions to sustain strong, long-term partnerships.
11
Partner Timeline
Health Care REIT’s relationship-based investment strategy enables the
company to invest and reinvest in successful partners with proven operating
models and expanding businesses.
The focus of this strategy is to develop partnerships with innovative operators
who demonstrate a track record of quality care, profitability and growth.
Partners are typically senior housing and post-acute operators and health
systems with durable operating cash flows through all economic cycles and
earnings growth that consistently exceeds industry averages.
Health Care REIT has made significant investments to strengthen these
partnerships, including an infrastructure and staffing model to support the
company’s full-service business platform. Health Care REIT has created the
environment and the culture to give partner relationships unparalleled attention.
Brookdale Senior Living
Life Care Centers of America
Merrill Gardens
Sterling House
Silverado Senior Living
Signature Health Care
Emeritus
Trilogy
Signature Senior Living
Windrose
Aurora Health Care
Bellevue Medical Center
Loma Linda University
Medical Center – Murrieta
Senior Star Living
Brandywine Senior Living
Capital Senior Living
Forest City
Benchmark Senior Living
1
9
9
5
1
9
9
8
2
0
0
1
2
0
0
2
2
0
0
5
2
0
0
6
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
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Benchmark Senior Living
The Benchmark Senior Living portfolio encompasses 34 premier senior living
communities in Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont. Most communities provide the continuum of care that
affords consumers the option to “age in place.”
Led by Tom Grape, Founder, Chairman and Chief Executive Officer,
Benchmark Senior Living has grown through a disciplined management
approach and its vision to deliver world-class senior living services. That focus
on excellence gave rise to the company’s name and culture, and its goals –
improving the experience of senior living, being one of the best places to work
in the industry and providing attractive returns for investors.
With Health Care REIT, Tom Grape found a partnership focused on growth.
Benchmark’s management team was impressed with the personal relationship
fostered by Health Care REIT. “We spend the time necessary to learn about
our customers’ needs and to earn their trust,” says Mercedes Kerr, Health
Care REIT’s Senior Vice President – Marketing. Trust, reliable performance
and shared values placed the new relationship on solid ground. A full platform
of services for acquiring, managing and monetizing real estate assets made
Health Care REIT a perfect fit.
Mercedes Kerr
Senior Vice President – Marketing
Health Care REIT
The Village at Buckland Court
South Windsor, Connecticut
13
The $890 million partnership is structured as a RIDEA partnership owned
95% by Health Care REIT and 5% by Benchmark. Benchmark will provide
management services under an incentive-based management contract. In many
of the properties, renovations are complete or underway. Health Care REIT will
have the right to fund certain future investments pursued by Benchmark.
With an innovative capital partner and a stable foundation to grow, Benchmark
can pursue its vision and continue its drive for excellence. Benchmark’s
portfolio growth is expected to exceed inflation, with plans to extend
Benchmark’s footprint beyond New England to the entire Northeast.
Benchmark Senior Living Portfolio
34
Communities
Assisted living 61%
Memory care 34%
Independent living 5%
Units
3,009
Connecticut
Maine
14
1
Massachusetts
13
New Hampshire
Rhode Island
Vermont
2
3
1
The Birches at Concord
Concord, New Hampshire
“It has to work together. What we’re doing is consistent
with Health Care REIT’s objectives and what Health
Care REIT is doing is consistent with ours. It creates
an alignment. We’re not working at cross purposes,
but working together to accomplish each other’s goals.”
– Tom Grape
Founder, Chairman and Chief Executive Officer, Benchmark Senior Living
14
Brandywine Senior Living
Brandywine Senior Living is a leader in luxury senior residences. Its portfolio
includes 19 senior housing communities in desirable markets in Connecticut,
Delaware, New Jersey, New York and Pennsylvania. The majority of the
communities offer a continuum of care tailored to market needs.
Brandywine President and Chief Executive Officer, Brenda Bacon, co-founded
the company in 1996. She leads an experienced management team, all
connected and respected in the industry. Since 2006, the company has
acquired and successfully repositioned eight communities. Its occupancy
exceeds industry averages.
Having positioned itself to capitalize on its market leadership, Brandywine
began seeking a funding partner that would be the right fit for its people,
residents and future. Health Care REIT was on the top of Brenda Bacon’s list.
Chuck Herman
Executive Vice President and
Chief Investment Officer
Health Care REIT
“Our relationship investment approach is centered on providing excellent,
value-added service to partners,” remarks Chuck Herman, Health Care REIT’s
Executive Vice President and Chief Investment Officer. Brenda Bacon agrees.
“They had the tools and knowledge to empower us. We knew they would be a
long-term partner, and we never felt the need to look at anyone else.”
Brandywine Assisted Living at Toms River
Toms River, New Jersey
15
The partnership consists of a $600 million acquisition and leaseback of 19
senior housing communities with a continuum of care. The investment is
structured as a triple-net lease with an initial yield of 7.0%. The lease rate will
escalate by 25 basis points per year. Rent will reset to fair market value after
the third anniversary of the closing date and every five years thereafter, subject
in all cases to a floor of the prior year’s rent plus the annual escalator.
The agreement includes an option to convert to a RIDEA structure after a period
of three years, subject to Brandywine meeting specified performance measures.
This creative structure allows Health Care REIT to combine a stable triple-net
lease with the opportunity for future net operating income growth through rent
reset and/or RIDEA conversion and gives Brandywine the freedom to grow.
Brandywine Senior Living Portfolio
19
Communities
Connecticut
Delaware
1
2
New Jersey
10
New York
Pennsylvania
2
4
Units
1,845
Beds
2,025
Assisted living 71%
Memory care 24%
Independent living 3%
Post-acute/rehab 2%
“When I have walked possible investors through our
buildings, I can tell if they really care about what’s going
on in the building or whether they’re just counting how
much money a building makes. I felt like the Health
Care REIT team really cared about what was going on.”
– Brenda Bacon
President and Chief Executive Officer, Brandywine Senior Living
Brandywine Assisted Living at the Gables
Brick, New Jersey
16
Merrill Gardens is one of the nation’s top operators of independent and assisted
living retirement communities with a portfolio that reaches eight states. A
family-owned, private company, Merrill Gardens is built on a strong foundation
of family, community, long-term commitment and entrepreneurial spirit.
Merrill Gardens was one of the first private senior living companies to focus on
lifestyle, motivating seniors to expand their interests and abilities. Since 1993,
Bill Pettit, Chief Executive Officer, has directed Merrill Gardens’ growth and
acquisitions, implemented the company’s commitment to quality, and made it
a best-in-class operator.
Health Care REIT’s 15+ year relationship with Merrill Gardens began when
Merrill Gardens acquired a small company in Health Care REIT’s portfolio.
Health Care REIT transitioned seven communities to Merrill Gardens soon
thereafter. Partnering on an acquisition of six California communities
eventually led to Health Care REIT’s first RIDEA partnership.
“Relationships with best-in-class operators differentiate our company. Industry
knowledge, alignment of interests, trust and shared values make Health Care REIT
the partner of choice,” explains George Chapman, Chairman, Chief Executive
Officer and President of Health Care REIT.
Merrill Gardens
George Chapman
Chairman, Chief Executive
Officer and President
Health Care REIT
Merrill Gardens at Naples
Naples, Florida
17
This $817 million RIDEA partnership includes 38 combination assisted living
retirement communities – 13 contributed by Health Care REIT – in desirable
West Coast markets. Health Care REIT holds an 80% ownership interest.
Merrill Gardens owns 20% and provides management services under an
incentive-based management contract. The partnership also has exclusive
rights to acquire nine additional Merrill Gardens communities and for future
development and acquisitions with the operator.
As Merrill Gardens expands its portfolio and profitability with resources
from Health Care REIT, each investment generates new opportunities and
increasing value for Health Care REIT and its stockholders.
Merrill Gardens Portfolio
Communities
38
Alabama
Arizona
California
Florida
Georgia
Nevada
Texas
2
1
16
1
2
1
1
Washington
14
Units
4,388
Assisted living/
Independent living 74%
Independent living 19%
Independent living
cottages 3%
Memory care 4%
Merrill Gardens at Queen Anne
Seattle, Washington
“Health Care REIT is the perfect vehicle for privately held
companies who want to stay private but have a partner
that is a large, well-capitalized public company.”
– Bill Pettit
Chief Executive Officer, Merrill Gardens
18
Senior Star Living
One of the premier senior housing operators in the Midwest, Senior Star Living has
communities in Illinois, Iowa, Missouri, New Mexico, Ohio and Oklahoma. Focused
on senior living for more than 20 years, the company has developed properties in
some of the most desirable metropolitan markets. It also has a proven record of
transforming underperforming buildings into profitable operations.
Senior Star Co-Founders and Managing Principals William and Robert
Thomas are twin brothers and long-time senior living entrepreneurs. Both
work to foster a family-like environment in all Senior Star communities. This
life-enriching model of care and commitment to customer service explain the
company’s overall collected occupancy for 2010: 300+ basis points above the
industry unit count average.* In fact, in many of its markets, Senior Star is the
community of choice.
Scott Brinker
Senior Vice President –
Underwriting and Research
Health Care REIT
“Most of our partnerships with senior housing operators and health systems
are based on relationships built over time, and with Senior Star it was no
different,” says Scott Brinker, Health Care REIT’s Senior Vice President –
Underwriting and Research. The trust the companies developed laid the
foundation for the perfect partnership. Health Care REIT gained a better
Weber Place
Romeoville, Illinois
* Source: National Investment Center for the Senior Housing and Care Industry & American Seniors Housing Association reports.
19
understanding of Senior Star’s operating model and strategic growth plans.
Senior Star experienced Health Care REIT’s relationship-focused approach
and shared values.
Under the $360 million RIDEA partnership, Health Care REIT will own a 90%
interest, Senior Star the remaining 10%. Senior Star will provide management
services to the nine senior housing communities involved under an incentive-
based management contract. And the partnership provides Senior Star with
the long-term capital to implement its plans for growth. Together, Senior Star
and Health Care REIT can focus on what they do best – creating value.
Senior Star Living Portfolio
Communities
9
Illinois
Iowa
Missouri
New Mexico
Ohio
Oklahoma
1
1
2
1
2
2
Independent living 74%
Assisted living 19%
Memory care 7%
Units
1,687
Weber Place
Romeoville, Illinois
“We recognized our values were very similar.
Health Care REIT was very centered on the end
customer – not only the senior client, but also company
employees and people being served in the industry.”
– Robert Thomas
Co-Founder and Managing Principal, Senior Star Living
William and Robert Thomas
Co-Founders and Managing
Principals, Senior Star Living
20
Silverado Senior Living
Nationally recognized as the leader in caring for the memory impaired,
Silverado Senior Living provides a continuum of care, from home health to
hospice. The Silverado model of care offers innovative resident engagement
programs and activities that promote cognitive stimulation and the reduction or
elimination of medications and restraints. This approach has influenced senior
housing providers nationwide and earned numerous awards for Silverado’s 20
facilities in Arizona, California, Texas and Utah.
In 1996, Silverado’s management team, led by Loren Shook, Co-Founder,
President, Chief Executive Officer and Chairman, sought a financial partner
to establish a line of credit. This began a relationship with Health Care REIT’s
Chief Executive Officer George Chapman and Mike Stephen, Senior Vice
President – Marketing.
To address the growing need for memory care, Silverado needed a long-term
capital partner. Other funding sources were considered. But the company
chose Health Care REIT for its smart, creative solutions and reputation for
long-term relationships based on trust. “We expanded the relationship and
invested in Silverado’s promising care model because it is an important
advancement in memory care,” explains Mike Stephen.
Mike Stephen
Senior Vice President – Marketing
Health Care REIT
Silverado Senior Living – Valley Ranch
Irving, Texas
21
Health Care REIT created a $298 million RIDEA partnership and has a 95%
ownership interest. Silverado owns the remaining 5% interest and continues
to provide management services under an incentive-based management
contract. Health Care REIT also owns a minority interest in Silverado’s
complementary management services, hospice and home health businesses.
This partnership fuels Silverado’s plans for growth and promises new
investment opportunities for Health Care REIT. Silverado plans to add up to
three new communities annually to its portfolio.
Silverado Senior Living Portfolio
Communities
18
Arizona
California
Texas
Utah
1
9
7
1
Units
804
Beds
1,454
Memory care 97%
Post-acute 3%
Silverado Senior Living – Beverly Place
Los Angeles, California
“Silverado is a leader in dementia care. Health Care REIT
is partnering with us to extend that leadership.”
– Loren Shook
Co-Founder, President, Chief Executive Officer and Chairman
Silverado Senior Living
22
Results
Year after year, the majority of Health Care REIT investments stem
from existing relationships. Currently, Health Care REIT has more than
100 high-quality organizations in its portfolio. Through primarily
off-market transactions, win-win structures are created. Each new
partnership creates the opportunity for organic growth through increases
in net operating income and external growth through future acquisitions.
23
Portfolio Growth
Gross Real Estate Investments1
$ billions
$9.8
$5.5
$6.5
$6.8
Real estate investments
in 2010 increased 44%
over 2009.
2007
2008
2009
2010
1 Includes joint venture investments.
In 2010, 92% of gross new investments constituted combined senior housing facilities and modern medical facilities.
Portfolio Coverage
Health Care REIT ended the year with 2.12x portfolio coverage, the highest in company history.
2.3x
2.2x
2.1x
2.0x
1.9x
1.8x
1.7x
1.6x
1.5x
1.4x
1.3x
Beginning of economic downturn
2.12x
Property level payment
coverage has increased
to the highest level in the
company’s history.
3Q06
3Q07
3Q08
3Q09
3Q10
Source: Trailing 12-month coverage before management fees.
Portfolio Composition
At year-end, Health Care REIT had 63 senior housing operators and 46 health system relationships.
Acuity Diversification
63% Senior Housing
37% Medical Office
and Acute Care
Medical Office 24%
Senior Housing Operating 12%
Hospitals 8%
Other 5%
Life Science 4%
Senior Housing and Care 47%
Operating income
(RIDEA and medical office
buildings) and triple-net
lease income provides
a stable base and
access to the upside
of revenue growth.
Three out of the four new partnerships took advantage of the REIT Investment Diversification and Empowerment Act
(RIDEA), providing Health Care REIT a new source of organic growth from operating income. This growth is over and
above the stable 2-3% NOI growth generated by triple-net lease senior housing.
24
Portfolio Map
As of December 31, 2010,
Health Care REIT’s broadly
diversified portfolio consisted of
683 properties in 41 states, with
63 senior housing operators and
46 health system relationships.
Through capital investments in
best-in-class partners in 2010,
the company created powerful
alliances in demographically
attractive markets. These regions
include New England (Benchmark
Senior Living), the Mid-Atlantic
(Brandywine Senior Living), the
Midwest (Senior Star Living),
the Pacific Northwest (Merrill
Gardens) and the Southern and
Northern California metropolitan
areas (Silverado Senior Living).
These partnerships exemplify the
company’s successful investment
in non-brokered transactions with
regionally dominant operators who
have impressive track records
in high-quality care, profitability
and growth. Embedded future
investment opportunities provide
a platform for earnings growth
well into the future.
25
Benchmark Senior Living
Medical Facilities
Brandywine Senior Living
Combination Care Facilities
Merrill Gardens
Senior Star Living
Skilled Nursing/Post-Acute Care
Independent Living/Assisted Living /Memory Care
Silverado Senior Living
Other
Benchmark Senior Living
Medical Facilities
Brandywine Senior Living
Combination Care Facilities
Merrill Gardens
Senior Star Living
Skilled Nursing/Post-Acute Care
Independent Living/Assisted Living /Memory Care
Silverado Senior Living
Other
26
Returns
The relationship-based investment strategy is increasing stockholder
value. Investment growth in 2010 is expected to result in significant
earnings growth for many years to come. External growth will result from
our relationships and rights-of-future-business with many partners,
which will provide a robust pipeline of acquisition and development
opportunities. These embedded opportunities are expected to provide
earnings growth for the next 10-15 years.
Internally, RIDEA partners and life science investments, referred to as
the company’s operating portfolio, will make up approximately 25% of its
total portfolio. These assets are anticipated to generate earnings above the
standard 2-3% for triple-net lease investments.
Health Care REIT’s balance of operating and triple-net lease investments
provides excellent portfolio diversification and is anticipated to provide
normalized 6-9% FFO and 6-10% FAD growth in 2011.
27
Returns Since Inception*
Health Care REIT has generated a 16% average annual total return over its 40-year history, including dividend
reinvestment. In February 2011, the company paid its 159th consecutive dividend. The company’s dividend yield
as of February 28, 2011 was 5.5%.
19.3%
13.6%
15.7%
15.9%
5 years
10 years
20 years
Since inception
* Assumes reinvestment of dividends.
Enterprise Value Growth
$ billions
$12.1
$5.7
$6.8
$7.6
$8.2
$3.7
2005
2006
2007
2008
2009
2010
28
Form 10-K
29
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Commission File No. 1-8923
HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4500 Dorr Street, Toledo, Ohio
(Address of principal executive office)
34-1096634
(I.R.S. Employer
Identification No.)
43615
(Zip Code)
(419) 247-2800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $1.00 par value
7.875% Series D Cumulative
Redeemable Preferred Stock, $1.00 par value
7.625% Series F Cumulative
Redeemable Preferred Stock, $1.00 par value
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¥
No n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes n
No ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to the filing requirements for at least the past 90 days. Yes ¥
No n
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
No n
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¥
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment of this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer ¥
Accelerated filer n
Non-accelerated filer n
Smaller reporting company n
Indicate by check mark whether
No ¥
Act). Yes n
(Do not check if a smaller reporting company)
the registrant
is a shell company (as defined in Rule 12b-2 of
the Exchange
The aggregate market value of the shares of voting common stock held by non-affiliates of the registrant, computed by reference to
the closing sales price of such shares on the New York Stock Exchange as of the last business day of the registrant’s most recently
completed second fiscal quarter was $5,204,141,431.
As of January 31, 2011, the registrant had 147,381,372 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the annual stockholders’ meeting to be held May 5, 2011, are incorporated
by reference into Part III.
HEALTH CARE REIT, INC.
2010 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
(Removed and Reserved) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Page
3
29
38
38
39
39
40
42
44
74
76
113
113
116
116
116
116
116
116
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117
PART IV
PART I
Item 1. Business
General
Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of senior housing
and health care real estate since the company was founded in 1970. We are an S&P 500 company headquartered in
Toledo, Ohio and our portfolio spans the full spectrum of senior housing and health care real estate, including senior
housing communities, skilled nursing facilities, medical office buildings, inpatient and outpatient medical centers
and life science facilities. Our capital programs, when combined with comprehensive planning, development and
property management services, make us a single-source solution for acquiring, planning, developing, managing,
repositioning and monetizing real estate assets. More information is available on the Internet at www.hcreit.com.
Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay
consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as
a result of annual increases in rental and interest income and portfolio growth. To meet these objectives, we invest in
the full spectrum of senior housing and health care real estate and diversify our investment portfolio by property
type, operator/tenant and geographic location.
Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund
operations, meet debt service obligations (both principal and interest), make dividend distributions and complete
construction projects in process. We also continue to evaluate opportunities to finance future investments. New
investments are generally funded from temporary borrowings under our unsecured line of credit arrangement,
internally generated cash and the proceeds from sales of real property. Our investments generate cash from rent and
interest receipts and principal payments on loans receivable. Permanent capital for future investments, which
replaces funds drawn under the unsecured line of credit arrangement, has historically been provided through a
combination of public and private offerings of debt and equity securities and the incurrence or assumption of
secured debt.
References herein to “we,” “us,” “our” or the “Company” refer to Health Care REIT, Inc. and its subsidiaries
unless specifically noted otherwise.
Portfolio of Properties
The following table summarizes our portfolio as of December 31, 2010:
Type of Property
Senior housing
Investments
(In thousands)
Percentage of
Investments
Number of
Properties
# Beds/Units
or Sq. Ft.
Investment per
metric(1)
States
facilities . . . . . . . . . .
$4,403,208
49.0%
Skilled nursing
facilities . . . . . . . . . .
Hospitals . . . . . . . . . . . .
Medical office
1,257,719
782,879
14.0%
8.7%
303
180
31
27,863 units
$162,210 per unit
24,064 beds
1,857 beds
52,266 per bed
446,846 per bed
buildings(2) . . . . . . . .
2,195,435
24.4%
162
9,047,167 sq. ft.
254 per sq. ft.
Life science
buildings(2) . . . . . . . .
346,562
3.9%
Totals . . . . . . . . . . . . . .
$8,985,803
100.0%
7
683
n/a
36
26
13
28
1
41
(1) Investment per metric was computed by using the total investment amount of $8,860,164,000, which includes net real estate investments and
unfunded construction commitments for which initial funding has commenced which amounted to $8,592,109,000 and $268,055,000,
respectively.
(2) Includes our share of unconsolidated joint venture investments. Please see Note 7 to our consolidated financial statements for additional
information.
3
Property Types
We invest in senior housing and health care real estate. We evaluate our business and make resource allocations
on our two business segments — senior housing and care and medical facilities. For additional information
regarding business segments, see Note 17 to our consolidated financial statements. The accounting policies of the
segments are the same as those described in the summary of significant accounting policies (see Note 2 to our
consolidated financial statements). The following is a summary of our various property types.
Senior Housing and Care
Our senior housing and care properties include skilled nursing facilities, assisted living facilities, independent
living/continuing care retirement communities and combinations thereof. We invest in senior housing and care real
estate primarily through acquisition and development. Excluding our operating partnerships (see Note 3 to our
consolidated financial statements), properties are primarily leased under triple-net leases and we are not involved in
property management. Our properties include stand-alone facilities that provide one level of service, combination
facilities that provide multiple levels of service, and communities or campuses that provide a wide range of services.
Independent Living Facilities.
Independent living facilities are age-restricted, multifamily properties with
central dining facilities that provide residents access to meals and other services such as housekeeping, linen
service, transportation and social and recreational activities.
Continuing Care Retirement Communities. Continuing care retirement communities include a combination
of detached homes, an independent living facility, an assisted living facility and/or a skilled nursing facility on one
campus. These communities are appealing to residents because there is no need for relocating when health and
medical needs change. Resident payment plans vary, but can include entrance fees, condominium fees and rental
fees. Many of these communities also charge monthly maintenance fees in exchange for a living unit, meals and
some health services.
Early Stage Senior Housing. Early stage senior housing communities contain primarily for-sale single-
family homes, townhomes, cluster homes, mobile homes and/or condominiums with no specialized services. These
communities are typically restricted or targeted to adults at least 55 years of age or older. Residents generally lead
an independent lifestyle. Communities may include amenities such as a clubhouse, golf course and recreational
spaces.
Assisted Living Facilities. Assisted living facilities are state regulated rental properties that provide the same
services as independent living facilities, but also provide supportive care from trained employees to residents who
require assistance with activities of daily living, including management of medications, bathing, dressing, toileting,
ambulating and eating.
Alzheimer’s/Dementia Care Facilities. Certain assisted living facilities may include state licensed settings
that specialize in caring for those afflicted with Alzheimer’s disease and/or other types of dementia.
Skilled Nursing Facilities. Skilled nursing facilities are licensed daily rate or rental properties where the
majority of individuals require 24-hour nursing and/or medical care. Generally, these properties are licensed for
Medicaid and/or Medicare reimbursement.
Medical Facilities
Our medical facilities include medical office buildings, hospitals and life science buildings. Our medical office
buildings are typically leased to multiple tenants and generally require a certain level of property management. Our
hospital investments are typically structured similar to our senior housing and care investments. Our life science
investments represent investments in an unconsolidated joint venture (see Note 7 to our consolidated financial
statements).
Medical Office Buildings. The medical office building portfolio consists of health care related buildings that
include physician offices, ambulatory surgery centers, diagnostic facilities, outpatient services and/or labs. Our
portfolio has a strong affiliation with health systems: approximately 80% of the buildings are either located on
campus or affiliated with hospitals through a satellite location.
4
Hospitals. Our hospitals generally include acute care hospitals, inpatient rehabilitation hospitals, and long-
term acute care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services, including,
but not limited to, surgery, rehabilitation, therapy and clinical laboratories. Inpatient rehabilitation hospitals provide
inpatient services for patients with intensive rehabilitation needs. Long-term acute care hospitals provide inpatient
services for patients with complex medical conditions that require more intensive care, monitoring or emergency
support than is available in most skilled nursing facilities.
Investments
We invest in senior housing and health care real estate primarily through acquisitions and developments. We
diversify our investment portfolio by property type, operator/tenant and geographic location. In determining
whether to invest in a property, we focus on the following: (1) the experience of the obligor’s management team;
(2) the historical and projected financial and operational performance of the property; (3) the credit of the obligor;
(4) the security for the lease or loan; (5) the real estate attributes of the building and its location; and (6) the capital
committed to the property by the obligor. We conduct market research and analysis for all potential investments. In
addition, we review the value of all properties, the interest rates and covenant requirements of any facility-level debt
to be assumed by us at the time of the acquisition and the anticipated sources of repayment of any of the obligor’s
existing debt that is not to be assumed by us at the time of the acquisition.
We monitor our investments through a variety of methods determined by the type of property. Our asset
management process for senior housing and care properties generally includes review of monthly financial
statements and other operating data for each property, periodic review of obligor creditworthiness, periodic
property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and
other collateral. Our internal property management division actively manages and monitors the medical office
building portfolio with a comprehensive process including tenant relations, tenant lease expirations, the mix of
health service providers, hospital/health system relationships, property performance, capital improvement needs
and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to
collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends
and risks.
Through asset management and research, we evaluate the operating environment in each property’s market to
determine whether payment risk is likely to increase. When we identify unacceptable levels of payment risk, we
seek to mitigate, eliminate or transfer the risk. We categorize the risk as obligor, property or market risk. For obligor
risk, we typically find a substitute operator/tenant to run the property. For property risk, we usually work with the
operator/tenant to institute property-level management changes to address the risk. Finally, for market risk, we often
encourage an obligor to change its capital structure, including refinancing the property or raising additional equity.
Through these asset management and research efforts, we are generally able to intervene at an early stage to address
payment risk, and in so doing, support both the collectability of revenue and the value of our investment.
Depending upon market conditions, we believe that new investments will be available in the future with
spreads over our cost of capital that will generate appropriate returns to our stockholders.
Investment Types
Real Property. Our hospitals and senior housing and care properties are primarily comprised of land,
building, improvements and related rights. Excluding properties in our senior housing operating partnerships (see
Note 3 to our consolidated financial statements), these properties are generally leased to operators under long-term
operating leases. The leases generally have a fixed contractual term of 12 to 15 years and contain one or more five to
15-year renewal options. Certain of our leases also contain purchase options. Most of our rents are received under
triple-net leases requiring the operator to pay rent and all additional charges incurred in the operation of the leased
property. The tenants are required to repair, rebuild and maintain the leased properties. Substantially all of these
operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual
rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a
collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded
based on the contractual cash rental payments due for the period.
5
At December 31, 2010, approximately 91% of our hospitals and senior housing and care properties were
subject to master leases. A master lease is a lease of multiple properties to one tenant entity under a single lease
agreement. From time to time, we may acquire additional properties that are then leased to the tenant under the
master lease. The tenant is required to make one monthly payment that represents rent on all the properties that are
subject to the master lease. Typically, the master lease tenant can exercise its right to purchase the properties or to
renew the master lease only with respect to all leased properties at the same time. This bundling feature benefits us
because the tenant cannot limit the purchase or renewal to the better performing properties and terminate the leasing
arrangement with respect to the poorer performing properties. This spreads our risk among the entire group of
properties within the master lease. The bundling feature should provide a similar advantage if the master lease
tenant is in bankruptcy. Subject to certain restrictions, a debtor in bankruptcy has the right to assume or reject each
of its leases. It is our intent that a tenant in bankruptcy would be required to assume or reject the master lease as a
whole, rather than deciding on a property by property basis.
Our medical office building portfolio is primarily self-managed and consists principally of multi-tenant
properties leased to health care providers. Our leases have favorable lease terms that typically include fixed
increasers and some form of operating expense reimbursement by the tenant. As of December 31, 2010, 88% of our
portfolio included leases with full pass through, 10% with a partial expense reimbursement (modified gross) and 2%
with no expense reimbursement (gross). Our medical office building leases are non-cancellable operating leases
that have a weighted average remaining term of 8.5 years at December 31, 2010 and are normally credit enhanced
by guaranties and/or letters of credit.
Construction. We currently provide for the construction of properties for tenants generally as part of long-
term operating leases. We capitalize certain interest costs associated with funds used to pay for the construction of
properties owned by us. The amount capitalized is based upon the amount advanced during the construction period
using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount
capitalized. We also typically charge a transaction fee at the commencement of construction which we defer and
amortize to income over the term of the resulting lease. The construction period commences upon funding and
terminates upon the earlier of the completion of the applicable property or the end of a specified period. During the
construction period, we advance funds to the tenants in accordance with agreed upon terms and conditions which
require, among other things, periodic site visits by a Company representative. During the construction period, we
generally require an additional credit enhancement in the form of payment and performance bonds and/or
completion guaranties. At December 31, 2010, we had outstanding construction investments of $356,793,000
and were committed to providing additional funds of approximately $268,055,000 to complete construction for
investment properties.
Real Estate Loans. Our real estate loans are typically structured to provide us with interest income, principal
amortization and transaction fees and are generally secured by a first, second or third mortgage lien, leasehold
mortgage, corporate guaranties and/or personal guaranties. At December 31, 2010, we had outstanding real estate
loans of $436,580,000. The interest yield averaged approximately 9.1% per annum on our outstanding real estate
loan balances. Our yield on real estate loans depends upon a number of factors, including the stated interest rate,
average principal amount outstanding during the term of the loan and any interest rate adjustments. The real estate
loans outstanding at December 31, 2010 are generally subject to three to 20-year terms with principal amortization
schedules and/or balloon payments of the outstanding principal balances at the end of the term. Typically, real estate
loans are cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements
between us and the obligor and its affiliates.
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint
ventures that we control, through voting rights or other means. All material intercompany transactions and balances
have been eliminated in consolidation.
6
At inception of the joint venture transactions, we identify entities for which control is achieved through means
other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the
primary beneficiary of its operations. A variable interest entity is broadly defined as an entity where either (i) the
equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is
insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate
investments in VIEs when we are determined to be the primary beneficiary. ASC 810 requires enterprises to perform
a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This
evaluation is based on an enterprise’s ability to direct and influence the activities of a variable interest entity that
most significantly impact that entity’s economic performance.
For investments in joint ventures, we evaluate the type of rights held by the limited partner(s), which may
preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited
partnership. The assessment of limited partners’ rights and their impact on the presumption of control over a limited
partnership by the sole general partner should be made when an investor becomes the sole general partner and
should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners,
(ii) the sole general partner increases or decreases its ownership in the limited partnership interests, or (iii) there is
an increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights
of managing members of limited liability companies.
Equity Investments
Equity investments at December 31, 2010 and 2009 include an investment in a public company that has a
readily determinable fair market value. We classify this equity investment as available-for-sale and, accordingly,
record this investment at its fair market value with unrealized gains and losses included in accumulated other
comprehensive income, a separate component of stockholders’ equity. Equity investments at December 31, 2010
and 2009 also include an investment in a private company. We do not have the ability to exercise influence over the
company, so the investment is accounted for under the cost method. Under the cost method of accounting,
investments in private companies are carried at cost and are adjusted only for other-than-temporary declines in fair
value, return of capital and additional investments. These equity investments represent a minimal ownership interest
in these companies. Additionally, equity investments at December 31, 2010 include investments in unconsolidated
joint ventures.
Investments in Unconsolidated Joint Ventures.
Investments in less than majority owned entities where our
interests represent a general partnership interest but substantive participating rights or substantive kick-out rights
have been granted to the limited partners or when our interests do not represent the general partnership interest and
we do not control the major operating and financial policies of the entity are reported under the equity method of
accounting. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our
consolidated results of operations. The initial carrying value of investments in unconsolidated joint ventures is
based on the amount paid to purchase the joint venture interest or the estimated fair value of the assets prior to the
sale of interests in the joint venture. We evaluate our equity method investments for impairment based upon a
comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a
decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an
impairment is recorded.
Borrowing Policies
We utilize a combination of debt and equity to fund investments. Our debt and equity levels are determined by
management to maintain a conservative credit profile. Generally, we intend to issue unsecured, fixed rate public
debt with long-term maturities to approximate the maturities on our leases and loans. For short-term purposes, we
may borrow on our unsecured line of credit arrangement. We replace these borrowings with long-term capital such
as senior unsecured notes, common stock or preferred stock. When terms are deemed favorable, we may invest in
properties subject to existing mortgage indebtedness. In addition, we may obtain secured financing for unleveraged
properties in which we have invested or may refinance properties acquired on a leveraged basis. In our agreements
with our lenders, we are subject to restrictions with respect to secured and unsecured indebtedness.
7
Competition
We compete with other real estate investment trusts, real estate partnerships, private equity and hedge fund
investors, banks, insurance companies, finance/investment companies, government-sponsored agencies, taxable
and tax-exempt bond funds, health care operators, developers and other investors in the acquisition, development,
leasing and financing of health care and senior housing properties. Some of our competitors are larger with greater
resources and lower costs of capital than us. Increased competition inhibits our ability to identify and successfully
complete investments. We compete for investments based on a number of factors including rates, financings offered,
underwriting criteria and reputation. Our ability to successfully compete is also impacted by economic and
population trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment
terms, availability and cost of capital, construction and renovation costs and new and existing laws and regulations.
The operators/tenants of our properties compete on a local and regional basis with operators/tenants of
properties that provide comparable services. Operators/tenants compete for patients and residents based on a
number of factors including quality of care, reputation, physical appearance of properties, services offered, family
preferences, physicians, staff and price. We also face competition from other health care facilities for tenants, such
as physicians and other health care providers that provide comparable facilities and services.
For additional information on the risks associated with our business, please see “Item 1A — Risk Factors” of
this Annual Report on Form 10-K.
Employees
As of December 31, 2010, we had 263 employees.
Customer Concentrations
The following table summarizes certain information about our customer concentrations as of December 31,
2010 (dollars in thousands):
Number of
Properties
Total
Investment(2)
Percent of
Investment(3)
Concentration by investment:(1)
Merrill Gardens LLC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brandywine Senior Living, LLC . . . . . . . . . . . . . . . . . .
Senior Living Communities, LLC . . . . . . . . . . . . . . . . .
Senior Star Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brookdale Senior Living, Inc.
. . . . . . . . . . . . . . . . . . . .
Remaining portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
19
12
10
86
518
683
$ 732,211
612,598
595,223
464,062
334,946
5,853,069
$8,592,109
9%
7%
7%
5%
4%
68%
100%
(1) All of our top five customers are in our senior housing and care segment.
(2) Excludes our share of unconsolidated joint venture investments. Please see Note 7 for additional information.
(3) Investments with our top five customers comprised 24% of total investments at December 31, 2009.
Certain Government Regulations
Health Law Matters — Generally
Typically, operators of senior housing facilities do not receive significant funding from government programs
and are largely subject to state laws, as opposed to federal laws. Operators of skilled nursing facilities and hospitals
do receive significant funding from government programs, and these facilities are subject to the federal and state
laws that regulate the type and quality of the medical and/or nursing care provided, ancillary services (e.g.,
respiratory, occupational, physical and infusion therapies), qualifications of the administrative personnel and
nursing staff, the adequacy of the physical plant and equipment, reimbursement and rate setting and operating
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policies. In addition, as described below, operators of these facilities are subject to extensive laws and regulations
pertaining to health care fraud and abuse, including, but not limited to, the Federal Anti-kickback Statute, the
Federal Stark Law, and the Federal False Claims Act, as well as comparable state law counterparts. Hospitals,
physician group practice clinics, and other health care providers that operate in our portfolio are subject to extensive
federal, state, and local licensure, registration, certification, and inspection laws, regulations, and industry
standards. Our tenants’ failure to comply with any of these, and other, laws could result in loss of accreditation;
denial of reimbursement; imposition of fines; suspension, decertification, or exclusion from federal and state health
care programs; loss of license; or closure of the facility.
Licensing and Certification
The primary regulations that affect senior housing facilities with assisted living are state licensing and
registration laws. In granting and renewing these licenses, the state regulatory agencies consider numerous factors
relating to a property’s physical plant and operations including, but not limited to, admission and discharge
standards, staffing, and training. A decision to grant or renew a license is also affected by a property owner’s record
with respect to patient and consumer rights, medication guidelines, and rules. Certain of the senior housing facilities
mortgaged to or owned by us may require the resident to pay an entrance or upfront fee, a portion of which may be
refundable. These entrance fee communities are subject to significant state regulatory oversight, including, for
example, oversight of each facility’s financial condition; establishment and monitoring of reserve requirements, and
other financial restrictions; the right of residents to cancel their contracts within a specified period of time; lien
rights in favor of residents; restrictions on change of ownership; and similar matters. Such oversight, and the rights
of residents within these entrance fee communities, may have an effect on the revenue or operations of the operators
of such facilities, and, therefore, may adversely affect us.
Certain health care facilities are subject to a variety of licensure and certificate of need (“CON”) laws and
regulations. Where applicable, CON laws generally require, among other requirements, that a facility demonstrate
the need for (1) constructing a new facility, (2) adding beds or expanding an existing facility, (3) investing in major
capital equipment or adding new services, (4) changing the ownership or control of an existing licensed facility, or
(5) terminating services that have been previously approved through the CON process. Certain state CON laws and
regulations may restrict the ability of operators to add new properties or expand an existing facility’s size or
services. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a
particular facility to a new operator. If we have to replace a property operator who is excluded from participating in a
federal or state health care program (as discussed below), our ability to replace the operator may be affected by a
particular state’s CON laws, regulations, and applicable guidance governing changes in provider control.
With respect to licensure, generally our skilled nursing facilities and acute care facilities are required to be
licensed and certified for participation in Medicare, Medicaid, and other federal health care programs. This
generally requires license renewals and compliance surveys on an annual or bi-annual basis. The failure of our
operators to maintain or renew any required license or regulatory approval, as well as the failure of our operators to
correct serious deficiencies identified in a compliance survey could require those operators to discontinue
operations at a property. In addition, if a property is found to be out of compliance with the Medicare, Medicaid,
or other health care program conditions of participation in, the property operator may be excluded from partic-
ipating in those government health care programs. Any such occurrence may impair an operators’ ability to meet
their financial obligations to us. If we have to replace an excluded property operator, our ability to replace the
operator may be affected by federal and state laws, regulations, and applicable guidance governing changes in
provider control. This may result in payment delays, an inability to find a replacement operator, a significant
working capital commitment from us to a new operator or other difficulties.
Reimbursement
Senior Housing Facilities. Approximately 37% of our rental revenues for the year ended December 31, 2010
were attributable to senior housing facilities. The majority of the revenues received by the operators of our senior
housing facilities are from private pay sources. The remaining revenue source is primarily Medicaid under certain
waiver programs. As a part of the Omnibus Budget Reconciliation Act (“OBRA”) of 1981, Congress established a
waiver program enabling some states to offer Medicaid reimbursement to assisted living providers as an alternative
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to institutional long-term care services. The provisions of OBRA and the subsequent OBRA Acts of 1987 and 1990
permit states to seek a waiver from typical Medicaid requirements to develop cost-effective alternatives to long-
term care, including Medicaid payments for assisted living and home health. As of December 31, 2010, four of our
41 senior housing operators received Medicaid reimbursement pursuant to Medicaid waiver programs. For the
twelve months ended September 30, 2010, approximately 9% of the revenues at our senior housing facilities were
from Medicaid reimbursement. There can be no guarantee that a state Medicaid program operating pursuant to a
waiver will be able to maintain its waiver status.
Rates paid by self-pay residents are set by the facilities and are determined by local market conditions and
operating costs. Generally, facilities receive a higher payment per day for a private pay resident than for a Medicaid
beneficiary who requires a comparable level of care. The level of Medicaid reimbursement varies from state to state.
Thus, the revenues generated by operators of our assisted living facilities may be adversely affected by payor mix,
acuity level, changes in Medicaid eligibility, and reimbursement levels. In addition, a state could lose its Medicaid
waiver and no longer be permitted to utilize Medicaid dollars to reimburse for assisted living services. Changes in
revenues could in turn have a material adverse effect on an operator’s ability to meet its obligations to us.
Skilled Nursing Facilities and Hospitals. Skilled nursing facilities and hospitals typically receive most of
their revenues from the Medicare and Medicaid programs, with the balance representing reimbursement payments
from private payors, including private insurers. Consequently, changes in federal or state reimbursement policies
may also adversely affect an operator’s ability to cover its expenses, including our rent or debt service. Skilled
nursing facilities and hospitals are subject to periodic pre- and post-payment reviews, and other audits by federal
and state authorities. A review or audit of a property operator’s claims could result in recoupments, denials, or delay
of payments in the future, which could have a material adverse effect on the operator’s ability to meet its financial
obligations to us. Due to the significant judgments and estimates inherent in payor settlement accounting, no
assurance can be given as to the adequacy of any reserves maintained by our property operators to cover potential
adjustments to reimbursements, or to cover settlements made to payors. In fact, in December 2010, the Department
of Health and Human Services Office of Inspector General (“OIG”) released a report focusing on skilled nursing
facilities’ billing practices for Medicare Part A payments, and found that between 2006-2008 skilled nursing
facilities increasingly billed for higher paying Resource Utilization Groups (“RUGs”), the payment classification
mechanism for the Medicare program, even though beneficiary characteristics remained largely unchanged. In
particular, from 2006 to 2008, OIG found that the percentage of RUGs for ultra high therapy increased from 17% to
28%, despite the fact that beneficiaries’ ages and diagnoses at admission were largely unchanged during that time
period. As a result of the recent attention on skilled nursing billing practices and ongoing government pressure to
reduce spending by government health care programs, government health care programs may limit or reduce
payments to skilled nursing facilities and hospitals, and, as a result, an operator’s ability to meet its financial
obligations to us may be significantly impaired.
Medicare Reimbursement and Skilled Nursing Facilities. For the twelve months ended September 30, 2010,
approximately 30% of the revenues at our skilled nursing facilities (which comprised 27% of our rental revenues for
the year ended December 31, 2010) were paid by Medicare. Skilled nursing facilities are reimbursed under the
Medicare Skilled Nursing Facility Prospective Payment System (“SNF PPS”). There is a risk that some skilled
nursing facilities’ costs will exceed the fixed payments under the SNF PPS, and there is also a risk that payments
under the SNF PPS may be set below the costs to provide certain items and services, which could result in
immediate financial difficulties for skilled nursing facilities, and could cause operators to seek bankruptcy
protection. Skilled nursing facilities have faced these types of difficulties since the implementation of the SNF PPS.
Skilled nursing facilities received a net 1.1% Medicare payment rate decrease for federal fiscal year 2010. This
1.1% net decrease is the result of a 3.3% decrease in payments due to recalibration of the case-mix indexes
combined with a 2.2% increase in payments through “market basket” changes for fiscal year 2010. The Centers for
Medicare & Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services
(“HHS”), has announced its intention to make a positive payment update for skilled nursing facilities for fiscal year
2011 — a net 1.7% increase resulting from a 2.3% market basket update less a 0.6% forecasting error adjustment.
Section 5008 of the Deficit Reduction Act of 2005 directs the Secretary of HHS to conduct a demonstration
program, for a three year period, beginning January 1, 2008, assessing the costs and outcomes of patients discharged
from hospitals in a variety of post-acute care settings, including skilled nursing facilities. The outcome of that
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demonstration program could lead to changes in Medicare coverage and reimbursement for post-acute care.
Because the results of the demonstration have not yet been finalized, we cannot predict the potential financial
implications those results, or any other proposed changes to the Medicare program, may have on our operators or
tenants.
The Balanced Budget Act of 1997 mandated caps on Medicare reimbursement for certain therapy services.
However, Congress imposed various moratoriums on the implementation of those caps. For 2011, the annual payment
cap of $1,870 per patient applies to occupational therapy and a separate $1,870 cap applies to speech and physical
therapy. Congress has permitted patients exceeding the cap to obtain additional Medicare coverage through a waiver
program if the therapy is deemed medically necessary. The waiver program was historically extended, most recently,
on December 15, 2010, by the Medicare and Medicaid Extenders Act (HR 4994), which extended the waiver program
through December 31, 2011. Prior to the recent legislation, the program was scheduled to expire December 31, 2010.
If the exception expires, patients will need to use private funds to pay for the cost of therapy above the caps. If patients
are unable to satisfy their out-of-pocket cost responsibility to reimburse an operator for services rendered, the
operator’s ability to meet its financial obligations to us could be adversely impacted.
Medicare Reimbursement and Hospitals. For the twelve months ended September 30, 2010, approximately
56% of the revenues at our hospitals (which comprised 8% of our rental revenues for the year ended December 31,
2010) were from Medicare reimbursements. Hospitals, generally, are reimbursed by Medicare under the Hospital
Inpatient Prospective Payment System (“PPS”), the Hospital Outpatient Prospective Payment System (“OPPS”),
the Long Term Care Hospital Prospective Payment System (“LTCH PPS”), or the Inpatient Rehabilitation Facility
Prospective Payment System (“IRF PPS”). Acute care hospitals provide a wide range of inpatient and outpatient
services including, but not limited to, surgery, rehabilitation, therapy, and clinical laboratory services. Long-term
acute care hospitals provide inpatient services for patients with medical conditions that are often complex and that
require more intensive care, monitoring or emergency support than that available in most skilled nursing facilities.
Inpatient rehabilitation facilities provide intensive rehabilitation services in an inpatient setting for patients
requiring at least three hours of rehabilitation services a day.
With respect to Medicare’s PPS for regular hospitals, reimbursement for inpatient services is made on the basis
of a fixed, prospective rate, based on the principal diagnosis of the patient. Hospitals may be at risk to the extent that
their costs in treating a specific case exceed the fixed payment amount. The diagnosis related group (“DRG”)
reimbursement system was updated in 2008 to expand the number of DRGs from 538 to 745 in order to better
distinguish more severe conditions. One additional DRG was added in 2009, for a new total of 746. In some cases, a
hospital might be able to qualify for an outlier payment if the hospital’s losses exceed a threshold.
Medicaid Reimbursement. Medicaid is a major payor source for residents in our skilled nursing facilities and
hospitals. For the twelve months ended September 30, 2010, approximately 51% of the revenues of our skilled nursing
facilities and 4% of the revenues of our hospitals were attributable to Medicaid reimbursement payments. The federal
and state governments share responsibility for financing Medicaid. The federal matching rate, known as the Federal
Medical Assistance Percentage (“FMAP”), varies by state based on relative per capita income, but is at least 50% in all
states. On average, Medicaid is the largest component of total state spending, representing approximately 21% of total
state spending. The percentage of Medicaid dollars used for long-term care varies from state to state, due in part to
different ratios of elderly population and eligibility requirements. Within certain federal guidelines, states have a fairly
wide range of discretion to determine eligibility and reimbursement methodology. Many states reimburse long-term
care facilities using fixed daily rates, which are applied prospectively based on patient acuity and the historical costs
incurred in providing patient care. Reasonable costs typically include allowances for staffing, administrative and
general expenses, property, and equipment (e.g., real estate taxes, depreciation and fair rental).
In most states, Medicaid does not fully reimburse the cost of providing skilled nursing services. Certain states
are attempting to slow the rate of growth in Medicaid expenditures by freezing rates or restricting eligibility and
benefits. As of the beginning of state fiscal year 2011, states in which we have skilled nursing property investments
held rates flat on average for the year. Our skilled nursing portfolio’s average Medicaid rate will likely vary
throughout the year as states continue to make interim changes to their budgets and Medicaid funding. In addition,
Medicaid reimbursement rates may decline if revenues in a particular state are not sufficient to fund budgeted
expenditures. President Obama’s proposed fiscal year budget for 2012, released on February 14, 2011, has the
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potential to further impact Medicaid reimbursement rates. The President’s budget includes a proposal to phase down
the Medicaid provider tax, a tax paid by health care providers to help fund state Medicaid programs, beginning with
a reduction of 4.5% in fiscal year 2015. If the President’s proposal is implemented, the various state Medicaid
programs will receive less funds, which could adversely affect our operators and tenants.
The Medicare Part D drug benefit became effective January 1, 2006. Since that date, low-income Medicare
beneficiaries (eligible for both Medicare and full Medicaid benefits), including those nursing home residents who
are dually eligible for both programs, may enroll and receive outpatient prescription drugs under Medicare, not
Medicaid. Medicare Part D has resulted in increased administrative responsibilities for nursing home operators
because enrollment in Medicare Part D is voluntary and residents must choose between multiple prescription drug
plans. Operators may also experience increased expenses to the extent that a particular drug prescribed to a patient is
not listed on the Medicare Part D drug plan formulary for the plan in which the patient is enrolled.
The reimbursement methodologies applied to health care facilities continue to evolve. Federal and state
authorities have considered and may seek to implement new or modified reimbursement methodologies that may
negatively impact health care property operations. The impact of any such changes, if implemented, may result in a
material adverse effect on our skilled nursing and hospital property operations. No assurance can be given that
current revenue sources or levels will be maintained. Accordingly, there can be no assurance that payments under a
government health care program are currently, or will be in the future, sufficient to fully reimburse the property
operators for their operating and capital expenses. As a result, an operator’s ability to meet its financial obligations
to us could be adversely impacted.
Finally, the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education
Reconciliation Act of 2010, which amends the PPACA (collectively, the “Health Reform Laws”) (further discussed
below).may have a significant impact on Medicare, Medicaid, other federal health care programs, and private
insurers, which impact the reimbursement amounts received by skilled nursing facilities and other health care
providers. The Health Reform Laws could have a substantial and material adverse effect on all parties directly or
indirectly involved in the health care system.
Other Related Laws
Skilled nursing facilities and hospitals (and senior housing facilities that receive Medicaid payments) are
subject to federal, state, and local laws, regulations, and applicable guidance that govern the operations and
financial and other arrangements that may be entered into by health care providers. Certain of these laws prohibit
direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for
medical products or services reimbursable by government health care programs. Other laws require providers to
furnish only medically necessary services and submit to the government valid and accurate statements for each
service. Still, other laws require providers to comply with a variety of safety, health and other requirements relating
to the condition of the licensed property and the quality of care provided. Sanctions for violations of these laws,
regulations, and other applicable guidance may include, but are not limited to, criminal and/or civil penalties and
fines, loss of licensure, immediate termination of government payments, and exclusion from any government health
care program. In certain circumstances, violation of these rules (such as those prohibiting abusive and fraudulent
behavior) with respect to one property may subject other facilities under common control or ownership to sanctions,
including exclusion from participation in the Medicare and Medicaid programs, as well as other government health
care programs. In the ordinary course of its business, a property operator is regularly subjected to inquiries,
investigations, and audits by the federal and state agencies that oversee these laws and regulations.
All health care providers, including, but not limited to skilled nursing facilities and hospitals (and senior
housing facilities that receives Medicaid payments) are also subject to the Federal Anti-kickback Statute, which
generally prohibits persons from offering, providing, soliciting, or receiving remuneration to induce either the
referral of an individual or the furnishing of a good or service for which payment may be made under a federal
health care program, such as Medicare or Medicaid. Skilled nursing facilities and hospitals are also subject to the
Federal Ethics in Patient Referral Act of 1989, commonly referred to as the Stark Law. The Stark Law generally
prohibits the submission of claims to Medicare for payment if the claim results from a physician referral for certain
designated services and the physician has a financial relationship with the health service provider that does not
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qualify under one of the exceptions for a financial relationship under the Stark Law. Similar prohibitions on
physician self-referrals and submission of claims apply to state Medicaid programs. Further, health care providers,
including, but not limited to, skilled nursing facilities and hospitals (and senior housing facilities that receive
Medicaid payments), are subject to substantial financial penalties under the Civil Monetary Penalties Act and the
Federal False Claims Act and, in particular, actions under the Federal False Claims Act’s “whistleblower”
provisions. Private enforcement of health care fraud has increased due in large part to amendments to the Federal
False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits
brought by private individuals, known as qui tam actions, may be filed by almost anyone, including present and
former patients, nurses and other employees. Such whistleblower actions have been brought against nursing
facilities on the basis of the alleged failure of the nursing facility to meet applicable regulations relating to its
operations. Significantly, if a claim is successfully adjudicated, the Federal False Claims Act provides for treble
damages up to $11,000 per claim.
Prosecutions, investigations, or whistleblower actions could have a material adverse effect on a property
operator’s liquidity, financial condition, and operations, which could adversely affect the ability of the operator to
meet its financial obligations to us. Finally, various state false claim act and anti-kickback laws may also apply to
each property operator. Violation of any of the foregoing statutes can result in criminal and/or civil penalties that
could have a material adverse effect on the ability of an operator to meet its financial obligations to us.
Other legislative developments over the past several years, including the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), have greatly expanded the definition of health care fraud and related offenses
and broadened its scope to include private health care plans in addition to government payors. Congress also has
greatly increased funding for the Department of Justice, Federal Bureau of Investigation and the Office of the
Inspector General of the Department of Health and Human Services to audit, investigate and prosecute suspected
health care fraud. Moreover, a significant portion of the billions in health care fraud recoveries over the past several
years has also been returned to government agencies to further fund their fraud investigation and prosecution efforts.
Additionally, other HIPAA provisions and regulations provide for communication of health information
through standard electronic transaction formats and for the privacy and security of health information. In order to
comply with the regulations, health care providers often must undertake significant operational and technical
implementation efforts. Operators also may face significant financial exposure if they fail to maintain the privacy
and security of medical records and other personal health information about individuals. The Health Information
Technology for Economic and Clinical Health (“HITECH”) Act, passed in February 2009, strengthened the HHS
Secretary’s authority to impose civil money penalties for HIPAA violations occurring after February 18, 2009.
HITECH directs the HHS Secretary to provide for periodic audits to ensure covered entities and their business
associates (as that term is defined under HIPAA) comply with the applicable HITECH requirements, increasing the
likelihood that a HIPAA violation will result in an enforcement action. CMS issued an interim Final Rule which
conformed HIPAA enforcement regulations to the HITECH Act, increasing the maximum penalty for multiple
violations of a single requirement or prohibition to $1.5 million. Higher penalties may accrue for violations of
multiple requirements or prohibitions. HIPAA violations are also potentially subject to criminal penalties.
In November 2002, CMS began an ongoing national Nursing Home Quality Initiative (NHQI). Under this
initiative, historical survey information, the NHQI Pilot Evaluation Report and the NHQI Overview is made
available to the public on-line. The NHQI website provides consumer and provider information regarding the
quality of care in nursing homes. The data allows consumers, providers, states, and researchers to compare quality
information that shows how well nursing homes are caring for their residents’ physical and clinical needs. The
posted nursing home quality measures come from resident assessment data that nursing homes routinely collect on
the residents at specified intervals during their stay. If the operators of nursing facilities are unable to achieve quality
of care ratings that are comparable or superior to those of their competitors, they may lose market share to other
facilities, reducing their revenues and adversely impacting their ability to make rental payments.
Finally, government investigations and enforcement actions brought against the health care industry have
increased dramatically over the past several years and are expected to continue. Some of these enforcement actions
represent novel legal theories and expansions in the application of the Federal False Claims Act. The costs for an
operator of a health care property associated with both defending such enforcement actions and the undertakings in
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settling these actions can be substantial and could have a material adverse effect on the ability of an operator to meet
its obligations to us.
Taxation
Federal Income Tax Considerations
The following summary of the taxation of the Company and the material federal tax consequences to the
holders of our debt and equity securities is for general information only and is not tax advice. This summary does
not address all aspects of taxation that may be relevant to certain types of holders of stock or securities (including,
but not limited to, insurance companies, tax-exempt entities, financial institutions or broker-dealers, persons
holding shares of common stock as part of a hedging, integrated conversion, or constructive sale transaction or a
straddle, traders in securities that use a mark-to-market method of accounting for their securities, investors in pass-
through entities and foreign corporations and persons who are not citizens or residents of the United States).
This summary does not discuss all of the aspects of U.S. federal income taxation that may be relevant to you in
light of your particular investment or other circumstances. In addition, this summary does not discuss any state or
local income taxation or foreign income taxation or other tax consequences. This summary is based on current
U.S. federal income tax law. Subsequent developments in U.S. federal income tax law, including changes in law or
differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal
income tax consequences of purchasing, owning and disposing of our securities as set forth in this summary. Before
you purchase our securities, you should consult your own tax advisor regarding the particular U.S. federal, state,
local, foreign and other tax consequences of acquiring, owning and selling our securities.
General
We elected to be taxed as a real estate investment trust (a “REIT”) commencing with our first taxable year. We
intend to continue to operate in such a manner as to qualify as a REIT, but there is no guarantee that we will qualify
or remain qualified as a REIT for subsequent years. Qualification and taxation as a REIT depends upon our ability to
meet a variety of qualification tests imposed under federal income tax law with respect to income, assets,
distribution level and diversity of share ownership as discussed below under “— Qualification as a REIT.” There
can be no assurance that we will be owned and organized and will operate in a manner so as to qualify or remain
qualified.
In any year in which we qualify as a REIT, in general, we will not be subject to federal income tax on that
portion of our REIT taxable income or capital gain that is distributed to stockholders. We may, however, be subject
to tax at normal corporate rates on any taxable income or capital gain not distributed. If we elect to retain and pay
income tax on our net long-term capital gain, stockholders are required to include their proportionate share of our
undistributed long-term capital gain in income, but they will receive a refundable credit for their share of any taxes
paid by us on such gain.
Despite the REIT election, we may be subject to federal income and excise tax as follows:
(cid:129) To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%,
of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular
corporate tax rates;
(cid:129) We may be subject to the “alternative minimum tax” (the “AMT”) on certain tax preference items to the
extent that the AMT exceeds our regular tax;
(cid:129) If we have net income from the sale or other disposition of “foreclosure property” that is held primarily for
sale to customers in the ordinary course of business or other non-qualifying income from foreclosure
property, such income will be taxed at the highest corporate rate;
(cid:129) Any net income from prohibited transactions (which are, in general, sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business, other than dispositions of foreclosure
property and dispositions of property due to an involuntary conversion) will be subject to a 100% tax;
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(cid:129) If we fail to satisfy either the 75% or 95% gross income tests (as discussed below), but nonetheless maintain
our qualification as a REIT because certain other requirements are met, we will be subject to a 100% tax on
an amount equal to (1) the gross income attributable to the greater of (i) 75% of our gross income over the
amount of qualifying gross income for purposes of the 75% gross income test (discussed below) or (ii) 95%
of our gross income (90% of our gross income for taxable years beginning on or before October 22,
2004) over the amount of qualifying gross income for purposes of the 95% gross income test (discussed
below) multiplied by (2) a fraction intended to reflect our profitability;
(cid:129) If we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year,
(2) 95% of our REIT capital gain net income for such year (other than capital gain that we elect to retain and
pay tax on) and (3) any undistributed taxable income from preceding periods, we will be subject to a 4%
excise tax on the excess of such required distribution over amounts actually distributed; and
(cid:129) We will be subject to a 100% tax on the amount of any rents from real property, deductions or excess interest
paid to us by any of our “taxable REIT subsidiaries” that would be reduced through reallocation under
certain federal income tax principles in order to more clearly reflect income of the taxable REIT subsidiary.
See “— Qualification as a REIT — Investments in Taxable REIT Subsidiaries.”
If we acquire any assets from a corporation, which is or has been a “C” corporation, in a carryover basis
transaction, we could be liable for specified liabilities that are inherited from the “C” corporation. A “C”
corporation is generally defined as a corporation that is required to pay full corporate level federal income tax.
If we recognize gain on the disposition of the assets during the ten-year period beginning on the date on which the
assets were acquired by us, then, to the extent of the assets’ “built-in gain” (i.e., the excess of the fair market value of
the asset over the adjusted tax basis in the asset, in each case determined as of the beginning of the ten-year period),
we will be subject to tax on the gain at the highest regular corporate rate applicable. The results described in this
paragraph with respect to the recognition of built-in gain assume that the built-in gain assets, at the time the built-in
gain assets were subject to a conversion transaction (either where a “C” corporation elected REIT status or a REIT
acquired the assets from a “C” corporation), were not treated as sold to an unrelated party and gain recognized.
Effective December 30, 2010, we acquired 19 assets that are subject to built-in gains tax until December 2020. See
Note 18 to our consolidated financial statements for additional information regarding the built-in gains tax.
Qualification as a REIT
A REIT is defined as a corporation, trust or association:
(1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of
beneficial interest;
(3) which would be taxable as a domestic corporation but for the federal income tax law relating to REITs;
(4) which is neither a financial institution nor an insurance company;
(5) the beneficial ownership of which is held by 100 or more persons in each taxable year of the REIT except
for its first taxable year;
(6) not more than 50% in value of the outstanding stock of which is owned during the last half of each taxable
year, excluding its first taxable year, directly or indirectly, by or for five or fewer individuals (which
includes certain entities) (the “Five or Fewer Requirement”); and
(7) which meets certain income and asset tests described below.
Conditions (1) to (4), inclusive, must be met during the entire taxable year and condition (5) must be met
during at least 335 days of a taxable year of 12 months or during a proportionate part of a taxable year of less than
12 months. For purposes of conditions (5) and (6), pension funds and certain other tax-exempt entities are treated as
individuals, subject to a “look-through” exception in the case of condition (6).
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Based on publicly available information, we believe we have satisfied the share ownership requirements set
forth in (5) and (6) above. In addition, Article VI of our Amended and Restated By-Laws provides for restrictions
regarding ownership and transfer of shares. These restrictions are intended to assist us in continuing to satisfy the
share ownership requirements described in (5) and (6) above. These restrictions, however, may not ensure that we
will, in all cases, be able to satisfy the share ownership requirements described in (5) and (6) above.
We have complied with, and will continue to comply with, regulatory rules to send annual letters to certain of
our stockholders requesting information regarding the actual ownership of our stock. If, despite sending the annual
letters, we do not know, or after exercising reasonable diligence would not have known, whether we failed to meet
the Five or Fewer Requirement, we will be treated as having met the Five or Fewer Requirement. If we fail to
comply with these regulatory rules, we will be subject to a monetary penalty. If our failure to comply was due to
intentional disregard of the requirement, the penalty would be increased. However, if our failure to comply were due
to reasonable cause and not willful neglect, no penalty would be imposed.
We may own a number of properties through wholly owned subsidiaries. A corporation will qualify as a
“qualified REIT subsidiary” if 100% of its stock is owned by a REIT, and the REIT does not elect to treat the
subsidiary as a taxable REIT subsidiary. A “qualified REIT subsidiary” will not be treated as a separate corporation,
and all assets, liabilities and items of income, deductions and credits of a “qualified REIT subsidiary” will be treated
as assets, liabilities and items (as the case may be) of the REIT. A “qualified REIT subsidiary” is not subject to
federal income tax, and our ownership of the voting stock of a qualified REIT subsidiary will not violate the
restrictions against ownership of securities of any one issuer which constitute more than 10% of the value or total
voting power of such issuer or more than 5% of the value of our total assets, as described below under “— Asset
Tests.”
If we invest in a partnership, a limited liability company or a trust taxed as a partnership or as a disregarded
entity, we will be deemed to own a proportionate share of the partnership’s, limited liability company’s or trust’s
assets. Likewise, we will be treated as receiving our share of the income and loss of the partnership, limited liability
company or trust, and the gross income will retain the same character in our hands as it has in the hands of the
partnership, limited liability company or trust. These “look-through” rules apply for purposes of the income tests
and assets tests described below.
Income Tests. There are two separate percentage tests relating to our sources of gross income that we must
satisfy for each taxable year.
(cid:129) At least 75% of our gross income (excluding gross income from certain sales of property held primarily for
sale) must be directly or indirectly derived each taxable year from “rents from real property,” other income
from investments relating to real property or mortgages on real property or certain income from qualified
temporary investments.
(cid:129) At least 95% of our gross income (excluding gross income from certain sales of property held primarily for
sale) must be directly or indirectly derived each taxable year from any of the sources qualifying for the 75%
gross income test and from dividends (including dividends from taxable REIT subsidiaries) and interest.
For taxable years beginning on or before October 22, 2004, (1) payments to us under an interest rate swap or
cap agreement, option, futures contract, forward rate agreement or any similar financial instrument entered into by
us to reduce interest rate risk on indebtedness incurred or to be incurred and (2) gain from the sale or other
disposition of any such investment are treated as income qualifying under the 95% gross income test. As to
transactions entered into in taxable years beginning after October 22, 2004, any of our income from a “clearly
identified” hedging transaction that is entered into by us in the normal course of business, directly or indirectly, to
manage the risk of interest rate movements, price changes or currency fluctuations with respect to borrowings or
obligations incurred or to be incurred by us, or such other risks that are prescribed by the Internal Revenue Service,
is excluded from the 95% gross income test.
For transactions entered into after July 30, 2008, any of our income from a “clearly identified” hedging
transaction that is entered into by us in the normal course of business, directly or indirectly, to manage the risk of
interest rate movements, price changes or currency fluctuations with respect to borrowings or obligations incurred
or to be incurred by us is excluded from the 95% and 75% gross income tests.
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For transactions entered into after July 30, 2008, any of our income from a “clearly identified” hedging
transaction entered into by us primarily to manage risk of currency fluctuations with respect to any item of income
or gain that is included in gross income in the 95% and 75% gross income tests is excluded from the 95% and 75%
gross income tests.
In general, a hedging transaction is “clearly identified” if (1) the transaction is identified as a hedging
transaction before the end of the day on which it is entered into and (2) the items or risks being hedged are identified
“substantially contemporaneously” with the hedging transaction. An identification is not substantially contem-
poraneous if it is made more than 35 days after entering into the hedging transaction.
As to gains and items of income recognized after July 30, 2008, “passive foreign exchange gain” for any
taxable year will not constitute gross income for purposes of the 95% gross income test and “real estate foreign
exchange gain” for any taxable year will not constitute gross income for purposes of the 75% gross income test. Real
estate foreign exchange gain is foreign currency gain (as defined in Internal Revenue Code section 988(b)(1)) which
is attributable to: (i) any qualifying item of income or gain for purposes of the 75% gross income test; (ii) the
acquisition or ownership of obligations secured by mortgages on real property or interests in real property; or
(iii) becoming or being the obligor under obligations secured by mortgages on real property or on interests in real
property. Real estate foreign exchange gain also includes Internal Revenue Code section 987 gain attributable to a
qualified business unit (a “QBU”) of a REIT if the QBU itself meets the 75% income test for the taxable year and the
75% asset test at the close of each quarter that the REIT has directly or indirectly held the QBU. Real estate foreign
exchange gain also includes any other foreign currency gain as determined by the Secretary of the Treasury. Passive
foreign exchange gain includes all real estate foreign exchange gain and foreign currency gain which is attributable
to: (i) any qualifying item of income or gain for purposes of the 95% gross income test; (ii) the acquisition or
ownership of obligations; (iii) becoming or being the obligor under obligations; and (iv) any other foreign currency
gain as determined by the Secretary of the Treasury.
Generally, other than income from “clearly identified” hedging transactions entered into by us in the normal
course of business, any foreign currency gain derived by us from dealing, or engaging in substantial and regular
trading, in securities will constitute gross income which does not qualify under the 95% or 75% gross income tests.
Rents received by us will qualify as “rents from real property” for purposes of satisfying the gross income tests
for a REIT only if several conditions are met:
(cid:129) The amount of rent must not be based in whole or in part on the income or profits of any person, although
rents generally will not be excluded merely because they are based on a fixed percentage or percentages of
receipts or sales.
(cid:129) Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or
more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our
taxable REIT subsidiary and certain other requirements are met with respect to the real property being
rented.
(cid:129) If rent attributable to personal property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent attributable to such personal property will
not qualify as “rents from real property.”
(cid:129) For rents to qualify as rents from real property, we generally must not furnish or render services to tenants,
other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no
income, except that we may directly provide services that are “usually or customarily rendered” in the
geographic area in which the property is located in connection with the rental of real property for occupancy
only, or are not otherwise considered “rendered to the occupant for his convenience.”
(cid:129) For taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an
arm’s-length basis to a taxable REIT subsidiary if the property is operated on behalf of such subsidiary by a
person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively
engaged in the trade or business of operating health care facilities for any person unrelated to us or our
taxable REIT subsidiary, an “eligible independent contractor.” Generally, the rent that the REIT receives
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from the taxable REIT subsidiary will be treated as “rents from real property.” A “qualified health care
property” includes any real property and any personal property that is, or is necessary or incidental to the use
of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care
facility, or other licensed facility which extends medical or nursing or ancillary services to patients and
which is operated by a provider of such services which is eligible for participation in the Medicare program
with respect to such facility.
For taxable years beginning after August 5, 1997, a REIT has been permitted to render a de minimis amount of
impermissible services to tenants and still treat amounts received with respect to that property as rent from real
property. The amount received or accrued by the REIT during the taxable year for the impermissible services with
respect to a property may not exceed 1% of all amounts received or accrued by the REIT directly or indirectly from
the property. The amount received for any service or management operation for this purpose shall be deemed to be
not less than 150% of the direct cost of the REIT in furnishing or rendering the service or providing the management
or operation. Furthermore, impermissible services may be furnished to tenants by a taxable REIT subsidiary subject
to certain conditions, and we may still treat rents received with respect to the property as rent from real property.
The term “interest” generally does not include any amount if the determination of the amount depends in whole
or in part on the income or profits of any person, although an amount generally will not be excluded from the term
“interest” solely by reason of being based on a fixed percentage of receipts or sales.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless
qualify as a REIT for such year if we are eligible for relief. For taxable years beginning on or before October 22,
2004, these relief provisions generally will be available if: (1) our failure to meet such tests was due to reasonable
cause and not due to willful neglect; (2) we attach a schedule of the sources of our income to our return; and (3) any
incorrect information on the schedule was not due to fraud with intent to evade tax. For taxable years beginning after
October 22, 2004, these relief provisions generally will be available if (1) following our identification of the failure,
we file a schedule for such taxable year describing each item of our gross income, and (2) the failure to meet such
tests was due to reasonable cause and not due to willful neglect.
It is not now possible to determine the circumstances under which we may be entitled to the benefit of these
relief provisions. If these relief provisions apply, a 100% tax is imposed on an amount equal to (a) the gross income
attributable to (1) 75% of our gross income over the amount of qualifying gross income for purposes of the 75%
income test and (2) 95% of our gross income (90% of our gross income for taxable years beginning on or before
October 22, 2004) over the amount of qualifying gross income for purposes of the 95% income test, multiplied by
(b) a fraction intended to reflect our profitability.
The Secretary of the Treasury is given broad authority to determine whether particular items of income or gain
qualify or not under the 75% and 95% gross income tests, or are to be excluded from the measure of gross income
for such purposes.
Asset Tests. Within 30 days after the close of each quarter of our taxable year, we must also satisfy several
tests relating to the nature and diversification of our assets determined in accordance with generally accepted
accounting principles. At least 75% of the value of our total assets must be represented by real estate assets, cash,
cash items (including receivables arising in the ordinary course of our operation), government securities and
qualified temporary investments. Although the remaining 25% of our assets generally may be invested without
restriction, we are prohibited from owning securities representing more than 10% of either the vote (the “10% vote
test”) or value (the “10% value test”) of the outstanding securities of any issuer other than a qualified REIT
subsidiary, another REIT or a taxable REIT subsidiary. Further, no more than 25% of the total assets may be
represented by securities of one or more taxable REIT subsidiaries (the “25% asset test”) and no more than 5% of
the value of our total assets may be represented by securities of any non-governmental issuer other than a qualified
REIT subsidiary (the “5% asset test”), another REIT or a taxable REIT subsidiary. Each of the 10% vote test, the
10% value test and the 25% and 5% asset tests must be satisfied at the end of each quarter. There are special rules
which provide relief if the value related tests are not satisfied due to changes in the value of the assets of a REIT.
For taxable years beginning after December 31, 2000, certain items are excluded from the 10% value test,
including: (1) straight debt securities of an issuer (including straight debt that provides certain contingent
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payments); (2) any loan to an individual or an estate; (3) any rental agreement described in Section 467 of the
Internal Revenue Code, other than with a “related person”; (4) any obligation to pay rents from real property;
(5) certain securities issued by a state or any subdivision thereof, the District of Columbia, a foreign government, or
any political subdivision thereof, or the Commonwealth of Puerto Rico; (6) any security issued by a REIT; and
(7) any other arrangement that, as determined by the Secretary of the Treasury, is excepted from the definition of
security (“excluded securities”). Special rules apply to straight debt securities issued by corporations and entities
taxable as partnerships for federal income tax purposes. If a REIT, or its taxable REIT subsidiary, holds (1) straight
debt securities of a corporate or partnership issuer and (2) securities of such issuer that are not excluded securities
and have an aggregate value greater than 1% of such issuer’s outstanding securities, the straight debt securities will
be included in the 10% value test.
For taxable years beginning after December 31, 2000, a REIT’s interest as a partner in a partnership is not
treated as a security for purposes of applying the 10% value test to securities issued by the partnership. Further, any
debt instrument issued by a partnership will not be a security for purposes of applying the 10% value test (1) to the
extent of the REIT’s interest as a partner in the partnership and (2) if at least 75% of the partnership’s gross income
(excluding gross income from prohibited transactions) would qualify for the 75% gross income test. For taxable
years beginning after October 22, 2004, for purposes of the 10% value test, a REIT’s interest in a partnership’s assets
is determined by the REIT’s proportionate interest in any securities issued by the partnership (other than the
excluded securities described in the preceding paragraph).
For taxable years beginning after July 30, 2008, if the REIT or its QBU uses a foreign currency as its functional
currency, the term “cash” includes such foreign currency, but only to the extent such foreign currency is (i) held for
use in the normal course of the activities of the REIT or QBU which give rise to items of income or gain that are
included in the 95% and 75% gross income tests or are directly related to acquiring or holding assets qualifying
under the 75% asset test, and (ii) not held in connection with dealing or engaging in substantial and regular trading
in securities.
With respect to corrections of failures for which the requirements for corrections are satisfied after October 22,
2004, regardless of whether such failures occurred in taxable years beginning on, before or after such date, as to
violations of the 10% vote test, the 10% value test or the 5% asset test, a REIT may avoid disqualification as a REIT
by disposing of sufficient assets to cure a violation that does not exceed the lesser of 1% of the REIT’s assets at the
end of the relevant quarter or $10,000,000, provided that the disposition occurs within six months following the last
day of the quarter in which the REIT first identified the assets. For violations of any of the REIT asset tests due to
reasonable cause and not willful neglect that exceed the thresholds described in the preceding sentence, a REIT can
avoid disqualification as a REIT after the close of a taxable quarter by taking certain steps, including disposition of
sufficient assets within the six month period described above to meet the applicable asset test, paying a tax equal to
the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the non-qualifying
assets during the period of time that the assets were held as non-qualifying assets and filing a schedule with the
Internal Revenue Service that describes the non-qualifying assets.
Investments in Taxable REIT Subsidiaries. For taxable years beginning after December 31, 2000, REITs may
own more than 10% of the voting power and value of securities in taxable REIT subsidiaries. We and any taxable
corporate entity in which we own an interest are allowed to jointly elect to treat such entity as a “taxable REIT
subsidiary.”
Certain of our subsidiaries have elected to be treated as a taxable REIT subsidiary. Taxable REIT subsidiaries
are subject to full corporate level federal taxation on their earnings but are permitted to engage in certain types of
activities that cannot be performed directly by REITs without jeopardizing their REIT status. Our taxable REIT
subsidiaries will attempt to minimize the amount of these taxes, but there can be no assurance whether or the extent
to which measures taken to minimize taxes will be successful. To the extent our taxable REIT subsidiaries are
required to pay federal, state or local taxes, the cash available for distribution as dividends to us from our taxable
REIT subsidiaries will be reduced.
The amount of interest on related-party debt that a taxable REIT subsidiary may deduct is limited. Further, a
100% tax applies to any interest payments by a taxable REIT subsidiary to its affiliated REIT to the extent the
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interest rate is not commercially reasonable. A taxable REIT subsidiary is permitted to deduct interest payments to
unrelated parties without any of these restrictions.
The Internal Revenue Service may reallocate costs between a REIT and its taxable REIT subsidiary where
there is a lack of arm’s-length dealing between the parties. Any deductible expenses allocated away from a taxable
REIT subsidiary would increase its tax liability. Further, any amount by which a REIT understates its deductions
and overstates those of its taxable REIT subsidiary will, subject to certain exceptions, be subject to a 100% tax.
Additional taxable REIT subsidiary elections may be made in the future for additional entities in which we own an
interest.
Annual Distribution Requirements.
In order to avoid being taxed as a regular corporation, we are required to
make distributions (other than capital gain distributions) to our stockholders which qualify for the dividends paid
deduction in an amount at least equal to (1) the sum of (i) 90% of our “REIT taxable income” (computed without
regard to the dividends paid deduction and our net capital gain) and (ii) 90% of the after-tax net income, if any, from
foreclosure property, minus (2) a portion of certain items of non-cash income. These distributions must be paid in
the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return
for that year and if paid on or before the first regular distribution payment after such declaration. The amount
distributed must not be preferential. This means that every stockholder of the class of stock to which a distribution is
made must be treated the same as every other stockholder of that class, and no class of stock may be treated
otherwise than in accordance with its dividend rights as a class. To the extent that we do not distribute all of our net
capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be
subject to tax on the undistributed amount at regular corporate tax rates. Finally, as discussed above, we may be
subject to an excise tax if we fail to meet certain other distribution requirements. We intend to make timely
distributions sufficient to satisfy these annual distribution requirements.
It is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet the 90%
distribution requirement, or to distribute such greater amount as may be necessary to avoid income and excise
taxation, due to, among other things, (1) timing differences between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of income and deduction of expenses in arriving at our taxable
income, or (2) the payment of severance benefits that may not be deductible to us. In the event that timing
differences occur, we may find it necessary to arrange for borrowings or, if possible, pay dividends in the form of
taxable stock dividends in order to meet the distribution requirement.
Under certain circumstances, in the event of a deficiency determined by the Internal Revenue Service, we may
be able to rectify a resulting failure to meet the distribution requirement for a year by paying “deficiency dividends”
to stockholders in a later year, which may be included in our deduction for distributions paid for the earlier year.
Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends; however, we will be
required to pay applicable penalties and interest based upon the amount of any deduction taken for deficiency
dividend distributions.
The Internal Revenue Service issued Revenue Procedure 2008-68, which provided temporary relief to publicly
traded REITs seeking to preserve liquidity by electing cash/stock dividends. Under Revenue Procedure 2008-68, a
REIT may treat the entire dividend, including the stock portion, as a taxable dividend distribution, thereby
qualifying for the dividends-paid deduction, provided certain requirements are satisfied. The cash portion of the
dividend may be as low as 10%. Revenue Procedure 2008-68, as amplified by Revenue Procedure 2010-12, applies
to dividends declared on or before December 31, 2012, and with respect to a taxable year ending on or before
December 31, 2011.
Failure to Qualify as a REIT
If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal income tax,
including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to
stockholders in any year in which we fail to qualify as a REIT will not be deductible nor will any particular amount
of distributions be required to be made in any year. All distributions to stockholders will be taxable as ordinary
income to the extent of current and accumulated earnings and profits allocable to these distributions and, subject to
certain limitations, will be eligible for the dividends received deduction for corporate stockholders. Unless entitled
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to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible to state whether in all circumstances
we would be entitled to statutory relief. Failure to qualify for even one year could result in our need to incur
indebtedness or liquidate investments in order to pay potentially significant resulting tax liabilities.
In addition to the relief described above under “— Income Tests” and “— Asset Tests,” relief is available in the
event that we violate a provision of the Internal Revenue Code that would result in our failure to qualify as a REIT if:
(1) the violation is due to reasonable cause and not due to willful neglect; (2) we pay a penalty of $50,000 for each
failure to satisfy the provision; and (3) the violation does not include a violation described under “— Income Tests”
or “— Asset Tests” above. It is not now possible to determine the circumstances under which we may be entitled to
the benefit of these relief provisions.
Federal Income Taxation of Holders of Our Stock
Treatment of Taxable U.S. Stockholders. The following summary applies to you only if you are a
“U.S. stockholder.” A “U.S. stockholder” is a holder of shares of stock who, for United States federal income
tax purposes, is:
(cid:129) a citizen or resident of the United States;
(cid:129) a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created
or organized in or under the laws of the United States or of any political subdivision of the United States,
including any state;
(cid:129) an estate, the income of which is subject to United States federal income taxation regardless of its source; or
(cid:129) a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and
one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all
of the trust’s substantial decisions.
So long as we qualify for taxation as a REIT, distributions on shares of our stock made out of the current or
accumulated earnings and profits allocable to these distributions (and not designated as capital gain dividends) will
be includable as ordinary income for federal income tax purposes. None of these distributions will be eligible for the
dividends received deduction for U.S. corporate stockholders.
Generally, for taxable years ending after May 6, 2003 through December 31, 2012, the maximum marginal rate
of tax payable by individuals on dividends received from corporations that are subject to a corporate level of tax is
15%. Except in limited circumstances, this tax rate will not apply to dividends paid to you by us on our shares,
because generally we are not subject to federal income tax on the portion of our REIT taxable income or capital
gains distributed to our stockholders. The reduced maximum federal income tax rate will apply to that portion, if
any, of dividends received by you with respect to our shares that are attributable to: (1) dividends received by us
from non-REIT corporations or other taxable REIT subsidiaries; (2) income from the prior year with respect to
which we were required to pay federal corporate income tax during the prior year (if, for example, we did not
distribute 100% of our REIT taxable income for the prior year); or (3) the amount of any earnings and profits that
were distributed by us and accumulated in a non-REIT year.
Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed our actual net capital gain for the taxable year), without regard to the period for which you held
our stock. However, if you are a corporation, you may be required to treat a portion of some capital gain dividends as
ordinary income.
If we elect to retain and pay income tax on any net long-term capital gain, you would include in income, as
long-term capital gain, your proportionate share of this net long-term capital gain. You would also receive a
refundable tax credit for your proportionate share of the tax paid by us on such retained capital gains, and you would
have an increase in the basis of your shares of our stock in an amount equal to your includable capital gains less your
share of the tax deemed paid.
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You may not include in your federal income tax return any of our net operating losses or capital losses. Federal
income tax rules may also require that certain minimum tax adjustments and preferences be apportioned to you. In
addition, any distribution declared by us in October, November or December of any year on a specified date in any
such month shall be treated as both paid by us and received by you on December 31 of that year, provided that the
distribution is actually paid by us no later than January 31 of the following year.
We will be treated as having sufficient earnings and profits to treat as a dividend any distribution up to the
amount required to be distributed in order to avoid imposition of the 4% excise tax discussed under “— General”
and “— Qualification as a REIT — Annual Distribution Requirements” above. As a result, you may be required to
treat as taxable dividends certain distributions that would otherwise result in a tax-free return of capital. Moreover,
any “deficiency dividend” will be treated as a dividend (an ordinary dividend or a capital gain dividend, as the case
may be), regardless of our earnings and profits. Any other distributions in excess of current or accumulated earnings
and profits will not be taxable to you to the extent these distributions do not exceed the adjusted tax basis of your
shares of our stock. You will be required to reduce the tax basis of your shares of our stock by the amount of these
distributions until the basis has been reduced to zero, after which these distributions will be taxable as capital gain, if
the shares of our stock are held as capital assets. The tax basis as so reduced will be used in computing the capital
gain or loss, if any, realized upon sale of the shares of our stock. Any loss upon a sale or exchange of shares of our
stock which were held for six months or less (after application of certain holding period rules) will generally be
treated as a long-term capital loss to the extent you previously received capital gain distributions with respect to
these shares of our stock.
Upon the sale or exchange of any shares of our stock to or with a person other than us or a sale or exchange of
all shares of our stock (whether actually or constructively owned) with us, you will generally recognize capital gain
or loss equal to the difference between the amount realized on the sale or exchange and your adjusted tax basis in
these shares of our stock. This gain will be capital gain if you held these shares of our stock as a capital asset.
If we redeem any of your shares in us, the treatment can only be determined on the basis of particular facts at
the time of redemption. In general, you will recognize gain or loss (as opposed to dividend income) equal to the
difference between the amount received by you in the redemption and your adjusted tax basis in your shares
redeemed if such redemption: (1) results in a “complete termination” of your interest in all classes of our equity
securities; (2) is a “substantially disproportionate redemption”; or (3) is “not essentially equivalent to a dividend”
with respect to you. In applying these tests, you must take into account your ownership of all classes of our equity
securities (e.g., common stock, preferred stock, depositary shares and warrants). You also must take into account
any equity securities that are considered to be constructively owned by you.
If, as a result of a redemption by us of your shares, you no longer own (either actually or constructively) any of
our equity securities or only own (actually and constructively) an insubstantial percentage of our equity securities,
then it is probable that the redemption of your shares would be considered “not essentially equivalent to a dividend”
and, thus, would result in gain or loss to you. However, whether a distribution is “not essentially equivalent to a
dividend” depends on all of the facts and circumstances, and if you rely on any of these tests at the time of
redemption, you should consult your tax advisor to determine their application to the particular situation.
Generally, if the redemption does not meet the tests described above, then the proceeds received by you from
the redemption of your shares will be treated as a distribution taxable as a dividend to the extent of the allocable
portion of current or accumulated earnings and profits. If the redemption is taxed as a dividend, your adjusted tax
basis in the redeemed shares will be transferred to any other shareholdings in us that you own. If you own no other
shareholdings in us, under certain circumstances, such basis may be transferred to a related person, or it may be lost
entirely.
Gain from the sale or exchange of our shares held for more than one year is taxed at a maximum long-term
capital gain rate, which is currently 15%. Pursuant to Internal Revenue Service guidance, we may classify portions
of our capital gain dividends as gains eligible for the long-term capital gains rate or as gain taxable to individual
stockholders at a maximum rate of 25%.
On March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010,
which requires U.S. stockholders who meet certain requirements and are individuals, estates or certain trusts to pay
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an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of
stock for taxable years beginning after December 31, 2012. U.S. stockholders should consult their tax advisors
regarding the effect, if any, of this legislation on their ownership and disposition of shares of our stock.
Treatment of Tax-Exempt U.S. Stockholders. Tax-exempt entities, including qualified employee pension and
profit sharing trusts and individual retirement accounts (“Exempt Organizations”), generally are exempt from
federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”).
The Internal Revenue Service has issued a published revenue ruling that dividend distributions from a REIT to an
exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used
in an unrelated trade or business of the exempt employee pension trust. Based on this ruling, amounts distributed by
us to Exempt Organizations generally should not constitute UBTI. However, if an Exempt Organization finances its
acquisition of the shares of our stock with debt, a portion of its income from us will constitute UBTI pursuant to the
“debt financed property” rules. Likewise, a portion of the Exempt Organization’s income from us would constitute
UBTI if we held a residual interest in a real estate mortgage investment conduit.
In addition, in certain circumstances, a pension trust that owns more than 10% of our stock is required to treat a
percentage of our dividends as UBTI. This rule applies to a pension trust holding more than 10% of our stock only if:
(1) the percentage of our income that is UBTI (determined as if we were a pension trust) is at least 5%; (2) we
qualify as a REIT by reason of the modification of the Five or Fewer Requirement that allows beneficiaries of the
pension trust to be treated as holding shares in proportion to their actuarial interests in the pension trust; and
(3) either (i) one pension trust owns more than 25% of the value of our stock, or (ii) a group of pension trusts
individually holding more than 10% of the value of our stock collectively own more than 50% of the value of our
stock.
Backup Withholding and Information Reporting. Under certain circumstances, you may be subject to backup
withholding at applicable rates on payments made with respect to, or cash proceeds of a sale or exchange of, shares
of our stock. Backup withholding will apply only if you: (1) fail to provide a correct taxpayer identification number,
which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer
identification number; (3) are notified by the Internal Revenue Service that you have failed to properly report
payments of interest or dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct
taxpayer identification number and that the Internal Revenue Service has not notified you that you are subject to
backup withholding.
Backup withholding will not apply with respect to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations. You should consult with a tax advisor regarding qualification for
exemption from backup withholding, and the procedure for obtaining an exemption. Backup withholding is not an
additional tax. Rather, the amount of any backup withholding with respect to a payment to a stockholder will be
allowed as a credit against such stockholder’s United States federal income tax liability and may entitle such
stockholder to a refund, provided that the required information is provided to the Internal Revenue Service. In
addition, withholding a portion of capital gain distributions made to stockholders may be required for stockholders
who fail to certify their non-foreign status.
Taxation of Foreign Stockholders. The following summary applies to you only if you are a foreign person.
The federal taxation of foreign persons is a highly complex matter that may be affected by many considerations.
Except as discussed below, distributions to you of cash generated by our real estate operations in the form of
ordinary dividends, but not by the sale or exchange of our capital assets, generally will be subject to U.S. with-
holding tax at a rate of 30%, unless an applicable tax treaty reduces that tax and you file with us the required form
evidencing the lower rate.
In general, you will be subject to United States federal income tax on a graduated rate basis rather than
withholding with respect to your investment in our stock if such investment is “effectively connected” with your
conduct of a trade or business in the United States. A corporate foreign stockholder that receives income that is, or is
treated as, effectively connected with a United States trade or business may also be subject to the branch profits tax,
which is payable in addition to regular United States corporate income tax. The following discussion will apply to
foreign stockholders whose investment in us is not so effectively connected. We expect to withhold United States
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income tax, as described below, on the gross amount of any distributions paid to you unless (1) you file an Internal
Revenue Service Form W-8ECI with us claiming that the distribution is “effectively connected” or (2) certain other
exceptions apply.
Distributions by us that are attributable to gain from the sale or exchange of a United States real property
interest will be taxed to you under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) as if these
distributions were gains “effectively connected” with a United States trade or business. Accordingly, you will be
taxed at the normal capital gain rates applicable to a U.S. stockholder on these amounts, subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals.
Distributions subject to FIRPTA may also be subject to a branch profits tax in the hands of a corporate foreign
stockholder that is not entitled to treaty exemption.
We will be required to withhold from distributions subject to FIRPTA, and remit to the Internal Revenue
Service, 35% of designated capital gain dividends, or, if greater, 35% of the amount of any distributions that could
be designated as capital gain dividends. In addition, if we designate prior distributions as capital gain dividends,
subsequent distributions, up to the amount of the prior distributions not withheld against, will be treated as capital
gain dividends for purposes of withholding.
For taxable years beginning after October 22, 2004, any capital gain dividend with respect to any class of stock
that is “regularly traded” on an established securities market will be treated as an ordinary dividend if the foreign
stockholder did not own more than 5% of such class of stock at any time during the taxable year. Once this provision
takes effect, foreign stockholders generally will not be required to report distributions received from us on
U.S. federal income tax returns and all distributions treated as dividends for U.S. federal income tax purposes
including any capital gain dividend will be subject to a 30% U.S. withholding tax (unless reduced under an
applicable income tax treaty) as discussed above. In addition, the branch profits tax will no longer apply to such
distributions.
Unless our shares constitute a “United States real property interest” within the meaning of FIRPTA or are
effectively connected with a U.S. trade or business, a sale of our shares by you generally will not be subject to
United States taxation. Our shares will not constitute a United States real property interest if we qualify as a
“domestically controlled REIT.” We believe that we, and expect to continue to, qualify as a domestically controlled
REIT. A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50%
in value of its shares is held directly or indirectly by foreign stockholders. However, if you are a nonresident alien
individual who is present in the United States for 183 days or more during the taxable year and certain other
conditions apply, you will be subject to a 30% tax on such capital gains. In any event, a purchaser of our shares from
you will not be required under FIRPTA to withhold on the purchase price if the purchased shares are “regularly
traded” on an established securities market or if we are a domestically controlled REIT. Otherwise, under FIRPTA,
the purchaser may be required to withhold 10% of the purchase price and remit such amount to the Internal Revenue
Service.
Backup withholding tax and information reporting will generally not apply to distributions paid to you outside
the United States that are treated as: (1) dividends to which the 30% or lower treaty rate withholding tax discussed
above applies; (2) capital gains dividends; or (3) distributions attributable to gain from the sale or exchange by us of
U.S. real property interests. Payment of the proceeds of a sale of stock within the United States or conducted
through certain U.S. related financial intermediaries is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that he or she is not a U.S. person (and the
payor does not have actual knowledge that the beneficial owner is a U.S. person) or otherwise established an
exemption. You may obtain a refund of any amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service.
Recently enacted legislation will require, after December 31, 2012, withholding at a rate of 30% on dividends
in respect of, and gross proceeds from the sale of, shares of our stock held by or through certain foreign financial
institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the
Treasury to report, on an annual basis, information with respect to shares in the institution held by certain
U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons, and to withhold on
certain payments. Accordingly, the entity through which shares of stock is held will affect the determination of
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whether such withholding is required. Similarly, dividends in respect of, and gross proceeds from the sale of, shares
of our stock held by an investor that is a non-financial non-U.S. entity will be subject to withholding at a rate of 30%,
unless such entity either (i) certifies to us that such entity does not have any “substantial United States owners” or
(ii) provides certain information regarding the entity’s “substantial United States owners,” which we will in turn
provide to the Secretary of the Treasury. We will not pay any additional amounts to any stockholders in respect of
any amounts withheld. Foreign persons are encouraged to consult with their tax advisors regarding the possible
implications of the legislation on their investment in shares of our stock.
U.S. Federal Income Taxation of Holders of Depositary Shares
Owners of our depositary shares will be treated as if you were owners of the series of preferred stock
represented by the depositary shares. Thus, you will be required to take into account the income and deductions to
which you would be entitled if you were a holder of the underlying series of preferred stock.
Conversion or Exchange of Shares for Preferred Stock. No gain or loss will be recognized upon the
withdrawal of preferred stock in exchange for depositary shares and the tax basis of each share of preferred stock
will, upon exchange, be the same as the aggregate tax basis of the depositary shares exchanged. If you held your
depositary shares as a capital asset at the time of the exchange for shares of preferred stock, the holding period for
your shares of preferred stock will include the period during which you owned the depositary shares.
U.S. Federal Income and Estate Taxation of Holders of Our Debt Securities
The following is a general summary of the United States federal income tax consequences and, in the case that
you are a holder that is a non-U.S. holder, as defined below, the United States federal estate tax consequences, of
purchasing, owning and disposing of debt securities periodically offered under one or more indentures (the “notes”).
This summary assumes that you hold the notes as capital assets. This summary applies to you only if you are the
initial holder of the notes and you acquire the notes for a price equal to the issue price of the notes. The issue price of
the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. In
addition, this summary does not consider any foreign, state, local or other tax laws that may be applicable to us or a
purchaser of the notes.
U.S. Holders
The following summary applies to you only if you are a U.S. holder, as defined below.
Definition of a U.S. Holder. A “U.S. holder” is a beneficial owner of a note or notes that is for United States
federal income tax purposes:
(cid:129) a citizen or resident of the United States;
(cid:129) a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created
or organized in or under the laws of the United States or of any political subdivision of the United States,
including any state;
(cid:129) an estate, the income of which is subject to United States federal income taxation regardless of its source; or
(cid:129) a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and
one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all
of the trust’s substantial decisions.
Payments of Interest. Stated interest on the notes generally will be taxed as ordinary interest income from
domestic sources at the time it is paid or accrues in accordance with your method of accounting for tax purposes.
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Sale, Exchange or Other Disposition of Notes. The adjusted tax basis in your note acquired at a premium will
generally be your cost. You generally will recognize taxable gain or loss when you sell or otherwise dispose of your
notes equal to the difference, if any, between:
(cid:129) the amount realized on the sale or other disposition, less any amount attributable to any accrued interest,
which will be taxable in the manner described under “— Payments of Interest” above; and
(cid:129) your adjusted tax basis in the notes.
Your gain or loss generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or
loss if at the time of the sale or other disposition you have held the notes for more than one year. Subject to limited
exceptions, your capital losses cannot be used to offset your ordinary income.
Backup Withholding and Information Reporting.
In general, “backup withholding” may apply to any payments
made to you of principal and interest on your note, and to payment of the proceeds of a sale or other disposition of your note
before maturity, if you are a non-corporate U.S. holder and: (1) fail to provide a correct taxpayer identification number,
which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer identification
number; (3) are notified by the Internal Revenue Service that you have failed to properly report payments of interest or
dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct taxpayer identification number
and that the Internal Revenue Service has not notified you that you are subject to backup withholding.
The amount of any reportable payments, including interest, made to you (unless you are an exempt recipient)
and the amount of tax withheld, if any, with respect to such payments will be reported to you and to the Internal
Revenue Service for each calendar year. You should consult your tax advisor regarding your qualification for an
exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. The backup
withholding tax is not an additional tax and will be credited against your U.S. federal income tax liability, provided
that correct information is provided to the Internal Revenue Service.
Non-U.S. Holders
The following summary applies to you if you are a beneficial owner of a note and are not a U.S. holder, as
defined above (a “non-U.S. holder”).
Special rules may apply to certain non-U.S. holders such as “controlled foreign corporations,” “passive foreign
investment companies” and “foreign personal holding companies.” Such entities are encouraged to consult their tax
advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them.
U.S. Federal Withholding Tax. Subject to the discussion below, U.S. federal withholding tax will not apply to
payments by us or our paying agent, in its capacity as such, of principal and interest on your notes under the
“portfolio interest” exception of the Internal Revenue Code, provided that:
(cid:129) you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting
power of all classes of our stock entitled to vote;
(cid:129) you are not (1) a controlled foreign corporation for U.S. federal income tax purposes that is related, directly
or indirectly, to us through sufficient stock ownership, as provided in the Internal Revenue Code, or (2) a
bank receiving interest described in Section 881(c)(3)(A) of the Internal Revenue Code;
(cid:129) such interest is not effectively connected with your conduct of a U.S. trade or business; and
(cid:129) you provide a signed written statement, under penalties of perjury, which can reliably be related to you,
certifying that you are not a U.S. person within the meaning of the Internal Revenue Code and providing
your name and address to:
(cid:129) us or our paying agent; or
(cid:129) a securities clearing organization, bank or other financial institution that holds customers’ securities in the
ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying
agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from
you your signed, written statement and provides us or our paying agent with a copy of such statement.
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Treasury regulations provide that:
(cid:129) if you are a foreign partnership, the certification requirement will generally apply to your partners, and you
will be required to provide certain information;
(cid:129) if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial
owners depending on whether you are a “foreign complex trust,” “foreign simple trust,” or “foreign grantor
trust” as defined in the Treasury regulations; and
(cid:129) look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.
If you are a foreign partnership or a foreign trust, you should consult your own tax advisor regarding your
status under these Treasury regulations and the certification requirements applicable to you.
If you cannot satisfy the portfolio interest requirements described above, payments of interest will be subject to
the 30% United States withholding tax, unless you provide us with a properly executed (1) Internal Revenue Service
Form W-8BEN claiming an exemption from or reduction in withholding under the benefit of an applicable treaty or
(2) Internal Revenue Service Form W-8ECI stating that interest paid on the note is not subject to withholding tax
because it is effectively connected with your conduct of a trade or business in the United States. Alternative
documentation may be applicable in certain circumstances.
If you are engaged in a trade or business in the United States and interest on a note is effectively connected with
the conduct of that trade or business, you will be required to pay United States federal income tax on that interest on
a net income basis (although you will be exempt from the 30% withholding tax provided the certification
requirement described above is met) in the same manner as if you were a U.S. person, except as otherwise provided
by an applicable tax treaty. If you are a foreign corporation, you may be required to pay a branch profits tax on the
earnings and profits that are effectively connected to the conduct of your trade or business in the United States.
Recent legislation generally will impose U.S. withholding tax at a 30% rate on payments of interest (including
original issue discount) and proceeds of sale in respect of debt instruments to certain non-U.S. holders if certain
additional disclosure requirements related to U.S. ownership of such non-U.S. holders or U.S. accounts maintained
by such non-U.S. holders are not satisfied. However, the withholding tax will not be imposed on payments pursuant
to debt or other obligations outstanding as of March 18, 2012. If payment of withholding taxes is required,
non-U.S. holders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with
respect to such distributions and proceeds of a sale of such notes will be entitled to seek a refund from the Internal
Revenue Service (“IRS”) to obtain the benefit of such exemption or reduction. We will not pay any additional
amounts to non-U.S. holders in respect of any amounts withheld. These new withholding rules are generally
effective for payments made after December 31, 2012.
Sale, Exchange or other Disposition of Notes. You generally will not have to pay U.S. federal income tax on
any gain or income realized from the sale, redemption, retirement at maturity or other disposition of your notes,
unless:
(cid:129) in the case of gain, you are an individual who is present in the United States for 183 days or more during the
taxable year of the sale or other disposition of your notes, and specific other conditions are met;
(cid:129) you are subject to tax provisions applicable to certain United States expatriates; or
(cid:129) the gain is effectively connected with your conduct of a U.S. trade or business.
If you are engaged in a trade or business in the United States, and gain with respect to your notes is effectively
connected with the conduct of that trade or business, you generally will be subject to U.S. income tax on a net basis
on the gain. In addition, if you are a foreign corporation, you may be subject to a branch profits tax on your
effectively connected earnings and profits for the taxable year, as adjusted for certain items.
U.S. Federal Estate Tax.
If you are an individual and are not a U.S. citizen or a resident of the United States,
as specially defined for U.S. federal estate tax purposes, at the time of your death, your notes will generally not be
subject to the U.S. federal estate tax, unless, at the time of your death (1) you owned actually or constructively 10%
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or more of the total combined voting power of all our classes of stock entitled to vote, or (2) interest on the notes is
effectively connected with your conduct of a U.S. trade or business.
Backup Withholding and Information Reporting. Backup withholding will not apply to payments of
principal or interest made by us or our paying agent, in its capacity as such, to you if you have provided the
required certification that you are a non-U.S. holder as described in “— U.S. Federal Withholding Tax” above, and
provided that neither we nor our paying agent have actual knowledge that you are a U.S. holder, as described in
“— U.S. Holders” above. We or our paying agent may, however, report payments of interest on the notes.
The gross proceeds from the disposition of your notes may be subject to information reporting and backup
withholding tax. If you sell your notes outside the United States through a non-U.S. office of a non-U.S. broker and
the sales proceeds are paid to you outside the United States, then the U.S. backup withholding and information
reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not
backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the
United States, if you sell your notes through a non-U.S. office of a broker that:
(cid:129) is a U.S. person, as defined in the Internal Revenue Code;
(cid:129) derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the
United States;
(cid:129) is a “controlled foreign corporation” for U.S. federal income tax purposes; or
(cid:129) is a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons who in
the aggregate hold more than 50% of the income or capital interests in the partnership, or the foreign
partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence in its files that
you are a non-U.S. person and certain other conditions are met or you otherwise establish an exemption. If
you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the
payment is subject to both U.S. backup withholding and information reporting unless you provide a
Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish an exemption.
You should consult your own tax advisor regarding application of backup withholding in your particular
circumstance and the availability of and procedure for obtaining an exemption from backup withholding. Any
amounts withheld under the backup withholding rules from a payment to you will be allowed as a refund or credit
against your U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue
Service.
U.S. Federal Income and Estate Taxation of Holders of Our Warrants
Exercise of Warrants. You will not generally recognize gain or loss upon the exercise of a warrant. Your basis
in the debt securities, preferred stock, depositary shares or common stock, as the case may be, received upon the
exercise of the warrant will be equal to the sum of your adjusted tax basis in the warrant and the exercise price paid.
Your holding period in the debt securities, preferred stock, depositary shares or common stock, as the case may be,
received upon the exercise of the warrant will not include the period during which the warrant was held by you.
Expiration of Warrants. Upon the expiration of a warrant, you will recognize a capital loss in an amount
equal to your adjusted tax basis in the warrant.
Sale or Exchange of Warrants. Upon the sale or exchange of a warrant to a person other than us, you will
recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and
your adjusted tax basis in the warrant. Such gain or loss will be capital gain or loss and will be long-term capital gain
or loss if the warrant was held for more than one year. Upon the sale of the warrant to us, the Internal Revenue
Service may argue that you should recognize ordinary income on the sale. You are advised to consult your own tax
advisors as to the consequences of a sale of a warrant to us.
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Potential Legislation or Other Actions Affecting Tax Consequences
Current and prospective securities holders should recognize that the present federal income tax treatment of an
investment in us may be modified by legislative, judicial or administrative action at any time and that any such
action may affect investments and commitments previously made. The rules dealing with federal income taxation
are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and
the Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as
well as statutory changes. Revisions in federal tax laws and interpretations of these laws could adversely affect the
tax consequences of an investment in us.
Internet Access to Our SEC Filings
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, as well as our proxy statements and other materials that are filed with, or furnished to,
the Securities and Exchange Commission are made available, free of charge, on the Internet at www.hcreit.com, as
soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission.
Item 1A. Risk Factors
Forward-Looking Statements and Risk Factors
This section discusses the most significant factors that affect our business, operations and financial condition.
It does not describe all risks and uncertainties applicable to us, our industry or ownership of our securities. If any of
the following risks, as well as other risks and uncertainties that are not yet identified or that we currently think are
not material, actually occur, we could be materially adversely affected. In that event, the value of our securities
could decline.
This Annual Report on Form 10-K and the documents incorporated by reference contain statements that
constitute “forward-looking statements” as that term is defined in the federal securities laws. These forward-
looking statements include, but are not limited to, those regarding:
(cid:129) the possible expansion of our portfolio;
(cid:129) the sale of properties;
(cid:129) the performance of our operators/tenants and properties;
(cid:129) our ability to enter into agreements with new viable tenants for vacant space or for properties that we take
back from financially troubled tenants, if any;
(cid:129) our occupancy rates;
(cid:129) our ability to acquire, develop and/or manage properties;
(cid:129) our ability to make distributions to stockholders;
(cid:129) our policies and plans regarding investments, financings and other matters;
(cid:129) our tax status as a real estate investment trust;
(cid:129) our critical accounting policies;
(cid:129) our ability to appropriately balance the use of debt and equity;
(cid:129) our ability to access capital markets or other sources of funds; and
(cid:129) our ability to meet our earnings guidance.
When we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,”
“estimate” or similar expressions, we are making forward-looking statements. Forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and
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actual results may differ materially from our expectations. This may be a result of various factors, including, but not
limited to:
(cid:129) the status of the economy;
(cid:129) the status of capital markets, including availability and cost of capital;
(cid:129) issues facing the health care industry, including compliance with, and changes to, regulations and payment
policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty
in cost-effectively obtaining and maintaining adequate liability and other insurance;
(cid:129) changes in financing terms;
(cid:129) competition within the health care, senior housing and life science industries;
(cid:129) negative developments in the operating results or financial condition of operators/tenants, including, but not
limited to, their ability to pay rent and repay loans;
(cid:129) our ability to transition or sell facilities with profitable results;
(cid:129) the failure to make new investments as and when anticipated;
(cid:129) acts of God affecting our properties;
(cid:129) our ability to re-lease space at similar rates as vacancies occur;
(cid:129) our ability to timely reinvest sale proceeds at similar rates to assets sold;
(cid:129) operator/tenant or joint venture partner bankruptcies or insolvencies;
(cid:129) the cooperation of joint venture partners;
(cid:129) government
regulations affecting Medicare and Medicaid reimbursement
rates and operational
requirements;
(cid:129) regulatory approval and market acceptance of the products and technologies of life science tenants;
(cid:129) liability or contract claims by or against operators/tenants;
(cid:129) unanticipated difficulties and/or expenditures relating to future acquisitions;
(cid:129) environmental laws affecting our properties;
(cid:129) changes in rules or practices governing our financial reporting;
(cid:129) other legal and operational matters, including REIT qualification and key management personnel recruit-
ment and retention; and
(cid:129) the risks described below:
Risk factors related to our operators’ revenues and expenses
Our investment property operators’ revenues are primarily driven by occupancy, Medicare and Medicaid
reimbursement, if applicable, and private pay rates. Expenses for these facilities are primarily driven by the costs of
labor, food, utilities, taxes, insurance and rent or debt service. Revenues from government reimbursement have, and
may continue to, come under pressure due to reimbursement cuts and state budget shortfalls. Liability insurance and
staffing costs continue to increase for our operators. To the extent that any decrease in revenues and/or any increase
in operating expenses result in a property not generating enough cash to make payments to us, the credit of our
operator and the value of other collateral would have to be relied upon.
The recent credit and liquidity crisis, and the weakened economy, may have a lingering adverse effect on our
operators and tenants, including their ability to access credit or maintain occupancy rates. If the operations, cash
flows or financial condition of our operators are materially adversely impacted by economic conditions, our
revenue and operations may be adversely affected.
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Increased competition may affect our operators’ ability to meet their obligations to us
The operators of our properties compete on a local and regional basis with operators of properties and other
health care providers that provide comparable services. We cannot be certain that the operators of all of our facilities
will be able to achieve and maintain occupancy and rate levels that will enable them to meet all of their obligations
to us. Our operators are expected to encounter increased competition in the future that could limit their ability to
attract residents or expand their businesses.
Risk factors related to obligor bankruptcies
We are exposed to the risk that our obligors may not be able to meet the rent, principal and interest or other
payments due us, which may result in an obligor bankruptcy or insolvency, or that an obligor might become subject
to bankruptcy or insolvency proceedings for other reasons. Although our operating lease agreements provide us
with the right to evict a tenant, demand immediate payment of rent and exercise other remedies, and our loans
provide us with the right to terminate any funding obligation, demand immediate repayment of principal and unpaid
interest, foreclose on the collateral and exercise other remedies, the bankruptcy and insolvency laws afford certain
rights to a party that has filed for bankruptcy or reorganization. An obligor in bankruptcy or subject to insolvency
proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid
principal and interest in the case of a loan, and to exercise other rights and remedies.
We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of
an investment property, avoid the imposition of liens on a property and/or transition a property to a new tenant. In
some instances, we have terminated our lease with a tenant and relet the property to another tenant. In some of those
situations, we have provided working capital loans to and limited indemnification of the new obligor. If we cannot
transition a leased property to a new tenant, we may take possession of that property, which may expose us to certain
successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.
Transfers of health care facilities may require regulatory approvals and these facilities may not have
efficient alternative uses
Transfers of health care facilities to successor operators frequently are subject to regulatory approvals or
notifications, including, but not limited to, change of ownership approvals under certificate of need (“CON”) laws,
state licensure laws and Medicare and Medicaid provider arrangements, that are not required for transfers of other
types of real estate. The replacement of a health care facility operator could be delayed by the approval process of
any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed
to manage the facility. Alternatively, given the specialized nature of our facilities, we may be required to spend
substantial time and funds to adapt these properties to other uses. If we are unable to timely transfer properties to
successor operators or find efficient alternative uses, our revenue and operations may be adversely affected.
Risk factors related to government regulations
Our obligors’ businesses are affected by government reimbursement and private payor rates. To the extent that
an operator/tenant receives a significant portion of its revenues from government payors, primarily Medicare and
Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery
of program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by
fiscal intermediaries or carriers, government funding restrictions (at a program level or with respect to specific
facilities) and interruption or delays in payments due to any ongoing government investigations and audits at such
property. In recent years, government payors have frozen or reduced payments to health care providers due to
budgetary pressures. Health care reimbursement will likely continue to be of paramount importance to federal and
state authorities. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms
may have on the financial condition of our obligors and properties. There can be no assurance that adequate
reimbursement levels will be available for services provided by any property operator, whether the property receives
reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of services reimbursed
and on reimbursement rates and fees could have a material adverse effect on an obligor’s liquidity, financial
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condition and results of operations, which could adversely affect the ability of an obligor to meet its obligations to
us. See “Item 1 — Business — Certain Government Regulations — Reimbursement” above.
Our operators and tenants generally are subject to extensive federal, state, local, and industry-regulated
licensure, certification and inspection laws, regulations, and standards. Our operators’ or tenants’ failure to comply
with any of these laws, regulations, or standards could result in loss of accreditation, denial of reimbursement,
imposition of fines, suspension or decertification from federal and state health care programs, loss of license or
closure of the facility. Such actions may have an effect on our operators’ or tenants’ ability to make lease payments
to us and, therefore, adversely impact us. See “Item 1 — Business — Certain Government Regulations — Other
Related Laws” above.
Many of our properties may require a license, registration, and/or CON to operate. Failure to obtain a license,
registration, or CON, or loss of a required license, registration, or CON would prevent a facility from operating in
the manner intended by the operators or tenants. These events could materially adversely affect our operators’ or
tenants’ ability to make rent payments to us. State and local laws also may regulate the expansion, including the
addition of new beds or services or acquisition of medical equipment, and the construction or renovation of health
care facilities, by requiring a CON or other similar approval from a state agency. See “Item 1 — Business —
Certain Government Regulations — Licensing and Certification” above.
The American Recovery and Reinvestment Act of 2009 (“ARRA”), which was signed into law on February 17,
2009, provides $87 billion in additional federal Medicaid funding for states’ Medicaid expenditures between
October 1, 2008 and December 31, 2010. On August 10, 2010, the President signed into law H.R. 1586, which
mandates a six-month extension of the increase in federal Medicaid funding for states through June 30, 2011,
although the enhanced federal Medicaid funding is scaled back for the first two quarters of 2011. Under both the
ARRA and H.R. 1586, states meeting certain eligibility requirements will temporarily receive additional money in
the form of an increase in the federal medical assistance percentage (“FMAP”). Thus, for a limited period of time,
the share of Medicaid costs that are paid for by the federal government will go up, and each state’s share will go
down. We cannot predict whether states are, or will remain, eligible to receive the additional federal Medicaid
funding, or whether the states will have sufficient funds for their Medicaid programs. We also cannot predict the
impact that such broad-based, far-reaching legislation will have on the U.S. economy or our business.
Risk factors related to liability claims and insurance costs
In recent years, skilled nursing and seniors housing operators have experienced substantial increases in both
the number and size of patient care liability claims. As a result, general and professional liability costs have
increased in some markets. However, a recent report and state survey found that the liability insurance market is
beginning to stabilize in most markets. In 2008, national average liability loss costs were stable for the first time in
nearly a decade. State-led tort reform efforts have greatly contributed to decreasing costs. In some markets general
and professional liability insurance coverage continues to be restricted or very costly, which in some cases has
caused operators to self-insure. These developments may adversely affect the property operators’ future operations,
cash flows and financial condition, and may have a material adverse effect on the property operators’ ability to meet
their obligations to us.
Risk factors related to acquisitions
We are exposed to the risk that some of our acquisitions may not prove to be successful. We could encounter
unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and
acquired properties might require significant management attention that would otherwise be devoted to our ongoing
business. If we agree to provide construction funding to an operator/tenant and the project is not completed, we may
need to take steps to ensure completion of the project. Moreover, if we issue equity securities or incur additional
debt, or both, to finance future acquisitions, it may reduce our per share financial results. These costs may negatively
affect our results of operations.
32
Risk factors related to joint ventures
We have entered into, and may continue in the future to enter into, partnerships or joint ventures with other
persons or entities. Joint venture investments involve risks that may not be present with other methods of ownership,
including the possibility that our partner might become insolvent, refuse to make capital contributions when due or
otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other
commitments; that our partner might at any time have economic or other business interests or goals that are or
become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which
could require us to expend additional resources to resolve such disputes and could have an adverse impact on the
operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold
consent contrary to our instructions or requests. In addition, our ability to transfer our interest in a joint venture to a
third party may be restricted. In some instances, we and/or our partner may have the right to trigger a buy-sell
arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise
would not have initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not
have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell
our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share
decision-making authority with our partners, which could limit our ability to control the properties in the joint
ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as
the sale, acquisition or financing of a property.
Risk factors related to life sciences facilities
Our tenants in the life sciences industry face high levels of regulation, expense and uncertainty that may
adversely affect their ability to make payments to us. Research, development and clinical testing of products and
technologies can be very expensive and sources of funds may not be available to our life sciences tenants in the
future. The products and technologies that are developed and manufactured by our life sciences tenants may require
regulatory approval prior to being made, marketed, sold and used. The regulatory process can be costly, long and
unpredictable. Even after a tenant gains regulatory approval and market acceptance, the product still presents
regulatory and liability risks, such as safety concerns, competition from new products and eventually the expiration
of patent protection. These factors may affect the ability of our life sciences tenants to make timely payments to us,
which may adversely affect our revenue and operations.
Risk factors related to indebtedness
Permanent financing for our investments is typically provided through a combination of public and private
offerings of debt and equity securities and the incurrence or assumption of secured debt. The incurrence or
assumption of indebtedness may cause us to become more leveraged, which could (1) require us to dedicate a
greater portion of our cash flow to the payment of debt service, (2) make us more vulnerable to a downturn in the
economy, (3) limit our ability to obtain additional financing, or (4) negatively affect our credit ratings or outlook by
one or more of the noted rating agencies.
Our debt agreements contain various covenants, restrictions and events of default. Among other things, these
provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our
ability to incur indebtedness, create liens and make investments or acquisitions. Breaches of these covenants could
result in defaults under the instruments governing the applicable indebtedness, in addition to any other indebtedness
cross-defaulted against such instruments. These defaults could have a material adverse impact on our business,
results of operations and financial condition.
Risk factors related to our credit ratings
We plan to manage the Company to maintain a capital structure consistent with our current profile, but there
can be no assurance that we will be able to maintain our current credit ratings. Any downgrades in terms of ratings or
outlook by any or all of the noted rating agencies could have a material adverse impact on our cost and availability of
capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity
and/or financial condition.
33
Risk factors related to interest rate swaps
We enter into interest rate swap agreements from time to time to manage some of our exposure to interest rate
volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their
obligations under these arrangements. In addition, these arrangements may not be effective in reducing our
exposure to changes in interest rates. When we use forward-starting interest rate swaps, there is a risk that we will
not complete the long-term borrowing against which the swap is intended to hedge. If such events occur, our results
of operations may be adversely affected.
Risk factors related to environmental laws
Under various federal and state laws, owners or operators of real estate may be required to respond to the
presence or release of hazardous substances on the property and may be held liable for property damage, personal
injuries or penalties that result from environmental contamination or exposure to hazardous substances. We may
become liable to reimburse the government for damages and costs it incurs in connection with the contamination.
Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or
borrowers are primarily responsible for the condition of the property. Moreover, we review environmental site
assessments of the properties that we own or encumber prior to taking an interest in them. Those assessments are
designed to meet the “all appropriate inquiry” standard, which we believe qualifies us for the innocent purchaser
defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties
are subject to material environmental contamination. However, environmental liabilities may be present in our
properties and we may incur costs to remediate contamination, which could have a material adverse effect on our
business or financial condition or the business or financial condition of our obligors.
Risk factors related to facilities that require entrance fees
Certain of our senior housing facilities require the payment of an upfront entrance fee by the resident, a portion
of which may be refundable by the operator. Some of these facilities are subject to substantial oversight by state
regulators relating to these funds. As a result of this oversight, residents of these facilities may have a variety of
rights, including, for example, the right to cancel their contracts within a specified period of time and certain lien
rights. The oversight and rights of residents within these facilities may have an effect on the revenue or operations of
the operators of such facilities and therefore may negatively impact us.
Risk factors related to facilities under construction or development
At any given time, we may be in the process of constructing one or more new facilities that ultimately will
require a CON and license before they can be utilized by the operator for their intended use. The operator also may
need to obtain Medicare and Medicaid certification and enter into Medicare and Medicaid provider agreements
and/or third party payor contracts. In the event that the operator is unable to obtain the necessary CON, licensure,
certification, provider agreements or contracts after the completion of construction, there is a risk that we will not be
able to earn any revenues on the facility until either the initial operator obtains a license or certification to operate
the new facility and the necessary provider agreements or contracts or we can find and contract with a new operator
that is able to obtain a license to operate the facility for its intended use and the necessary provider agreements or
contracts.
In connection with our renovation, redevelopment, development and related construction activities, we may be
unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations. These factors could result in increased costs or our abandonment of these
projects. In addition, we may not be able to obtain financing on favorable terms, which may render us unable to
proceed with our development activities, and we may not be able to complete construction and lease-up of a
property on schedule, which could result in increased debt service expense or construction costs.
Additionally, the time frame required for development, construction and lease-up of these properties means
that we may have to wait years for significant cash returns. Because we are required to make cash distributions to
our stockholders, if the cash flow from operations or refinancing is not sufficient, we may be forced to borrow
34
additional money to fund such distributions. Newly developed and acquired properties may not produce the cash
flow that we expect, which could adversely affect our overall financial performance.
In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected
future performance of that property. In particular, we estimate the return on our investment based on expected
occupancy and rental rates. If our financial projections with respect to a new property are inaccurate, and the
property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we expected in
analyzing our investment. Our estimate of the costs of repositioning or redeveloping an acquired property may
prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire
new properties that are not fully leased, and the cash flow from existing operations may be insufficient to pay the
operating expenses and debt service associated with that property.
We do not know if our tenants will renew their existing leases, and if they do not, we may be unable to
lease the properties on as favorable terms, or at all
We cannot predict whether our tenants will renew existing leases at the end of their lease terms, which expire at
various times. If these leases are not renewed, we would be required to find other tenants to occupy those properties
or sell them. There can be no assurance that we would be able to identify suitable replacement tenants or enter into
leases with new tenants on terms as favorable to us as the current leases or that we would be able to lease those
properties at all.
Our ownership of properties through ground leases exposes us to the loss of such properties upon breach
or termination of the ground leases
We have acquired an interest in certain of our properties by acquiring a leasehold interest in the property on
which the building is located, and we may acquire additional properties in the future through the purchase of
interests in ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing the property
upon termination of the ground lease or an earlier breach of the ground lease by us.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes
in the performance of our properties
Real estate investments are relatively illiquid. Our ability to quickly sell or exchange any of our properties in
response to changes in economic and other conditions will be limited. No assurances can be given that we will
recognize full value for any property that we are required to sell for liquidity reasons. Our inability to respond
rapidly to changes in the performance of our investments could adversely affect our financial condition and results
of operations. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in
particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely
affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us.
Risk factors related to reinvestment of sale proceeds
From time to time, we will have cash available from (1) the proceeds of sales of our securities, (2) principal
payments on our loans receivable and (3) the sale of properties, including non-elective dispositions, under the terms
of master leases or similar financial support arrangements. In order to maintain current revenues and continue
generating attractive returns, we expect to re-invest these proceeds in a timely manner. We compete for real estate
investments with a broad variety of potential investors. This competition for attractive investments may negatively
affect our ability to make timely investments on terms acceptable to us.
Failure to properly manage our rapid growth could distract our management or increase our expenses
We have experienced rapid growth and development in a relatively short period of time and expect to continue
this rapid growth in the future. This growth has resulted in increased levels of responsibility for our management.
Future property acquisitions could place significant additional demands on, and require us to expand, our
management, resources and personnel. Our failure to manage any such rapid growth effectively could harm
our business and, in particular, our financial condition, results of operations and cash flows, which could negatively
35
affect our ability to make distributions to stockholders. Our growth could also increase our capital requirements,
which may require us to issue potentially dilutive equity securities and incur additional debt.
We might fail to qualify or remain qualified as a REIT
We intend to operate as a REIT under the Internal Revenue Code and believe we have and will continue to
operate in such a manner. If we lose our status as a REIT, we will face serious income tax consequences that will
substantially reduce the funds available for satisfying our obligations and for distribution to our stockholders
because:
(cid:129) we would not be allowed a deduction for distributions to stockholders in computing our taxable income and
would be subject to U.S. federal income tax at regular corporate rates;
(cid:129) we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
(cid:129) unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for
four taxable years following the year during which we were disqualified.
Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail
to fulfill them, and if we do, our earnings will be reduced by the amount of U.S. federal and other income taxes
owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. If we do not
qualify as a REIT, we would not be required to make distributions to stockholders since a non-REIT is not required,
in order to maintain REIT status or avoid an excise tax, to pay dividends to stockholders. See “Item 1 —
Business — Taxation — Federal Income Tax Considerations” for a discussion of the provisions of the Internal
Revenue Code that apply to us and the effects of failure to qualify as a REIT.
In addition, if we fail to qualify as a REIT, all distributions to stockholders would continue to be treated as
dividends to the extent of our current and accumulated earnings and profits, although corporate stockholders may be
eligible for the dividends received deduction, and individual stockholders may be eligible for taxation at the rates
generally applicable to long-term capital gains (currently at a maximum rate of 15%) with respect to distributions.
As a result of all these factors, our failure to qualify as a REIT also could impair our ability to implement our
business strategy and would adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code
provisions for which there are only limited judicial and administrative interpretations. The determination of various
factual matters and circumstances not entirely within our control may affect our ability to remain qualified as a
REIT. Although we believe that we qualify as a REIT, we cannot assure you that we will continue to qualify or
remain qualified as a REIT for U.S. federal income tax purposes. See “Item 1 — Business — Taxation — Federal
Income Tax Considerations” included in this Annual Report on Form 10-K.
The 90% annual distribution requirement will decrease our liquidity and may limit our ability to engage
in otherwise beneficial transactions
To comply with the 90% distribution requirement applicable to REITs and to avoid the nondeductible excise
tax, we must make distributions to our stockholders. See “Item 1 — Business — Taxation — Federal Income Tax
Considerations — Qualification as a REIT — Annual Distribution Requirements” included in this Annual Report
on Form 10-K. Although we anticipate that we generally will have sufficient cash or liquid assets to enable us to
satisfy the REIT distribution requirement, it is possible that, from time to time, we may not have sufficient cash or
other liquid assets to meet the 90% distribution requirement, or we may decide to retain cash or distribute such
greater amount as may be necessary to avoid income and excise taxation. This may be due to timing differences
between the actual receipt of income and actual payment of deductible expenses, on the one hand, and the inclusion
of that income and deduction of those expenses in arriving at our taxable income, on the other hand. In addition,
non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash
deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution
requirement. In the event that timing differences occur, or we deem it appropriate to retain cash, we may borrow
funds, issue additional equity securities (although we cannot assure you that we will be able to do so), pay taxable
36
stock dividends, if possible, distribute other property or securities or engage in another transaction intended to
enable us to meet the REIT distribution requirements. This may require us to raise additional capital to meet our
obligations.
The amount of additional indebtedness we may incur is limited by the terms of our line of credit arrangement
and the indentures governing our senior unsecured notes. In addition, adverse economic conditions may impact the
availability of additional funds or could cause the terms on which we are able to borrow additional funds to become
unfavorable. In those circumstances, we may be required to raise additional equity in the capital markets. Our
access to capital depends upon a number of factors over which we have little or no control, including rising interest
rates, inflation and other general market conditions and the market’s perception of our growth potential and our
current and potential future earnings and cash distributions and the market price of the shares of our capital stock.
We cannot assure you that we will be able to raise the capital necessary to make future investments or to meet our
obligations and commitments as they mature.
The lease of qualified health care properties to a taxable REIT subsidiary is subject to special
requirements
We intend to lease certain qualified health care properties we acquire from operators to a taxable REIT
subsidiary (or a limited liability company of which the taxable REIT subsidiary is a member), which lessee will
contract with such operators (or a related party) to operate the health care operations at these properties. The rents
from this taxable REIT subsidiary lessee structure will be treated as qualifying rents from real property if (1) they
are paid pursuant to an arms-length lease of a qualified health care property with a taxable REIT subsidiary and
(2) the operator qualifies as an eligible independent contractor. If any of these conditions are not satisfied, then the
rents will not be qualifying rents. See “Item 1 — Business — Taxation — Federal Income Tax Considerations —
Qualification as a REIT — Income Tests.”
If certain sale-leaseback transactions are not characterized by the IRS as “true leases,” we may be subject
to adverse tax consequences
We may purchase properties and lease them back to the sellers of such properties. We intend for any such sale-
leaseback transaction to be structured in such a manner that the lease will be characterized as a “true lease,” thereby
allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, depending on
the terms of any specific transaction, the IRS might take the position that the transaction is not a “true lease” but is
more properly treated in some other manner. In the event any sale-leaseback transaction is challenged and
successfully re-characterized by the IRS, we would not be entitled to claim the deductions for depreciation and cost
recovery generally available to an owner of property. Furthermore, if a sale-leaseback transaction were so re-
characterized, we might fail to satisfy the REIT asset tests or income tests and, consequently, could lose our REIT
status effective with the year of re-characterization. See “Item 1 — Business — Taxation — Federal Income Tax
Considerations — Qualification as a REIT — Asset Tests” and “— Income Tests.” Alternatively, the amount of our
REIT taxable income could be recalculated, which may cause us to fail to meet the REIT annual distribution
requirements for a taxable year. See “Item 1 — Business — Taxation — Federal Income Tax Considerations —
Qualification as a REIT — Annual Distribution Requirements.”
Other risk factors
We are also subject to other risks. First, our Second Restated Certificate of Incorporation and Second Amended
and Restated By-Laws contain anti-takeover provisions (staggered board provisions, restrictions on share own-
ership and transfer and super majority stockholder approval requirements for business combinations) that could
make it more difficult for or even prevent a third party from acquiring us without the approval of our incumbent
Board of Directors. Provisions and agreements that inhibit or discourage takeover attempts could reduce the market
value of our common stock.
Additionally, we are dependent on key personnel. Although we have entered into employment agreements
with our executive officers, losing any one of them could, at least temporarily, have an adverse impact on our
operations. We believe that losing more than one could have a material adverse impact on our business.
37
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own our corporate headquarters located at 4500 Dorr Street, Toledo, Ohio 43615. We also own corporate
offices in Tennessee, lease corporate offices in Florida and have ground leases relating to certain of our properties.
The following table sets forth certain information regarding the properties that comprise our consolidated real
property and real estate loan investments as of December 31, 2010 (dollars in thousands):
Property Location
Alabama . . . . . . . . . . . . . . . . . . .
Alaska . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . .
Connecticut . . . . . . . . . . . . . . . . .
Delaware. . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . .
Kentucky. . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . .
Michigan. . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . .
Montana . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . .
Nevada . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . .
North Carolina. . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . .
South Carolina. . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . .
Virginia. . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
Senior Housing and Care
Total
Investment
Annualized
Income(1)
Number of
Properties
3
—
6
26
6
12
3
53
8
4
13
18
2
4
10
5
2
19
6
—
6
7
3
4
5
1
13
1
6
44
30
23
2
11
8
25
46
1
14
20
13
483
$
23,717
—
37,427
423,882
100,713
77,259
70,198
513,736
89,563
39,506
174,681
256,614
47,060
92,753
55,818
25,709
13,636
289,816
93,677
—
53,029
114,580
12,939
39,260
83,854
4,178
301,232
22,107
187,852
204,050
426,483
102,575
7,420
192,047
241,233
233,041
309,060
5,916
89,092
466,642
138,572
$5,660,927
$
6,914
—
7,592
101,957
10,659
8,865
6,161
52,119
15,938
5,394
22,688
22,617
7,295
7,245
7,831
3,161
1,537
33,613
5,653
—
5,623
12,098
1,970
3,252
14,598
531
21,487
1,430
13,076
25,148
37,978
11,850
1,358
15,752
14,782
29,334
42,716
944
10,359
91,082
13,168
$695,775
Number of
Properties
Medical Facilities
Total
Investment
Annualized
Income(1)
5
1
5
16
1
—
—
30
7
1
2
3
—
1
2
1
—
2
—
3
—
4
—
3
9
—
7
—
7
10
4
3
—
1
1
8
26
—
2
3
19
187
$
39,620
26,612
89,527
464,923
6,552
—
—
401,991
67,885
22,711
9,235
44,017
—
16,553
39,092
10,807
—
11,120
—
45,956
—
83,905
—
155,597
106,722
—
165,805
—
56,366
23,889
53,480
22,535
—
21,609
16,103
95,318
396,230
—
22,939
88,091
325,992
$2,931,182
$ 3,621
2,464
7,763
23,688
590
—
—
23,881
5,049
2,522
329
4,682
—
1,122
3,553
744
—
—
—
3,246
—
7,099
—
13,143
7,627
—
13,220
—
4,922
1,670
4,780
2,201
—
2,028
917
7,006
33,796
—
2,454
1,753
27,844
$213,714
(1) Reflects annualized recent month of resident fees and services, contract rate of interest for loans, annual straight-line rent for leases with
fixed escalators or annual cash rent for leases with contingent escalators, net of collectibility reserves if applicable.
38
The following table sets forth occupancy and average annualized income for these property types:
Occupancy(1)
Average Annualized Income(2)
2010
2009
2010
2009
Senior housing facilities-operating . . . . . . . . . . . . . . 91.9%
Senior housing facilities-triple net . . . . . . . . . . . . . . 88.9%
Skilled nursing facilities . . . . . . . . . . . . . . . . . . . . . 84.9%
Medical office buildings . . . . . . . . . . . . . . . . . . . . . 93.1%
Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62.9%
n/a
$30,458
89.2% 16,241
84.2% 6,519
91.3%
20
56.5% 30,951
$
n/a per unit
12,351 per unit
6,244 per bed
20 per sq.ft.
26,063 per bed
(1) Medical office building occupancy represents the percentage of total rentable square feet leased and occupied (including month-to-month
and holdover leases and excluding terminations and discontinued operations) as of December 31, 2010 and 2009. Occupancy for other
properties represents average quarterly operating occupancy based on the quarters ended September 30, 2010 and 2009 and excludes
properties that are unstabilized, closed or for which data is not available or meaningful. The Company uses unaudited, periodic financial
information provided solely by tenants/borrowers to calculate occupancy for properties other than medical office buildings and has not
independently verified the information.
(2) Average annualized income represents annualized income divided by total beds, units or square feet.
The following table sets forth information regarding lease expirations as of December 31, 2010 (dollars in
thousands):
Year
Senior Housing
Facilities(1)
Skilled Nursing
Facilities
2011 . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . .
$ 9,499
5,549
42,678
2,149
—
—
12,688
38,459
9,463
27,473
180,799
$
—
6,887
—
6,349
2,014
3,367
3,875
7,084
18,465
23,619
70,951
Hospitals
$ —
—
—
—
—
—
2,350
—
—
5,980
45,165
Medical Office
Buildings
Total Rental
Income(2)
$ 9,631
11,903
10,222
10,718
11,410
13,602
9,927
4,498
10,262
8,651
55,412
$ 19,130
24,339
52,900
19,216
13,424
16,969
28,840
50,041
38,190
65,723
352,327
Total . . . . . . . . . . . . . . . . . . . . . . . .
$328,757
$142,611
$53,495
$156,236
$681,099
(1) Excludes facilities in our senior housing operating partnerships.
(2) Rental income represents annualized base rent for effective lease agreements. The amounts are derived from the current contracted monthly
base rent including straight-line for leases with fixed escalators or annual cash rent for leases with contingent escalators, net of collectability
reserves, if applicable. Rental income does not include common area maintenance charges or the amortization of above/below market lease
intangibles.
Item 3. Legal Proceedings
From time to time, there are various legal proceedings pending to which we are a party or to which some of our
properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these
proceedings will have a material adverse effect on our consolidated financial position or results of operations.
Item 4.
(Removed and Reserved)
39
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
There were 5,013 stockholders of record as of January 31, 2011. The following table sets forth, for the periods
indicated, the high and low prices of our common stock on the New York Stock Exchange, as reported on the
Composite Tape, and common dividends paid per share:
Sales Price
High
Low
Dividends
Paid
2010
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46.79
46.44
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.54
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52.06
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42.32
36.41
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44.40
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46.74
Fourth Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39.82
38.42
40.85
44.07
$25.86
29.62
32.64
40.53
$0.68
0.69
0.69
0.69
$0.68
0.68
0.68
0.68
Our Board of Directors has approved a new quarterly cash dividend rate of $0.715 per share of common stock
per quarter, commencing with the May 2011 dividend. Our dividend policy is reviewed annually by the Board of
Directors. The declaration and payment of quarterly dividends remains subject to the review and approval of the
Board of Directors.
40
Stockholder Return Performance Presentation
Set forth below is a line graph comparing the yearly percentage change and the cumulative total stockholder
return on our shares of common stock against the cumulative total return of the S & P Composite-500 Stock Index
and the FTSE NAREIT Equity Index. As of December 31, 2010, 119 companies comprised the FTSE NAREIT
Equity Index. The Index consists of REITs identified by NAREIT as equity (those REITs which have at least 75% of
their investments in real property). Upon written request sent to the Senior Vice President-Administration and
Corporate Secretary, Health Care REIT, Inc., 4500 Dorr Street, Toledo, Ohio, 43615-4040, we will provide
stockholders with the names of the component issuers. The data are based on the closing prices as of December 31
for each of the five years. 2005 equals $100 and dividends are assumed to be reinvested.
250
S&P 500
Health Care REIT, Inc.
200
FTSE NAREIT Equity
s
r
a
l
l
o
D
150
100
50
0
2005
2006
2007
2008
2009
2010
S & P 500
Health Care REIT, Inc.
FTSE NAREIT Equity
12/31/05
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
100.0
100.0
100.0
115.79
122.16
76.96
97.33
111.99
136.99
150.22
150.66
170.03
194.40
135.06
113.87
70.91
90.76
116.12
Except to the extent that we specifically incorporate this information by reference, the foregoing Stockholder
Return Performance Presentation shall not be deemed incorporated by reference by any general statement
incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933,
as amended, or under the Securities Exchange Act of 1934, as amended. This information shall not otherwise be
deemed filed under such acts.
41
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 2010 are derived from our audited
consolidated financial statements (in thousands, except per share data):
2006
Year Ended December 31,
2008
2009
2007
2010
Operating Data
Revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses:
Interest expense(1) . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization(1) . . . . . . . . . .
Property operating expenses(1) . . . . . . . . . . .
General and administrative(1) . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . .
Realized loss on derivatives. . . . . . . . . . . . . .
Loss (gain) on extinguishment of debt . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before
income taxes and income from
unconsolidated joint ventures. . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Income from unconsolidated joint ventures . . . .
Income from continuing operations . . . . . . . . . .
Income from discontinued operations, net(1) . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . .
Net income (loss) attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common
$248,061
$409,051
$504,525
$546,092
$680,530
77,087
66,069
1,003
25,922
—
1,000
—
—
171,081
76,980
(82)
—
76,898
25,758
102,656
21,463
125,714
118,159
33,410
37,465
—
—
—
(1,081)
313,667
95,384
(188)
—
95,196
43,397
138,593
25,130
125,276
138,136
42,634
47,193
—
94
23,393
(2,094)
374,632
129,893
(1,306)
—
128,587
154,838
283,425
23,201
102,117
150,728
45,896
49,691
—
23,261
—
25,107
396,800
149,292
(168)
—
149,124
43,803
192,927
22,079
157,108
197,118
83,120
54,626
46,660
29,684
—
34,171
602,487
78,043
(364)
6,673
84,352
44,532
128,884
21,645
13
238
126
(342)
357
stockholders . . . . . . . . . . . . . . . . . . . . . . . . .
$ 81,180
$113,225
$260,098
$171,190
$106,882
Other Data
Average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per Share Data
Basic:
61,661
62,045
78,861
79,409
93,732
94,309
114,207
114,612
127,656
128,208
Income from continuing operations
attributable to common stockholders . . . . .
Discontinued operations, net . . . . . . . . . . . . .
Net income attributable to common
$
0.90
0.42
stockholders* . . . . . . . . . . . . . . . . . . . . . .
$
1.32
Diluted:
Income from continuing operations
attributable to common stockholders . . . . .
Discontinued operations, net . . . . . . . . . . . . .
Net income attributable to common
$
0.89
0.42
stockholders* . . . . . . . . . . . . . . . . . . . . . .
$
1.31
$
$
$
$
0.89
0.55
1.44
0.88
0.55
1.43
Cash distributions per common share . . . . . . . .
$ 2.8809
$ 2.2791
$
$
$
$
$
1.12
1.65
2.77
1.12
1.64
2.76
2.70
$
$
$
$
$
1.12
0.38
1.50
1.11
0.38
1.49
2.72
$
$
$
$
$
0.49
0.35
0.84
0.49
0.35
0.83
2.74
* Amounts may not sum due to rounding
(1) We have reclassified the income and expenses attributable to properties sold prior to or held for sale at December 31, 2010, to discontinued
operations for all periods presented. See Note 5 to our audited consolidated financial statements.
42
2006
2007
December 31,
2008
2009
2010
Balance Sheet Data
Net real estate investments . . . . . . . $4,122,893
4,282,885
Total assets . . . . . . . . . . . . . . . . . . .
2,191,698
Total long-term obligations . . . . . . .
2,295,561
Total liabilities . . . . . . . . . . . . . . . .
338,993
Total preferred stock . . . . . . . . . . . .
1,987,324
Total equity. . . . . . . . . . . . . . . . . . .
$5,012,620
5,219,240
2,683,760
2,784,289
330,243
2,434,951
$5,854,179
6,215,031
2,847,676
2,976,746
289,929
3,238,285
$6,080,620
6,367,186
2,414,022
2,559,735
288,683
3,807,451
$8,590,833
9,451,734
4,469,736
4,714,081
291,667
4,733,100
43
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the consolidated financial statements of Health
Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual
Report on Form 10-K. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk
Factors” above.
Executive Summary
Company Overview
Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of senior housing
and health care real estate since the company was founded in 1970. We are an S&P 500 company headquartered in
Toledo, Ohio and our portfolio spans the full spectrum of senior housing and health care real estate, including senior
housing communities, skilled nursing facilities, medical office buildings, inpatient and outpatient medical centers
and life science facilities. Our capital programs, when combined with comprehensive planning, development and
property management services, make us a single-source solution for acquiring, planning, developing, managing,
repositioning and monetizing real estate assets. The following table summarizes our portfolio as of December 31,
2010:
Type of Property
Senior housing
Investments
(in thousands)
Percentage of
Investments
Number of
Properties
# Beds/Units
or Sq. Ft.
Investment per
metric(1)
States
facilities . . . . . . . . . . .
$4,403,208
49.0%
Skilled nursing
facilities . . . . . . . . . . .
Hospitals . . . . . . . . . . . .
Medical office
1,257,719
782,879
14.0%
8.7%
303
180
31
27,863 units
$162,210 per unit
24,064 beds
1,857 beds
52,266 per bed
446,846 per bed
buildings(2) . . . . . . . .
2,195,435
24.4%
162
9,047,167 sq. ft.
254 per sq. ft.
Life science
buildings(2) . . . . . . . .
346,562
3.9%
Totals . . . . . . . . . . . . . .
$8,985,803
100.0%
7
683
n/a
36
26
13
28
1
41
(1) Investment per metric was computed by using the total investment amount of $8,860,164,000, which includes net real estate investments and
unfunded construction commitments for which initial funding has commenced which amounted to $8,592,109,000 and $268,055,000,
respectively.
(2) Includes our share of unconsolidated joint venture investments. Please see Note 7 to our consolidated financial statements for additional
information.
Health Care Industry
The demand for health care services, and consequently health care properties, is projected to reach unprec-
edented levels in the near future. The Centers for Medicare and Medicaid Services (“CMS”) projects that national
health expenditures will rise to $3.5 trillion in 2015 or 18.2% of gross domestic product (“GDP”). The average
annual growth in national health expenditures for 2009 through 2019 is expected to be 6.3%, which is 0.2% faster
than pre-health care reform estimates.
While demographics are the primary driver of demand, economic conditions and availability of services
contribute to health care service utilization rates. We believe the health care property market may be less susceptible
to fluctuations and economic downturns relative to other property sectors. Investor interest in the market remains
strong, especially in specific sectors such as medical office buildings, regardless of the current stringent lending
environment. As a REIT, we believe we are situated to benefit from any turbulence in the capital markets due to our
access to capital.
The total U.S. population is projected to increase by 20.4% through 2030. The elderly population aged 65 and
over is projected to increase by 79.2% through 2030. The elderly are an important component of health care
44
utilization, especially independent living services, assisted living services, skilled nursing services, inpatient and
outpatient hospital services and physician ambulatory care. Most health care services are provided within a health
care facility such as a hospital, a physician’s office or a senior housing facility. Therefore, we believe there will be
continued demand for companies, such as ours, with expertise in health care real estate.
The following chart illustrates the projected increase in the elderly population aged 65 and over:
65+ Population and % of Total
s
n
o
i
l
l
i
M
n
i
l
n
o
i
t
a
u
p
o
P
90
80
70
60
10121416182022
50
40
30
2000
2010
2020
2030
2040
2050
% of Total
22%
20%
18%
16%
14%
12%
10%
%
o
f
T
o
t
a
l
P
o
p
u
a
t
i
o
n
l
2000
2010
2020
2030
2040
2050
65+ Population
% of Total
Source: U.S. Census Bureau
Health care real estate investment opportunities tend to increase as demand for health care services increases.
We recognize the need for health care real estate as it correlates to health care service demand. Health care providers
require real estate to house their businesses and expand their services. We believe that investment opportunities in
health care real estate will continue to be present due to:
(cid:129) The specialized nature of the industry, which enhances the credibility and experience of our company;
(cid:129) The projected population growth combined with stable or increasing health care utilization rates, which
ensures demand; and
(cid:129) The on-going merger and acquisition activity.
Health Reform Laws
On March 23, 2010, the President signed into law the Patient Protection and Affordable Care Act (“PPACA”)
and the Health Care and Education Reconciliation Act of 2010, which amends the PPACA (collectively, the “Health
Reform Laws”). The Health Reform Laws contain various provisions that may directly impact us or the operators
and tenants of our properties. Some provisions of the Health Reform Laws may have a positive impact on our
operators’ or tenants’ revenues, by, for example, increasing coverage of uninsured individuals, while others may
have a negative impact on the reimbursement of our operators or tenants by, for example, altering the market basket
adjustments for certain types of health care facilities. The Health Reform Laws also enhance certain fraud and abuse
penalty provisions that could apply to our operators and tenants, in the event of one or more violations of the federal
health care regulatory laws. In addition, there are provisions that impact the health coverage that we and our
operators and tenants provide to our respective employees. We cannot predict whether the existing Health Reform
Laws, or future health care reform legislation or regulatory changes, will have a material impact on our operators’ or
tenants’ property or business. If the operations, cash flows or financial condition of our operators and tenants are
materially adversely impacted by the Health Reform Laws or future legislation, our revenue and operations may be
adversely affected as well. Further, on February 2, 2011, the U.S. Senate refused to pass an overhaul repeal of the
Health Reform Laws, and the focus has now shifted to attempts to repeal or amend individual sections of the Health
Reform Laws. Further, federal courts are also considering, and in some cases have ruled on, the legality of the
Health Reform Laws. We cannot predict whether any of these attempts to repeal or amend the Health Reform Laws
will be successful, nor can we predict the impact that such a repeal or amendment would have on our operators and
tenants.
45
Impact to Reimbursement of the Operators and Tenants of Our Properties. The Health Reform Laws provide
for various changes to the reimbursement that our operators and tenants may receive. One such change is a reduction
to the market basket adjustments for inpatient acute hospitals, long-term care hospitals, inpatient rehabilitation
facilities, home health agencies, psychiatric hospitals, hospice care and outpatient hospitals. Beginning in 2010, the
otherwise applicable percentage increase to the market basket for inpatient acute hospitals will decrease. Beginning
in 2012, inpatient acute hospitals will also face a downward adjustment of the annual percentage increase to the
market basket rate by a “productivity adjustment.” The productivity adjustment may cause the annual percentage
increase to be less than zero, which would mean that inpatient acute hospitals could face payment rates for a fiscal
year that are less than the payment rates for the preceding year.
A similar productivity adjustment also applies to skilled nursing facilities beginning in 2012, which means that
the payment rates for skilled nursing facilities may decrease from one year to the next. Long-term care hospitals will
face a specified percentage decrease in their annual update for discharges beginning in 2010. Additionally,
beginning in 2012, long-term care hospitals will be subject to the productivity adjustments, which may decrease the
federal payment rates for long-term care hospitals. Similar productivity adjustments and other adjustments to
payment rates will apply to inpatient rehabilitation facilities, psychiatric hospitals and outpatient hospitals
beginning in 2010.
The Health Reform Laws revise other reimbursement provisions that may affect our business. For example, the
Health Reform Laws mandate a one-year extension of the exceptions for medical therapy caps, which will be
applicable though December 31, 2010. The Health Reform Laws also reduce states’ Medicaid disproportionate
share hospital (“DSH”) allotments, starting in 2014 through 2020. These allotments would have provided additional
funding for DSH hospitals that are operators or tenants of our properties, and thus, any reduction might negatively
impact these operators or tenants.
Additionally, beginning in fiscal year 2015, Medicare payments will decrease to hospitals for treatment
associated with hospital acquired conditions. This decreased payment rate may negatively impact our operators or
tenants. The Health Reform Laws also call for reductions in payments for discharges beginning October 1, 2012, in
order to account for excess readmissions. While the exact amount of the reduction is not yet known, a reduction in
payments to our operators or tenants may affect their ability to make payments to us.
PPACA additionally calls for the creation of the Independent Payment Advisory Board (the “Board”), which
will be responsible for establishing payment polices, including recommendations in the event that Medicare costs
exceed a certain threshold. Proposals for recommendations submitted by the Board prior to December 31, 2018 may
not include recommendations that would reduce payments for hospitals, skilled nursing facilities, and physicians,
among other providers, prior to December 31, 2019. The Health Reform Laws also create other mechanisms that
could permit significant changes to payment. For example, PPACA establishes the Center for Medicare and
Medicaid Innovation to test innovative payment and service delivery models to reduce program expenditures
through the use of demonstration programs that can waive existing reimbursement methodologies. The Health
Reform Laws also provide additional Medicaid funding to allow states to carry out mandated expansion of
Medicaid coverage to certain financially-eligible individuals beginning in 2014, and also permits states to expand
their Medicaid coverage to these individuals as early as April 1, 2010, if certain conditions are met.
Additionally, although the Health Reform Laws delayed until at least October 1, 2011, the implementation of
the Resource Utilization Group, Version Four (“RUG-IV”), which revises the payment classification system for
skilled nursing facilities, the recently enacted Medicare and Medicaid Extenders Act of 2010 repealed this delay
retroactively to October 1, 2010. The Health Reform Laws also extend certain payment rules related to long-term
acute care hospitals found in the Medicare, Medicaid, and SCHIP Extension Act of 2007.
Finally, many other changes resulting from the Health Reform Laws, or implementing regulations, or guidance
may negatively impact our operators and tenants. We will continue to monitor and evaluate the Health Reform Laws
and implementing regulations and guidance to determine other potential effects of the reform.
Impact of Fraud and Abuse Provisions. The Health Reform Laws revise health care fraud and abuse
provisions that will affect our operators and tenants. Specifically, PPACA allows for up to treble damages under the
Federal False Claims Act for violations related to state-based health insurance exchanges authorized by the Health
46
Reform Laws, which will be implemented beginning in 2014. The Health Reform Laws also impose new civil
monetary penalties for false statements or actions that lead to delayed inspections, with penalties of up to $15,000
per day for failure to grant timely access and up to $50,000 for a knowing violation. The Health Reform laws also
provide for additional funding to investigate and prosecute health care fraud and abuse. Accordingly, the increased
penalties under PPACA for fraud and abuse violations may have a negative impact on our operators and tenants in
the event that the government brings an enforcement action or subjects them to penalties.
Further, as recently as February 2, 2011, CMS published final rulemaking to implement the enhanced provider
and supplier screening provisions called for in the Health Reform Laws. Under the final rule, beginning
March 25, 2011, all enrolling and participating providers and suppliers will be assessed an annual administrative
fee and be placed in one of three risk levels (limited, moderate, and high) based on an assessment of the individual’s
or entity’s overall risk of fraud, waste and abuse. This rule also allows for the temporary suspension of Medicare
payments to providers or suppliers in the event CMS receives credible information that an overpayment, fraud, or
willful misrepresentation has occurred. The Health Reform Laws granted the Secretary of the Department of Health
and Human Services significant discretionary authority to suspend, exclude, or impose fines on providers and
suppliers based on the agency’s determination that such a provider or supplier is “high-risk,” and, as a result, this
final rulemaking has the potential to materially adversely affect our operators and tenants who may be evaluated
under the enhanced screening process.
Additionally, provisions of Title VI of PPACA are designed to increase transparency and program integrity by
skilled nursing facilities, other nursing facilities and similar providers. Specifically, skilled nursing facilities and
other providers and suppliers will be required to institute compliance and ethics programs. Additionally, PPACA
makes it easier for consumers to file complaints against nursing homes by mandating that states establish complaint
websites. The provisions calling for enhanced transparency will increase the administrative burden and costs on
these providers.
Impact to the Health Care Plans Offered to Our Employees. The Health Reform Laws will affect employers
that provide health plans to their employees. The new laws will change the tax treatment of the Medicare Part D retiree
drug subsidy and extend dependent coverage for dependents up to age 26, among other changes. We are evaluating our
health care plans in light of these changes. These changes may affect our operators and tenants as well.
Medicare Program Reimbursement Changes
In recent months, CMS released a number of rulemakings that may potentially increase or decrease the
government reimbursement of our operators and tenants. To the extent that any of these rulemakings decrease
government reimbursement to our operators and tenants, our revenue and operations may be indirectly, adversely
affected.
On August 16, 2010, CMS issued a final rule updating the long-term acute care hospital prospective payment
system for fiscal year 2011. Among other things, the final rule updates payment rates for acute care and long-term
care hospitals and implements certain provisions of the Health Reform Laws. In the rule, CMS finalized an update
of 2.5% for inflation with a cut of 0.5% as required by the Health Reform Laws and a negative 2.5% documentation
and coding adjustment for long-term care hospitals. CMS also released a notice and comment rulemaking for the
prospective payment system and consolidated billing for skilled nursing facilities for fiscal year 2011 on July 22,
2010. CMS adjusts the nursing home payment rates for fiscal year 2011 by including a market basket increase factor
of 2.3% and a negative 0.6 percentage point forecast error adjustment, which would result in a net increase update of
1.7% for nursing home rates.
CMS annually adjusts the Medicare Physician Fee Schedule payment rates based on an update formula that
includes application of the Sustainable Growth Rate (“SGR”). On November 29, 2010, CMS published the calendar
year 2011 Physician Fee Schedule final rule. Among other things, CMS preliminary estimates in the final rule that
the calendar year 2011 SGR formula will be negative 13.4%. This measure is a significant change from the figure
provided in the proposed rule, and will replace the 21.3% reduction in physician Medicare reimbursement in 2010
required by the SGR formula. Additionally, in the final rule, CMS has eliminated certain CPT consultation codes,
which could negatively impact the reimbursement levels received by our operators and tenants.
47
Finally, on November 24, 2010, CMS published the calendar year 2011 Hospital Outpatient Prospective
Payment System (“OPPS”) final rule. CMS estimates that the cumulative effect of all changes to payment rates for
calendar year 2011 will have a positive effect, resulting in a 2.5% estimated increase in Medicare payments to
providers paid under the HOPPS.
Economic Outlook
The serious economic recession affecting the national and global economy has continued to impact all sectors,
including, to a somewhat lesser degree, health care. Continuing mixed economic signals have made it difficult to
predict when there might be a return to more normal and stable growth rates, employment levels and overall
economic performance.
Banks have remained cautious in their lending, but significant liquidity has been injected into the senior
housing and care markets by various Government-Sponsored Enterprises. In addition, there is significant equity
investment capital available for certain health care sectors, particularly medical office buildings. This has had the
effect of keeping capitalization rates in these segments generally in line with or even below historic rates. Debt costs
for REITs have generally declined over the past 12 months, and equity markets for health care REITs have remained
open for the most part.
As a consequence, while liquidity remained an important consideration in 2010, we have been more aggressive
in pursuing attractive investment opportunities that meet our strategic and underwriting criteria. We have also been
more active in accessing capital markets during this time. We believe the markets in which we invest will continue
to offer stable returns during the economic downturn and significant growth potential as and when the economy
begins to rebound.
Business Strategy
Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay
consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as
a result of annual increases in rental and interest income and portfolio growth. To meet these objectives, we invest
across the full spectrum of senior housing and health care real estate and diversify our investment portfolio by
property type, customer and geographic location.
Substantially all of our revenues and sources of cash flows from operations are derived from operating lease
rentals and interest earned on outstanding loans receivable. These items represent our primary source of liquidity to
fund distributions and are dependent upon our obligors’ continued ability to make contractual rent and interest
payments to us. To the extent that our obligors experience operating difficulties and are unable to generate sufficient
cash to make payments to us, there could be a material adverse impact on our consolidated results of operations,
liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods
determined by the type of property and operator/tenant. Our asset management process includes review of monthly
financial statements for each property, periodic review of obligor credit, periodic property inspections and review of
covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. In monitoring our
portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we
conduct extensive research to ascertain industry trends and risks. Through these asset management and research
efforts, we are typically able to intervene at an early stage to address payment risk, and in so doing, support both the
collectability of revenue and the value of our investment.
In addition to our asset management and research efforts, we also structure our investments to help mitigate
payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In
addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-
collateralized with other loans, operating leases or agreements between us and the obligor and its affiliates.
For the year ended December 31, 2010, rental income and interest income represented 86% and 6%
respectively, of total gross revenues (including revenues from discontinued operations). Substantially all of our
operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual
rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a
48
collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded
based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a
number of factors, including the stated interest rate, the average principal amount outstanding during the term of the
loan and any interest rate adjustments.
Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund
operations, meet debt service obligations (both principal and interest), make dividend distributions and complete
construction projects in process. We also anticipate evaluating opportunities to finance future investments. New
investments are generally funded from temporary borrowings under our unsecured line of credit arrangement,
internally generated cash and the proceeds from sales of real property. Our investments generate cash from rent and
interest receipts and principal payments on loans receivable. Permanent capital for future investments, which
replaces funds drawn under the unsecured line of credit arrangement, has historically been provided through a
combination of public and private offerings of debt and equity securities and the incurrence or assumption of
secured debt.
Depending upon market conditions, we believe that new investments will be available in the future with
spreads over our cost of capital that will generate appropriate returns to our stockholders. We expect to complete
gross new investments of approximately $1.5 billion in 2011, comprised of acquisitions/joint ventures totaling
$1.3 billion and funded new development of $212 million. We anticipate the sale of real property and the repayment
of loans receivable totaling $300 million during 2011. It is possible that additional loan repayments or sales of real
property may occur in the future. To the extent that loan repayments and real property sales exceed new investments,
our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from
any loan repayments and real property sales in new investments. To the extent that new investment requirements
exceed our available cash on-hand, we expect to borrow under our unsecured line of credit arrangement. At
December 31, 2010, we had $131,570,000 of cash and cash equivalents, $79,069,000 of restricted cash and
$850,000,000 of available borrowing capacity under our unsecured line of credit arrangement.
Key Transactions in 2010
We completed the following key transactions during the year ended December 31, 2010:
(cid:129) our Board of Directors increased the quarterly cash dividend to $0.69 per common share, as compared to
$0.68 per common share for 2009, beginning in August 2010. The dividend declared for the quarter ended
December 31, 2010 represents the 159th consecutive quarterly dividend payment;
(cid:129) we completed $3,150,613,000 of gross investments and had $196,232,000 of investment payoffs;
(cid:129) we issued $494,403,000 of 3.00% convertible senior unsecured notes due 2029 and repurchased
$441,326,000 of 4.75% convertible senior unsecured notes due 2026 and 2027 in March and June;
(cid:129) we issued $450,000,000 of 6.125% senior unsecured notes due 2020 with net proceeds of $446,328,000 in
April and June;
(cid:129) we raised $81,977,000 of HUD mortgage loans at an average rate of 5.10% in June;
(cid:129) we issued $450,000,000 of 4.70% senior unsecured notes due 2017 with net proceeds of $445,768,000 in
September;
(cid:129) we completed a public offering of 9,200,000 shares of common stock with net proceeds of $403,921,000 in
September;
(cid:129) we issued $450,000,000 of 4.95% senior unsecured notes due 2021 with net proceeds of $443,502,000 in
November; and
(cid:129) we completed a public offering of 11,500,000 shares of common stock with net proceeds of $482,448,000 in
December.
49
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of our business. These indicators
are discussed below and relate to operating performance, concentration risk and credit strength. Management uses
these key performance indicators to facilitate internal and external comparisons to our historical operating results,
in making operating decisions and for budget planning purposes.
Operating Performance. We believe that net income attributable to common stockholders (“NICS”) is the
most appropriate earnings measure. Other useful supplemental measures of our operating performance include
funds from operations (“FFO”) and net operating income (“NOI”); however, these supplemental measures are not
defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-
GAAP Financial Measures” for further discussion and reconciliations of FFO and NOI. These earnings measures
and their relative per share amounts are widely used by investors and analysts in the valuation, comparison and
investment recommendations of companies. The following table reflects the recent historical trends of our operating
performance measures for the periods presented (in thousands, except per share data):
Year Ended December 31,
2009
2008
2010
Net income attributable to common stockholders . . . . . . . . . . . . $260,098
258,868
Funds from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
526,136
Per share data (fully diluted):
$171,190
291,754
547,678
$106,882
279,075
640,346
Net income attributable to common stockholders . . . . . . . . . . $
Funds from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.76
2.74
$
1.49
2.55
$
0.83
2.18
(1) Includes our share of net operating income from unconsolidated joint ventures.
Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our
leverage ratios include debt to book capitalization and debt to market capitalization. The leverage ratios indicate
how much of our balance sheet capitalization is related to long-term debt. The coverage ratios indicate our ability to
service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect
to maintain capitalization ratios and coverage ratios sufficient to maintain compliance with our debt covenants. The
coverage ratios are based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted
EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial
Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the
valuation, comparison, investment recommendations and rating of companies. The following table reflects the
recent historical trends for our credit strength measures for the periods presented:
Year Ended
December 31,
2009
2010
2008
Debt to book capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt to undepreciated book capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . .
Debt to market capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted interest coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.84x
Adjusted fixed charge coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20x
47% 39% 49%
43% 35% 45%
38% 30% 38%
3.78x 3.39x
3.09x 2.76x
Concentration Risk. We evaluate our concentration risk in terms of asset mix, investment mix, customer mix
and geographic mix. Concentration risk is a valuable measure in understanding what portion of our investments
could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments
that are real property. In order to qualify as an equity REIT, at least 75% of our real estate investments must be real
property whereby each property, which includes the land, buildings, improvements, intangibles and related rights, is
owned by us and leased to a tenant pursuant to a long-term operating lease. Investment mix measures the portion of
our investments that relate to our various property types. Customer mix measures the portion of our investments that
50
relate to our top five customers. Geographic mix measures the portion of our investments that relate to our top five
states. The following table reflects our recent historical trends of concentration risk for the periods presented:
December 31,
2009
2010
2008
Asset mix:
Real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint venture investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92% 93% 91%
5%
7%
8%
4%
Investment mix:(1)
Senior housing facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Skilled nursing facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical office buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life science buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39% 42% 49%
27% 25% 14%
9%
11% 10%
23% 23% 24%
4%
Customer mix:(1)
Merrill Gardens LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brandywine Senior Living, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Living Communities, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Star Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brookdale Senior Living, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signature Healthcare LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emeritus Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life Care Centers of America, Inc.
Remaining customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geographic mix:(1)
8%
7%
7%
5%
4%
6%
7%
5%
5%
5%
5%
4%
4%
3%
5%
75% 76% 69%
Florida. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14% 12% 10%
9% 10%
8%
8%
11% 11%
7%
7%
7%
6%
6%
6%
54% 55% 59%
(1) Includes our share of unconsolidated joint venture investments.
We evaluate our key performance indicators in conjunction with current expectations to determine if historical
trends are indicative of future results. Our expected results may not be achieved and actual results may differ
materially from our expectations. Factors that may cause actual results to differ from expected results are described
in more detail in “Forward-Looking Statements and Risk Factors” and other sections of this Annual Report on
Form 10-K. Management regularly monitors economic and other factors to develop strategic and tactical plans
designed to improve performance and maximize our competitive position. Our ability to achieve our financial
objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging
economic and company-specific trends. Please refer to “Business,” “Risk Factors” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.
51
Portfolio Update
Net operating income. The primary performance measure for our properties is net operating income (“NOI”)
as discussed below in “Non-GAAP Financial Measures.” The following table summarizes our net operating income
for the periods indicated (in thousands):
Year Ended December 31,
2009
2008
2010
Net operating income:
Senior housing and care . . . . . . . . . . . . . . . . . . . . . . . . . . . . $386,190
138,254
Medical facilities(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,692
Non-segment/corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$399,363
147,145
1,170
$440,851
196,621
2,874
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $526,136
$547,678
$640,346
(1) Includes our share of net operating income from unconsolidated joint ventures.
Payment coverage. Payment coverage of our operators continues to remain strong. Our overall payment
coverage is at 2.12 times. The table below reflects our recent historical trends of portfolio coverage. Coverage data
reflects the 12 months ended for the periods presented. CBMF represents the ratio of our customers’ earnings before
interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. CAMF
represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization and rent (but after
imputed management fees) to contractual rent or interest due us.
September 30, 2008
CBMF
CAMF
September 30, 2009
CBMF
CAMF
September 30,
2010
CBMF
CAMF
Senior housing facilities . . . . . . . . . . . . .
Skilled nursing facilities . . . . . . . . . . . .
Hospitals . . . . . . . . . . . . . . . . . . . . . . . .
1.49x
2.26x
2.26x
Weighted averages . . . . . . . . . . . . . . . . .
1.96x
1.27x
1.66x
1.83x
1.52x
1.51x
2.29x
2.47x
2.01x
1.30x
1.69x
2.14x
1.59x
1.54x
2.42x
2.66x
2.12x
1.32x
1.79x
2.33x
1.68x
Corporate Governance
Maintaining investor confidence and trust has become increasingly important in today’s business environment.
Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest
level of ethical business practices. Our corporate governance guidelines provide the framework for our business
operations and emphasize our commitment to increase stockholder value while meeting all applicable legal
requirements. The Board of Directors adopted and annually reviews its Corporate Governance Guidelines. These
guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at
www.hcreit.com.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under the
unsecured line of credit arrangement, public and private offerings of debt and equity securities, proceeds from the
sales of real property and principal payments on loans receivable. Our primary uses of cash include dividend
distributions, debt service payments (including principal and interest), real property investments (including
construction advances), loan advances, property operating expenses and general and administrative expenses.
These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in
further detail below.
52
The following is a summary of our sources and uses of cash flows (dollars in thousands):
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
Two Year
Change
$
%
$
%
Cash and cash
equivalents at
beginning of
period . . . . . . . . . .
Cash provided from
$
30,269
$ 23,370
$
(6,899) —23% $
35,476
$
12,106
52% $
5,207
17%
operating activities . .
360,683
381,259
20,576
6%
364,741
(16,518) —4%
4,058
1%
Cash used in investing
activities . . . . . . . .
(1,035,525)
(270,060)
765,465 —74% (2,312,039)
(2,041,979) 756% (1,276,514) 123%
Cash provided from
(used in) financing
activities . . . . . . . .
Cash and cash
equivalents at end of
period . . . . . . . . . .
667,943
(99,093)
(767,036)
n/a
2,043,392
2,142,485
n/a
1,375,449
206%
$
23,370
$ 35,476
$ 12,106
52% $
131,570
$
96,094 271% $
108,200
463%
Operating Activities. The change in net cash provided from operating activities is primarily attributable to an
increase in net income, excluding gains/losses on sales of properties, depreciation and amortization, transaction
costs and debt extinguishment charges. These items are discussed below in “Results of Operations.” The following
is a summary of our straight-line rent and above/below market lease amortization (dollars in thousands):
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
Two Year
Change
$
%
$
%
Gross straight-line rental
income . . . . . . . . . . .
Cash receipts due to real
property sales . . . . . .
Prepaid rent receipts . . .
Amortization related to
above (below) market
leases, net . . . . . . . . .
$ 20,489
$ 19,415
$(1,074) —5% $14,717
$ (4,698) —24% $ (5,772) —28%
(2,187)
(26,095)
(4,422)
(26,252)
(2,235) 102%
1%
(157)
(1,341)
(7,196)
846 —39%
3,081 —70%
19,056 —73% 18,899 —72%
1,039
1,713
674
65%
2,856
1,143
67% 1,817
175%
$ (6,754)
$ (9,546)
$(2,792)
41% $ 9,036
$18,582
n/a
$15,790
n/a
Gross straight-line rental income represents the non-cash difference between contractual cash rent due and the
average rent recognized pursuant to U.S. GAAP for leases with fixed rental escalators, net of collectability reserves.
This amount is positive in the first half of a lease term (but declining every year due to annual increases in cash rent
due) and is negative in the second half of a lease term. The fluctuation in cash receipts due to real property sales is
attributable to less significant straight-line rent receivable balances on properties sold during the current year. The
fluctuation in prepaid rent receipts is primarily due to changes in prepaid rent received at certain construction
projects.
53
Investing Activities. The changes in net cash used in investing activities are primarily attributable to net
changes in real property and real estate loans receivable. The following is a summary of our investment and
disposition activities (dollars in thousands):
December 31, 2008
Year Ended
December 31, 2009
December 31, 2010
Properties
Amount
Properties
Amount
Properties
Amount
Real property acquisitions:
Senior housing — operating . .
. .
Senior housing — triple net
Skilled nursing facilities . . . . .
Hospitals . . . . . . . . . . . . . . . .
Medical office buildings . . . . .
Land parcels . . . . . . . . . . . . .
Total acquisitions . . . . . . . . . .
Less: Assumed debt . . . . . . . . . .
Assumed other items, net . . . .
Cash disbursed for acquisitions . .
Construction in progress
additions . . . . . . . . . . . . . . . .
Capital improvements to existing
properties . . . . . . . . . . . . . . . .
Total cash invested in real
property . . . . . . . . . . . . . . . . .
Real property dispositions:
Senior housing — triple net
. .
Skilled nursing facilities . . . . .
Hospitals . . . . . . . . . . . . . . . .
Medical office buildings . . . . .
Land parcels . . . . . . . . . . . . .
Total dispositions . . . . . . . . . .
Less: Gains (losses) on sales of
real property . . . . . . . . . . . . .
LandAmerica settlement . . . . .
Extinguishment of other assets
(liabilities) . . . . . . . . . . . . .
Seller financing on sales of
real property . . . . . . . . . . . .
Proceeds from real property
sales . . . . . . . . . . . . . . . . . . .
Net cash investments in real
5
1
7
7
1
21
32
4
1
1
38
$ 113,790
11,360
196,303
121,809
10,000
453,262
—
(1,899)
451,363
595,452
25,561
1,072,376
163,622
6,290
8,735
6,781
73
185,501
163,933
2,500
(116)
(64,771)
1
1
1
3
12
9
2
13
36
$ 11,650
20,500
35,523
67,673
—
—
67,673
492,897
38,389
598,959
55,320
45,835
40,841
44,717
—
186,713
43,394
—
—
(6,100)
32
44
2
36
1
115
1
30
—
7
—
38
$ 816,000
1,011,229
17,300
626,414
4,300
2,475,243
(559,508)
(208,314)
1,707,421
306,832
59,923
2,074,176
3,438
166,852
—
14,092
—
184,382
36,115
—
—
(1,470)
287,047
224,007
219,027
property . . . . . . . . . . . . . . . . .
(17)
$ 785,329
(33)
$374,952
77
$1,855,149
54
December 31, 2008
Year Ended
December 31, 2009
Senior
Housing
and Care
Medical
Facilities
Totals
Senior
Housing
and Care
Medical
Facilities
Totals
December 31, 2010
Senior
Housing
and Care
Medical
Facilities
Totals
Advances on real estate
loans receivable:
Investments in new
loans. . . . . . . . . . . . $121,493
$— $121,493
$20,036 $
— $ 20,036 $ 9,742 $41,644
$51,386
Draws on existing
loans. . . . . . . . . . . .
21,265
Sub-total . . . . . . . . .
142,758
Less: Seller financing
—
—
21,265
52,910
142,758
72,946
1,471
1,471
54,381
46,113
1,236
47,349
74,417
55,855
42,880
98,735
on property sales . . .
(59,649) —
(59,649)
—
—
—
— (1,470)
(1,470)
Net cash advances on
real estate loans . . . .
83,109
—
83,109
72,946
1,471
74,417
55,855
41,410
97,265
Receipts on real estate
loans receivable:
Loan payoffs . . . . . . . .
Principal payments on
8,815
loans. . . . . . . . . . . .
9,354
Total receipts on real
estate loans . . . . . . .
18,169
Net advances (receipts)
—
—
—
8,815
61,659
32,197
93,856
5,619
6,233
11,852
9,354
15,890
2,033
17,923
24,203
7,440
31,643
18,169
77,549
34,230
111,779
29,822
13,673
43,495
on real estate loans . . . $ 64,940
$— $ 64,940
$ (4,603) $(32,759) $ (37,362) $26,033
$27,737
$53,770
The contributions to unconsolidated joint ventures primarily represent $174,692,000 and $21,321,000 of cash
invested by us in the joint ventures with Forest City Enterprises and a national medical office building company,
respectively. Please see Note 7 to our consolidated financial statements for additional information.
Financing Activities. The changes in net cash provided from or used in financing activities are primarily
attributable to changes related to our long-term debt arrangements, proceeds from the issuance of common stock
and dividend payments.
The changes in our senior unsecured notes are due to (i) the issuance of $494,403,000 of convertible senior
unsecured notes in March and June 2010; (ii) the repurchase of $441,326,000 of convertible senior unsecured notes
in March and June 2010; (iii) the issuance of $450,000,000 of senior unsecured notes in April and June 2010;
(iv) the issuance of $450,000,000 of senior unsecured notes in September 2010; (v) the issuance of $450,000,000 of
senior unsecured notes in November 2010; (vi) the extinguishment of $183,147,000 of various senior unsecured
notes in March and September 2009; and (vii) the extinguishment of $42,330,000 of 7.625% senior unsecured notes
in March 2008. We recognized losses of $25,072,000 and $19,269,000 during the years ended December 31, 2010
and 2009, respectively, in connection with the aforementioned extinguishments.
During the year ended December 31, 2010, we extinguished 35 secured debt loans totaling $194,493,000 with
a weighted-average interest rate of 6.07% and recognized extinguishment losses of $9,099,000. Also during the year
ended December 31, 2010, we issued $81,977,000 of secured debt loans at an average interest rate of 5.10%. During
the year ended December 31, 2009, we extinguished 20 secured debt loans totaling $81,715,000 with a weighted-
average interest rate of 7.21% and recognized extinguishment losses of $5,838,000. During the year ended
December 31, 2008, we extinguished eight secured debt loans totaling $50,475,000 with a weighted-average
interest rate of 6.67% and recognized extinguishment gains of $2,094,000.
We may repurchase, redeem or refinance convertible and non-convertible senior unsecured notes from time to
time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash
through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early
redemption of such securities pursuant to their terms. The non-convertible senior unsecured notes are redeemable at
55
our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (1) the
principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up
to the redemption date and (2) any “make-whole” amount due under the terms of the notes in connection with early
redemptions. We cannot redeem the 3.00% convertible senior unsecured notes due 2029 prior to December 1, 2014
unless such redemption is necessary to preserve our status as a REIT. However, on or after December 1, 2014, we
may from time to time at our option redeem those notes, in whole or in part, for cash, at a redemption price equal to
100% of the principal amount of the notes we redeem, plus any accrued and unpaid interest to, but excluding, the
redemption date. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors.
The following is a summary of our common stock issuances for the years indicated (dollars in thousands,
except average price):
Shares Issued
Average Price
Gross Proceeds
Net Proceeds
March 2008 public issuance . . . . . . . . . . . . . . . . .
July 2008 public issuance . . . . . . . . . . . . . . . . . .
September 2008 public issuance . . . . . . . . . . . . . .
2008 Dividend reinvestment plan issuances. . . . . .
2008 Equity shelf program issuances . . . . . . . . . .
2008 Option exercises . . . . . . . . . . . . . . . . . . . . .
3,000,000
4,600,000
8,050,000
1,546,074
794,221
118,895
2008 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,109,190
February 2009 public issuance . . . . . . . . . . . . . . .
September 2009 public issuance . . . . . . . . . . . . . .
2009 Dividend reinvestment plan issuances. . . . . .
2009 Equity shelf program issuances . . . . . . . . . .
2009 Option exercises . . . . . . . . . . . . . . . . . . . . .
5,816,870
9,200,000
1,499,497
1,952,600
96,166
2009 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,565,133
September 2010 public issuance . . . . . . . . . . . . . .
December 2010 public issuance . . . . . . . . . . . . . .
2010 Dividend reinvestment plan issuances. . . . . .
2010 Equity shelf program issuances . . . . . . . . . .
2010 Option exercises . . . . . . . . . . . . . . . . . . . . .
9,200,000
11,500,000
1,957,364
431,082
129,054
$41.44
44.50
48.00
43.37
39.28
29.83
$36.85
40.40
37.22
40.69
38.23
$45.75
43.75
43.95
44.94
31.17
$ 124,320
204,700
386,400
67,055
31,196
3,547
$118,555
193,157
369,699
67,055
30,272
3,547
$ 817,218
$782,285
$ 214,352
371,680
55,818
79,447
3,676
$210,880
356,554
55,818
77,605
3,676
$ 724,973
$704,533
$ 420,900
503,125
86,034
19,371
4,022
$403,921
482,448
86,034
19,013
4,022
2010 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,217,500
$1,033,452
$995,438
In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable
income (including 100% of capital gains) to our stockholders. The increase in dividends is primarily attributable to
an increase in our common shares outstanding. The following is a summary of our dividend payments (in thousands,
except per share amounts):
December 31, 2008
Year Ended
December 31, 2009
December 31, 2010
Per Share
Amount
Per Share
Amount
Per Share
Amount
Common Stock . . . . . . . . . . . . . . .
Series D Preferred Stock . . . . . . . .
Series E Preferred Stock . . . . . . . .
Series F Preferred Stock . . . . . . . .
Series G Preferred Stock . . . . . . . .
$2.70000
1.96875
1.50000
1.90625
1.87500
Totals . . . . . . . . . . . . . . . . . . . . . .
$253,659
7,875
112
13,344
1,870
$276,860
56
$2.72000
1.96875
1.50000
1.90625
1.87500
$311,760
7,875
112
13,344
748
$333,839
$2.74000
1.96875
1.12500
1.90625
1.40640
$348,578
7,875
94
13,344
332
$370,223
Off-Balance Sheet Arrangements
During the year ended December 31, 2010, we entered into a joint venture investment with Forest City
Enterprises (NYSE:FCE.A and FCE.B). The portfolio is 100% leased and includes affiliates of investment grade
pharmaceutical and research tenants such as Novartis, Genzyme, Millennium (a subsidiary of Takeda Pharma-
ceuticals), and Brigham and Women’s Hospital. Forest City Enterprises self-developed the portfolio and will
continue to manage it on behalf of the joint venture. The life science campus is part of a mixed-use project that
includes a 210-room hotel, 674 residential units, a grocery store, restaurants and retail. In connection with this
transaction, we invested $174,692,000 of cash which is recorded as an equity investment on the balance sheet. Our
share of the non-recourse secured debt assumed by the joint venture was approximately $156,729,000 with
weighted-average interest rates of 7.1%. Also, during the year ended December 31, 2010, we entered into a joint
venture investment with a national medical office building company. In connection with this transaction, we
invested $21,321,000 of cash which is recorded as an equity investment on the balance sheet. Our share of the non-
recourse secured debt assumed by the joint venture was approximately $24,609,000 with weighted-average interest
rates of 6.06%. Please see Note 7 to our consolidated financial statements for additional information.
We are exposed to various market risks, including the potential loss arising from adverse changes in interest
rates. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These
decisions are principally based on the general trend in interest rates at the applicable dates, our perception of the
future volatility of interest rates and our relative levels of variable rate debt and variable rate investments. Please see
Note 11 to our consolidated financial statements for additional information.
At December 31, 2010, we had five outstanding letter of credit obligations totaling $5,482,932 and expiring
between 2011 and 2013. Please see Note 12 to our consolidated financial statements for additional information.
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of December 31,
2010 (in thousands):
Contractual Obligations
Unsecured line of credit arrangement . . . .
Senior unsecured notes(1) . . . . . . . . . . . . .
Secured debt(1) . . . . . . . . . . . . . . . . . . . .
Contractual interest obligations . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . .
Total
$ 300,000
3,064,930
1,133,715
1,832,761
10,951
230,189
301,668
4,890
Payments Due by Period
2012-2013
2014-2015
2011
Thereafter
— $
$
— $ 300,000
376,853
—
177,487
24,048
425,509
222,393
1,262
604
10,612
5,380
84,450
199,172
—
1,614
$
250,000
338,320
344,841
9,085
10,370
18,046
866
—
2,438,077
593,860
840,018
—
203,827
—
2,410
Total contractual obligations . . . . . . . . . . .
$6,879,104
$453,211
$1,376,173
$971,528
$4,078,192
(1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on
the balance sheet.
At December 31, 2010, we had an unsecured line of credit arrangement with a consortium of sixteen banks in
the amount of $1.15 billion, which is scheduled to expire on August 6, 2012. Borrowings under the agreement are
subject to interest payable in periods no longer than three months at either the agent bank’s prime rate of interest or
the applicable margin over LIBOR interest rate, at our option (0.87% at December 31, 2010). The applicable margin
is based on certain of our debt ratings and was 0.6% at December 31, 2010. In addition, we pay a facility fee
annually to each bank based on the bank’s commitment amount. The facility fee depends on certain of our debt
ratings and was 0.15% at December 31, 2010. We also pay an annual agent’s fee of $50,000. Principal is due upon
expiration of the agreement. At December 31, 2010, we had $300,000,000 outstanding under the unsecured line of
credit arrangement and estimated contractual interest obligations of $4,133,000. Contractual interest obligations are
57
estimated based on the assumption that the balance of $300,000,000 at December 31, 2010 is constant until maturity
at interest rates in effect at December 31, 2010.
We have $3,064,930,000 of senior unsecured notes principal outstanding with fixed annual interest rates
ranging from 3.00% to 8.00%, payable semi-annually. Total contractual interest obligations on senior unsecured
notes totaled $1,391,673,000 at December 31, 2010. A total of $788,077,000 of our senior unsecured notes are
convertible notes that also contain put features. Please see Note 10 to our consolidated financial statements for
additional information.
Additionally, we have secured debt with total outstanding principal of $1,133,715,000, collateralized by
owned properties, with annual interest rates ranging from 3.01% to 8.74%, payable monthly. The carrying values of
the properties securing the debt totaled $2,054,820,000 at December 31, 2010. Total contractual interest obligations
on secured debt totaled $436,955,000 at December 31, 2010.
At December 31, 2010, we had operating lease obligations of $230,189,000 relating primarily to ground leases
at certain of our properties and office space leases.
Purchase obligations are comprised of unfunded construction commitments and contingent purchase obli-
gations. At December 31, 2010, we had outstanding construction financings of $356,793,000 for leased properties
and were committed to providing additional financing of approximately $268,055,000 to complete construction. At
December 31, 2010, we had contingent purchase obligations totaling $33,613,000. These contingent purchase
obligations relate to unfunded capital improvement obligations. Upon funding, amounts due from the tenant are
increased to reflect the additional investment in the property.
Other long-term liabilities relate to our Supplemental Executive Retirement Plan (“SERP”) and certain non-
compete agreements. We have a SERP, a non-qualified defined benefit pension plan, which provides certain
executive officers with supplemental deferred retirement benefits. The SERP provides an opportunity for partic-
ipants to receive retirement benefits that cannot be paid under our tax-qualified plans because of the restrictions
imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and
length of service and the SERP is unfunded. We expect to contribute $1,500,000 to the SERP during the 2011 fiscal
year. Benefit payments are expected to total $2,367,000 during the next five fiscal years and $2,410,000 thereafter.
We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was
$4,066,000 and $3,287,000 at December 31, 2010 and December 31, 2009, respectively.
In connection with the Windrose merger, we entered into a consulting agreement with Frederick L. Farrar,
which expired in December 2008. We entered into a new consulting agreement with Mr. Farrar in December 2008,
which expired in December 2009. Mr. Farrar agreed not to compete with us for a period of two years following the
expiration of the agreement. In exchange for complying with the covenant not to compete, Mr. Farrar receives eight
quarterly payments of $37,500, with the first payment to be made on the date of expiration of the agreement. The
first payment to Mr. Farrar was made in January 2010 and the final payment will be made in September 2011.
Capital Structure
As of December 31, 2010, we had total equity of $4,733,100,000 and a total outstanding debt balance of
$4,460,855,000, which represents a debt to total book capitalization ratio of 49%. Our ratio of debt to market
capitalization was 38% at December 31, 2010. For the year ended December 31, 2010, our adjusted interest
coverage ratio was 3.39x and our adjusted fixed charge coverage ratio was 2.76x. Also, at December 31, 2010, we
had $131,570,000 of cash and cash equivalents, $79,069,000 of restricted cash and $850,000,000 of available
borrowing capacity under our unsecured line of credit arrangement.
Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require
us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur
indebtedness, create liens and make investments or acquisitions. As of December 31, 2010, we were in compliance
with all of the covenants under our debt agreements. Please refer to the section entitled “Non-GAAP Financial
Measures” for further discussion. None of our debt agreements contain provisions for acceleration which could be
triggered by our debt ratings. However, under our unsecured line of credit arrangement, the ratings on our senior
unsecured notes are used to determine the fees and interest charged.
58
We plan to manage the company to maintain compliance with our debt covenants and with a capital structure
consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating
agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a
material adverse impact on our consolidated results of operations, liquidity and/or financial condition.
On May 7, 2009, we filed an open-ended automatic or “universal” shelf registration statement with the
Securities and Exchange Commission covering an indeterminate amount of future offerings of debt securities,
common stock, preferred stock, depositary shares, warrants and units. As of January 31, 2011, we had an effective
registration statement on file in connection with our enhanced dividend reinvestment plan under which we may
issue up to 10,000,000 shares of common stock. As of January 31, 2011, 8,397,408 shares of common stock
remained available for issuance under this registration statement. We have entered into separate Equity Distribution
Agreements with each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit
Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $250,000,000 aggregate
amount of our common stock (“Equity Shelf Program”). As of January 31, 2011, we had $119,985,000 of remaining
capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under
our registration statements to invest in additional properties and to repay borrowings under our unsecured line of
credit arrangement.
Results of Operations
Our primary sources of revenue include rent and interest. Our primary expenses include interest expense,
depreciation and amortization, property operating expenses and general and administrative expenses. These
revenues and expenses are reflected in our Consolidated Statements of Income and are discussed in further detail
below. The following is a summary of our results of operations (dollars in thousands, except per share amounts):
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
Amount
%
Year Ended
December 31,
2010
One Year
Change
Two Year
Change
Amount
%
Amount
%
Net income attributable
to common
stockholders . . . . . . .
Funds from operations . .
Adjusted EBITDA . . . . .
Net operating income . . .
Per share data (fully
diluted):
Net income
attributable to
common
stockholders . . . . . .
Funds from
operations . . . . . . .
Adjusted interest
coverage ratio . . . . . .
Adjusted fixed charge
coverage ratio . . . . . .
$260,098
258,868
595,365
526,136
$171,190
291,754
525,791
547,678
$(88,908)
32,886
(69,574)
21,542
(34)% $106,882
13% 279,075
(12)% 568,429
4% 640,346
$(64,308)
(12,679)
42,638
92,668
(38)% $(153,216)
20,207
(4)%
(26,936)
8%
114,210
17%
(59)%
8%
(5)%
22%
$
2.76
$
1.49
$ (1.27)
(46)% $
0.83
$ (0.66)
(44)% $
(1.93)
(70)%
2.74
3.84x
3.20x
2.55
(0.19)
(7)%
2.18
(0.37)
(15)%
(0.56)
(20)%
3.78x
(0.06)x (2)%
3.39x
(0.39)x (10)%
(0.45)x (12)%
3.09x
(0.11)x (3)%
2.76x
(0.33)x (11)%
(0.44)x (14)%
The components of the changes in revenues, expenses and other items are discussed in detail below. The
following is a summary of certain items that impact the results of operations for the year ended December 31, 2010:
(cid:129) $3,853,000 ($0.03 per diluted share) of special stock compensation grants recognized as general and
administrative expenses;
(cid:129) $34,171,000 ($0.27 per diluted share) of net losses on extinguishments of debt;
(cid:129) $947,000 ($0.01 per diluted share) of impairment charges;
(cid:129) $29,684,000 ($0.23 per diluted share) of provisions for loan losses;
(cid:129) $46,660,000 ($0.36 per diluted share) of transaction costs;
59
(cid:129) $1,753,000 ($0.01 per diluted share) of held for sale hospital operating expenses;
(cid:129) $1,000,000 ($0.01 per diluted share) of additional other income related to a lease termination; and
(cid:129) $36,115,000 ($0.28 per diluted share) of gains on the sales of real property.
The components of the changes in revenues, expenses and other items are discussed in detail below. The
following is a summary of certain items that impact the results of operations for the year ended December 31, 2009:
(cid:129) $3,909,000 ($0.03 per diluted share) of non-recurring general and administrative expenses;
(cid:129) $25,107,000 ($0.22 per diluted share) of net losses on extinguishments of debt;
(cid:129) $25,223,000 ($0.22 per diluted share) of impairment charges;
(cid:129) $23,261,000 ($0.20 per diluted share) of provisions for loan losses;
(cid:129) $8,059,000 ($0.07 per diluted share) of additional other income related to a lease termination;
(cid:129) $2,400,000 ($0.02 per diluted share) of prepayment fees; and
(cid:129) $43,394,000 ($0.38 per diluted share) of gains on the sales of real property.
The following is a summary of certain items that impact the results of operations for the year ended
December 31, 2008:
(cid:129) $2,291,000 ($0.02 per diluted share) of non-recurring terminated transaction costs in general and admin-
istrative expenses;
(cid:129) $1,325,000 ($0.01 per diluted share) of non-recurring income tax expense;
(cid:129) $23,393,000 ($0.25 per diluted share) of realized loss on derivatives;
(cid:129) $32,648,000 ($0.35 per diluted share) of impairment charges;
(cid:129) $2,094,000 ($0.02 per diluted share) of net gains on extinguishments of debt;
(cid:129) $2,500,000 ($0.03 per diluted share) of additional other income related to a lease termination; and
(cid:129) $163,933,000 ($1.74 per diluted share) of gains on the sales of real property.
The increase in fully diluted average common shares outstanding is primarily the result of public common
stock offerings and common stock issuances pursuant to our DRIP and equity shelf program (“ESP”). The following
table represents the changes in outstanding common stock for the period from January 1, 2008 to December 31,
2010 (in thousands):
December 31, 2008
Year Ended
December 31, 2009
December 31, 2010
Totals
Beginning balance . . . . . . . . . .
Public offerings . . . . . . . . . . . .
DRIP issuances . . . . . . . . . . . .
ESP issuances . . . . . . . . . . . . .
Preferred stock conversions . . .
Option exercises . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . .
85,496
15,650
1,546
794
975
119
124
Ending balance . . . . . . . . . . . .
104,704
Average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . .
93,732
94,309
104,704
15,017
1,499
1,953
30
96
86
123,385
114,207
114,612
85,496
51,367
5,002
3,178
1,344
344
366
147,097
123,385
20,700
1,957
431
339
129
156
147,097
127,656
128,208
We evaluate our business and make resource allocations on our two business segments — senior housing and
care properties and medical facilities. Please see Note 17 to our consolidated financial statements for additional
information.
60
Senior Housing and Care Properties
The following is a summary of our results of operations for the senior housing and care properties segment
(dollars in thousands):
Revenues:
Rental income . . . . . . . .
Resident fees and
services . . . . . . . . . . .
Interest income . . . . . . .
Other income . . . . . . . . .
Prepayment fees . . . . . . .
Expenses:
Interest expense . . . . . . .
Property operating
expenses . . . . . . . . . .
Depreciation and
amortization . . . . . . . .
Transaction costs . . . . . .
Loss (gain) on
extinguishment of
debt . . . . . . . . . . . . .
Provision for loan
losses . . . . . . . . . . . .
Income from continuing
operations before income
taxes . . . . . . . . . . . . . .
Income tax expense . . . . . .
Income from continuing
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
Two Year
Change
$
%
$
%
$293,002
$323,582
$ 30,580
10% $362,661
$ 39,079
12% $ 69,659
24%
—
35,143
5,994
—
334,139
—
35,945
2,909
2,400
364,836
—
802
(3,085)
2,400
30,697
(4,455)
6,404
10,859
—
—
81,758
—
90,028
—
—
8,270
—
n/a
2%
(51)%
n/a
9%
n/a
n/a
51,006
36,176
3,386
—
453,229
51,006
231
477
(2,400)
88,393
n/a
1%
16%
(100)%
51,006
1,033
(2,608)
—
24% 119,090
n/a
3%
(44)%
n/a
36%
19,255
12,851
201%
23,710
(532)%
32,621
32,621
n/a
32,621
n/a
10%
n/a
121,292
41,549
31,264
41,549
35%
n/a
39,534
41,549
48%
n/a
(808)
2,057
2,865
n/a
7,791
5,734
279%
8,599
(1064)%
94
76,589
23,261
121,750
23,167
45,161
24646%
29,684
6,423
28%
29,590
31479%
59%
252,192
130,442
107% 175,603
229%
257,550
(1,693)
243,086
(607)
(14,464)
1,086
(6)% 201,037
(229)
(64)%
(42,049)
378
(17)% (56,513)
1,464
(62)%
(22)%
(86)%
operations . . . . . . . . . . .
255,857
242,479
(13,378)
(5)% 200,808
(41,671)
(17)% (55,049)
(22)%
Discontinued operations:
Gain (loss) on sales of
properties. . . . . . . . . .
Income from discontinued
. . . . . .
operations, net
Discontinued operations,
net . . . . . . . . . . . . . .
Net income . . . . . . . . . . . .
Less: Net income
attributable to
noncontrolling interests . .
Net income attributable to
151,457
32,084
(119,373)
(79)%
36,274
4,190
13% (115,183)
(76)%
23,503
17,037
(6,466)
(28)%
11,168
(5,869)
(34)% (12,335)
(52)%
174,960
430,817
49,121
(125,839)
(72)%
47,442
(1,679)
(3)% (127,518)
291,600
(139,217)
(32)% 248,250
(43,350)
(15)% (182,567)
(73)%
(42)%
—
—
—
n/a
(1,674)
(1,674)
n/a
(1,674)
n/a
common stockholders . . .
$430,817
$291,600
$(139,217)
(32)% $249,924
$ (41,676)
(14)% $(180,893)
(42)%
The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion
of newly constructed senior housing and care properties from which we receive rent. Certain of our leases contain
annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross
operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded;
however, rental income is recorded based on the contractual cash rental payments due for the period. If gross
operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may
not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed
new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates,
resulting in an increase or decrease in rental income.
As discussed in Note 3 to our consolidated financial statements, we completed two senior housing operating
partnerships in 2010. The results of operations for these partnerships have been included in our consolidated results
of operations from the dates of acquisition and represent the sole component of resident fees and services, property
operating expenses and net income attributable to noncontrolling interests for this segment.
61
Interest expense for the years ended December 31, 2010, 2009 and 2008 represents $22,905,000, $12,622,000
and $7,176,000, respectively, of secured debt interest expense offset by interest allocated to discontinued oper-
ations. The change in secured debt interest expense is due to the net effect and timing of assumptions,
extinguishments and principal amortizations. The following is a summary of our senior housing and care property
secured debt principal activity (dollars in thousands):
Year Ended December 31, 2008
Year Ended December 31, 2009
Year Ended December 31, 2010
Beginning balance . . . . . . . . .
Debt issued . . . . . . . . . . . . . .
Debt assumed . . . . . . . . . . . .
Debt extinguished . . . . . . . . .
Principal payments . . . . . . . .
Amount
$114,543
—
—
(17,821)
(2,488)
Weighted Avg.
Interest Rate
7.000%
Amount
$ 94,234
265,527
Weighted Avg.
Interest Rate
6.996%
5.982%
7.022%
6.974%
(47,502)
(13,767)
7.414%
7.640%
Amount
$ 298,492
157,156
396,919
(185,999)
(6,000)
Ending balance . . . . . . . . . . .
$ 94,234
6.996%
$298,492
5.998%
$ 660,568
Weighted Avg.
Interest Rate
5.998%
5.454%
5.858%
6.075%
5.962%
5.763%
Monthly averages . . . . . . . . .
$103,927
6.996%
$205,549
6.309%
$ 592,892
5.837%
Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions
of newly constructed investment properties. To the extent that we acquire or dispose of additional properties in the
future, our provision for depreciation and amortization will change accordingly.
Transaction costs for the year ended December 31, 2010 primarily represent costs incurred with the senior
housing operating partnerships (including due diligence costs, fees for legal and valuation services, and termination
of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and
costs incurred in connection with other new property acquisitions.
During the year ended December 31, 2010, we sold 31 senior housing and care properties for net gains of
$36,274,000 as compared to 21 properties for net gains of $32,084,000 in 2009 and 36 properties for net gains of
$151,457,000 in 2008. Additionally, at December 31, 2010, we had 16 senior housing facilities that satisfied the
requirements for held for sale treatment. We did not recognize an impairment loss on these facilities as the fair value
less estimated costs to sell exceeded our carrying value. The following illustrates the reclassification impact as a
result of classifying the properties sold prior to or held for sale at December 31, 2010 as discontinued operations for
the periods presented. Please refer to Note 5 to our consolidated financial statements for further discussion.
Year Ended December 31,
2009
2010
2008
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses:
$52,051
$34,527
$20,243
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,631
16,917
6,218
11,272
3,650
5,425
Income (loss) from discontinued operations, net . . . . . . . . . . . . . . .
$23,503
$17,037
$11,168
We recorded $23,261,000 of provision for loan losses during the year ended December 31, 2009. This amount
includes the write-off of loans totaling $25,578,000 primarily relating to certain early stage senior housing operators
offset by a net reduction in the allowance for loan losses of $2,457,000. We recorded $29,684,000 of provision for
loan losses during the year ended December 31, 2010. This amount includes the write-off of loans totaling
$33,591,000 primarily related to certain early stage senior housing and CCRC development projects. This was
offset by a net reduction of the allowance balance by $3,907,000, resulting in an allowance for loan losses of
$1,276,000 relating to real estate loans with outstanding balances of $9,691,000, all of which were on non-accrual
status at December 31, 2010. The provision for loan losses is related to our critical accounting estimate for the
allowance for loan losses and is discussed in “Critical Accounting Policies.”
62
Medical Facilities
The following is a summary of our results of operations for the medical facilities segment (dollars in
thousands):
Revenues:
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
$
%
Two Year
Change
$
%
Rental income . . . . . . . . . . .
Interest income . . . . . . . . . .
Other income . . . . . . . . . . .
$160,939
4,920
2,835
$173,837
4,940
1,309
$12,898
20
(1,526)
8% $218,763
4,679
0%
985
(54)%
$ 44,926
(261)
(324)
26% $ 57,824
(241)
(5)%
(25)% (1,850)
36%
(5)%
(65)%
168,694
180,086
11,392
7%
224,427
44,341
25% 55,733
33%
Expenses:
Interest expense . . . . . . . . . .
Property operating expenses . .
Depreciation and
amortization . . . . . . . . . . .
Transaction costs . . . . . . . . .
Loss (gain) on extinguishment
of debt . . . . . . . . . . . . . .
17,676
42,634
56,378
—
19,147
45,896
60,700
—
1,471
3,262
4,322
—
(1,286)
3,781
5,067
8%
8%
8%
n/a
n/a
24,724
50,499
75,826
5,112
5,577
4,603
29%
10%
7,048
7,865
15,126
5,112
25% 19,448
5,112
n/a
40%
18%
34%
n/a
1,308
(2,473)
(65)%
2,594
(202)%
115,402
129,524
14,122
12%
157,469
27,945
22% 42,067
36%
Income from continuing
operations before income
taxes and income from
unconsolidated joint
ventures . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . .
Income from unconsolidated
joint ventures . . . . . . . . . . .
Income from continuing
53,292
(51)
50,562
(233)
(2,730)
(182)
(5)%
357%
66,958
(77)
16,396
156
32% 13,666
(26)
(67)%
26%
51%
—
—
—
n/a
6,673
6,673
n/a
6,673
n/a
operations . . . . . . . . . . . . . .
53,241
50,329
(2,912)
(5)%
73,554
23,225
46% 20,313
38%
Discontinued operations:
Gain (loss) on sales of
properties . . . . . . . . . . . .
Impairment of assets. . . . . . .
Income (loss) from
discontinued operations,
net . . . . . . . . . . . . . . . . .
Discontinued operations,
12,476
(32,648)
11,310
(25,223)
(1,166)
7,425
(9)%
(23)%
(159)
(947)
(11,469) (101)% (12,635)
(96)% 31,701
24,276
(101)%
(97)%
50
8,595
8,545 17090%
(1,804)
(10,399) (121)% (1,854) (3708)%
net . . . . . . . . . . . . . . . . .
(20,122)
(5,318)
14,804
(74)%
(2,910)
2,408
(45)% 17,212
(86)%
Net income (loss) . . . . . . . . . .
Less: Net income (loss)
attributable to noncontrolling
interests . . . . . . . . . . . . . . .
Net income (loss) attributable to
common stockholders . . . . . .
33,119
45,011
11,892
36%
70,644
25,633
57% 37,525
113%
126
(342)
(468)
n/a
2,031
2,373 (694)%
1,905
1512%
$ 32,993
$ 45,353
$12,360
37% $ 68,613
$ 23,260
51% $ 35,620
108%
The increase in rental income is primarily attributable to the acquisitions of new properties and the
construction conversions of medical facilities from which we receive rent. Certain of our leases contain annual
rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no
straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due
for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to
increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions,
63
could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase
or decrease in rental income. Interest income decreased from the prior period primarily due to a decline in
outstanding balances for medical facility real estate loans. Other income is attributable to third party management
fee income.
Interest expense for the years ended December 31, 2010, 2009 and 2008 represents $24,926,000, $20,584,000
and $21,828,000, respectively, of secured debt interest expense offset by interest allocated to discontinued
operations. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions,
extinguishments and principal amortizations. The following is a summary of our medical facilities secured debt
principal activity (dollars in thousands):
Year Ended December 31, 2008
Weighted Avg.
Interest Rate
Amount
Year Ended December 31, 2009
Weighted Avg.
Interest Rate
Amount
Year Ended December 31, 2010
Weighted Avg.
Interest Rate
Amount
Beginning balance . . . $392,430
—
Debt assumed . . . . . . .
(32,653)
Debt extinguished . . . .
(5,631)
Principal payments . . .
Ending balance . . . . . . $354,146
5.854%
$354,146
5.799%
6.473%
5.741%
5.799%
(34,213)
(5,868)
$314,065
6.933%
5.721%
5.677%
$314,065
167,737
(8,494)
(9,831)
$463,477
Monthly averages . . . . $365,661
5.802%
$341,103
5.764%
$458,196
5.677%
6.637%
6.045%
6.279%
5.286%
5.961%
The increase in property operating expenses and depreciation and amortization is primarily attributable to
acquisitions and construction conversions of new medical facilities for which we incur certain property operating
expenses offset by property operating expenses associated with discontinued operations.
Transaction costs for the year ended December 31, 2010 represent costs incurred in connection with the
acquisition of new properties. Income tax expense is primarily related to third party management fee income.
Income from unconsolidated joint ventures represents our share of net income related to our joint venture
investment with Forest City Enterprises. See Note 7 to our consolidated financial statements for additional
information. The following is a summary of our net income from this investment for the year ended December 31,
2010 (in thousands):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $34,002
9,707
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,295
8,514
7,759
1,349
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,673
During the year ended December 31, 2008, we sold two medical facilities for net gains of $12,476,000. At
December 31, 2008, we had 15 medical facilities that were held for sale and we recorded an impairment charge of
$32,648,000 to reduce the carrying values of certain properties to their estimated fair values less costs to sell. During
the year ended December 31, 2009, we sold 15 medical facilities for net gains of $11,310,000. At December 31,
2009, we had eight medical facilities held for sale and recorded an impairment charge of $25,223,000 to reduce the
properties to their estimated fair values less costs to sell. In determining the fair value of the held for sale properties,
we used a combination of third party appraisals based on market comparable transactions, other market listings and
asset quality as well as management calculations based on projected operating income and published capitalization
rates. During the three months ended September 30, 2010, we recorded an impairment charge of $947,000 related to
two of the held for sale medical facilities to adjust the carrying values to estimated fair values less costs to sell based
on current sales price expectations. During the year ended December 31, 2010, we sold seven of the held for sale
medical facilities for net losses of $159,000. At December 31, 2010, we had one medical facility held for sale. The
following illustrates the reclassification impact as a result of classifying medical facilities sold prior to or held for
64
sale at December 31, 2010 as discontinued operations for the periods presented. Please refer to Note 5 to our
consolidated financial statements for further discussion.
Year Ended December 31,
2009
2008
2010
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,189
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses:
$7,965
— 8,059
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,152
3,995
7,992
1,437
3,069
2,923
$ 1,743
—
202
3,345
—
Income (loss) from discontinued operations, net . . . . . . . . . . . . . . . . $
50
$8,595
$(1,804)
Net income attributable to non-controlling interests primarily relates to certain properties that are consolidated
in our operating results but where we have less than a 100% ownership interest.
Non-Segment/Corporate
The following is a summary of our results of operations for the non-segment/corporate activities (dollars in
thousands):
Revenues:
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
Two Year
Change
$
%
$
%
Other income . . . . . . . .
$
1,692
$
1,170
$
(522)
(31)% $
2,874
$ 1,704
146% $ 1,182
70%
Expenses:
Interest expense. . . . . . .
Realized loss on
derivatives . . . . . . . . .
General and
112,055
76,566
(35,489)
(32)% 113,129
36,563
48%
1,074
1%
23,393
— (23,393) (100)%
—
— n/a
(23,393)
(100)%
administrative . . . . . .
47,193
49,691
2,498
5%
54,626
4,935
10%
7,433
16%
Loss (gain) on
extinguishments of
debt . . . . . . . . . . . . .
Loss from continuing
operations before income
taxes . . . . . . . . . . . . . .
Income tax benefit
(expense) . . . . . . . . . . .
Net loss . . . . . . . . . . . . . .
Preferred stock dividends . .
Net loss attributable to
—
182,641
19,269
145,526
19,269
(37,115)
n/a
25,072
(20)% 192,827
5,803
47,301
30% 25,072
33% 10,186
n/a
6%
(180,949)
(144,356)
36,593
(20)% (189,953)
(45,597)
32% (9,004)
5%
438
(180,511)
23,201
672
(143,684)
22,079
234
36,827
(1,122)
53%
(58)
(20)% (190,011)
21,645
(5)%
(730) (109)%
(496)
32% (9,500)
(2)% (1,556)
(113)%
5%
(7)%
(46,327)
(434)
common stockholders . .
$(203,712) $(165,763) $ 37,949
(19)% $(211,656) $(45,893)
28% $ (7,944)
4%
Other income primarily represents income from non-real estate activities such as interest earned on temporary
investments of cash reserves.
65
The following is a summary of our non-segment/corporate interest expense (dollars in thousands):
Year Ended
December 31,
2008
December 31,
2009
One Year
Change
$
%
Year Ended
December 31,
2010
One Year
Change
$
%
Two Year
Change
$
%
Senior unsecured
notes . . . . . . . . . . . .
Secured debt . . . . . . . . .
Unsecured lines of
credit . . . . . . . . . . . .
Capitalized interest . . . .
Interest SWAP
savings . . . . . . . . . . .
Loan expense . . . . . . . .
Totals . . . . . . . . . . . . . .
$111,544
—
$106,347
265
$ (5,197)
(5)% $122,492
645
265 n/a
$16,145
15% $ 10,948
645
380 143%
10%
n/a
18,878
(25,029)
4,629
(41,170)
(14,249) (75)%
(16,141) 64%
3,974
(20,792)
(655) (14)% (14,904)
4,237
20,378 (49)%
(79)%
(17)%
(161)
6,823
$112,055
(161)
6,656
$ 76,566
(161)
— 0%
6,971
(2)%
$(35,489) (32)% $113,129
(167)
— 0%
5%
—
148
48% $ 1,074
315
$36,563
0%
2%
1%
The change in interest expense on senior unsecured notes is due to the net effect of issuances and
extinguishments. The following is a summary of our senior unsecured note principal activity (dollars in thousands):
Year Ended December 31, 2008
Year Ended December 31, 2009
Year Ended December 31, 2010
Beginning balance . . . . .
Debt issued . . . . . . . . . .
Debt extinguished(1). . . .
Amount
Weighted Avg.
Interest Rate
Amount
Weighted Avg.
Interest Rate
$1,887,330
5.823%
$1,845,000
5.782%
(42,330)
7.625%
(183,147)
7.823%
Amount
$1,661,853
1,844,403
(441,326)
Ending balance . . . . . . . .
$1,845,000
5.782%
$1,661,853
5.557%
$3,064,930
Weighted Avg.
Interest Rate
5.557%
4.653%
4.750%
5.129%
Monthly averages . . . . . .
$1,854,768
5.792%
$1,778,621
5.713%
$2,221,056
5.263%
(1) We recognized losses of $0, $19,269,000 and $25,072,000 in connection with the extinguishments for the years ended December 31, 2008,
2009 and 2010, respectively.
During the three months ended September 30, 2009, we completed a $10,750,000 first mortgage loan secured
by a commercial real estate campus. The 10-year debt has a fixed interest rate of 6.37%.
The change in interest expense on the unsecured line of credit arrangement is due primarily to the net effect and
timing of draws, paydowns and variable interest rate changes. The following is a summary of our unsecured line of
credit arrangement (dollars in thousands):
Year Ended December 31,
2009
2008
2010
Balance outstanding at quarter end . . . . . . . . . . . . . . . . . . . . . . $570,000
Maximum amount outstanding at any month end. . . . . . . . . . . . $744,000
Average amount outstanding (total of daily principal balances
$140,000
$559,000
$300,000
$560,000
divided by days in period) . . . . . . . . . . . . . . . . . . . . . . . . . . $500,561
$241,463
$268,762
Weighted average interest rate (actual interest expense divided
by average borrowings outstanding) . . . . . . . . . . . . . . . . . . .
3.77%
1.92%
1.48%
We capitalize certain interest costs associated with funds used to finance the construction of properties owned
directly by us. The amount capitalized is based upon the balances outstanding during the construction period using
the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount
capitalized.
Please see Note 11 to our consolidated financial statements for a discussion of our interest rate swap
agreements and their impact on interest expense. Loan expense represents the amortization of deferred loan costs
incurred in connection with the issuance and amendments of debt. Loan expense is consistent for all years
presented.
66
During the year ended December 31, 2008, we recognized a realized loss on derivatives of $23,393,000 related
to forward-starting interest rate swaps that were in place to hedge future debt issuances when the timing of those
issuances was revised.
General and administrative expenses as a percentage of consolidated revenues (including revenues from
discontinued operations) for the years ended December 31, 2010, 2009 and 2008 were 7.78%, 8.33% and 8.24%,
respectively. The change from prior year is primarily related to (i) the recognition of $2,853,000 of expenses in
connection with a performance-based stock grant, (ii) the recognition of $1,000,000 for the immediate vesting of a
stock grant in conjunction with the CEO’s new employment agreement, and (iii) additional salary and benefits to
attract and retain appropriate personnel to support our business growth. This was partially offset by $3,909,000 of
non-recurring expenses recognized during the year ended December 31, 2009 in connection with the departure of
Raymond W. Braun who formerly served as President of the company.
The change in preferred dividends is primarily attributable to preferred stock conversions into common stock.
The following is a summary of our preferred stock activity (dollars in thousands):
Year Ended December 31, 2008
Year Ended December 31, 2009
Year Ended December 31, 2010
Beginning balance . . . . .
Shares issued . . . . . . . . .
Shares redeemed. . . . . . .
Shares converted . . . . . .
Shares
Weighted Avg.
Dividend Rate
Shares
Weighted Avg.
Dividend Rate
12,879,189
7.676%
11,516,302
7.696%
(1,362,887)
7.500%
(42,209)
7.478%
Shares
11,474,093
349,854
(5,513)
(468,580)
Ending balance . . . . . . . .
11,516,302
7.696%
11,474,093
7.697%
11,349,854
Weighted Avg.
Dividend Rate
7.697%
6.000%
7.500%
7.262%
7.663%
Monthly averages . . . . . .
12,138,161
7.686%
11,482,557
7.697%
11,321,886
7.699%
Non-GAAP Financial Measures
We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measurement.
However, we consider FFO to be a useful supplemental measure of our operating performance. Historical cost
accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets
diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values
have historically risen or fallen with market conditions, many industry investors and analysts have considered
presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In
response, the National Association of Real Estate Investment Trusts (“NAREIT”) created FFO as a supplemental
measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as
defined by NAREIT, means net income, computed in accordance with U.S. GAAP, excluding gains (or losses) from
sales of real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and
joint ventures.
Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI
as total revenues, including tenant reimbursements, less property level operating expenses, which exclude
depreciation and amortization, general and administrative expenses, impairments and interest expense. We believe
NOI provides investors relevant and useful information because it measures the operating performance of our
properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations
and to assess the property level performance of our properties.
EBITDA stands for earnings before interest, taxes, depreciation and amortization. We believe that EBITDA,
along with net income and cash flow provided from operating activities, is an important supplemental measure
because it provides additional information to assess and evaluate the performance of our operations. A covenant in
our line of credit arrangement contains a financial ratio based on a definition of EBITDA that is specific to that
agreement. Failure to satisfy this covenant could result in an event of default that could have a material adverse
impact on our cost and availability of capital, which could in turn have a material adverse impact on our
consolidated results of operations, liquidity and/or financial condition. Due to the materiality of this debt agreement
and the financial covenant, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above and
67
adjusted for stock-based compensation expense, provision for loan losses and gain/loss on extinguishment of debt.
We primarily utilize Adjusted EBITDA to measure our adjusted interest coverage ratio, which represents Adjusted
EBITDA divided by total interest, and our adjusted fixed charge coverage ratio, which represents Adjusted
EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and
preferred dividends. Our covenant requires an adjusted fixed charge ratio of at least 1.75 times.
Other than Adjusted EBITDA, our supplemental reporting measures and similarly entitled financial measures
are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and
investment recommendations of companies. Management uses these financial measures to facilitate internal and
external comparisons to our historical operating results and in making operating decisions. Additionally, these
measures are utilized by the Board of Directors to evaluate management. Adjusted EBITDA is used solely to
determine our compliance with a financial covenant of our line of credit arrangement and is not being presented for
use by investors for any other purpose. None of our supplemental measures represent net income or cash flow
provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as
alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be
comparable to similarly entitled items reported by other real estate investment trusts or other companies.
The tables below reflect the reconciliation of FFO to net income attributable to common stockholders, the most
directly comparable U.S. GAAP measure, for the periods presented. The provisions for depreciation and amor-
tization include provisions for depreciation and amortization from discontinued operations. Noncontrolling interest
amounts represent the noncontrolling interests’ share of transaction costs and depreciation and amortization.
Unconsolidated joint venture amounts represent our share of unconsolidated joint ventures’ depreciation and
amortization. Amounts are in thousands except for per share data.
Year Ended December 31,
2009
2008
2010
FFO Reconciliation:
Net income attributable to common stockholders . . . . . . . . . . . $ 260,098
163,045
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
(163,933)
Loss (gain) on sales of properties . . . . . . . . . . . . . . . . . . . . . .
(342)
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . . .
Funds from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 258,868
Average common shares outstanding:
$171,190
164,923
(43,394)
(965)
—
$106,882
202,543
(36,115)
(2,749)
8,514
$291,754
$279,075
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93,732
94,309
114,207
114,612
127,656
128,208
Per share data:
Net income attributable to common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds from operations
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.77
2.76
2.76
2.74
1.50
1.49
2.55
2.55
$
$
0.84
0.83
2.19
2.18
68
The table below reflects the reconciliation of Adjusted EBITDA to net income, the most directly comparable
U.S. GAAP measure, for the periods presented. Interest expense and the provisions for depreciation and amor-
tization include discontinued operations. Dollars are in thousands.
Year Ended December 31,
2009
2008
2010
Adjusted EBITDA Reconciliation:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $283,425
141,059
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,306
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
163,045
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
8,530
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
94
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on extinguishment of debt
(2,094)
. . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $595,365
Interest Coverage Ratio:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,059
25,029
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,231)
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,857
Total interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $595,365
$192,927
109,772
168
164,923
9,633
23,261
25,107
$525,791
$128,884
160,960
364
202,543
11,823
29,684
34,171
$568,429
$109,772
41,170
(11,898)
139,044
$525,791
$160,960
20,792
(13,945)
167,807
$568,429
Adjusted interest coverage ratio . . . . . . . . . . . . . . . . . . . . . .
3.84x
3.78x
3.39x
Adjusted Fixed Charge Coverage Ratio:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,059
25,029
Capitalized interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(11,231)
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,119
Secured debt principal payments . . . . . . . . . . . . . . . . . . . . . . . .
23,201
Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
186,177
Total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $595,365
$109,772
41,170
(11,898)
9,292
22,079
170,415
$525,791
$160,960
20,792
(13,945)
16,652
21,645
206,104
$568,429
Adjusted fixed charge coverage ratio . . . . . . . . . . . . . . . . . . .
3.20x
3.09x
2.76x
69
The following tables reflect the reconciliation of NOI for the periods presented. All amounts include amounts
from discontinued operations, if applicable. Our share of revenues and expenses from unconsolidated joint ventures
for life science buildings are included in medical facilities. Amounts are in thousands.
Year Ended December 31,
2009
2008
2010
NOI Reconciliation:
Total revenues:
Senior housing and care:
Rental income:
Senior housing facilities . . . . . . . . . . . . . . . . . . . . . . . . $183,411
161,642
Skilled nursing facilities . . . . . . . . . . . . . . . . . . . . . . . .
$190,684
167,426
$220,383
162,521
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resident fees and services . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total senior housing and care revenues . . . . . . . . . . . . .
Medical facilities:
Rental income
Medical office buildings . . . . . . . . . . . . . . . . . . . . . . . .
Hospitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life science buildings . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total medical facilities revenues . . . . . . . . . . . . . . . . . .
Corporate other income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
345,053
—
35,143
5,994
386,190
133,332
43,796
—
177,128
4,920
2,835
184,883
1,692
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
572,765
Property operating expenses:
358,110
—
35,944
5,308
399,362
136,834
44,967
—
181,801
4,941
9,369
196,111
1,170
596,643
382,904
51,006
36,176
3,386
473,472
170,435
50,071
34,002
254,508
4,679
985
260,172
2,874
736,518
Senior housing and care . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical facilities:
Medical office buildings . . . . . . . . . . . . . . . . . . . . . . . . . .
Hospitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life science buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property operating expenses . . . . . . . . . . . . . . . . .
—
—
32,621
46,629
—
—
46,629
46,629
48,965
—
—
48,965
48,965
52,091
1,753
9,707
63,551
96,172
Net operating income:
Senior housing and care . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medical facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-segment/corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
386,190
138,254
1,692
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . $526,136
399,362
147,146
1,170
$547,678
440,851
196,621
2,874
$640,346
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make
estimates and assumptions. Management considers accounting estimates or assumptions critical if:
(cid:129) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment
necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
(cid:129) the impact of the estimates and assumptions on financial condition or operating performance is material.
70
Management has discussed the development and selection of its critical accounting policies with the Audit
Committee of the Board of Directors and the Audit Committee has reviewed the disclosure presented below relating
to them. Management believes the current assumptions and other considerations used to estimate amounts reflected
in our consolidated financial statements are appropriate and are not reasonably likely to change in the future.
However, since these estimates require assumptions to be made that were uncertain at the time the estimate was
made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used
in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material
adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 1
of our audited consolidated financial statements for further information on significant accounting policies that
impact us. There were no material changes to these policies in 2010.
The following table presents information about our critical accounting policies, as well as the material
assumptions used to develop each estimate:
Nature of Critical
Accounting Estimate
Principles of Consolidation
The consolidated financial statements include our accounts,
the
accounts of our wholly-owned subsidiaries and the accounts of joint
ventures in which we own a majority voting interest with the ability to
control operations and where no substantive participating rights or
substantive kick out rights have been granted to the noncontrolling
interests. In addition, we consolidate those entities deemed to be
variable interest entities in which we are determined to be the
primary beneficiary. All material
intercompany transactions and
balances have been eliminated in consolidation.
Income Taxes
As part of the process of preparing our consolidated financial
statements, significant management judgment is required to evaluate
our compliance with REIT requirements.
Assumptions/
Approach Used
We make judgments about which entities are VIEs based on an
assessment of whether (i) the equity investors as a group, if any, do
not have a controlling financial interest, or (ii) the equity investment at
risk is insufficient to finance that entity’s activities without additional
subordinated financial support. We make judgments with respect to our
level of influence or control of an entity and whether we are (or are not)
the primary beneficiary of a VIE. Consideration of various factors
includes, but is not limited to, our ability to direct the activities that
most significantly impact the entity’s economic performance, our form
of ownership interest, our representation on the entity’s governing
body, the size and seniority of our investment, our ability and the rights
of other investors to participate in policy making decisions, replace the
manager and/or liquidate the entity, if applicable. Our ability to
correctly assess our influence or control over an entity at inception
of our involvement or on a continuous basis when determining the
primary beneficiary of a VIE affects the presentation of these entities in
our consolidated financial statements. If we perform a primary
beneficiary analysis at a date other than at inception of the variable
interest entity, our assumptions may be different and may result in the
identification of a different primary beneficiary.
Our determinations are based on interpretation of tax laws, and our
conclusions may have an impact on the income tax expense
recognized. Adjustments to income tax expense may be required as
a result of: (i) audits conducted by federal and state tax authorities, (ii)
our ability to qualify as a REIT, (iii) the potential for built-in-gain
recognized related to prior-tax-free acquisitions of C corporations, and
(iv) changes in tax laws. Adjustments required in any given period are
included in income.
71
Nature of Critical
Accounting Estimate
Assumptions/
Approach Used
impairment
Impairment of Long-Lived Assets
We review our
in
long-lived assets for potential
accordance with U.S. GAAP. An impairment charge must be
recognized when the carrying value of a long-lived asset is not
recoverable. The carrying value is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. If it is determined that a permanent
impairment of a long-lived asset has occurred, the carrying value of the
asset
is reduced to its fair value and an impairment charge is
recognized for the difference between the carrying value and the
fair value.
Allowance for Loan Losses
We maintain an allowance for loan losses in accordance with U.S.
GAAP. The allowance for loan losses is maintained at a level believed
adequate to absorb potential
losses in our loans receivable. The
determination of the allowance is based on a quarterly evaluation of
all outstanding loans. If this evaluation indicates that there is a greater
risk of loan charge-offs, additional allowances or placement on non-
accrual status may be required. A loan is impaired when, based on
current information and events, it is probable that we will be unable to
collect all amounts due as scheduled according to the contractual terms
of the original loan agreement. Consistent with this definition, all loans
on non-accrual are deemed impaired. To the extent circumstances
improve and the risk of collectability is diminished, we will return
these loans to full accrual status.
the property level,
The net book value of long-lived assets is reviewed quarterly on a
property by property basis to determine if there are indicators of
impairment. These indicators may include anticipated operating
the tenant’s inability to make rent
losses at
payments, a decision to dispose of an asset before the end of its
estimated useful life and changes in the market that may permanently
reduce the value of the property. If indicators of impairment exist, then
the undiscounted future cash flows from the most likely use of the
property are compared to the current net book value. This analysis
requires us to determine if indicators of impairment exist and to
estimate the most likely stream of cash flows to be generated from
the property during the period the property is expected to be held.
During the year ended December 31, 2009, an impairment charge of
$25,223,000 was recorded to reduce the carrying value of eight
medical facilities to their estimated fair value less costs to sell. In
determining the fair value of the properties, we used a combination of
third party appraisals based on market comparable transactions, other
market listings and asset quality as well as management calculations
based on projected operating income and published capitalization
rates. During the year ended December 31, 2010, we sold 38
properties, including seven of the held for sale medical facilities,
for net gains of $36,115,000. At December 31, 2010, we had one
medical facility and 16 senior housing facilities that satisfied the
requirements for held for sale treatment. During the three months
ended September 30, 2010, we recorded an impairment charge of
$947,000 related to two of the held for sale medical facilities to adjust
the carrying values to estimated fair values less costs to sell based on
current sales price expectations.
The determination of the allowance is based on a quarterly evaluation
of all outstanding loans, including general economic conditions and
estimated collectability of loan payments and principal. We evaluate
the collectability of our loans receivable based on a combination of
factors, including, but not limited to, delinquency status, historical loan
charge-offs, financial strength of the borrower and guarantors and
value of the underlying property.
As a result of our quarterly evaluations, we recorded $29,684,000 of
provision for loan losses during the year ended December 31, 2010.
This amount includes the write-off of loans totaling $33,591,000
primarily related to certain early stage senior housing and CCRC
development projects. These related to three separate borrowers where
new factors arose that, under the circumstances, resulted in the
determination to record the write-offs. This was offset by a net
reduction of the allowance balance by $3,907,000, resulting in an
allowance for loan losses of $1,276,000 relating to real estate loans
with outstanding balances of $9,691,000, all of which were on non-
accrual status at December 31, 2010.
72
Nature of Critical
Accounting Estimate
Assumptions/
Approach Used
Revenue Recognition
Revenue is recorded in accordance with U.S. GAAP, which requires
that revenue be recognized after four basic criteria are met. These four
criteria include persuasive evidence of an arrangement, the rendering
of service, fixed and determinable income and reasonably assured
collectability. If the collectability of revenue is determined incorrectly,
the amount and timing of our reported revenue could be significantly
affected. Interest income on loans is recognized as earned based upon
the principal amount outstanding subject
to an evaluation of
collectability risk. Substantially all of our operating leases contain
fixed and/or contingent escalating rent structures. Leases with fixed
annual rental escalators are generally recognized on a straight-line
basis over the initial lease period, subject to a collectability assessment.
Rental income related to leases with contingent rental escalators is
generally recorded based on the contractual cash rental payments due
for the period. We recognize resident fees and services, other than
move in fees, monthly as services are provided. Move in fees, which
are a component of resident fees and services, are recognized on a
straight-line basis over the term of the applicable lease agreement.
Lease agreements with residents generally have a term of one year and
are cancelable by the resident with 30 days’ notice.
Fair Value of Derivative Instruments
The valuation of derivative instruments is accounted for in accordance
with U.S. GAAP, which requires companies to record derivatives at fair
market value on the balance sheet as assets or liabilities.
Business Combinations
Real property developed by us is recorded at cost, including the
capitalization of construction period interest. The cost of
real
tangible and identifiable
property acquired is allocated to net
intangible assets based on their respective fair values. Tangible
assets primarily consist of land, buildings and improvements. The
remaining purchase price is allocated among identifiable intangible
assets primarily consisting of the above or below market component of
in-place leases and the value of in-place leases. The total amount of
other intangible assets acquired is further allocated to in-place lease
values and customer relationship values based on management’s
evaluation of the specific characteristics of each tenant’s lease and
the Company’s overall relationship with that respective tenant.
We evaluate the collectability of our revenues and related receivables
on an on-going basis. We evaluate collectability based on assumptions
and other considerations including, but not limited to, the certainty of
payment, payment history, the financial strength of the investment’s
underlying operations as measured by cash flows and payment
coverages, the value of the underlying collateral and guaranties and
current economic conditions.
If our evaluation indicates that collectability is not reasonably assured,
we may place an investment on non-accrual or reserve against all or a
portion of current income as an offset to revenue.
resident
income, $51,006,000 of
For the year ended December 31, 2010, we recognized $40,855,000 of
interest
fees and services, and
$603,410,000 of rental income, including discontinued operations. For
the year ended December 31, 2010, cash receipts on leases with deferred
revenue provisions equaled $8,537,000 as compared to gross straight-line
rental income recognized of $14,717,000. At December 31, 2010, our
straight-line receivable balance was $86,669,000, net of reserves totaling
$265,000. Also at December 31, 2010, we had real estate loans with
outstanding balances of $9,691,000 on non-accrual status.
The valuation of derivative instruments requires us to make estimates and
judgments that affect the fair value of the instruments. Fair values for our
derivatives are estimated by utilizing pricing models that consider forward
yield curves and discount rates. Such amounts and their recognition are
subject to significant estimates which may change in the future. At
December 31, 2010, we participated in one interest
rate swap
agreement which is reported at its fair value of $482,000 in other liabilities.
We make estimates as part of our allocation of the purchase price of
acquisitions to the various components of the acquisition based upon
the relative fair value of each component. The most significant
components of our allocations are typically the allocation of fair
value to the buildings as-if-vacant, land and in-place leases. In the
case of the fair value of buildings and the allocation of value to land
and other intangibles, our estimates of the values of these components
will affect the amount of depreciation and amortization we record over
the estimated useful life of the property acquired or the remaining lease
term. In the case of the value of in-place leases, we make our best
estimates based on our evaluation of the specific characteristics of each
tenant’s lease. Factors considered include estimates of carrying costs
during hypothetical expected lease-up periods, market conditions and
costs to execute similar leases. Our assumptions affect the amount of
future revenue that we will recognize over the remaining lease term for
the acquired in-place leases
We compute depreciation and amortization on our properties using the
straight-line method based on their estimated useful lives which range from
15 to 40 years for buildings and five to 15 years for improvements. Lives
for intangibles are based on the remaining term of the underlying leases.
For the year ended December 31, 2010, we recorded $144,098,000,
$40,147,000 and $18,298,000 as provisions for depreciation and
amortization relating to buildings,
improvements and intangibles,
respectively, including amounts reclassified as discontinued operations.
The average useful life of our buildings, improvements and intangibles was
38.2 years, 11.6 years and 6.0 years, respectively, for the year ended
December 31, 2010.
73
Impact of Inflation
During the past three years, inflation has not significantly affected our earnings because of the moderate
inflation rate. Additionally, our earnings are primarily long-term investments with fixed rates of return. These
investments are mainly financed with a combination of equity, senior unsecured notes and borrowings under our
unsecured line of credit arrangement. During inflationary periods, which generally are accompanied by rising
interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a
slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest
rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt
financing for us.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest
rates. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with
new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative
instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our
variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the
applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a
discussion of the risks associated with potential fluctuations in interest rates.
We historically borrow on our unsecured line of credit arrangement to acquire, construct or make loans relating
to health care and senior housing properties. Then, as market conditions dictate, we will issue equity or long-term
fixed rate debt to repay the borrowings under the unsecured line of credit arrangement.
A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate
changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon
maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the
debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the
impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments
whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to
determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the
dates indicated (in thousands):
December 31, 2010
December 31, 2009
Principal
Balance
Change in
Fair Value
Principal
Balance
Change in
Fair Value
Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . .
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,064,930
1,030,070
$(248,884)
(51,973)
$1,661,853
491,094
$(129,350)
(22,522)
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,095,000
$(300,857)
$2,152,947
$(151,872)
On December 31, 2010, we assumed an interest rate swap (the “December 2010 Swap”) for a total notional
amount of $12,650,000 to hedge interest payments associated with long-term LIBOR based borrowings. The
December 2010 Swap has an effective date of December 31, 2010 and a maturity date of December 31, 2013. The
December 2010 Swap has the economic effect of fixing $12,650,000 at 5.50% plus a credit spread through the
swap’s maturity. In January 2011, the December 2010 Swap was designated as a cash flow hedge and we expect it to
be highly effective at offsetting changes in cash flows of interest payments on $12,650,000 of long-term debt due to
changes in the LIBOR swap rate.
Our variable rate debt, including our unsecured line of credit arrangement, is reflected at fair value. At
December 31, 2010, we had $300,000,000 outstanding related to our variable rate line of credit and $103,645,000
outstanding related to our variable rate secured debt. Assuming no changes in outstanding balances, a 1% increase
in interest rates would result in increased annual interest expense of $4,036,000. At December 31, 2009, we had
$140,000,000 outstanding related to our variable rate line of credit and $131,952,000 outstanding related to our
74
variable rate secured debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have
resulted in increased annual interest expense of $2,720,000.
We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be
refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The
majority of our borrowings were completed under indentures or contractual agreements that limit the amount of
indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money
because of these limitations, our ability to acquire additional properties may be limited.
For additional information regarding fair values of financial instruments, see “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and
Note 16 to our audited consolidated financial statements.
75
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31,
2010 and 2009, and the related consolidated statements of income, equity, and cash flows for each of the three years
in the period ended December 31, 2010. Our audits also included the financial statement schedules listed in
Item 15(a) (2) of this Form 10-K. These financial statements and schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Health Care REIT, Inc. at December 31, 2010 and 2009, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2010, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion
thereon.
Toledo, Ohio
February 25, 2011
/s/ ERNST & YOUNG LLP
76
HEALTH CARE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2010
December 31,
2009
(In thousands)
Real estate investments:
Real property owned:
ASSETS
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real property held for sale, net of accumulated depreciation . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross real property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Net real property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate loans receivable:
Real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less allowance for losses on loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Net real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
727,050 $
7,627,132
258,079
23,441
356,793
8,992,495
(836,966)
8,155,529
436,580
(1,276)
435,304
8,590,833
521,055
5,185,328
127,390
45,686
456,832
6,336,291
(677,851)
5,658,440
427,363
(5,183)
422,180
6,080,620
Other assets:
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,816
—
22,698
35,476
23,237
199,339
286,566
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,451,734 $ 6,367,186
237,107
51,207
32,960
131,570
79,069
328,988
860,901
Liabilities:
LIABILITIES AND EQUITY
Borrowings under unsecured line of credit arrangement . . . . . . . . . . . . . . . . . . . $
Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity:
300,000 $
3,034,949
1,125,906
8,881
244,345
4,714,081
4,553
140,000
1,653,027
620,995
—
145,713
2,559,735
—
288,683
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123,385
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,900,666
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,619)
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,547,669
Cumulative net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,057,658)
Cumulative dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,891)
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,804
Other equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,797,039
Total Health Care REIT, Inc. stockholders’ equity . . . . . . . . . . . . . . . . . . . . .
10,412
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,807,451
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,451,734 $ 6,367,186
291,667
147,155
4,932,468
(11,352)
1,676,196
(2,427,881)
(11,099)
5,697
4,602,851
130,249
4,733,100
See accompanying notes
77
HEALTH CARE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2009
2008
2010
Revenues:
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resident fees and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$581,424
51,006
40,855
7,245
680,530
$497,419
—
40,885
7,788
546,092
$453,941
—
40,063
10,521
504,525
Expenses:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized loss of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before income taxes
and income from unconsolidated joint ventures . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations:
Gain (loss) on sales of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to noncontrolling interests . . . . . . . . .
Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . .
157,108
83,120
197,118
54,626
46,660
—
34,171
29,684
602,487
78,043
(364)
6,673
84,352
36,115
(947)
9,364
44,532
128,884
21,645
357
$106,882
102,117
45,896
150,728
49,691
—
—
25,107
23,261
396,800
149,292
(168)
—
149,124
43,394
(25,223)
25,632
43,803
192,927
22,079
(342)
$171,190
125,276
42,634
138,136
47,193
—
23,393
(2,094)
94
374,632
129,893
(1,306)
—
128,587
163,933
(32,648)
23,553
154,838
283,425
23,201
126
$260,098
Average number of common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127,656
128,208
114,207
114,612
93,732
94,309
Earnings per share:
Basic:
Income from continuing operations attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common stockholders* . . . . . . . . . . . . . .
Diluted:
Income from continuing operations
attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common stockholders* . . . . . . . . . . . . . .
$
$
$
$
0.49
0.35
0.84
0.49
0.35
0.83
$
$
$
$
1.12
0.38
1.50
1.11
0.38
1.49
$
$
$
$
1.12
1.65
2.77
1.12
1.64
2.76
* Amounts may not sum due to rounding
See accompanying notes
78
HEALTH CARE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Preferred
Stock
Common
Stock
Capital in
Excess of
Par Value
Treasury
Stock
Cumulative
Net Income
Cumulative
Dividends
(In thousands)
Accumulated
Other
Comprehensive
Income
Other
Equity
Noncontrolling
Interests
Total
Balances at December 31, 2007 . . . . . . . . . . . $330,243 $ 85,412 $2,394,099 $ (3,952) $1,071,101 $(1,446,959)
Comprehensive income:
$ (7,381)
$2,701
$
9,687
$2,434,951
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized gain (loss) on equity
investments . . . . . . . . . . . . . . . . . .
Unrecognized SERP actuarial gain (loss) . . .
Cash flow hedge activity . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . .
Contributions by noncontrolling interests . . . . . .
Distributions to noncontrolling interests . . . . . .
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures . . . . . . . . .
Net proceeds from sale of common stock . . . . .
Conversion of preferred stock . . . . . . . . . . . .
Option compensation expense . . . . . . . . . . . .
Cash dividends paid:
Common stock cash dividends . . . . . . . . . .
Preferred stock cash dividends . . . . . . . . . .
Balances at December 31, 2008 . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized gain (loss) on equity
investments . . . . . . . . . . . . . . . . . .
Unrecognized SERP actuarial gain (loss) . . .
Cash flow hedge activity . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . .
Contributions by noncontrolling interests . . . . . .
Distributions to noncontrolling interests . . . . . .
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures . . . . . . . . .
Proceeds from issuance of common shares . . . . .
Conversion of preferred stock . . . . . . . . . . . .
Option compensation expense . . . . . . . . . . . .
Cash dividends paid:
Common stock cash dividends . . . . . . . . . .
Preferred stock cash dividends . . . . . . . . . .
Balances at December 31, 2009 . . . . . . . . . . .
Comprehensive income:
Net income . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income:
Unrealized gain (loss) on equity
investments . . . . . . . . . . . . . . . . . .
Unrecognized SERP actuarial gain (loss) . . .
Cash flow hedge activity . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . .
Contributions by noncontrolling interests . . . . . .
Distributions to noncontrolling interests . . . . . .
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures . . . . . . . . .
Proceeds from issuance of common shares . . . . .
Equity component of convertible debt
. . . . . . .
Equity consideration in business combinations . . .
Redemption of preferred stock . . . . . . . . . . . .
Conversion of preferred stock . . . . . . . . . . . .
Option compensation expense . . . . . . . . . . . .
Cash dividends paid:
Common stock cash dividends . . . . . . . . . .
Preferred stock cash dividends . . . . . . . . . .
283,299
126
283,425
(846)
(715)
7,829
3,556
(2,766)
(99)
1,503
(846)
(715)
7,829
289,693
3,556
(2,766)
76,525
711,683
—
1,503
(253,659)
(23,201)
(253,659)
(23,201)
1,804
16,444
975
76,013
695,239
39,339
(1,193)
(40,314)
289,929
104,635 3,204,690
(5,145) 1,354,400
(1,723,819)
(1,113)
4,105
10,603
3,238,285
193,269
(342)
192,927
1,751
16,969
30
66,690
628,070
1,216
(1,246)
(2,474)
487
277
(2,542)
2,255
(2,104)
(930)
1,629
487
277
(2,542)
191,149
2,255
(2,104)
65,037
645,039
—
1,629
(311,760)
(22,079)
(311,760)
(22,079)
288,683
123,385 3,900,666
(7,619) 1,547,669
(2,057,658)
(2,891)
4,804
10,412
3,807,451
128,527
357
128,884
43,640
97,696
884,255
(9,689)
2,721
(3,733)
2,300
21,131
339
13,179
16,667
(165)
(13,518)
54
(199)
(8,063)
122,781
(3,301)
(741)
1,634
54
(199)
(8,063)
120,676
166,421
(3,301)
95,522
905,386
(9,689)
19,388
(165)
—
1,634
(348,578)
(21,645)
(348,578)
(21,645)
Balances at December 31, 2010 . . . . . . . . . . $291,667 $147,155 $4,932,468 $(11,352) $1,676,196 $(2,427,881)
$(11,099)
$5,697
$130,249
$4,733,100
See accompanying notes
79
HEALTH CARE REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net income to net cash provided from (used in)
operating activities:
2010
Year Ended December 31,
2009
(In thousands)
2008
128,884
$ 192,927
$
283,425
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . .
Rental income less than (in excess of) cash received . . . . . . . . . . . . . . . .
Amortization related to above (below) market leases, net . . . . . . . . . . . . .
Loss (gain) on sales of properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income less than (in excess of) cash received . . . . . . . . . . . . . . . . .
Deferred gain on sales of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued expenses and other liabilities . . . . . . . . . . .
Decrease (increase) in receivables and other assets. . . . . . . . . . . . . . . . . .
Net cash provided from (used in) operating activities . . . . . . . . . . . . . . . . . . .
Investing activities
Investment in real property, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments, net of payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal collected on real estate loans receivable . . . . . . . . . . . . . . . . . . . . . .
Contributions to unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . .
Distributions by unconsolidated joint ventures . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided from (used in) investing activities. . . . . . . . . . . . . . . . . . . .
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements . . . . . . . .
Proceeds from issuance of senior unsecured notes. . . . . . . . . . . . . . . . . . . . . .
Payments to extinguish senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from the issuance of secured debt . . . . . . . . . . . . . . . . . . . . . . .
Payments on secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in deferred loan expenses . . . . . . . . . . . . . . . . . . . . . . . .
Contributions by noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash distributions to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided from (used in) financing activities . . . . . . . . . . . . . . . . . . .
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $
202,543
17,169
29,684
947
11,823
34,171
(6,673)
(6,594)
(2,856)
(36,115)
—
—
12,293
(20,535)
364,741
(2,074,176)
(20,792)
(97,265)
(133,894)
43,495
(196,413)
103
(52,124)
219,027
(2,312,039)
160,000
1,821,683
(495,542)
154,306
(217,711)
995,438
(3,869)
2,611
(3,301)
(370,223)
2,043,392
96,094
35,476
131,570
164,923
15,412
23,261
25,223
9,633
25,107
—
11,259
(1,713)
(43,394)
(5,000)
—
(311)
(36,068)
381,259
(598,959)
(41,170)
(74,417)
(22,133)
111,779
—
—
130,833
224,007
(270,060)
(430,000)
—
(201,048)
276,277
(107,736)
704,533
(7,431)
2,255
(2,104)
(333,839)
(99,093)
12,106
23,370
$ 35,476
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
156,207
319
$ 143,697
854
163,045
14,837
94
32,648
8,530
(2,094)
—
7,793
(1,039)
(163,933)
—
3,708
17,363
(3,694)
360,683
(1,072,376)
(25,029)
(83,109)
(21,725)
18,169
—
—
(138,502)
287,047
(1,035,525)
263,000
—
(42,330)
—
(58,594)
782,285
(348)
3,556
(2,766)
(276,860)
667,943
(6,899)
30,269
23,370
156,914
1,789
$
$
See accompanying notes
80
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity real estate
investment trust (“REIT”) that invests in senior housing and health care real estate. Our full service platform also
offers property management and development services to our customers. As of December 31, 2010, our diversified
portfolio consisted of 683 properties in 41 states. Founded in 1970, we were the first real estate investment trust to
invest exclusively in health care facilities. More information is available on our website at www.hcreit.com.
2. Accounting Policies and Related Matters
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint
ventures that we control, through voting rights or other means. All material intercompany transactions and balances
have been eliminated in consolidation.
At inception of joint venture transactions, we identify entities for which control is achieved through means
other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the
primary beneficiary of its operations. A variable interest entity is broadly defined as an entity where either (i) the
equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is
insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate
investments in VIEs when we are determined to be the primary beneficiary. ASC 810, Consolidations, requires
enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a
continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a variable
interest entity that most significantly impact that entity’s economic performance.
For investments in joint ventures, we evaluate the type of rights held by the limited partner(s), which may
preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited
partnership. The assessment of limited partners’ rights and their impact on the presumption of control over a limited
partnership by the sole general partner should be made when an investor becomes the sole general partner and
should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners,
(ii) the sole general partner increases or decreases its ownership in the limited partnership, or (iii) there is an
increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights of
managing members of limited liability companies.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles
(“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic
criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed
and determinable income and reasonably assured collectability. Interest income on loans is recognized as earned
based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our
operating leases contain either fixed or contingent escalating rent structures. Leases with fixed annual rental
escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability
assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the
contractual cash rental payments due for the period. We recognize resident fees and services, other than move in
fees, monthly as services are provided. Move in fees, which are a component of resident fees and services, are
81
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recognized on a straight-line basis over the term of the applicable lease agreement. Lease agreements with residents
generally have a term of one year and are cancelable by the resident with 30 days’ notice.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or
less.
Restricted Cash
Restricted cash primarily consists of amounts held by lenders to provide future payments for real estate taxes,
insurance, tenant and capital improvements and amounts held in escrow relating to acquisitions we are entitled to
receive over a period of time as outlined in the escrow agreement.
Deferred Loan Expenses
Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments
of debt arrangements. We amortize these costs over the term of the debt using the straight-line method, which
approximates the effective interest method.
Equity Investments
Equity investments at December 31, 2010 and 2009 include an investment in a public company that has a
readily determinable fair market value. We classify this equity investment as available-for-sale and, accordingly,
record this investment at its fair market value with unrealized gains and losses included in accumulated other
comprehensive income, a separate component of stockholders’ equity. Equity investments at December 31, 2010
and 2009 also include an investment in a private company. We do not have the ability to exercise influence over the
company, so the investment is accounted for under the cost method. Under the cost method of accounting,
investments in private companies are carried at cost and are adjusted only for other-than-temporary declines in fair
value, return of capital and additional investments. These equity investments represented a minimal ownership
interest in these companies. Additionally, equity investments include investments in unconsolidated joint ventures.
Investments in Unconsolidated Joint Ventures
Investments in less than majority owned entities where our interests represent a general partnership interest but
substantive participating rights or substantive kick-out rights have been granted to the limited partners, or where our
interests do not represent the general partnership interest and we do not control the major operating and financial
policies of the entity, are reported under the equity method of accounting. Under the equity method of accounting,
our share of the investee’s earnings or losses is included in our consolidated results of operations. To the extent that
the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is
generally amortized over the lives of the related assets and liabilities, and such amortization is included in the
Company’s share of equity in earnings of the joint venture. The initial carrying value of investments in uncon-
solidated joint ventures is based on the amount paid to purchase the joint venture interest or the estimated fair value
of the assets prior to the sale of interests in the joint venture. We evaluate our equity method investments for
impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying
value. When we determine a decline in the estimated fair value of such an investment below its carrying value is
other-than-temporary, an impairment is recorded.
Redeemable Noncontrolling Interests
Certain noncontrolling interests are redeemable at fair value at December 31, 2010. Accordingly, we record the
carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or
82
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income
or loss and dividends or (ii) the redemption value. In accordance with ASC 810, the redeemable noncontrolling
interests were classified outside of permanent equity, as a mezzanine item, in the balance sheet.
Real Property Owned
Real property developed by us is recorded at cost, including the capitalization of construction period interest.
The cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their
respective fair values. These properties are depreciated on a straight-line basis over their estimated useful lives
which range from 15 to 40 years for buildings and five to 15 years for improvements. Tangible assets primarily
consist of land, buildings and improvements. We consider costs incurred in conjunction with re-leasing properties,
including tenant improvements and lease commissions, to represent the acquisition of productive assets and,
accordingly, such costs are reflected as investment activities in our statement of cash flows.
The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the
above or below market component of in-place leases and the value of in-place leases. The value allocable to the
above or below market component of the acquired in-place lease is determined based upon the present value (using a
discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the
contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the
amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to
above market leases are included in acquired lease intangibles and below market leases are included in other
liabilities in the balance sheet and are amortized to rental income over the remaining terms of the respective leases.
The total amount of other intangible assets acquired is further allocated to in-place lease values and customer
relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and the
Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating
these values include the nature and extent of the Company’s existing business relationships with the tenant, growth
prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals,
among other factors. The estimated aggregate amortization expense for acquired lease intangibles is expected to be
recognized over a weighted average period of 18.2 years and is as follows for the periods indicated (in thousands):
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48,613
30,828
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,194
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,831
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,618
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,851
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $208,935
The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if
facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed.
We consider external factors relating to each asset and the existence of a master lease which may link the cash flows
of an individual asset to a larger portfolio of assets leased to the same tenant. If these factors and the projected
undiscounted cash flows of the asset over the remaining depreciation period indicate that the asset will not be
recoverable, the carrying value is reduced to the estimated fair market value. In addition, we are exposed to the risks
inherent in concentrating investments in real estate, and in particular, the senior housing and health care industries.
A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell
properties for a price or on terms acceptable to us.
83
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalization of Construction Period Interest
We capitalize interest costs associated with funds used to finance the construction of properties owned directly
by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of
interest which approximates our cost of financing. We capitalized interest costs of $20,792,000, $41,170,000, and
$25,029,000 during 2010, 2009 and 2008, respectively, related to construction of real property owned by us. Our
interest expense reflected in the consolidated statements of income has been reduced by the amounts capitalized.
Gain on Sale of Assets
We recognize sales of assets only upon the closing of the transaction with the purchaser. Payments received
from purchasers prior to closing are recorded as deposits and classified as other assets on our Consolidated Balance
Sheets. Gains on assets sold are recognized using the full accrual method upon closing when (i) the collectability of
the sales price is reasonably assured, (ii) we are not obligated to perform significant activities after the sale to earn
the profit, (iii) we have received adequate initial investment from the buyer and (iv) other profit recognition criteria
have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain
recognition on sales of real estate.
Real Estate Loans Receivable
Real estate loans receivable consist of mortgage loans and other real estate loans. Interest income on loans is
recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks.
The loans are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an
assignment of the partnership interest in, the related properties, corporate guaranties and/or personal guaranties.
Allowance for Losses on Loans Receivable
The allowance for losses on loans receivable is maintained at a level believed adequate to absorb potential
losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of these loans,
including general economic conditions and estimated collectability of loan payments. We evaluate the collectability
of our loans receivable based on a combination of factors, including, but not limited to, delinquency status,
historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying collateral.
If such factors indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-
accrual status may be required. A loan is impaired when, based on current information and events, it is probable that
we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan
agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. At December 31, 2010,
we had loans with outstanding balances of $9,691,000 on non-accrual status ($67,126,000 at December 31, 2009).
To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full
accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal
balance.
Goodwill
We account for goodwill in accordance with U.S. GAAP. Goodwill is tested annually for impairment and is
tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting
unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill.
Fair Value of Derivative Instruments
The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value
of the instruments. Fair values for our derivatives are estimated by utilizing pricing models that consider forward
84
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant
estimates that may change in the future. See Note 11 for additional information.
Federal Income Tax
No provision has been made for federal income taxes since we have elected to be treated as a real estate
investment trust under the applicable provisions of the Internal Revenue Code, and we believe that we have met the
requirements for qualification as such for each taxable year. Our taxable REIT subsidiaries are subject to federal,
state and local income taxes. See Note 18 for additional information.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the
weighted-average number of shares outstanding for the period adjusted for non-vested shares of restricted stock.
The computation of diluted earnings per share is similar to basic earnings per share, except that the number of shares
is increased to include the number of additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
New Accounting Standards
In June 2009, the Financial Accounting Standards Board (“FASB”) amended the consolidation guidance for
variable interest entities. The new guidance, to be applied on a continuous basis, requires enterprises to perform a
qualitative approach to determining whether or not a variable interest entity will need to be consolidated. This
evaluation is based on an enterprise’s ability to direct and influence the activities of a variable interest entity that
most significantly impact its economic performance. This amendment became effective as of January 1, 2010. The
adoption of this guidance did not have a material impact on our consolidated financial position or results of
operations.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic 310):
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU
2010-20”). This update expands the required disclosures regarding the credit quality of our financing receivables,
how risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes (and reasons for the
changes) in the allowance for credit losses. Both new and existing disclosures must be disaggregated by portfolio
segment and class. The disaggregation of information is based on the level at which an entity develops and
documents a systematic method for determining its allowance for credit losses. This update is effective for interim
periods and fiscal years ending after December 15, 2010. The adoption of this guidance did not have a material
impact on our consolidated financial position or results of operations.
Reclassifications
Certain amounts in prior years have been reclassified to conform to current year presentation.
3. Real Property Acquisitions and Development
Senior Housing Operating Partnerships
Merrill Gardens Partnership
During the three months ended September 30, 2010, we completed the formation of our partnership with
Merrill Gardens LLC to own and operate a portfolio of 38 combination senior housing and care communities
located primarily in West Coast markets. We own an 80% partnership interest and Merrill Gardens owns the
remaining 20% interest and continues to manage the communities. The partnership owns and operates 13
communities previously owned by us and 25 additional communities previously owned by Merrill Gardens.
85
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The transaction took advantage of the structure authorized by the REIT Investment Diversification and Empow-
erment Act of 2007 (“RIDEA”). (See Note 18 for additional discussion of RIDEA.) The results of operations for this
partnership have been included in our consolidated results of operations beginning as of September 1, 2010 and are
a component of our senior housing and care segment. Consolidation is based on a combination of ownership interest
and control of operational decision-making authority.
In conjunction with the formation of the partnership, we contributed $254,885,000 of cash and the 13
properties previously owned by us, and the partnership assumed the secured debt relating to these properties. Merrill
Gardens contributed the remaining 25 properties to the partnership and the secured debt relating to these properties
in exchange for their 20% interest in the partnership. The 13 properties are recorded at their historical carrying
values and the noncontrolling interest was established based on such values. The difference between the fair value
of the consideration received relating to these properties and the historical allocation of the 20% noncontrolling
interest was recorded in capital in excess of par value. The total purchase price for the 25 communities acquired
have been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair
values in accordance with the Company’s accounting policies. Such allocations have not been finalized as we await
final asset valuations and, as such, the allocation of the purchase consideration included in the accompanying
Consolidated Balance Sheet at December 31, 2010 is preliminary and subject to adjustment. The 20% non-
controlling interest relating to the acquired 25 properties is also reflected at estimated fair value. The weighted
average useful life of the acquired intangibles was 1.9 years. The following table presents the preliminary allocation
of the purchase price to assets and liabilities assumed, based on their estimated fair values (in thousands):
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64,050
476,817
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,036
Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,777
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,707
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,459
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
607,846
234,431
3,316
237,747
41,423
79,775
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $248,901
Senior Star Partnership
During the three months ended December 31, 2010, we completed the formation of our partnership with Senior
Star Living to own and operate a portfolio of nine combination senior housing and care communities located
primarily in six states. We own a 90% partnership interest and Senior Star owns the remaining 10% interest and
continues to manage the communities. The partnership owns and operates two communities previously owned by us
and seven additional communities previously owned by Senior Star. The transaction took advantage of the structure
authorized by RIDEA. (See Note 18 for additional discussion of RIDEA.) The results of operations for this
partnership have been included in our consolidated results of operations beginning as of December 30, 2010 and are
a component of our senior housing and care segment. Consolidation is based on a combination of ownership interest
and control of operational decision-making authority.
86
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In conjunction with the formation of the partnership, we contributed $152,270,000 of cash and the two
properties previously owned by us. Senior Star contributed the remaining seven properties to the partnership and the
secured debt relating to these properties in exchange for their 10% interest in the partnership. The two properties are
recorded at their historical carrying values and the noncontrolling interest was established based on such values.
The difference between the fair value of the consideration received relating to these properties and the historical
allocation of the 10% noncontrolling interest was recorded in capital in excess of par value. The total purchase price
for the seven communities acquired has been allocated to the tangible and identifiable intangible assets and
liabilities based upon their respective fair values in accordance with the Company’s accounting policies. Such
allocations have not been finalized as we await final asset valuations and, as such, the allocation of the purchase
consideration included in the accompanying Consolidated Balance Sheet at December 31, 2010 is preliminary and
subject to adjustment. The 10% noncontrolling interest relating to the acquired seven properties is also reflected at
estimated fair value. The weighted average useful life of the acquired intangibles was 2.08 years. The following
table presents the preliminary allocation of the purchase price to assets and liabilities assumed, based on their
estimated fair values (in thousands):
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,570
210,094
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,721
Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,756
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
391
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
940
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
245,472
70,736
3,533
74,269
2,218
27,902
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,083
The following unaudited pro forma consolidated results of operations have been prepared as if the senior
housing operating partnerships had occurred as of January 1, 2009 based on the preliminary purchase price
allocations discussed above. The pro forma results reflect the significant impact of the aforementioned RIDEA
transactions on the Company’s consolidated revenues. Amounts are in thousands, except per share data:
Year Ended December 31,
2010
2009
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $794,492
Income from continuing operations attributable to common stockholders . . . . $ 56,031
Income from continuing operations attributable to common stockholders per
$698,717
$ 99,216
share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.44
0.44
$
$
0.87
0.87
Strategic Medical Office Partnership
On December 31, 2010, we formed a strategic partnership with a national medical office building company
(“MOBJV”) whereby the partnership invested in 17 medical office properties. We own a controlling interest in 11
properties and consolidate them. Consolidation is based on a combination of ownership interest and control of
87
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
operational decision-making authority. We do not own a controlling interest in six properties and account for them
under the equity method. Our investment in the strategic partnership provides us access to health systems and
includes development and property management resources. The results of operations for this partnership have been
included in our consolidated results of operations beginning as of December 31, 2010 and are a component of our
medical facilities segment.
In conjunction with the formation of the partnership, we contributed $225,173,000 of cash, convertible
preferred stock valued at $16,667,000, options valued at $2,721,000 and a note payable of $8,333,000 with an
interest rate of 6%. MOBJV contributed the properties to the partnership and the secured debt relating to these
properties in exchange for their ownership interest in the partnership. The partnership contains certain contingent
consideration arrangements ranging from $0 to $35,008,000. Amounts to be paid are contingent upon certain
occupancy and development project performance thresholds. Of this amount, we recognized $19,453,000 as an
estimate of additional purchase consideration based on the probability amounts will be paid by the expiration date of
the commitments. Of the remaining $15,555,000 that was not recognized, $12,500,000 would be required to be
settled in the Company’s common stock if certain performance thresholds, which we did not deem probable, are
met. The total purchase price for the assets acquired by the partnership has been allocated to the tangible and
identifiable intangible assets and liabilities based upon their respective fair values in accordance with the
Company’s accounting policies. Goodwill represents the future development pipeline expected to be generated
by the principles. Cash flows from this future pipeline are expected to come from development activities and the
ability to perform the management functions at the assets after the properties are developed. Such allocations have
not been finalized as we await final asset valuations and, as such, the allocation of the purchase consideration
included in the accompanying Consolidated Balance Sheet at December 31, 2010 is preliminary and subject to
adjustment. The noncontrolling interest relating to the properties is also reflected at estimated fair value. The
weighted average useful life of the acquired intangibles was 26.2 years. The following table presents the
preliminary allocation of the purchase price to assets and liabilities assumed, based on their estimated fair values
(in thousands):
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,240
171,014
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,519
Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21,321
Investment in unconcolidated joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,207
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,439
Other acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,873
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,390
Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Below market lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
348,110
61,664
4,189
26,848
92,701
4,553
16,667
2,721
6,295
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $225,173
88
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Real Property Investment Activity
The following is a summary of our real property investment activity for the periods presented (in thousands):
December 31, 2010
Year Ended
December 31, 2009
December 31, 2008
Senior
Housing
and Care
Medical
Facilities
Totals
Senior
Housing
and Care
Medical
Facilities
Totals
Senior
Housing
and Care
Medical
Facilities
Totals
Real property acquisitions:
Senior housing — operating . . . . . . $ 816,000
Senior housing — triple net(1) . . . . 1,011,229
Skilled nursing facilities . . . . . . . .
17,300
Hospitals . . . . . . . . . . . . . . . . . .
Medical office buildings . . . . . . . .
Land parcels . . . . . . . . . . . . . . . .
Total acquisitions . . . . . . . . . . . . . 1,844,529
(389,253)
(171,389)
Cash disbursed for acquisitions . . . . . 1,283,887
Construction in progress additions:
Less: Assumed debt . . . . . . . . . . . . .
. . . . . . .
Assumed other items, net
$ 816,000
1,011,229
17,300 $ 11,650
$ 626,414
4,300
630,714
(170,255)
(36,925)
423,534
—
626,414
4,300
2,475,243
(559,508)
(208,314)
1,707,421
$ 20,500
35,523
11,650
56,023
11,650
56,023
Senior housing — triple net . . . . . .
Skilled nursing facilities . . . . . . . .
Hospitals . . . . . . . . . . . . . . . . . .
Medical office buildings . . . . . . . .
Total construction in progress
additions
Less: Capitalized interest
. . . . . . . . . . . . . . . .
. . . . . . . . .
Capitalized other . . . . . . . . . . . . .
Accruals(2) . . . . . . . . . . . . . . . . .
85,993
—
85,993 310,310
— 23,262
123,033
129,561
123,033
129,561
113,907
107,853
252,594
85,993
(13,924)
(6,396)
—
—
— (11,435)
338,587
(20,320)
—
(11,435)
333,572
(28,474)
221,760
(12,495)
(21,466)
$
—
— $113,790
11,360
11,650
20,500
35,523
— 10,000
$
$196,303
121,809
67,673
—
—
67,673
310,310
23,262
113,907
107,853
555,332
(40,969)
—
(21,466)
135,150 318,112
(1,899)
135,150 316,213
419,622
29,429
77,642
93,907
449,051 171,549
(20,312)
(4,717)
(119)
—
113,790
11,360
196,303
121,809
10,000
453,262
—
(1,899)
451,363
419,622
29,429
77,642
93,907
620,600
(25,029)
(119)
—
Cash disbursed for construction in
progress . . . . . . . . . . . . . . . . . . .
79,597
227,235
306,832
305,098
187,799
492,897
428,620 166,832
595,452
Capital improvements to existing
properties . . . . . . . . . . . . . . . . . .
25,561
Total cash invested in real property . . . $1,387,052 $ 687,124 $2,074,176 $335,074 $263,885 $598,959 $577,099 $495,277 $1,072,376
13,329
38,389
12,232
20,063
59,923
36,355
18,326
23,568
(1) Includes $612,598,000 acquisition of a portfolio of 19 senior housing facilities that closed in December 2010 .The allocation of the purchase
consideration is preliminary and subject to adjustment.
(2) Represents non-cash accruals for amounts to be paid in future periods relating to properties that converted in the period noted above.
The following is a summary of the construction projects that were placed into service and began generating
revenues during the periods presented:
December 31, 2010
Year Ended
December 31, 2009
Senior
Housing
and Care
Medical
Facilities
Totals
Senior
Housing
and Care
Medical
Facilities
Totals
December 31, 2008
Senior
Housing
and Care
Medical
Facilities
Totals
Development projects:
Senior housing facilities . . . . . $273,034
Skilled nursing facilities . . . .
—
Hospitals . . . . . . . . . . . . . . .
Medical office buildings . . . .
Total development projects . . .
Expansion projects . . . . . . . . . .
Total construction in progress
273,034
3,216
$273,034 $505,137
— 45,367
$ 96,829
65,547
162,376
—
96,829
65,547
435,410
3,216
$183,127
183,127
—
550,504
4,288
$505,137 $190,044
16,918
45,367
—
183,127
733,631
4,288
206,962
40,954
$190,044
16,918
35,151
11,823
253,936
— 40,954
$35,151
11,823
46,974
conversions . . . . . . . . . . . . . $276,250 $162,376 $438,626 $554,792 $183,127 $737,919 $247,916 $46,974 $294,890
89
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Transaction costs for the year ended December 31, 2010 primarily represent costs incurred with the senior
housing operating partnerships (including due diligence costs, fees for legal and valuation services, and termination
of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and
costs incurred in connection with the new property acquisitions.
We purchased $23,097,000 of real property that had previously been financed by the Company with loans in
2008. This non-cash activity is appropriately not reflected in the accompanying statements of cash flows.
At December 31, 2010, future minimum lease payments receivable under operating leases (excluding
properties in our senior housing operating partnerships) are as follows (in thousands):
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 610,295
604,731
591,676
538,787
526,783
3,403,370
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,275,642
4. Real Estate Intangibles
The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the
dates indicated (dollars in thousands):
December 31, 2010
December 31, 2009
Assets:
In place lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Above market tenant leases . . . . . . . . . . . . . . . . . . . . . . . . .
Below market ground leases . . . . . . . . . . . . . . . . . . . . . . . .
Lease commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross historical cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
$182,030
24,089
46,992
4,968
258,079
(49,145)
$ 74,198
10,232
39,806
3,154
127,390
(29,698)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$208,934
$ 97,692
Weighted-average amortization period in years. . . . . . . . . . .
18.2
30.0
Liabilities:
Below market tenant leases . . . . . . . . . . . . . . . . . . . . . . . . .
Above market ground leases . . . . . . . . . . . . . . . . . . . . . . . .
Gross historical cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 57,261
5,020
62,281
(15,992)
$ 22,961
4,084
27,045
(10,478)
Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 46,289
$ 16,567
Weighted-average amortization period in years. . . . . . . . . . .
14.0
12.1
5. Dispositions, Assets Held for Sale and Discontinued Operations
During the year ended December 31, 2008, we sold 38 properties for net gains of $163,933,000. At
December 31, 2008, we had 15 medical facilities that were held for sale and we recorded an impairment charge
90
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of $32,648,000 to reduce the carrying values of certain properties to their estimated fair values less costs to sell.
During the year ended December 31, 2009, we sold 36 properties for net gains of $43,394,000. At December 31,
2009, we had two skilled nursing facilities and eight medical facilities held for sale and recorded an impairment
charge of $25,223,000 to reduce the medical office buildings to their estimated fair values less costs to sell. In
determining the fair value of the held for sale properties, we used a combination of third party appraisals based on
market comparable transactions, other market listings and asset quality as well as management calculations based
on projected operating income and published capitalization rates. During the year ended December 31, 2010, we
sold 38 properties, including seven of the held for sale medical facilities, for net gains of $36,115,000. At
December 31, 2010, we had one medical facility and 16 senior housing facilities that satisfied the requirements for
held for sale treatment and such properties were properly recorded at the lesser of their estimated fair values less
costs to sell or carrying values. During the year ended December 31, 2010, we recorded an impairment charge of
$947,000 related to two of the held for sale medical facilities to adjust the carrying values to estimated fair values
less costs to sell based on current sales price expectations. The following is a summary of our real property
disposition activity for the periods presented (in thousands):
December 31, 2010
Year Ended
December 31, 2009
Senior
Housing
and Care
Medical
Facilities
Totals
Senior
Housing
and Care
Medical
Facilities
Totals
December 31, 2008
Senior
Housing
and Care
Medical
Facilities
Totals
Real property dispositions:
Senior housing facilities . . . . . . .
Skilled nursing facilities . . . . . . .
Hospitals . . . . . . . . . . . . . . . . .
Medical office buildings . . . . . . .
Land parcels . . . . . . . . . . . . . .
$ 3,438
166,852
$
$
—
14,092
—
3,438 $ 55,320
45,835
166,852
—
14,092
—
$
40,841
44,717
$ 55,320 $163,622
6,290
45,835
40,841
44,717
—
$
8,735
6,781
$163,622
6,290
8,735
6,781
73
73
Total dispositions . . . . . . . . . . .
170,290
14,092
184,382
101,155
85,558
186,713
169,985
15,516
185,501
Add: Gain (loss) on sales of real
property . . . . . . . . . . . . . . . . .
LandAmerica settlement . . . . . . .
Extinguishment of other assets
(liabilities) . . . . . . . . . . . . . .
Seller financing on sales of real
property . . . . . . . . . . . . . . . .
36,274
—
(159)
—
36,115
—
32,084
11,310
43,394
—
151,457
2,500
12,476
163,933
2,500
—
—
—
—
(116)
(116)
— (1,470)
(1,470)
(6,100)
(6,100)
(59,649)
(5,122)
(64,771)
Proceeds from real property sales . .
$206,564
$12,463
$219,027 $133,239
$90,768
$224,007 $264,293
$22,754
$287,047
During the year ended December 31, 2008, we completed the sale of 29 properties to Emeritus Corporation for
$299,413,000, consisting of $249,413,000 in cash proceeds and $50,000,000 of seller financing, and we recognized
a gain on sale of $145,646,000. Total funds of $299,413,000 were held in escrow for use in an Internal Revenue
Code Section 1031 exchange, of which $162,558,000 was utilized during the year ended December 31, 2008. We
had retained LandAmerica 1031 Exchange Services, Inc. (“LES”) to act as a qualified intermediary. On Novem-
ber 26, 2008, LES and its parent, LandAmerica Financial Group, filed for bankruptcy protection. At that time, we
had approximately $136,855,000 in two segregated escrow accounts (the “Exchange Funds”) held by Centennial
Bank, an affiliate of LES. Although the terms of our agreements with LES required that the Exchange Funds be
returned to us, the return of the Exchange Funds was stayed by the bankruptcy proceedings. On February 23, 2009,
the United States Bankruptcy Court for the Eastern District of Virginia, Richmond Division, entered an order
approving the stipulation and settlement agreement among LES, the unsecured creditors committees and us.
Pursuant to the terms of that settlement agreement, the Exchange Funds plus $918,000 of interest were returned to
us on February 23, 2009, and we made a settlement payment of $2,000,000 to the LES bankruptcy estate. In
91
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
connection with these proceedings, we incurred approximately $500,000 in expenses. The settlement payment and
expenses were recorded as reductions of gains on sales in 2008.
We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at
December 31, 2010 to discontinued operations. Expenses include an allocation of interest expense based on
property carrying values and our weighted average cost of debt. The following illustrates the reclassification impact
as a result of classifying properties as discontinued operations for the periods presented (in thousands):
Year Ended December 31,
2009
2008
2010
Revenues:
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,986
—
$42,492
8,059
$68,240
—
Expenses:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,852
3,345
5,425
7,655
3,069
14,195
15,783
3,995
24,909
Income (loss) from discontinued operations, net . . . . . . . . . . . . . . .
$ 9,364
$25,632
$23,553
6. Real Estate Loans Receivable
The following is a summary of our real estate loans receivable (in thousands):
Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,283
327,297
Other real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74,517
352,846
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $436,580
$427,363
December 31,
2010
2009
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HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of our real estate loan activity for the periods presented (in thousands):
December 31, 2010
Senior
Housing
and Care
Medical
Facilities Totals
Year Ended
December 31, 2009
Senior
Housing
and Care
Medical
Facilities
Totals
December 31, 2008
Senior
Housing
and Care
Medical
Facilities
Totals
Advances on real estate loans
receivable:
Investments in new loans . . . . . . .
Draws on existing loans . . . . . . . .
$ 9,742
46,113
$41,644
1,236
$51,386
47,349
$20,036
52,910
$
— $ 20,036 $121,493
21,265
54,381
1,471
Sub-total . . . . . . . . . . . . . . . .
55,855
42,880
98,735
72,946
1,471
74,417
142,758
Less: Seller financing on property
sales . . . . . . . . . . . . . . . . . . .
Net cash advances on real estate
—
(1,470)
(1,470)
—
—
— (59,649)
loans . . . . . . . . . . . . . . . . . .
55,855
41,410
97,265
72,946
1,471
74,417
83,109
Receipts on real estate loans
receivable:
Loan payoffs . . . . . . . . . . . . . . .
Principal payments on loans . . . . .
5,619
24,203
6,233
7,440
11,852
31,643
61,659
15,890
32,197
2,033
93,856
17,923
8,815
9,354
Total receipts on real estate loans. .
29,822
13,673
43,495
77,549
34,230
111,779
18,169
$— $121,493
21,265
—
—
—
—
—
—
—
142,758
(59,649)
83,109
8,815
9,354
18,169
Net advances (receipts) on real estate
loans . . . . . . . . . . . . . . . . . . . .
$26,033
$27,737
$53,770
$ (4,603) $(32,759) $ (37,362) $ 64,940
$— $ 64,940
The following is a summary of the allowance for losses on loans receivable for the periods presented (in
thousands):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,183
29,684
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,591)
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,500
23,261
(25,578)
$7,406
94
—
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,276
$ 5,183
$7,500
Year Ended December 31,
2010
2009
2008
As a result of our quarterly evaluations, we recorded $29,684,000 of provision for loan losses during the year
ended December 31, 2010. This amount includes the write-off of loans totaling $33,591,000 primarily related to
certain early stage senior housing and CCRC development projects. These related to three separate borrowers where
new factors arose that, under the circumstances, resulted in the determination to record the write-offs. This was
offset by a net reduction of the allowance balance by $3,907,000, resulting in an allowance for loan losses of
$1,276,000 relating to real estate loans with outstanding balances of $9,691,000, all of which were on non-accrual
status at December 31, 2010.
During the quarter ended September 30, 2010, we received title to a parcel of land and an equity interest in
satisfaction of certain loans outstanding with a combined balance of $38,848,000. For balance sheet purposes, the
land parcel is recorded as land and the equity interest is accounted for as an equity method investment (in our senior
housing and care segment), the amounts of which were recorded at their estimated fair values at the transaction
dates. The equity interest is in an entity deemed to be a VIE, however, we have determined that we are not the
primary beneficiary as we do not have the ability to direct and influence the activities that most significantly impact
the entity’s economic performance. Our exposure to loss is limited to the recorded equity investment balance of
$29,578,000.
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HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of our loan impairments (in thousands):
Year Ended December 31,
2009
2008
2010
Balance of impaired loans at end of year . . . . . . . . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,691
1,276
$67,126
5,183
$72,770
7,500
Balance of impaired loans not reserved . . . . . . . . . . . . . . . . . . . . .
$ 8,415
$61,943
$65,270
Average impaired loans for the year . . . . . . . . . . . . . . . . . . . . . . . .
Interest recognized on impaired loans(1) . . . . . . . . . . . . . . . . . . . .
$38,409
103
$69,948
530
$36,785
3,288
(1) Represents interest recognized prior to placement on non-accrual status.
7.
Investments in Unconsolidated Joint Ventures
During the six months ended June 30, 2010, we entered into a joint venture investment with Forest City Enterprises
(NYSE:FCE.A and FCE.B). We acquired a 49% interest in a seven-building life science campus located in University
Park in Cambridge, MA, which is immediately adjacent to the campus of the Massachusetts Institute of Technology. Six
buildings closed on February 22, 2010 and the seventh closed on June 30, 2010. The portfolio is 100% leased.
In connection with these transactions, we invested $174,692,000 of cash which is recorded as an equity
investment on the balance sheet. Our share of the non-recourse secured debt assumed by the joint venture was
approximately $156,729,000 with weighted-average interest rates of 7.1%. The results of operations for these
properties have been included in our consolidated results of operations from the date of acquisition by the joint
venture and are reflected in our income statement as income from unconsolidated joint ventures. The aggregate
remaining unamortized basis difference of our investment in this joint venture of $15,141,000 at December 31, 2010
is primarily attributable to real estate and related intangible assets and will be amortized over the life of the related
properties and included in the reported amount of income from unconsolidated joint ventures.
In addition, on December 31, 2010, we entered into a strategic joint venture relationship with a national
medical office building company. See Note 3 for additional information.
8. Customer Concentration
The following table summarizes certain information about our customer concentration as of December 31,
2010 (dollars in thousands):
Number of
Properties
Total
Investment(2)
Percent of
Investment(3)
Concentration by investment:(1)
Merrill Gardens LLC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brandywine Senior Living, LLC . . . . . . . . . . . . . . . . . .
Senior Living Communities, LLC . . . . . . . . . . . . . . . . .
Senior Star Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brookdale Senior Living, Inc.
. . . . . . . . . . . . . . . . . . . .
Remaining portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38
19
12
10
86
518
683
$ 732,211
612,598
595,223
464,062
334,946
5,853,069
$8,592,109
9%
7%
7%
5%
4%
68%
100%
(1) All of our top five customers are in our senior housing and care segment.
(2) Excludes our share of unconsolidated joint venture investments. Please see Note 7 for additional information.
(3) Investments with our top five customers comprised 24% of total investments at December 31, 2009.
94
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Borrowings Under Line of Credit Arrangement and Related Items
At December 31, 2010, we had an unsecured line of credit arrangement with a consortium of sixteen banks in
the amount of $1,150,000,000, which is scheduled to expire on August 6, 2012. Borrowings under the agreement are
subject to interest payable in periods no longer than three months at either the agent bank’s prime rate of interest or
the applicable margin over LIBOR interest rate, at our option (0.87% at December 31, 2010). The applicable margin
is based on certain of our debt ratings and was 0.6% at December 31, 2010. In addition, we pay a facility fee
annually to each bank based on the bank’s commitment amount. The facility fee depends on certain of our debt
ratings and was 0.15% at December 31, 2010. We also pay an annual agent’s fee of $50,000. Principal is due upon
expiration of the agreement.
The following information relates to aggregate borrowings under the unsecured line of credit arrangement for
the periods presented (dollars in thousands):
Year Ended December 31,
2009
2010
2008
Balance outstanding at quarter end . . . . . . . . . . . . . . . . . . . . . . $300,000
Maximum amount outstanding at any month end. . . . . . . . . . . . $560,000
Average amount outstanding (total of daily principal balances
$140,000
$559,000
$570,000
$744,000
divided by days in period) . . . . . . . . . . . . . . . . . . . . . . . . . . $268,762
$241,463
$500,561
Weighted average interest rate (actual interest expense divided
by average borrowings outstanding) . . . . . . . . . . . . . . . . . . .
1.48%
1.92%
3.77%
10. Senior Unsecured Notes and Secured Debt
We have $3,034,949,000 of senior unsecured notes with annual stated interest rates ranging from 3.00% to
8.00%. The carrying amounts of the senior unsecured notes represent the par value of $3,064,930,000 adjusted for
any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative
instruments. See Note 11 for further discussion regarding derivative instruments.
During the three months ended December 31, 2006, we issued $345,000,000 of 4.75% senior unsecured
convertible notes due December 2026, generating net proceeds of $337,517,000. The notes are convertible, in
certain circumstances, into cash and, if applicable, shares of common stock at an initial conversion rate of
20.8833 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately
$47.89 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion
value of such note, cash up to the principal amount of such note and common stock for the note’s conversion value in
excess of such principal amount. In addition, on each of December 1, 2011, December 1, 2016 and December 1,
2021, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of
the principal amount of the notes to be purchased, plus any accrued and unpaid interest. During the three months
ended March 31, 2009, we extinguished $5,000,000 of these notes and recognized a gain of $446,000. During the
six months ended June 30, 2010, we extinguished $214,412,000 of these notes, recognized a loss of $8,837,000 and
paid $18,552,000 to reacquire the equity component of convertible debt. As of December 31, 2010, we had
$125,588,000 of these notes outstanding.
In July 2007, we issued $400,000,000 of 4.75% senior unsecured convertible notes due July 2027, generating
net proceeds of $388,943,000. The notes are convertible, in certain circumstances, into cash and, if applicable,
shares of our common stock at an initial conversion rate of 20.0000 shares per $1,000 principal amount of notes,
which represents an initial conversion price of approximately $50.00 per share. In general, upon conversion, the
holder of each note would receive, in respect of the conversion value of such note, cash up to the principal amount of
such note and common stock for the note’s conversion value in excess of such principal amount. In addition, on each
of July 15, 2012, July 15, 2017 and July 15, 2022, holders may require us to purchase all or a portion of their notes at
a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and
95
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unpaid interest. During the three months ended March 31, 2009, we extinguished $5,000,000 of these notes and
recognized a gain of $594,000. During the six months ended June 30, 2010, we extinguished $226,914,000 of these
notes, recognized a loss of $16,235,000 and paid $21,062,000 to reacquire the equity component of convertible
debt. As of December 31, 2010, we had $168,086,000 of these notes outstanding.
During the twelve months ended December 31, 2010, we issued $494,403,000 of 3.00% senior unsecured
convertible notes due December 2029, generating net proceeds of $486,084,000. The notes are convertible, in
certain circumstances, into cash and, if applicable, shares of common stock at an initial conversion rate of
19.5064 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately
$51.27 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion
value of such note, cash up to the principal amount of such note and common stock for the note’s conversion value in
excess of such principal amount. In addition, on each of December 1, 2014, December 1, 2019 and December 1,
2024, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of
the principal amount of the notes to be purchased, plus any accrued and unpaid interest. In connection with this
issuance, we recognized $29,925,000 of equity component of convertible debt.
During the year ended December 31, 2009, we extinguished $183,147,000 of senior unsecured notes with a
weighted-average interest rate of 7.82% and recognized losses of $19,269,000. During the three months ended
June 30, 2010, we issued $450,000,000 of 6.125% senior unsecured notes due 2020 with net proceeds of
$446,328,000. During the three months ended September 30, 2010, we issued $450,000,000 of 4.70% senior
unsecured notes due 2017 with net proceeds of $445,768,000. During the three months ended December 31, 2010,
we issued $450,000,000 of 4.95% senior unsecured notes due 2021 with net proceeds of $443,502,000.
We have secured debt totaling $1,125,906,000, collateralized by owned properties, with annual interest rates
ranging from 3.01% to 8.74%. The carrying amounts of the secured debt represent the par value of $1,133,715,000
adjusted for any unamortized fair value adjustments. The carrying values of the properties securing the debt totaled
$2,054,820,000 at December 31, 2010. During the year ended December 31, 2010, we issued $157,156,000 of first
mortgage loans principal with a rate of 5.45% secured by 15 properties. During the year ended December 31, 2010,
we assumed $564,657,000 of first mortgage loans principal with an average rate of 6.06% secured by 60 properties.
During the year ended December 31, 2010, we extinguished $194,493,000 of first mortgage loans principal with an
average rate of 6.07% and recognized a loss of $9,099,000. During the year ended December 31, 2009, we
extinguished 20 secured debt loans totaling $81,715,000 with a weighted-average interest rate of 7.21% and
recognized extinguishment losses of $5,838,000. During the year ended December 31, 2008, we extinguished eight
secured debt loans totaling $50,475,000 with a weighted-average interest rate of 6.67% and recognized extin-
guishment gains of $2,094,000.
We adopted FASB Accounting Standards Codification (“ASC”) topic for Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“Convertible Debt
Guidance”), effective January 1, 2009. It provides guidance on accounting for convertible debt that may be settled in
cash upon conversion. It requires bifurcation of the convertible debt instrument into a debt component and an equity
component. The value of the debt component is based upon the estimated fair value of a similar debt instrument
without the conversion feature. The difference between the contractual principal on the debt and the value allocated
to the debt is recorded as an equity component and represents the conversion feature of the instrument. The excess of
the contractual principal amount of the debt over its estimated fair value is amortized to interest expense using the
effective interest method over the period used to estimate the fair value.
Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require
us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur
indebtedness, create liens and make investments or acquisitions. As of December 31, 2010, we were in compliance
with all of the covenants under our debt agreements.
96
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2010, the annual principal payments due on these debt obligations are as follows (in
thousands):
Senior
Unsecured Notes(1)
Secured
Debt(1)
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
76,853
300,000
—
250,000
2,438,077
$
24,048
91,979
85,508
188,009
150,311
593,860
Totals
$
24,048
168,832
385,508
188,009
400,311
3,031,937
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,064,930
$1,133,715
$4,198,645
(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts or other fair value adjustments as reflected
on the balance sheet.
11. Derivative Instruments
We are exposed to various market risks, including the potential loss arising from adverse changes in interest
rates. We may elect to use financial derivative instruments to hedge interest rate exposure. These decisions are
principally based on our policy to manage the general trend in interest rates at the applicable dates and our
perception of the future volatility of interest rates. Derivatives are recorded at fair value on the balance sheet as
assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect
the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the
forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to
significant estimates that may change in the future.
The following is a summary of the fair value of our derivative instruments (dollars in thousands):
Balance Sheet
Location
December 31,
2010
December 31,
2009
Fair Value
Cash flow hedge interest rate swaps . . . . . . . . . . . . . Other liabilities
$482
$2,381
Cash Flow Hedges
For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on
the derivative is reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in
the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative
representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are
recognized in earnings. Approximately $1,643,000 of losses, which are included in accumulated other compre-
hensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.
97
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following presents the impact of derivative instruments on the statement of operations and OCI for the
periods presented (dollars in thousands):
Gain (loss) on interest rate swap
recognized in OCI (effective
portion) . . . . . . . . . . . . . . . . . . . . . . .
n/a
Gain (loss) reclassified from AOCI into
Location
December 31,
2010
Year Ended
December 31,
2009
December 31,
2008
$(10,307)
$(3,513)
$ 7,669
income (effective portion) . . . . . . . . .
Interest expense
(2,244)
(971)
(160)
Gain (loss) recognized in income
(ineffective portion and amount
excluded from effectiveness testing) . . Realized loss
—
—
(23,393)
On August 7, 2009, we entered into an interest rate swap (the “August 2009 Swap”) for a total notional amount
of $52,198,000 to hedge seven years of interest payments associated with long-term LIBOR based borrowings. This
swap was terminated on September 30, 2010 for a cash payment of $6,645,000 which has been deferred and
included as a component of accumulated other comprehensive income. The effective portion is being amortized
over the remaining term of the original swap as an adjustment to the yield on our LIBOR-based debt. The August
2009 Swap had an effective date of August 12, 2009 and a maturity date of September 1, 2016. The August 2009
Swap had the economic effect of fixing $52,198,000 at 3.93% plus a credit spread for seven years. The August 2009
Swap had been designated as a cash flow hedge and we expected it to be highly effective at offsetting changes in
cash flows of interest payments on $52,198,000 of long-term debt due to changes in the LIBOR swap rate.
On September 28, 2009, we entered into an interest rate swap (the “September 2009 Swap”) for a total notional
amount of $48,155,000 to hedge seven years of interest payments associated with long-term LIBOR based
borrowings. This swap was terminated on September 30, 2010 for a cash payment of $4,365,000 which has been
deferred and included as a component of accumulated other comprehensive income. The effective portion is being
amortized over the remaining term of the original swap as an adjustment to the yield on our LIBOR-based debt. The
September 2009 Swap had an effective date of September 30, 2009 and a maturity date of October 1, 2016. The
September 2009 Swap had the economic effect of fixing $48,155,000 at 3.2675% plus a credit spread for seven
years. The September 2009 Swap had been designated as a cash flow hedge and we expected it to be highly effective
at offsetting changes in cash flows of interest payments on $48,155,000 of long-term debt due to changes in the
LIBOR swap rate.
On December 31, 2010, we assumed an interest rate swap (the “December 2010 Swap”) for a total notional
amount of $12,650,000 to hedge interest payments associated with long-term LIBOR based borrowings. The
December 2010 Swap has an effective date of December 31, 2010 and a maturity date of December 31, 2013. The
December 2010 Swap has the economic effect of fixing $12,650,000 at 5.50% plus a credit spread through the
swap’s maturity. In January 2011, the December 2010 Swap was designated as a cash flow hedge and we expect it to
be highly effective at offsetting changes in cash flows of interest payments on $12,650,000 of long-term debt due to
changes in the LIBOR swap rate.
During the year ended December 31, 2008, we recognized a realized loss on derivatives of $23,393,000 related
to forward-starting interest rate swaps that were in place to hedge future debt issuances when the timing of those
issuances was revised.
Fair Value Hedges
For derivative instruments that are designated as a fair value hedge, the gain or loss on the derivative as well as
the offsetting loss or gain on the hedged risk are recognized in current earnings. There were no outstanding fair
value hedges at December 31, 2010 or December 31, 2009.
98
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Commitments and Contingencies
We have two outstanding letters of credit issued for the benefit of certain insurance companies that provide
workers’ compensation insurance to one of our tenants. Our obligation to provide the letters of credit terminates in
2013. At December 31, 2010, our obligation under the letters of credit was $4,200,000.
We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide
liability and property insurance to one of our tenants. Our obligation to provide the letter of credit terminates in
2013. At December 31, 2010, our obligation under the letter of credit was $1,000,000.
We have an outstanding letter of credit issued for the benefit of a city in Wisconsin that secures the completion
and installation of certain public improvements by one of our tenants in connection with the development of a
property. Our obligation to provide the letter of credit terminates in October 2013. At December 31, 2010, we had an
obligation to provide a letter of credit in the amount of $215,000.
We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion,
installation and maintenance of certain public improvements by one of our partnerships in connection with the
development of a property. Our obligation to provide the letter of credit terminates in August 2011. At December 31,
2010, our obligation under the letter of credit was $67,932.
At December 31, 2010, we had outstanding construction in process of $356,793,000 for leased properties and
were committed to providing additional funds of approximately $268,055,000 to complete construction. At
December 31, 2010, we had contingent purchase obligations totaling $33,613,000. These contingent purchase
obligations relate to unfunded capital improvement obligations. Rents due from the tenant are increased to reflect
the additional investment in the property.
We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840
“Leases.” A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end
of the lease term, contains a bargain purchase option, has a lease term greater than 75% of the economic life of the
leased asset, or if the net present value of the future minimum lease payments are in excess of 90% of the fair value
of the leased asset. One lease related to a senior housing facility contains a bargain purchase option and has been
classified as a capital lease. At December 31, 2010, we had operating lease obligations of $230,189,000 relating to
certain ground leases and company office space. We incurred rental expense relating to company office space of
$1,280,000, $1,138,000 and $1,452,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to
reimburse us for our monthly operating lease obligations. At December 31, 2010, aggregate future minimum rentals
to be received under these noncancelable subleases totaled $32,329,000.
At December 31, 2010, future minimum lease payments due under operating and capital leases are as follows
(in thousands):
Operating Leases
Capital Leases(1)
2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,380
5,454
5,158
5,181
5,189
203,827
$
604
622
640
660
8,425
—
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$230,189
$10,951
(1) Related assets of $17,815,000 recorded in real property.
99
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Stockholders’ Equity
The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:
December 31, 2010
December 31, 2009
Preferred Stock, $1.00 par value:
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,000,000
11,349,854
11,349,854
Common Stock, $1.00 par value:
Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
225,000,000
147,381,191
147,097,381
50,000,000
11,474,093
11,474,093
225,000,000
123,583,242
123,385,317
Preferred Stock. During the year ended December 31, 2008, certain holders of our Series G Cumulative
Convertible Preferred Stock converted 1,362,887 shares into 975,397 shares of our common stock, leaving 441,313
of such shares outstanding at December 31, 2008. During the year ended December 31, 2009, certain holders of our
Series G Cumulative Convertible Preferred Stock converted 41,600 shares into 29,771 shares of our common stock,
leaving 399,713 of such shares outstanding at December 31, 2009. During the nine months ended September 30,
2010, certain holders of our Series G Cumulative Convertible Preferred Stock converted 394,200 shares into
282,078 shares of our common stock, leaving 5,513 of such shares outstanding which were redeemed by us on
September 30, 2010. During the three months ended September 30, 2010, the holder of our Series E Cumulative
Convertible and Redeemable Preferred Stock converted 74,380 shares into 56,935 shares of our common stock,
leaving no such shares outstanding at December 31, 2010.
In July 2003, we closed a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable
Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in
arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00
per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after July 9, 2008.
In September 2004, we closed a public offering of 7,000,000 shares of 7.625% Series F Cumulative
Redeemable Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable
quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price
of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after
September 14, 2009.
During the three months ended December 31, 2010, we issued 349,854 shares of 6.00% Series H Cumulative
Convertible and Redeemable Preferred Stock in connection with a business combination. These shares have a
liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no
stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid
dividends on such shares to the redemption date, on or after December 31, 2015. See Note 3 for additional
information.
100
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Common Stock. The following is a summary of our common stock issuances during the periods indicated
(dollars in thousands, except per share amounts):
Shares Issued
Average Price
Gross Proceeds
Net Proceeds
March 2008 public issuance . . . . . . . . . . . . . . . . .
July 2008 public issuance . . . . . . . . . . . . . . . . . .
September 2008 public issuance . . . . . . . . . . . . . .
2008 Dividend reinvestment plan issuances. . . . . .
2008 Equity shelf program issuances . . . . . . . . . .
2008 Option exercises . . . . . . . . . . . . . . . . . . . . .
3,000,000
4,600,000
8,050,000
1,546,074
794,221
118,895
2008 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,109,190
February 2009 public issuance . . . . . . . . . . . . . . .
September 2009 public issuance . . . . . . . . . . . . . .
2009 Dividend reinvestment plan issuances. . . . . .
2009 Equity shelf program issuances . . . . . . . . . .
2009 Option exercises . . . . . . . . . . . . . . . . . . . . .
5,816,870
9,200,000
1,499,497
1,952,600
96,166
2009 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,565,133
September 2010 public issuance . . . . . . . . . . . . . .
December 2010 public issuance . . . . . . . . . . . . . .
2010 Dividend reinvestment plan issuances. . . . . .
2010 Equity shelf program issuances . . . . . . . . . .
2010 Option exercises . . . . . . . . . . . . . . . . . . . . .
9,200,000
11,500,000
1,957,364
431,082
129,054
$41.44
44.50
48.00
43.37
39.28
29.83
$36.85
40.40
37.22
40.69
38.23
$45.75
43.75
43.95
44.94
31.17
$ 124,320
204,700
386,400
67,055
31,196
3,547
$118,555
193,157
369,699
67,055
30,272
3,547
$ 817,218
$782,285
$ 214,352
371,680
55,818
79,447
3,676
$210,880
356,554
55,818
77,605
3,676
$ 724,973
$704,533
$ 420,900
503,125
86,034
19,371
4,022
$403,921
482,448
86,034
19,013
4,022
2010 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,217,500
$1,033,452
$995,438
Dividends. The following is a summary of our dividend payments (dollars in thousands, except per share
amounts):
December 31, 2010
Year Ended
December 31, 2009
December 31, 2008
Per Share
Amount
Per Share
Amount
Per Share
Amount
Common Stock . . . . . . . . . . . . . . .
Series D Preferred Stock . . . . . . . .
Series E Preferred Stock . . . . . . . .
Series F Preferred Stock . . . . . . . .
Series G Preferred Stock . . . . . . . .
$2.74000
1.96875
1.12500
1.90625
1.40640
Totals . . . . . . . . . . . . . . . . . . . . . .
$348,578
7,875
94
13,344
332
$370,223
$2.72000
1.96875
1.50000
1.90625
1.87500
$311,760
7,875
112
13,344
748
$333,839
$2.70000
1.96875
1.50000
1.90625
1.87500
$253,659
7,875
112
13,344
1,870
$276,860
101
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Comprehensive Income
The following is a summary of accumulated other comprehensive income/(loss) as of the dates indicated (in
thousands):
December 31, 2010
December 31, 2009
Unrecognized gains (losses) on cash flow hedges. . . . . . . . . . .
Unrecognized gains (losses) on equity investments. . . . . . . . . .
Unrecognized actuarial gains (losses) . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (9,969)
(497)
(633)
$(11,099)
$(1,907)
(550)
(434)
$(2,891)
The following is a summary of comprehensive income/(loss) for the periods indicated (in thousands):
Year Ended December 31,
2009
2010
2008
Unrecognized gains (losses) on cash flow hedges . . . . . . . . . . . $ (8,063)
54
Unrecognized gains (losses) on equity investments . . . . . . . . . .
(199)
Unrecognized actuarial gains (losses) . . . . . . . . . . . . . . . . . . . .
$ (2,542)
487
277
$
7,829
(846)
(715)
Total other comprehensive income (loss) . . . . . . . . . . . . . . . .
Net income attributable to controlling interests . . . . . . . . . . . . .
(8,208)
128,527
(1,778)
193,269
6,268
283,299
Comprehensive income attributable to controlling interests. . .
120,319
191,491
289,567
Net and comprehensive income (loss) attributable to
noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357
(342)
126
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . $120,676
$191,149
$289,693
Other Equity
Other equity consists of accumulated option compensation expense which represents the amount of amortized
compensation costs related to stock options awarded to employees and directors. Expense, which is recognized as
the options vest based on the market value at the date of the award, totaled $1,634,000, $1,629,000 and $1,503,000
for the year ended December 31, 2010, 2009 and 2008, respectively.
14. Stock Incentive Plans
Our Amended and Restated 2005 Long-Term Incentive Plan authorizes up to 6,200,000 shares of common
stock to be issued at the discretion of the Compensation Committee of the Board of Directors. The 2005 Plan
replaced the 1995 Stock Incentive Plan and the Stock Plan for Non-Employee Directors. The options granted to
officers and key employees under the 1995 Plan continue to vest through 2010 and expire ten years from the date of
grant. Our non-employee directors, officers and key employees are eligible to participate in the 2005 Plan. The 2005
Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock units and dividend
equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three
years for non-employee directors to five years for officers and key employees. Options expire ten years from the
date of grant.
102
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Assumptions
The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option
pricing model with the following weighted-average assumptions:
December 31, 2010
Year Ended
December 31, 2009
December 31, 2008
Dividend yield(1) . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . .
Expected life (in years) . . . . . . . . . . . . . . .
Weighted-average fair value(1) . . . . . . . . .
6.28%
34.08%
3.23%
7.0
$ 7.82
7.35%
29.40%
2.33%
7.0
$ 4.38
6.47%
20.50%
3.42%
6.5
$ 6.25
(1) Certain options granted to employees in 2008 include dividend equivalent rights. The fair value of options with DERs also includes the net
present value of projected future dividend payments over the expected life of the option discounted at the dividend yield rate.
The dividend yield represented the dividend yield of our common stock on the dates of grant. Our computation
of expected volatility was based on historical volatility. The risk-free interest rates used were the 7-year
U.S. Treasury Notes yield on the date of grant. The expected life was based on historical experience of similar
awards, giving consideration to the contractual terms, vesting schedules and expectations regarding future
employee behavior.
Option Award Activity
The following table summarizes information about stock option activity for the twelve months ended
December 31, 2010:
Stock Options
December 31, 2010
Year Ended
December 31, 2009
Number
of Shares
(000’s)
Weighted Average
Exercise Price
Number
of Shares
(000’s)
Weighted Average
Exercise Price
December 31, 2008
Number
of Shares
(000’s)
Weighted Average
Exercise Price
Options at beginning of year . . . . . .
Options granted . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . .
Options terminated . . . . . . . . . . . . .
1,062
280
(129)
(6)
Options at end of period . . . . . . . . .
1,207
$37.71
43.29
33.58
37.82
$39.45
817
366
(96)
(25)
1,062
$38.29
37.00
38.22
44.50
$37.71
637
307
(119)
(8)
817
$35.54
40.83
29.83
42.00
$38.29
Options exercisable at end of
period . . . . . . . . . . . . . . . . . . . .
440
$37.76
388
$35.85
281
$33.94
Weighted average fair value of
options granted during the
period . . . . . . . . . . . . . . . . . . . .
$ 7.82
$ 4.38
$ 6.25
103
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes information about stock options outstanding at December 31, 2010:
Range of Per
Share Exercise
Prices
Options Outstanding
Options Exercisable
Number
Outstanding
(Thousands)
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contract Life
Number
Exercisable
(Thousands)
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contract Life
$20-$30
$30-$40
$40+ . . . . . . . . . . . . . . . . . . . . . .
31
575
601
$25.67
36.70
42.80
Totals. . . . . . . . . . . . . . . . . . . . . .
1,207
$39.45
2.7
7.5
8.8
8.0
31
264
145
440
$25.67
36.38
42.90
$37.76
2.7
5.9
7.6
6.2
Aggregate intrinsic value . . . . . . . $9,892,000
$4,344,000
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying
options and the quoted price of our common stock for the options that were in-the-money at December 31, 2010.
During the years ended December 31, 2010, 2009 and 2008, the aggregate intrinsic value of options exercised under
our stock incentive plans was $1,798,000, $737,000 and $2,042,000, respectively (determined as of the date of
option exercise). Cash received from option exercises under our stock incentive plans was $4,022,000, $3,676,000
and $3,547,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
As of December 31, 2010, there was approximately $2,935,000 of total unrecognized compensation cost
related to unvested stock options granted under our stock incentive plans. That cost is expected to be recognized
over a weighted average period of four years. As of December 31, 2010, there was approximately $8,010,000 of
total unrecognized compensation cost related to unvested restricted stock granted under our stock incentive plans.
That cost is expected to be recognized over a weighted average period of three years.
The following table summarizes information about non-vested stock incentive awards as of December 31,
2010 and changes for the twelve months ended December 31, 2010:
Stock Options
Restricted Stock
Number of
Shares
(000’s)
Weighted Average
Grant Date
Fair Value
Number of
Shares
(000’s)
Weighted Average
Grant Date
Fair Value
Non-vested at December 31, 2009 . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2010 . . . .
675
(181)
280
(6)
768
$5.44
5.91
7.82
7.06
$6.19
405
(232)
249
(2)
420
$40.26
42.02
43.28
38.07
$41.09
We adopted the fair value-based method of accounting for share-based payments effective January 1, 2003
using the prospective method. Currently, we use the Black-Scholes-Merton option pricing model to estimate the
value of stock option grants and expect to continue to use this acceptable option valuation model. We recognize
compensation cost for share-based grants on a straight-line basis through the date the awards become fully vested or
to the retirement eligible date, if sooner. Compensation cost totaled $11,823,000, $9,633,000 and $8,530,000 for the
years ended December 31, 2010, 2009 and 2008, respectively.
104
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per
share data):
Year Ended December 31,
2009
2010
2008
Numerator for basic and diluted earnings per share — net
income attributable to
common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,882
$171,190
$260,098
Denominator for basic earnings per share — weighted average
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127,656
114,207
93,732
Effect of dilutive securities:
Employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested restricted shares . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible senior unsecured notes . . . . . . . . . . . . . . . . . . . .
Dilutive potential common shares . . . . . . . . . . . . . . . . . . . . . . .
125
420
7
552
—
405
—
405
82
443
52
577
Denominator for diluted earnings per share — adjusted
weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128,208
114,612
94,309
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.84
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.83
$
$
1.50
1.49
$
$
2.77
2.76
The diluted earnings per share calculations exclude the dilutive effect of 280,000, 351,000 and 0 stock options
for the years ended December 31, 2010, 2009 and 2008, respectively, because the exercise prices were more than the
average market price. The outstanding convertible senior unsecured notes were not included in the 2009 calcu-
lations as the effect of the conversions into common stock was anti-dilutive for that period. The Series H Cumulative
Convertible and Redeemable Preferred Stock issued in 2010 were excluded from the calculation for 2010 as the
effect of the conversions was anti-dilutive.
16. Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value.
Mortgage Loans and Other Real Estate Loans Receivable — The fair value of mortgage loans and other real
estate loans receivable is generally estimated by discounting the estimated future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings and for the same remaining
maturities.
Cash and Cash Equivalents — The carrying amount approximates fair value.
Available-for-sale Equity Investments — Available-for-sale equity investments are recorded at their fair value
based on publicly available trading prices.
Borrowings Under Unsecured Lines of Credit Arrangements — The carrying amount of the unsecured line of
credit arrangement approximates fair value because the borrowings are interest rate adjustable.
Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on
publicly available trading prices.
105
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Secured Debt — The fair value of fixed rate secured debt is estimated by discounting the estimated future cash
flows using the current rates at which similar loans would be made with similar credit ratings and for the same
remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the
borrowings are interest rate adjustable.
Interest Rate Swap Agreements — Interest rate swap agreements are recorded as assets or liabilities on the
balance sheet at fair market value. Fair market value is estimated by utilizing pricing models that consider forward
yield curves and discount rates.
The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):
December 31, 2010
December 31, 2009
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial Assets:
Mortgage loans receivable. . . . . . . . . . . .
Other real estate loans receivable . . . . . .
Available-for-sale equity investments. . . .
Cash and cash equivalents. . . . . . . . . . . .
$ 109,283
327,297
1,103
131,570
$ 111,255
333,003
1,103
131,570
$
74,517
352,846
5,816
35,476
$
74,765
354,429
5,816
35,476
Financial Liabilities:
Borrowings under unsecured lines of
credit arrangements . . . . . . . . . . . . . . .
Senior unsecured notes . . . . . . . . . . . . . .
Secured debt
. . . . . . . . . . . . . . . . . . . . .
Interest rate swap agreements . . . . . . . . .
$ 300,000
3,034,949
1,125,906
482
$ 300,000
3,267,638
1,178,081
482
$ 140,000
1,653,027
620,995
2,381
$ 140,000
1,762,129
623,266
2,381
U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets
and liabilities. The guidance for financial assets and liabilities was previously adopted as the standard for those
assets and liabilities as of January 1, 2008. Additional guidance for non-financial assets and liabilities is effective
for fiscal years beginning after November 15, 2008, and was adopted as the standard for those assets and liabilities
as of January 1, 2009. The impact of adoption was not significant. The guidance defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance
describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities. Interest
rate swap agreements are valued using models that assume a hypothetical transaction to sell the asset or
transfer the liability in the principal market for the asset or liability based on market data derived from interest
rates and yield curves observable at commonly quoted intervals, volatilities, prepayment timing, loss
severities, credit risks and default rates.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
106
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Items Measured at Fair Value on a Recurring Basis
The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair
value on a recurring basis. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
Fair Value Measurements as of
December 31, 2010
Level 1
Level 2
Total
Level 3
Available-for-sale equity investments(1) . . . . . . . . . . . . . . . $ 1,103
23,441
Assets held for sale(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
(482)
Interest rate swap agreements(3) . . . . . . . . . . . . . . . . . . . .
$1,103
$ —
— 23,441
(482)
—
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,062
$1,103
$22,959
$—
—
—
$—
(1) Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date.
(2) Please see Note 5 for additional information.
(3) Please see Note 11 for additional information.
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our
balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured
at fair value on a recurring basis, they are not included in the tables above. Assets and liabilities that are measured at
fair value on a nonrecurring basis include assets acquired and liabilities assumed in business combinations (see
Note 3) and asset impairments (see Note 5 for impairments of real property and Note 6 for impairments of loans
receivable). We have determined that the fair value measurements included in each of these assets and liabilities rely
primarily on Company-specific inputs and our assumptions about the use of the assets and settlement of liabilities,
as observable inputs are not available. As such, we have determined that each of these fair value measurements
generally reside within Level 3 of the fair value hierarchy. We estimate the fair value of real estate using
unobservable data such as net operating income and estimated capitalization and discount rates. We also consider
local and national industry market data including comparable sales, and commonly engage an external real estate
appraiser to assist us in our estimation of fair value.
17. Segment Reporting
We invest in senior housing and health care real estate. We evaluate our business and make resource allocations
on our two business segments — senior housing and care and medical facilities. Our primary senior housing and
care properties include skilled nursing facilities, assisted living facilities, independent living/continuing care
retirement communities and combinations thereof. Under the senior housing and care segment, we invest in senior
housing and health care real estate through acquisition and financing of primarily single tenant properties.
Excluding our senior housing operating partnerships (please see Note 3 for additional information), properties
acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our
primary medical facility properties include medical office buildings, hospitals and life science buildings. Our
medical office buildings are typically leased to multiple tenants and generally require a certain level of property
management. Our hospital investments are structured similar to our senior housing and care investments. Our life
science investments represent investments in an unconsolidated joint venture (see Note 7 for additional informa-
tion). The accounting policies of the segments are the same as those described in the summary of significant
accounting policies (in Note 2 to our audited consolidated financial statements). There are no intersegment sales or
transfers. We evaluate performance based upon net operating income of the combined properties in each segment.
Non-segment revenue consists mainly of interest income on non-real estate investments and other income. Non-
segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and
107
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in
determining net operating income.
Summary information for the reportable segments during the years ended December 31, 2010, 2009 and 2008
is as follows (in thousands and includes amounts from discontinued operations):
Rental
Income
Resident Fees
and Services
Interest
Income
Other
Income
Total
Revenues
Property
Operating
Expenses
Net
Operating
Income(1)
Real Estate
Depreciation/
Amortization
Interest
Expense
Total
Assets
Year Ended December 31, 2010
Senior housing and care . . . . . . . $382,904
. . . . . . . . . 220,506
Medical facilities(2)
—
Non-segment/Corporate . . . . . . .
$51,006
—
—
$36,176 $ 3,386 $473,472 $32,621
53,844
—
985
— 2,874
226,170
2,874
4,679
$440,851
172,326
2,874
$126,717
75,826
$ 22,905 $5,837,312
24,926 3,389,441
224,981
— 113,129
$603,410
$51,006
$40,855 $ 7,245 $702,516 $86,465
$616,051
$202,543
$160,960 $9,451,734
Year Ended December 31, 2009
Senior housing and care . . . . . . . $358,109
Medical facilities . . . . . . . . . . . 181,802
—
Non-segment/Corporate . . . . . . .
$ — $35,945 $ 5,309 $399,363 $ — $399,363
147,145
1,170
9,368
— 1,170
196,110
1,170
48,965
—
—
—
4,940
$101,300
63,623
—
$ 12,622 $4,135,065
20,584 2,140,044
92,077
76,566
$539,911
$ — $40,885 $15,847 $596,643 $48,965
$547,678
$164,923
$109,772 $6,367,186
Year Ended December 31, 2008
Senior housing and care . . . . . . . $345,053
Medical facilities . . . . . . . . . . . 177,128
—
Non-segment/Corporate . . . . . . .
$ — $35,143 $ 5,994 $386,190 $ — $386,190
138,254
1,692
2,835
— 1,692
184,883
1,692
46,629
—
—
—
4,920
$ 98,675
64,370
$ 7,176
21,828
— 112,055
$522,181
$ — $40,063 $10,521 $572,765 $46,629
$526,136
$163,045
$141,059
(1) Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including
tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative
expenses, impairments and interest expense. We believe NOI provides investors relevant and useful information because it measures the
operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource
allocations and to assess the property level performance of our properties.
(2) Excludes income and expense amounts related to our life science buildings held in an unconsolidated joint venture. Please see Note 7 for
additional information.
18.
Income Taxes and Distributions
To qualify as a real estate investment trust for federal income tax purposes, at least 90% of taxable income
(excluding 100% of net capital gains) must be distributed to stockholders. Real estate investment trusts that do not
distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise
tax. The main differences between undistributed net income for federal income tax purposes and financial statement
purposes are the recognition of straight-line rent for reporting purposes, differing useful lives and depreciation and
amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt
expense for tax purposes.
108
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash distributions paid to common stockholders, for federal income tax purposes, are as follows:
Year Ended December 31,
2009
2008
2010
Per Share:
Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1250 gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.7774
1.7408
0.0190
0.2028
$1.9865
0.4864
—
0.2471
$1.6196
0.8904
—
0.1900
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.7400
$2.7200
$2.7000
At December 31, 2010, we had U.S. federal tax losses from our taxable REIT subsidiaries (“TRS”) of
$19,812,000, as well as apportioned state tax losses of $17,137,000 available for carryforward. Valuation
allowances have been established for these assets based upon our assessment, as it is more likely than not that
such assets may not be realized. The U.S. federal and state tax loss carryforwards expire from 2011 through 2030.
Tax expense reflected in the financial statements represents state and local income taxes.
As a result of certain acquisitions, we are subject to corporate level taxes for related asset dispositions for the
period December 30, 2010 through December 30, 2020 (“built-in gains tax”). The amount of income potentially
subject to this special corporate level tax is generally equal to (a) the excess of the fair value of the asset as of
December 31, 2010 over its adjusted tax basis as of December 31, 2010, or (b) the actual amount of gain, whichever
of (a) and (b) is lower. Some but not all gains recognized during this period of time could be offset by available net
operating losses and capital loss carryforwards. We have not recorded a deferred tax liability as a result of the
potential built-in gains tax based on our intentions with respect to such properties and available tax planning
strategies.
Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for
taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-
length basis to a taxable REIT subsidiary if the property is operated on behalf of such subsidiary by a person who
qualifies as an “eligible independent contractor.” Generally, the rent received from the TRS will meet the related
party rent exception and will be treated as “rents from real property.” A “qualified health care property” includes
real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility,
assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which
extends medical or nursing or ancillary services to patients.
We entered into two joint ventures in 2010 that were structured under RIDEA. Resident level rents and related
operating expenses for these facilities are reported in the consolidated financial statements and are subject to federal
taxes as the operations of such facilities are included in a TRS. Certain net operating loss carryforwards could be
utilized to offset taxable income in future years.
19. Retirement Arrangements
Under the retirement plan and trust (the “401(k) Plan”), eligible employees may make contributions, and we
may make matching contributions and a profit sharing contribution. Our contributions to the 401(k) Plan totaled
$1,341,000, $1,201,000 and $1,013,000 in 2010, 2009 and 2008, respectively.
We have a Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined benefit pension plan,
which provides one executive officer with supplemental deferred retirement benefits. The SERP provides an
opportunity for participants to receive retirement benefits that cannot be paid under our tax-qualified plans because
of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on
compensation and length of service and the SERP is unfunded. We expect to contribute $1,500,000 to the SERP
109
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
during the 2011 fiscal year. Benefit payments are expected to total $2,367,000 during the next five fiscal years and
$2,410,000 thereafter. We use a December 31 measurement date for the SERP. The accrued liability on our balance
sheet for the SERP was $4,066,000 at December 31, 2010 ($3,287,000 at December 31, 2009).
The following tables provide a reconciliation of the changes in the SERP’s benefit obligations and a statement
of the funded status for the periods indicated (in thousands):
Year Ended
December 31,
2010
2009
Reconciliation of benefit obligation:
Obligation at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,287
413
115
251
—
—
$3,109
389
164
434
(29)
(780)
Obligation at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,066
$3,287
December 31,
2010
2009
Funded status:
Funded status at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,066
—
Unrecognized (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,287)
—
Prepaid (accrued) benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,066
$(3,287)
The following table shows the components of net periodic benefit costs for the periods indicated (in
thousands):
Year Ended
December 31,
2010
2009
$413
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
52
Net actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$389
164
(87)
16
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$580
$482
The following table provides information for the SERP, which has an accumulated benefit in excess of plan
assets (in thousands):
Projected benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,066
2,938
n/a
$3,287
2,956
n/a
110
December 31,
2010
2009
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reflects the weighted-average assumptions used to determine the benefit obligations and
net periodic benefit cost for the SERP:
Benefit
Obligations
December 31,
Net Periodic
Benefit Cost
Year Ended
December 31,
2010
2009
2010
2009
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 3.50% 3.50% 6.25%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% 4.50% 4.50% 4.50%
Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . .
n/a
n/a
n/a
n/a
20. Quarterly Results of Operations (Unaudited)
The following is a summary of our unaudited quarterly results of operations for the years ended December 31,
2010 and 2009 (in thousands, except per share data). The sum of individual quarterly amounts may not agree to the
annual amounts included in the consolidated statements of income due to rounding.
Revenues — as reported . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . .
$152,759
(5,412)
$163,131
(5,412)
$176,146
(3,137)
1st Quarter
Year Ended December 31, 2010
2nd Quarter
3rd Quarter(2)
4th Quarter
$202,456
—
Revenues — as adjusted(1) . . . . . . . . . . . . .
$147,347
$157,719
$173,009
$202,456
Net income (loss) attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . .
$ 25,812
$ 45,646
$ (4,563)
$ 39,988
Net income (loss) attributable to common
stockholders per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.21
0.21
$
0.37
0.37
$
(0.04)
(0.04)
$
0.29
0.29
Revenues — as reported . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . .
$144,328
(10,607)
$141,686
(7,772)
$145,098
(8,044)
1st Quarter
Year Ended December 31, 2009
2nd Quarter
3rd Quarter(3)
4th Quarter
$147,261
(5,858)
Revenues — as adjusted(1) . . . . . . . . . . . . . . . .
$133,721
$133,914
$137,054
$141,403
Net income attributable to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . .
$ 61,119
$ 59,240
$ 19,130
$ 31,700
Net income attributable to common stockholders
per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.56
0.56
$
0.53
0.53
$
0.17
0.17
$
0.26
0.26
(1) We have reclassified the income attributable to the properties sold subsequent to January 1, 2002 and attributable to the properties held for
sale at December 31, 2010 to discontinued operations. See Note 5.
(2) The decreases in net income and amounts per share are primarily attributable to provisions for loan losses ($28,918,000) and transaction
costs ($18,835,000). Additionally, net income differs from amounts previously reported as it includes adjustments for additional expenses
attributable to business combination purchase price adjustments that have been retroactively reflected ($5,687,000).
(3) The decreases in net income and amounts per share are primarily attributable to losses on extinguishment of debt ($26,374,000).
111
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
21. Subsequent Events
Line of credit extension On January 24, 2011, we provided notice to KeyBank National Association, as
administrative agent, of our desire to extend the $1.15 billion unsecured line of credit arrangement with a
consortium of sixteen banks. Under the terms of the loan agreement, we have the right to extend the revolving line of
credit for one year if we are in compliance with all covenants and pay an extension fee of $1,725,000. As a result of
the extension, the line of credit will now expire on August 6, 2012. Please see Note 9 for additional information
regarding the line of credit.
Benchmark Senior Living On February 15, 2011, we signed definitive agreements to form an $890 million
partnership with Benchmark Senior Living, which will include 34 senior housing communities. Benchmark is a
senior housing operator in New England and will become the largest operator in our portfolio by investment
balance. This investment is structured as a RIDEA partnership owned 95% by us and 5% by Benchmark.
Benchmark will continue to provide management services to the communities under an incentive-based manage-
ment contract.
112
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective as of the end of the period covered by this
report.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended). The Company’s internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could
have a material effect on the financial statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2010 based on the criteria established by the Committee of Sponsoring Organizations of the
Treadway Commission in a report entitled Internal Control — Integrated Framework. The scope of management’s
assessment as of December 31, 2010 did not include an assessment of the internal control over financial reporting
for the senior housing operating partnerships or the strategic medical office partnership, as discussed in Note 3 to the
Company’s consolidated financial statements, because they were acquired in business combinations during the year
ended December 31, 2010. The acquired businesses represent 15% of total assets at December 31, 2010 and 7% and
(cid:2)2% of revenues and net income, respectively, for the year then ended. The scope of management’s assessment on
internal control over financial reporting for fiscal 2011 will include the aforementioned acquired operations.
Based on this assessment, using the criteria above, management concluded that the Company’s system of
internal control over financial reporting was effective as of December 31, 2010.
The independent registered public accounting firm of Ernst & Young LLP, as auditors of the Company’s
consolidated financial statements, has issued an attestation report on the Company’s internal control over financial
reporting.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities
Exchange Act of 1934, as amended) occurred during the fourth quarter of the one-year period covered by this report
that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
113
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Health Care REIT, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not
include the internal controls of the Merrill Gardens Partnership, the Senior Star Partnership or the Strategic Medical
Office Partnership, which are included in the 2010 consolidated financial statements of Health Care REIT, Inc. and
cumulatively constitute 15% of total assets at December 31, 2010 and 7% and (cid:2)2% of revenues and net income,
respectively, for the year then ended. Our audit of the internal control over financial reporting of Health Care REIT,
Inc. also did not include an evaluation of the internal control over financial reporting of the aforementioned
partnerships because they were acquired in business combinations on September 1, 2010, December 30, 2010 and
December 31, 2010, respectively.
In our opinion, Health Care REIT, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on the COSO criteria.
114
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2010 and 2009, and
the related consolidated statements of income, equity, and cash flows for each of the three years in the period ended
December 31, 2010 of Health Care REIT, Inc. and our report dated February 25, 2011 expressed an unqualified
opinion thereon.
Toledo, Ohio
February 25, 2011
/s/ ERNST & YOUNG LLP
115
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference to the information under the
headings “Election of Directors,” “Executive Officers,” “Board and Committees,” “Communications with the
Board” and “Security Ownership of Directors and Management and Certain Beneficial Owners — Section 16(a)
Compliance” in our definitive proxy statement, which will be filed with the Securities and Exchange Commission
(“Commission”) prior to April 30, 2011.
We have adopted a Code of Business Conduct & Ethics that applies to our directors, officers and employees.
The code is posted on the Internet at www.hcreit.com. Any amendment to, or waivers from, the code that relate to
any officer or director of the Company will be promptly disclosed on the Internet at www.hcreit.com.
In addition, the Board has adopted charters for the Audit, Compensation and Nominating/Corporate Gov-
ernance Committees. These charters are posted on the Internet at www.hcreit.com.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information under the
headings “Executive Compensation,” “Compensation Committee Report” and “Director Compensation” in our
definitive proxy statement, which will be filed with the Commission prior to April 30, 2011.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated herein by reference to the information under the
headings “Security Ownership of Directors and Management and Certain Beneficial Owners” and “Equity
Compensation Plan Information” in our definitive proxy statement, which will be filed with the Commission
prior to April 30, 2011.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is incorporated herein by reference to the information under the
headings “Board and Committees — Independence and Meetings” and “Certain Relationships and Related
Transactions” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2011.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the information under the
headings “Ratification of the Appointment of the Independent Registered Public Accounting Firm” and “Pre-
Approval Policies and Procedures” in our definitive proxy statement, which will be filed with the Commission prior
to April 30, 2011.
116
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Our Consolidated Financial Statements are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets — December 31, 2010 and 2009 . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income — Years ended December 31, 2010, 2009 and
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity — Years ended December 31, 2010, 2009 and 2008 . .
Consolidated Statements of Cash Flows — Years ended December 31, 2010, 2009 and
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
77
78
79
80
81
2. The following Financial Statement Schedules are included in Item 15(c):
III —Real Estate and Accumulated Depreciation
IV —Mortgage Loans on Real Estate
3. Exhibit Index:
1.1
Form of Equity Distribution Agreement, dated as of November 12, 2010, entered into by and between the
Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and
Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s Form
8-K filed November 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
2.1(a) Agreement and Plan of Merger, dated as of September 12, 2006, by and among the Company, Heat
Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical
Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed September
15, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
2.1(b) Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among the
Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and
Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K
filed October 13, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1
to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by
reference thereto).
3.1(a)
3.1(b) Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of
the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20,
2000 (File No. 001-08923), and incorporated herein by reference thereto).
Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923),
and incorporated herein by reference thereto).
3.1(c)
3.1(e)
3.1(d) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.1 to the Company’s Form 8-K filed June 13, 2003 (File No. 001-08923), and
incorporated herein by reference thereto).
Certificate of Designation of 77⁄8% Series D Cumulative Redeemable Preferred Stock of the Company (filed
with the Commission as Exhibit 2.5 to the Company’s Form 8-A/A filed July 8, 2003 (File No. 001-08923),
and incorporated herein by reference thereto).
Certificate of Designation of 75⁄8% Series F Cumulative Redeemable Preferred Stock of the Company
(filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A filed September 10, 2004 (File
No. 001-08923), and incorporated herein by reference thereto).
3.1(f)
117
3.1(g) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.9 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923),
and incorporated herein by reference thereto).
3.2
3.1(i)
3.1(h) Certificate of Change of Location of Registered Office and of Registered Agent of the Company (filed with
the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed August 6, 2010 (File No. 001-08923), and
incorporated herein by reference thereto).
Certificate of Designation of 6% Series H Cumulative Convertible and Redeemable Preferred Stock of
the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed January 11,
2011 (File No. 001-08923), and incorporated herein by reference thereto).
Second Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to
the Company’s Form 8-K filed October 29, 2007 (File No. 001-08923), and incorporated herein by
reference thereto).
Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth
Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 9,
2002 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.2 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and
incorporated herein by reference thereto).
4.1(b)
4.1(a)
4.1(c) Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6,
2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and
Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 14,
2003 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.2 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and
incorporated herein by reference thereto).
4.1(d)
4.1(e) Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September
10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company
and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’s Form 8-K filed
September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.1 to the Company’s Form 8-K filed October 30, 2003 (File No. 001-08923), and incorporated
herein by reference thereto).
4.1(f)
4.1(h)
4.1(g) Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29,
2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and
The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission
as Exhibit 4.1 to the Company’s Form 8-K filed September 13, 2004 (File No. 001-08923), and
incorporated herein by reference thereto).
Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as
of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with
the Commission as Exhibit 4.1 to the Company’s Form 8-K filed April 28, 2005 (File No. 001-08923), and
incorporated herein by reference thereto).
Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A.
(filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 30, 2005
(File No. 001-08923), and incorporated herein by reference thereto).
Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust
Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed
November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
4.2(a)
4.1(i)
118
4.3(a)
4.2(c)
4.2(b)
Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of
New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K
filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 2, dated as of July 20, 2007, between the Company and The Bank of
New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K
filed July 20, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
Indenture, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust
Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 15,
2010 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 1, dated as of March 15, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(c) Amendment No. 1 to Supplemental Indenture No. 1, dated as of June 18, 2010, between the Company
and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the
Company’s Form 8-K filed June 18, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).
Supplemental Indenture No. 2, dated as of April 7, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed April 7, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(b)
4.3(d)
10.1
4.5
4.4
4.3(f)
4.3(g)
4.3(e) Amendment No. 1 to Supplemental Indenture No. 2, dated as of June 8, 2010, between the Company and
The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the
Company’s Form 8-K filed June 8, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).
Supplemental Indenture No. 3, dated as of September 10, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed September 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 4, dated as of November 16, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed November 16, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to
the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by
reference thereto).
Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to
the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by
reference thereto).
Fourth Amended and Restated Loan Agreement, dated as of August 6, 2007, by and among the Company
and certain of its subsidiaries,
the banks signatory thereto, KeyBank National Association, as
administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC,
Bank of America, N.A., JPMorgan Chase Bank, N.A., Calyon New York Branch, Barclays Bank PLC and
Fifth Third Bank, as documentation agents (filed with the SEC as Exhibit 10.2 to the Company’s Form
10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed
with the Commission as Exhibit 10.6 to the Company’s Form 10-Q filed July 23, 2004 (File No. 001-08923),
and incorporated herein by reference thereto).
The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to
the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995
(File No. 001-08923), and incorporated herein by reference thereto).*
First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission
as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-40771) filed November 21, 1997, and
incorporated herein by reference thereto).*
Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the
Commission as Exhibit 4.3 to the Company’s Form S-8 (File No. 333-73916) filed November 21,
2001, and incorporated herein by reference thereto).*
10.3(b)
10.3(c)
10.3(a)
10.2
119
10.3(d)
10.3(e)
10.4(a)
10.4(b)
10.4(c)
Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as
Exhibit 10.15 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated
herein by reference thereto).*
Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the
Commission as Exhibit 10.17 to the Company’s Form 10-K filed March 16, 2005 (File No. 001-08923), and
incorporated herein by reference thereto).*
Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as
Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated
herein by reference thereto).*
First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective
April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10,
2004 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the
Commission as Exhibit 10.3 to the Company’s Form 10-Q/A filed October 27, 2004 (File No. 001-08923),
and incorporated herein by reference thereto).*
10.5(f)
10.5(e)
10.5(c)
10.5(b)
10.5(d)
10.5(a) Amended and Restated Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the
Commission as Appendix A to the Company’s Proxy Statement for the 2009 Annual Meeting of
Stockholders, filed March 25, 2009 (File No. 001-08923), and incorporated herein by reference
thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for the Chief
Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.6
to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by
reference thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.8 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005
Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’s Form 10-K filed
March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for Executive
Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.7 to the
Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference
thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.9 to the Company’s Form 8-K
filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer
under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit
10.1 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by
reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’s Form 10-K
filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the
Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.2 to the
Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).*
10.5(g)
10.5(k)
10.5(h)
10.5(i)
10.5(j)
120
10.5(l)
Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’s Form 10-K filed March 10,
2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.6
10.5(r)
10.5(s)
10.5(n)
10.5(q)
10.5(o)
10.5(p)
10.5(m) Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan
(filed with the Commission as Exhibit 10.23 to the Company’s Form 10-K filed March 10, 2006 (File No.
001-08923), and incorporated herein by reference thereto).*
Form of Restricted Stock Agreement for the Chief Executive Officer under the Amended and Restated
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q
filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Restricted Stock Agreement for Executive Officers under the Amended and Restated 2005
Long-Term Incentive Plan (filed with the Commission as Exhibit 10.4 to the Company’s Form 10-Q filed
May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’s Form 10-K filed March 10,
2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Deferred Stock Unit Grant Agreements for Non-Employee Directors under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.10 to the Company’s Form 8-K
filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.11 to the Company’s Form 8-K filed January 5,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the Amended and
Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.5 to the Company’s
Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Fifth Amended and Restated Employment Agreement, dated December 2, 2010, by and between the
Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K
filed December 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company
and Scott A. Estes (filed with the Commission as Exhibit 10.4 to the Company’s Form 8-K filed January 5,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the
Company and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.3 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and
Jeffrey H. Miller (filed with the Commission as Exhibit 10.8 to the Company’s Form 10-K filed March 2,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Employment Agreement, dated January 19, 2009, between the Company and John T. Thomas (filed with the
Commission as Exhibit 10.10 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and
incorporated herein by reference thereto).*
Third Amended and Restated Employment Agreement, dated December 29, 2008, between the Company
and Erin C. Ibele (filed with the Commission as Exhibit 10.11 to the Company’s Form 10-K filed
March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the
Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.12 to the Company’s
Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and
Fred S. Klipsch (filed with the Commission as Exhibit 10.5 to the Company’s Form 8-K filed January 5,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and
Frederick L. Farrar (filed with the Commission as Exhibit 10.14 to the Company’s Form 10-K filed
March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.13
10.14
10.12
10.11
10.10
10.9
10.7
10.8
121
10.15
10.16
10.17
12
14
21
23
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
24.9
24.10
24.11
24.12
31.1
31.2
32.1
32.2
Amended and Restated Health Care REIT, Inc. Supplemental Executive Retirement Plan, dated
December 29, 2008 (filed with the Commission as Exhibit 10.12 to the Company’s Form 8-K filed
January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Indemnification Agreement between the Company and each director, executive officer and
officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed
February 18, 2005 (File No. 001-08923), and incorporated herein by reference thereto).*
Summary of Director Compensation.*
Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends (Unaudited).
Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’s Form
10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).
Subsidiaries of the Company.
Consent of Ernst & Young LLP, independent registered public accounting firm.
Power of Attorney executed by William C. Ballard, Jr. (Director).
Power of Attorney executed by Pier C. Borra (Director).
Power of Attorney executed by Thomas J. DeRosa (Director).
Power of Attorney executed by Jeffrey H. Donahue (Director).
Power of Attorney executed by Peter J. Grua (Director).
Power of Attorney executed by Fred S. Klipsch (Director).
Power of Attorney executed by Sharon M. Oster (Director).
Power of Attorney executed by Jeffrey R. Otten (Director).
Power of Attorney executed by R. Scott Trumbull (Director).
Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive
Officer and President and Principal Executive Officer).
Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and
Principal Financial Officer).
Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal
Accounting Officer).
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
* Management Contract or Compensatory Plan or Arrangement.
(b) Exhibits:
The exhibits listed in Item 15(a)(3) above are either filed with this Form 10-K or incorporated by
reference in accordance with Rule 12b-32 of the Securities Exchange Act of 1934.
(c) Financial Statement Schedules:
Financial statement schedules are included on pages 124 through 135.
122
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 hereunto duly authorized.
HEALTH CARE REIT, INC.
By:
/s/ GEORGE L. CHAPMAN
Chairman, Chief Executive Officer, President and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 25, 2011, by the following person on behalf of the Company and in the capacities indicated.
/s/ WILLIAM C. BALLARD, JR.**
William C. Ballard, Jr., Director
/s/ PIER C. BORRA**
Pier C. Borra, Director
/s/ THOMAS J. DEROSA**
Thomas J. DeRosa, Director
/s/
JEFFREY H. DONAHUE**
Jeffrey H. Donahue, Director
/s/ PETER J. GRUA**
Peter J. Grua, Director
/s/ FRED S. KLIPSCH**
Fred S. Klipsch, Director
/s/ SHARON M. OSTER**
Sharon M. Oster, Director
/s/
JEFFREY R. OTTEN**
Jeffrey R. Otten, Director
/s/ R. SCOTT TRUMBULL**
R. Scott Trumbull, Director
/s/ GEORGE L. CHAPMAN
George L. Chapman, Chairman, Chief Executive
Officer, President and Director
(Principal Executive Officer)
/s/ SCOTT A. ESTES**
Scott A. Estes, Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
/s/ PAUL D. NUNGESTER, JR.**
Paul D. Nungester, Jr., Vice President and Controller
(Principal Accounting Officer)
**By:
/s/ GEORGE L. CHAPMAN
George L. Chapman, Attorney-in-Fact
123
HEALTH CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2010
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
Senior housing and care
facilities:
Aboite Twp, IN. . . . . . . .
Agawam, MA. . . . . . . . .
Akron, OH . . . . . . . . . .
Akron, OH . . . . . . . . . .
Albertville, AL . . . . . . . .
Albuquerque, NM . . . . . .
Alexandria, VA . . . . . . . .
Alliance, OH . . . . . . . . .
Amarillo, TX . . . . . . . . .
Amelia Island, FL . . . . . .
Ames, IA . . . . . . . . . . .
Anderson, SC . . . . . . . . .
Apple Valley, CA . . . . . .
Arcadia, LA . . . . . . . . . .
Asheboro, NC . . . . . . . .
Asheville, NC. . . . . . . . .
Asheville, NC. . . . . . . . .
Atlanta, GA . . . . . . . . . .
Atlanta, GA . . . . . . . . . .
Auburndale, FL . . . . . . .
Aurora, CO . . . . . . . . . .
Aurora, CO . . . . . . . . . .
Austin, TX . . . . . . . . . .
Austin, TX . . . . . . . . . .
Avon, IN . . . . . . . . . . . .
Azusa, CA . . . . . . . . . . .
Baltic, OH . . . . . . . . . . .
Bartlesville, OK . . . . . . .
Baytown, TX . . . . . . . . .
Baytown, TX . . . . . . . . .
Beachwood, OH . . . . . . .
Beattyville, KY. . . . . . . .
Bellevue, WI . . . . . . . . .
Bellingham, WA . . . . . . .
Bethel Park, PA . . . . . . .
Boise, ID . . . . . . . . . . .
Boonville, IN . . . . . . . . .
Boynton Beach, FL . . . . .
Bradenton, FL . . . . . . . .
Braintree, MA . . . . . . . .
Brandon, MS . . . . . . . . .
Bremerton, WA. . . . . . . .
Bremerton, WA. . . . . . . .
Brick, NJ . . . . . . . . . . .
Brick, NJ(1) . . . . . . . . . .
Bridgewater, NJ . . . . . . .
Bridgewater, NJ . . . . . . .
Brighton, MA . . . . . . . . .
Broadview Heights, OH . .
Bunnell, FL . . . . . . . . . .
Burlington, NC . . . . . . . .
Burlington, NC . . . . . . . .
Butler, AL . . . . . . . . . . .
Butte, MT . . . . . . . . . . .
Byrdstown, TN . . . . . . . .
Canton, MA . . . . . . . . . .
Canton, OH . . . . . . . . . .
Cape Coral, FL . . . . . . . .
Carmel, IN . . . . . . . . . .
Cary, NC. . . . . . . . . . . .
Chapel Hill, NC . . . . . . .
Chelmsford, MA . . . . . . .
$
— $
—
—
—
2,110
5,901
—
4,621
—
—
—
—
8,390
—
—
—
—
7,997
—
—
—
—
19,819
10,185
—
—
3,787
—
9,553
—
—
—
—
10,429
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,770
880
290
630
170
1,270
1,330
270
540
3,290
330
710
480
240
290
204
280
2,058
460
750
2,600
2,440
880
730
1,830
570
50
100
450
540
1,260
100
1,740
1,500
1,700
810
190
980
252
170
1,220
390
830
1,170
690
1,850
1,730
240
920
260
280
460
90
550
—
820
300
530
2,370
1,500
354
1,040
$
19,930
16,112
8,219
7,535
6,203
20,837
7,820
7,723
7,260
24,310
8,871
6,290
16,639
5,460
5,032
3,489
1,955
14,914
5,540
5,950
5,906
28,172
9,520
18,970
14,470
3,141
8,709
1,380
6,150
11,110
23,478
6,900
18,260
19,861
16,007
5,401
5,510
8,112
3,298
7,157
10,241
2,210
10,420
17,372
17,125
3,050
48,201
3,859
12,400
7,118
4,297
5,467
3,510
3,957
2,414
8,201
2,098
3,281
57,175
4,350
2,646
10,951
$
—
2,135
492
185
—
—
—
107
—
19,007
—
—
—
—
166
—
352
548
190
166
7,915
—
396
—
—
5,936
189
—
—
—
—
—
571
—
—
—
—
—
—
1,290
—
144
—
—
—
—
—
2,126
2,237
—
707
—
—
43
—
263
—
—
263
986
783
—
124
$ 1,770
880
290
630
170
1,270
1,330
270
540
3,290
330
710
480
240
290
204
280
2,058
460
750
2,600
2,440
880
730
1,830
570
50
100
450
540
1,260
100
1,740
1,500
1,700
810
190
980
252
170
1,220
390
830
1,170
690
1,850
1,730
240
920
260
280
460
90
550
—
820
300
530
2,370
1,500
354
1,040
$
19,930
18,247
8,711
7,720
6,203
20,837
7,820
7,830
7,260
43,317
8,871
6,290
16,639
5,460
5,198
3,489
2,307
15,462
5,730
6,116
13,821
28,172
9,916
18,970
14,470
9,077
8,898
1,380
6,150
11,110
23,478
6,900
18,831
19,861
16,007
5,401
5,510
8,112
3,298
8,447
10,241
2,354
10,420
17,372
17,125
3,050
48,201
5,985
14,637
7,118
5,004
5,467
3,510
4,000
2,414
8,464
2,098
3,281
57,438
5,336
3,429
10,951
$
132
4,167
1,297
977
207
—
459
1,083
1,170
4,235
161
1,402
449
882
1,047
1,208
524
7,889
975
991
1,767
2,101
3,249
1,912
274
1,050
1,205
570
1,516
355
5,876
1,068
2,206
497
775
2,229
1,344
1,502
1,378
5,916
47
241
—
—
—
751
—
959
3,135
1,396
995
1,120
750
1,112
1,086
2,221
720
805
3,794
1,669
794
2,130
2010
2002
2005
2006
2010
2010
2008
2006
2005
2005
2010
2003
2010
2006
2003
1999
2003
1997
2005
2005
2006
2006
1999
2007
2010
1998
2006
1996
2002
2009
2001
2005
2006
2010
2007
1998
2002
2004
1996
1997
2010
2006
2010
2010
2010
2004
2010
2005
2001
2004
2003
2003
2004
1998
2004
2002
1998
2002
2006
1998
2002
2003
2008
1993
1961
1915
1999
1984
1955
1982
1986
1998
1999
1986
1999
2006
1998
1999
1992
1999
1972
1983
2006
2008
1998
2006
2004
1988
1983
1995
2000
2008
1990
1972
2004
1996
2009
1966
2000
1999
1995
1968
1999
1999
1984
1998
1999
1970
1999
1982
1984
1985
2000
1997
1960
1999
1982
1993
1998
2000
2007
1996
1997
1997
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Chickasha, OK . . . . . . . .
Cincinnati, OH . . . . . . . .
Citrus Heights, CA . . . . .
Claremore, OK . . . . . . . .
Clarksville, TN . . . . . . . .
Clearwater, FL . . . . . . . .
Clearwater, FL . . . . . . . .
Cleburne, TX . . . . . . . . .
Cleveland, TN . . . . . . . .
Coeur d’Alene, ID . . . . . .
Colorado Springs, CO . . .
Colts Neck, NJ . . . . . . . .
Columbia, TN . . . . . . . .
Columbia, TN . . . . . . . .
Columbia, SC . . . . . . . . .
Columbus, IN . . . . . . . . .
Columbus, IN . . . . . . . . .
Columbus, OH . . . . . . . .
Columbus, OH . . . . . . . .
Columbus, OH . . . . . . . .
Concord, NC . . . . . . . . .
Conroe, TX . . . . . . . . . .
Corpus Christi, TX . . . . .
Corpus Christi, TX . . . . .
Crystal Lake, IL . . . . . . .
Dade City, FL . . . . . . . .
Danville, VA . . . . . . . . .
Davenport, IA . . . . . . . .
Daytona Beach, FL . . . . .
Daytona Beach, FL . . . . .
DeBary, FL . . . . . . . . . .
Dedham, MA . . . . . . . . .
DeForest, WI . . . . . . . . .
Defuniak Springs, FL . . . .
DeLand, FL . . . . . . . . . .
Denton, MD. . . . . . . . . .
Denver, CO . . . . . . . . . .
Denver, CO . . . . . . . . . .
Denver, CO . . . . . . . . . .
Douglasville, GA . . . . . .
Douglasville, GA . . . . . .
Drescher, PA . . . . . . . . .
Dublin, OH . . . . . . . . . .
Durham, NC . . . . . . . . .
East Norriston, PA . . . . . .
Easton, PA. . . . . . . . . . .
Eden, NC . . . . . . . . . . .
El Paso, TX . . . . . . . . . .
El Paso, TX . . . . . . . . . .
Elizabeth City, NC . . . . .
Elizabethton, TN . . . . . . .
Encinitas, CA . . . . . . . . .
Englishtown, NJ . . . . . . .
Erin, TN . . . . . . . . . . . .
Eugene, OR . . . . . . . . . .
Everett, WA . . . . . . . . . .
Fairfield, CA . . . . . . . . .
Fairhaven, MA . . . . . . . .
Fall River, MA . . . . . . . .
Fayetteville, NY . . . . . . .
Findlay, OH . . . . . . . . . .
Fishers, IN . . . . . . . . . .
Florence, NJ . . . . . . . . .
Florence, AL . . . . . . . . .
Forest City, NC. . . . . . . .
Fork Union, VA . . . . . . .
Fort Pierce, FL . . . . . . . .
Fredericksburg, VA . . . . .
Fremont, CA . . . . . . . . .
Gardnerville, NV. . . . . . .
Gastonia, NC . . . . . . . . .
—
—
15,578
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,254
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19,513
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,420
—
—
—
—
20,302
13,121
—
85
2,060
2,300
155
330
160
1,260
520
350
600
310
780
341
590
2,120
610
530
1,070
1,010
1,860
550
980
307
400
840
250
410
1,403
470
490
440
1,360
250
1,350
220
390
2,530
3,650
2,076
1,350
90
2,060
1,680
1,476
1,200
285
390
539
642
200
310
1,460
690
440
300
1,400
1,460
770
620
410
200
1,500
300
353
320
310
440
1,000
3,400
1,143
470
1,395
109,388
31,876
1,428
2,292
7,218
2,740
5,369
5,000
7,878
6,290
14,733
2,295
3,787
4,860
3,190
5,170
11,726
4,931
16,624
3,921
7,771
443
1,916
7,290
7,150
3,954
35,893
5,930
5,710
7,460
9,830
5,350
10,250
7,080
4,010
9,514
14,906
13,594
7,471
217
40,236
43,423
10,659
28,129
6,315
4,877
8,961
3,958
2,760
4,604
7,721
12,520
8,060
5,316
5,476
14,040
6,230
5,829
3,962
1,800
14,500
2,978
13,049
4,497
2,490
3,560
20,000
25,300
10,831
6,129
—
—
—
—
—
—
200
—
122
—
—
—
—
—
5,709
—
1,540
1,204
91
1,077
55
—
—
—
—
—
722
1,781
—
—
—
—
354
—
—
206
—
1,585
—
—
—
—
—
2,196
—
—
—
232
1,100
2,011
336
—
—
134
—
—
—
—
4,856
500
—
—
—
—
—
60
117
303
1,427
629
—
125
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
85
2,060
2,300
155
330
160
1,260
520
350
600
310
780
341
590
2,120
610
530
1,070
1,010
1,860
550
980
307
400
840
250
410
1,403
470
490
440
1,360
250
1,350
220
390
2,530
3,650
2,076
1,350
90
2,060
1,680
1,476
1,200
285
390
539
642
200
310
1,460
690
440
300
1,400
1,460
770
620
410
200
1,500
300
353
320
310
440
1,000
3,400
1,143
470
1,395
109,388
31,876
1,428
2,292
7,218
2,940
5,369
5,122
7,878
6,290
14,733
2,295
3,787
10,569
3,190
6,710
12,930
5,022
17,701
3,976
7,771
443
1,916
7,290
7,150
4,676
37,674
5,930
5,710
7,460
9,830
5,704
10,250
7,080
4,216
9,514
16,491
13,594
7,471
217
40,236
43,423
12,855
28,129
6,315
4,877
9,193
5,058
4,771
4,940
7,721
12,520
8,194
5,316
5,476
14,040
6,230
10,685
4,462
1,800
14,500
2,978
13,049
4,497
2,550
3,677
20,303
26,727
11,460
6,129
570
1,404
722
563
778
1,281
593
509
1,379
2,865
1,077
—
789
1,019
1,644
59
1,492
1,801
763
2,389
903
134
203
431
456
1,315
970
1,055
1,187
1,185
1,365
2,588
540
1,277
1,307
1,046
1,404
1,704
422
1,778
53
—
—
6,977
—
3,301
1,018
1,455
831
1,359
1,370
2,346
—
2,114
2,089
1,768
3,510
1,117
3,445
1,071
677
274
727
353
947
163
590
3,040
3,370
6,259
1,247
1996
2007
2010
1996
1998
2004
2005
2006
2001
1998
2005
2010
1999
2003
2003
2010
2002
2005
2006
2006
2003
2009
2005
2005
2007
2004
2003
2006
2004
2004
2004
2002
2007
2006
2004
2003
2005
2006
2007
2003
2003
2010
2010
1997
2010
1993
2003
2005
2005
1998
2001
2000
2010
2001
1998
1999
2002
2004
1996
2001
1997
2010
2002
2010
2003
2008
2005
2005
2005
1998
2003
1996
2010
1997
1996
1998
1961
1983
2007
1987
1996
1985
2002
1999
1974
2000
1998
2001
1968
1983
1978
1997
2010
1985
1985
2008
1975
1998
2009
1986
1961
1965
1996
2006
1980
1967
1982
1986
1987
2009
1975
1985
2001
1990
1999
1988
1959
1998
1970
1969
1999
1980
2000
1997
1981
1972
1999
1998
1999
1973
1997
1997
2000
1999
1999
1999
1990
1973
1999
1987
1999
1998
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gastonia, NC . . . . . . . . .
Gastonia, NC . . . . . . . . .
Georgetown, TX . . . . . . .
Gig Harbor, WA . . . . . . .
Gilroy, CA . . . . . . . . . .
Goochland, VA . . . . . . . .
Goshen, IN . . . . . . . . . .
Graceville, FL . . . . . . . .
. . . . . .
Grand Ledge, MI
Grand Prairie, TX . . . . . .
Granger, IN . . . . . . . . . .
Granite City, IL . . . . . . .
Granite City, IL . . . . . . .
Greeneville, TN . . . . . . .
Greenfield, WI . . . . . . . .
Greensboro, NC . . . . . . .
Greensboro, NC . . . . . . .
Greenville, SC . . . . . . . .
Greenville, SC . . . . . . . .
Greenville, NC . . . . . . . .
Greenwood, IN . . . . . . . .
Hamden, CT . . . . . . . . .
Hamilton, NJ . . . . . . . . .
Hanover, IN . . . . . . . . . .
Hardin, IL . . . . . . . . . . .
Harleysville, PA . . . . . . .
Harriman, TN . . . . . . . . .
Hattiesburg, MS . . . . . . .
Haverford, PA . . . . . . . .
Hemet, CA . . . . . . . . . .
Hemet, CA . . . . . . . . . .
Hemet, CA . . . . . . . . . .
Henderson, NV . . . . . . . .
Henderson, NV . . . . . . . .
Herculaneum, MO . . . . . .
Hickory, NC . . . . . . . . .
High Point, NC . . . . . . . .
High Point, NC . . . . . . . .
High Point, NC . . . . . . . .
High Point, NC . . . . . . . .
Highlands Ranch, CO . . . .
Hilliard, FL . . . . . . . . . .
Homestead, FL . . . . . . . .
Hopedale, MA . . . . . . . .
Houston, TX . . . . . . . . .
Houston, TX . . . . . . . . .
Houston, TX . . . . . . . . .
Houston, TX . . . . . . . . .
Howell, NJ . . . . . . . . . .
Huron, OH . . . . . . . . . .
Hutchinson, KS . . . . . . .
Indianapolis, IN . . . . . . .
Indianapolis, IN . . . . . . .
Irving, TX . . . . . . . . . . .
Jamestown, TN . . . . . . . .
Jefferson, OH . . . . . . . . .
Jefferson City, MO . . . . .
Jonesboro, GA . . . . . . . .
Jonesboro, GA . . . . . . . .
Kalida, OH . . . . . . . . . .
Kalispell, MT . . . . . . . . .
Kansas City, MO . . . . . . .
Kansas City, MO . . . . . . .
Kenner, LA . . . . . . . . . .
Kennett Square, PA . . . . .
Kennewick, WA . . . . . . .
Kenosha, WI . . . . . . . . .
Kent, WA . . . . . . . . . . .
Kirkland, WA . . . . . . . . .
Kissimmee, FL . . . . . . . .
LaBelle, FL . . . . . . . . . .
—
—
—
6,165
—
—
—
—
8,549
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,100
—
—
13,550
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,183
—
10,549
10,741
—
—
—
—
—
—
—
—
—
—
—
—
6,097
7,455
—
—
9,320
—
—
—
—
—
310
400
200
1,560
760
350
210
150
1,150
574
1,670
610
400
400
600
330
560
310
5,400
290
1,550
1,470
440
210
50
960
590
450
1,880
870
1,890
430
380
380
127
290
560
370
330
430
940
150
2,750
130
4,790
860
5,090
630
1,050
160
600
495
255
1,030
—
80
370
460
840
480
360
1,820
1,930
1,100
1,050
1,820
1,500
940
1,880
230
60
3,096
5,029
2,100
15,947
13,880
3,697
6,120
13,000
16,286
3,426
21,280
7,143
4,303
8,290
6,626
2,970
5,507
4,750
100,523
4,393
22,770
4,530
4,469
4,430
5,350
11,355
8,060
15,518
33,993
3,405
28,606
9,630
9,220
4,360
10,373
987
4,443
2,185
3,395
4,143
3,721
6,990
11,750
8,170
7,100
18,715
9,471
5,970
21,703
6,088
10,590
6,287
2,473
6,823
6,707
9,120
6,730
1,304
1,921
8,173
3,282
34,898
39,997
10,036
22,946
27,991
9,139
20,318
4,315
3,854
4,946
22
120
—
—
23,860
—
—
—
—
—
—
842
707
—
328
554
1,013
—
634
168
—
—
—
—
135
—
158
—
—
—
—
—
65
41
393
232
793
410
28
—
—
—
—
—
—
—
—
750
—
1,452
—
22,565
12,123
267
—
—
301
—
—
—
—
—
—
125
—
—
—
10,381
—
—
—
126
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
310
400
200
1,560
760
350
210
150
1,150
574
1,670
610
400
400
600
330
560
310
5,400
290
1,550
1,470
440
210
50
960
590
450
1,880
870
1,890
430
380
380
127
290
560
370
330
430
940
150
2,750
130
4,790
860
5,090
630
1,050
160
600
495
255
1,030
—
80
370
460
840
480
360
1,820
1,930
1,100
1,050
1,820
1,500
940
1,880
230
60
3,118
5,149
2,100
15,947
37,740
3,697
6,120
13,000
16,286
3,426
21,280
7,985
5,010
8,290
6,954
3,524
6,520
4,750
101,157
4,561
22,770
4,530
4,469
4,430
5,485
11,355
8,218
15,518
33,993
3,405
28,606
9,630
9,285
4,401
10,766
1,219
5,236
2,595
3,423
4,143
3,721
6,990
11,750
8,170
7,100
18,715
9,471
6,720
21,703
7,540
10,590
28,852
14,596
7,090
6,707
9,120
7,031
1,304
1,921
8,173
3,282
34,898
39,997
10,161
22,946
27,991
9,139
30,699
4,315
3,854
4,946
679
1,052
776
409
3,089
236
864
1,575
—
668
141
4,804
2,949
1,626
620
749
1,374
873
2,681
920
150
1,320
1,088
847
2,968
482
2,258
—
—
326
703
258
2,933
1,205
5,723
347
1,091
579
720
863
921
2,499
1,456
1,285
2,114
1,636
435
1,597
—
963
1,753
3,309
1,461
436
3,018
1,321
3,727
281
558
796
1,096
—
—
5,565
—
660
475
2,031
893
710
989
2003
2003
1997
2010
2006
2008
2005
2006
2010
2005
2010
1998
1999
2004
2006
2003
2003
2004
2006
2003
2010
2002
2001
2004
2002
2008
2001
2010
2010
2007
2010
2010
1998
1999
2002
2003
2003
2003
2003
2003
2002
1999
2006
2005
2003
2007
2007
2002
2010
2005
2004
2006
2006
2007
2004
2006
2002
2003
2003
2006
1998
2010
2010
1998
2010
2010
2007
2007
2003
2004
2004
1994
1996
1997
1994
2007
1991
2006
1980
1999
1982
2009
1973
1964
1979
2006
1996
1997
1997
2009
1998
2007
1998
1998
2000
1996
2009
1972
2009
2000
1996
1988
1988
1998
2000
1984
1994
2000
1999
1994
1998
1999
1990
1994
1999
1974
2006
2009
1995
2007
1983
1997
1981
1981
2008
1966
1984
1982
1992
1992
2007
1998
1980
1986
2000
2008
1994
2009
2000
1996
1972
1986
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Lake Havasu City, AZ . . .
Lake Havasu City, AZ . . .
Lake Placid, FL . . . . . . .
Lancaster, CA . . . . . . . .
Lawrenceville, VA . . . . . .
Lecanto, FL . . . . . . . . . .
Lee, MA . . . . . . . . . . . .
Lenoir, NC . . . . . . . . . .
Lexington, NC . . . . . . . .
Lincoln, NE . . . . . . . . . .
Linwood, NJ . . . . . . . . .
Litchfield, CT . . . . . . . .
Little Neck, NY . . . . . . .
Littleton, MA . . . . . . . . .
Loma Linda, CA . . . . . . .
Longview, TX . . . . . . . .
Longview, TX . . . . . . . .
Longwood, FL . . . . . . . .
Los Angeles, CA. . . . . . .
Louisville, KY . . . . . . . .
Louisville, KY . . . . . . . .
Louisville, KY . . . . . . . .
Lufkin, TX . . . . . . . . . .
Manassas, VA. . . . . . . . .
Manchester, NH . . . . . . .
Mansfield, TX . . . . . . . .
Manteca, CA . . . . . . . . .
Margate, FL . . . . . . . . . .
Marianna, FL . . . . . . . . .
Martinsville, VA . . . . . . .
Marysville, CA . . . . . . . .
Marysville, WA . . . . . . .
Matthews, NC . . . . . . . .
McConnelsville, OH . . . .
McHenry, IL . . . . . . . . .
McHenry, IL . . . . . . . . .
McKinney, TX . . . . . . . .
Melbourne, FL . . . . . . . .
Melville, NY . . . . . . . . .
Memphis, TN . . . . . . . . .
Memphis, TN . . . . . . . . .
Memphis, TN . . . . . . . . .
Memphis, TN . . . . . . . . .
Menomonee Falls, WI . . .
Merrillville, IN . . . . . . . .
Mesa, AZ . . . . . . . . . . .
Middleburg Heights, OH . .
Middleton, WI . . . . . . . .
Midland, MI
. . . . . . . . .
Midwest City, OK . . . . . .
Midwest City, OK . . . . . .
Mill Creek, WA . . . . . . .
Missoula, MT . . . . . . . . .
Monroe, NC. . . . . . . . . .
Monroe, NC. . . . . . . . . .
Monroe, NC. . . . . . . . . .
Monroe, WA . . . . . . . . .
Monteagle, TN . . . . . . . .
Monterey, TN . . . . . . . . .
Monticello, FL . . . . . . . .
Moorestown, NJ . . . . . . .
Morehead City, NC . . . . .
Morgantown, KY . . . . . .
Moss Point, MS . . . . . . .
Mount Airy, NC . . . . . . .
Mountain City, TN . . . . .
Mt. Vernon, WA . . . . . . .
Myrtle Beach, SC . . . . . .
Nacogdoches, TX . . . . . .
Naples, FL . . . . . . . . . .
Naples, FL . . . . . . . . . .
—
—
—
10,763
—
—
—
—
—
5,435
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,445
—
—
—
—
4,775
—
—
—
—
—
—
—
—
—
—
—
—
—
6,365
—
—
—
—
—
30,914
—
—
—
—
14,585
—
—
—
—
—
—
—
—
—
—
—
—
—
—
450
110
150
700
170
200
290
190
200
390
800
1,240
3,350
1,240
2,214
293
610
480
—
490
430
350
343
750
340
660
1,300
500
340
349
450
620
560
190
1,632
3,550
1,570
7,070
4,280
970
480
940
390
1,020
643
950
960
420
200
470
484
10,150
550
470
310
450
2,560
310
—
140
2,060
200
380
120
270
220
400
6,890
390
1,716
550
4,223
2,244
12,850
15,295
4,780
6,900
18,135
3,748
3,900
13,807
21,984
17,908
38,461
2,910
9,586
1,707
5,520
7,520
11,430
10,010
7,135
4,675
1,184
7,446
4,360
5,251
12,125
7,303
8,910
—
4,172
4,780
4,738
7,060
—
15,300
7,389
48,257
73,283
4,246
5,656
5,963
9,660
6,984
7,084
9,087
7,780
4,006
11,025
5,673
5,516
60,274
7,490
3,681
4,799
4,021
34,460
3,318
4,195
4,471
51,628
3,104
3,705
7,280
6,430
5,896
2,200
41,526
5,754
17,306
5,450
—
136
—
—
—
—
926
641
1,015
—
—
—
—
—
—
—
—
—
—
—
163
109
—
—
159
—
1,309
2,459
—
—
44
229
—
—
—
6,718
—
970
—
—
—
—
—
—
3,526
232
—
600
—
—
—
—
—
648
857
114
—
—
—
—
—
1,648
—
—
118
660
156
283
—
923
—
127
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
450
110
150
700
170
200
290
190
200
390
800
1,240
3,350
1,240
2,214
293
610
480
—
490
430
350
343
750
340
660
1,300
500
340
349
450
620
560
190
1,632
3,550
1,570
7,070
4,280
970
480
940
390
1,020
643
950
960
420
200
470
484
10,150
550
470
310
450
2,560
310
—
140
2,060
200
380
120
270
220
400
6,890
390
1,716
550
4,223
2,380
12,850
15,295
4,780
6,900
19,061
4,389
4,915
13,807
21,984
17,908
38,461
2,910
9,586
1,707
5,520
7,520
11,430
10,010
7,298
4,784
1,184
7,446
4,519
5,251
13,434
9,762
8,910
—
4,216
5,009
4,738
7,060
—
22,018
7,389
49,227
73,283
4,246
5,656
5,963
9,660
6,984
10,610
9,319
7,780
4,606
11,025
5,673
5,516
60,274
7,490
4,329
5,656
4,135
34,460
3,318
4,195
4,471
51,628
4,752
3,705
7,280
6,548
6,556
2,356
41,809
5,754
18,229
5,450
1,343
798
2,415
405
294
1,217
4,534
910
1,111
233
—
—
—
863
836
386
534
1,408
246
1,943
1,990
1,334
389
1,473
681
513
1,677
6,606
1,076
—
1,176
926
1,021
40
—
1,962
162
1,934
—
1,084
1,336
1,337
—
607
5,090
2,630
1,314
989
—
3,036
937
1,339
1,084
921
1,133
875
776
830
1,888
920
—
1,345
876
1,392
851
2,958
249
1,681
546
12,497
1,024
1998
1998
2004
2010
2008
2004
2002
2003
2002
2010
2010
2010
2010
1996
2008
2005
2006
2004
2008
2005
2002
2002
2005
2003
2005
2006
2005
1998
2006
2003
1998
2003
2003
2010
2006
2006
2009
2007
2010
2003
2003
2004
2010
2006
1997
1999
2004
2001
2010
1998
2005
2010
2005
2003
2003
2003
2010
2003
2004
2004
2010
1999
2003
2004
2005
2001
2006
2007
2006
1997
2004
1999
1994
1984
1999
1989
1986
1998
1998
1997
2000
1997
1998
2000
1975
1976
1971
2007
1980
2008
1978
1974
1975
1919
1996
1984
2007
1985
1972
1997
1999
1998
1998
1946
2004
2010
2009
2001
1981
1982
1951
1981
2007
1999
2000
1998
1991
1994
1958
1987
1998
1998
2001
2000
1997
1994
1980
1977
1986
2000
1999
1965
1933
1998
1976
2001
2009
2007
1999
1968
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
Nashville, TN . . . . . . . . .
Natchitoches, LA . . . . . .
Needham, MA . . . . . . . .
Neenah, WI . . . . . . . . . .
New Haven, IN . . . . . . . .
New Haven, CT . . . . . . .
New York, NY . . . . . . . .
Newark, DE . . . . . . . . . .
Newburyport, MA . . . . . .
Norman, OK . . . . . . . . .
North Augusta, SC . . . . .
North Miami, FL. . . . . . .
North Miami, FL. . . . . . .
North Miami Beach, FL . .
Norwalk, CT . . . . . . . . .
Ocala, FL . . . . . . . . . . .
Ogden, UT . . . . . . . . . .
Oklahoma City, OK . . . . .
Oklahoma City, OK . . . . .
Oklahoma City, OK . . . . .
Olympia, WA . . . . . . . . .
Omaha, NE . . . . . . . . . .
Omaha, NE . . . . . . . . . .
Oneonta, NY . . . . . . . . .
Ormond Beach, FL . . . . .
Oshkosh, WI . . . . . . . . .
Oshkosh, WI . . . . . . . . .
Oswego, IL . . . . . . . . . .
Overland Park, KS. . . . . .
Overland Park, KS. . . . . .
Overland Park, KS. . . . . .
Owasso, OK . . . . . . . . .
Owensboro, KY . . . . . . .
Owensboro, KY . . . . . . .
Owenton, KY . . . . . . . . .
Oxford, MI . . . . . . . . . .
Palestine, TX . . . . . . . . .
Palm Coast, FL . . . . . . . .
Panama City, FL . . . . . . .
Paris, TX . . . . . . . . . . .
Pasadena, TX . . . . . . . . .
Paso Robles, CA . . . . . . .
Pawleys Island, SC . . . . .
Pigeon Forge, TN . . . . . .
Pikesville, MD . . . . . . . .
Pinehurst, NC . . . . . . . . .
Piqua, OH . . . . . . . . . . .
Pittsburgh, PA . . . . . . . .
Plano, TX . . . . . . . . . . .
Plattsmouth, NE . . . . . . .
Plymouth, MI . . . . . . . . .
Port St. Joe, FL . . . . . . .
Port St. Lucie, FL . . . . . .
Post Falls, ID . . . . . . . . .
Prospect, CT . . . . . . . . .
Pueblo, CO . . . . . . . . . .
Puyallup, WA . . . . . . . . .
Quincy, FL . . . . . . . . . .
Quincy, MA . . . . . . . . . .
Quitman, MS . . . . . . . . .
Raleigh, NC . . . . . . . . . .
Raytown, MO. . . . . . . . .
Rehoboth Beach, DE . . . .
Reidsville, NC . . . . . . . .
Reno, NV . . . . . . . . . . .
Richmond, VA . . . . . . . .
Richmond, VA . . . . . . . .
Ridgeland, MS . . . . . . . .
Ridgely, TN . . . . . . . . . .
Ringgold, LA . . . . . . . . .
Rockledge, FL . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,387
—
4,681
—
—
—
—
—
—
—
—
—
—
—
—
12,094
—
—
—
—
10,207
—
—
—
—
—
—
—
—
—
12,876
—
—
—
—
—
11,830
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,910
190
1,610
630
176
160
1,440
560
960
55
332
430
440
300
410
1,340
360
510
590
760
550
370
380
80
—
900
400
900
1,120
3,730
4,500
215
240
225
100
1,430
180
870
300
490
720
1,770
2,020
320
450
290
204
1,750
1,305
250
1,490
370
8,700
2,700
820
370
1,150
200
2,690
60
10,000
510
960
170
1,060
1,211
760
520
300
30
360
29,590
4,096
13,715
15,120
3,524
4,778
21,460
21,220
8,290
1,484
2,558
3,918
4,830
5,709
2,118
10,564
6,700
10,694
7,513
7,017
16,689
10,230
8,864
5,020
2,739
3,800
23,237
8,047
8,360
27,076
29,105
1,380
6,760
13,275
2,400
15,791
4,320
10,957
9,200
5,452
24,080
8,630
32,590
4,180
10,750
2,690
1,885
8,572
9,095
5,650
19,990
2,055
47,230
14,217
1,441
6,051
20,776
5,333
15,410
10,340
—
5,490
24,248
3,830
11,440
2,889
12,640
7,675
5,700
4,174
4,117
—
—
366
—
—
1,682
975
—
—
—
—
—
—
2,006
2,973
—
—
—
—
—
—
—
—
—
73
3,687
—
—
—
340
—
—
—
—
—
—
1,300
—
—
—
—
—
5,249
117
—
484
—
115
952
—
—
—
—
2,181
2,503
—
—
—
—
—
—
—
—
857
—
—
—
—
97
—
—
4,910
190
1,610
630
176
160
1,440
560
960
55
332
430
440
300
410
1,340
360
510
590
760
550
370
380
80
—
900
400
900
1,120
3,730
4,500
215
240
225
100
1,430
180
870
300
490
720
1,770
2,020
320
450
290
204
1,750
1,305
250
1,490
370
8,700
2,700
820
370
1,150
200
2,690
60
10,000
510
960
170
1,060
1,211
760
520
300
30
360
29,590
4,096
14,081
15,120
3,524
6,460
22,435
21,220
8,290
1,484
2,558
3,918
4,830
7,715
5,091
10,564
6,700
10,694
7,513
7,017
16,689
10,230
8,864
5,020
2,812
7,487
23,237
8,047
8,360
27,416
29,105
1,380
6,760
13,275
2,400
15,791
5,620
10,957
9,200
5,452
24,080
8,630
37,839
4,297
10,750
3,174
1,885
8,687
10,047
5,650
19,990
2,055
47,230
16,398
3,944
6,051
20,776
5,333
15,410
10,340
—
5,490
24,248
4,687
11,440
2,889
12,640
7,675
5,797
4,174
4,117
1,983
717
3,707
234
787
1,877
2,273
3,452
1,988
688
866
985
992
5,145
1,581
374
1,144
1,463
518
358
434
183
157
424
1,213
872
1,212
505
1,259
768
—
544
1,134
2,135
474
—
579
259
1,734
1,513
2,390
2,143
4,609
1,236
1,124
699
665
1,408
1,515
107
—
666
932
920
1,356
2,460
522
1,105
2,436
1,861
—
573
—
1,073
1,931
897
1,349
1,521
1,534
705
1,390
2008
2005
2002
2010
2004
2006
2006
2004
2002
1995
1999
2004
2004
1998
2004
2008
2004
1998
2007
2007
2010
2010
2010
2007
2002
2006
2007
2006
2005
2008
2010
1996
1993
2005
2005
2010
2006
2008
2004
2005
2007
2002
2005
2001
2007
2003
1997
2005
2005
2010
2010
2004
2008
2007
2004
1998
2010
2004
2004
2004
2008
2006
2010
2002
2004
2003
2007
2003
2001
2005
2001
2007
1975
1994
1991
1981
1958
1959
1998
1999
1995
1998
1968
1963
1987
1971
2009
1998
1979
2008
2009
1995
1998
1999
1996
1983
2005
2008
2008
1970
2009
1988
1996
1966
1964
1979
2001
2005
2010
1992
2006
2005
1998
1997
1986
1983
1998
1997
1998
1977
1999
1972
1982
2010
2008
1970
1989
1985
1983
1999
1976
2000
1999
1998
1998
1995
1969
1997
1990
1984
1970
128
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Rockwood, TN . . . . . . . .
Rocky Hill, CT . . . . . . . .
Rocky Hill, CT . . . . . . . .
Rogersville, TN . . . . . . .
Rohnert Park, CA . . . . . .
Romeoville, IL . . . . . . . .
Romeoville, IL . . . . . . . .
Roswell, GA . . . . . . . . .
Royal Palm Beach, FL . . .
Ruston, LA . . . . . . . . . .
Sacramento, CA . . . . . . .
Saint Simons Island, GA . .
Salem, OR. . . . . . . . . . .
Salisbury, NC . . . . . . . . .
San Angelo, TX . . . . . . .
San Antonio, TX . . . . . . .
San Antonio, TX . . . . . . .
San Juan Capistrano, CA . .
San Ramon, CA . . . . . . .
Sarasota, FL. . . . . . . . . .
Sarasota, FL. . . . . . . . . .
Sarasota, FL. . . . . . . . . .
Scituate, MA . . . . . . . . .
Scottsdale, AZ . . . . . . . .
Seattle, WA . . . . . . . . . .
Seattle, WA . . . . . . . . . .
Seattle, WA . . . . . . . . . .
Seattle, WA . . . . . . . . . .
Selbyville, DE . . . . . . . .
Seven Fields, PA . . . . . . .
Seville, OH . . . . . . . . . .
Shawnee, OK . . . . . . . . .
Sheboygan, WI . . . . . . . .
Shelby, MS . . . . . . . . . .
Shelbyville, KY . . . . . . .
Sherman, TX . . . . . . . . .
Shrewsbury, NJ . . . . . . . .
Silvis, IL . . . . . . . . . . . .
Smithfield, NC . . . . . . . .
Sonoma, CA . . . . . . . . .
South Boston, MA . . . . . .
South Pittsburg, TN . . . . .
Sparks, NV . . . . . . . . . .
Spartanburg, SC . . . . . . .
Spring City, TN . . . . . . .
St. Charles, IL . . . . . . . .
St. Louis, MO . . . . . . . .
St. Louis, MO . . . . . . . .
Stanwood, WA . . . . . . . .
Starke, FL . . . . . . . . . . .
Statesville, NC . . . . . . . .
Statesville, NC . . . . . . . .
Statesville, NC . . . . . . . .
Staunton, VA . . . . . . . . .
Stillwater, OK . . . . . . . .
Stockton, CA . . . . . . . . .
Stuart, FL . . . . . . . . . . .
Swanton, OH . . . . . . . . .
Tampa, FL . . . . . . . . . . .
Texarkana, TX . . . . . . . .
Toledo, OH . . . . . . . . . .
Toms River, NJ . . . . . . . .
Torrington, CT . . . . . . . .
Troy, OH . . . . . . . . . . .
Troy, OH . . . . . . . . . . .
Tucson, AZ . . . . . . . . . .
Tulsa, OK . . . . . . . . . . .
Tulsa, OK . . . . . . . . . . .
Tulsa, OK . . . . . . . . . . .
Twin Falls, ID . . . . . . . .
Tyler, TX . . . . . . . . . . .
—
—
—
—
14,280
—
—
8,211
—
—
9,834
—
—
—
—
11,026
10,163
—
9,851
—
—
—
—
—
7,921
8,040
9,548
29,655
—
—
—
—
—
—
—
—
—
—
—
15,400
—
—
—
—
—
—
—
—
10,501
—
—
—
—
—
—
6,773
—
—
—
—
16,896
—
—
—
—
—
—
6,579
8,598
—
—
500
1,460
1,090
350
6,500
854
1,895
1,107
980
130
940
6,440
449
370
260
560
640
1,390
2,430
475
560
600
1,740
2,500
5,190
3,420
2,630
10,670
750
484
230
80
80
60
630
700
2,120
880
290
1,100
385
430
3,700
3,350
420
990
750
1,890
2,260
120
150
310
140
310
80
2,280
390
330
830
192
2,040
1,610
360
200
470
930
1,390
1,330
1,500
550
650
7,116
7,040
6,710
3,278
18,700
12,646
—
9,627
8,320
9,403
14,781
50,060
5,172
5,697
8,800
7,315
13,360
6,942
17,488
3,175
8,474
3,400
10,640
3,890
9,350
15,555
10,257
37,291
25,912
4,663
1,770
1,400
5,320
5,340
3,870
5,221
38,116
16,420
5,680
18,400
2,002
5,628
46,526
15,750
6,085
15,265
6,030
14,430
28,474
10,180
1,447
6,183
3,627
11,090
1,400
5,983
8,110
6,370
6,370
1,403
47,129
34,627
1,261
2,000
16,730
13,399
7,110
21,285
20,861
14,740
5,268
741
—
1,500
—
1,125
58,220
—
358
—
—
—
963
—
168
—
—
—
—
—
—
—
—
—
710
—
—
—
—
—
59
—
—
3,774
—
—
—
—
—
—
869
5,218
—
—
9,028
2,579
—
—
—
—
—
266
8
—
—
—
—
—
—
—
—
—
—
1,274
4,254
—
—
—
—
—
—
—
129
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
500
1,460
1,090
350
6,500
6,100
1,895
1,107
980
130
940
6,440
449
370
260
560
640
1,390
2,430
475
560
600
1,740
2,500
5,190
3,420
2,630
10,670
750
484
230
80
80
60
630
700
2,120
880
290
1,100
385
430
3,700
3,350
420
990
750
1,890
2,260
120
150
310
140
310
80
2,280
390
330
830
192
2,040
1,610
360
200
470
930
1,390
1,330
1,500
550
650
7,857
7,040
8,210
3,278
19,825
65,620
—
9,985
8,320
9,403
14,781
51,023
5,172
5,865
8,800
7,315
13,360
6,942
17,488
3,175
8,474
3,400
10,640
4,600
9,350
15,555
10,257
37,291
25,912
4,722
1,770
1,400
9,094
5,340
3,870
5,221
38,116
16,420
5,680
19,269
7,220
5,628
46,526
24,778
8,664
15,265
6,030
14,430
28,474
10,180
1,713
6,191
3,627
11,090
1,400
5,983
8,110
6,370
6,370
1,403
47,129
34,627
2,535
6,254
16,730
13,399
7,110
21,285
20,861
14,740
5,268
2,082
1,857
1,403
822
2,530
1,536
—
5,611
1,604
1,407
404
3,212
1,727
1,187
1,456
1,817
1,386
1,839
467
1,326
2,703
713
1,484
291
389
444
328
919
—
1,585
387
574
663
991
630
565
—
147
1,169
2,467
2,460
1,193
1,789
2,498
2,179
647
1,436
—
689
1,903
376
1,228
746
1,196
577
254
1,503
1,132
1,470
552
—
—
767
832
2,862
1,923
127
—
—
3,557
511
2001
2002
2003
2003
2005
2006
2006
1997
2004
2005
2010
2008
1999
2003
2004
2002
2007
2000
2010
1996
1999
2004
2005
2008
2010
2010
2010
2010
2010
1999
2005
1996
2006
2004
2005
2005
2010
2010
2003
2005
1995
2004
2007
2005
2001
2006
1995
2010
2010
2004
2003
2003
2003
2007
1995
2010
2004
2004
2004
1996
2010
2010
2004
1997
2004
2005
2010
2010
2010
2002
2006
1979
1998
1996
1980
1985
2010
1999
1984
1965
1978
2007
1998
1997
1997
2000
2004
2001
1989
1995
2000
1982
1976
1999
1962
2000
2003
2005
2008
1999
1981
1995
2006
1979
1965
2006
2000
2005
1998
1988
1961
1979
2009
1997
1987
2009
1994
1963
1998
1990
1990
1996
1999
1959
1995
1988
1985
1950
1968
1996
1985
2005
1966
1997
1971
1985
1998
1986
1984
1991
2007
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
Uhrichsville, OH . . . . . . .
Vacaville, CA . . . . . . . . .
Vallejo, CA . . . . . . . . . .
Vallejo, CA . . . . . . . . . .
Valparaiso, IN . . . . . . . .
Valparaiso, IN . . . . . . . .
Vancouver, WA . . . . . . . .
Venice, FL. . . . . . . . . . .
Venice, FL. . . . . . . . . . .
Vero Beach, FL . . . . . . .
Vero Beach, FL . . . . . . .
Vero Beach, FL . . . . . . .
W. Hartford, CT . . . . . . .
Wake Forest, NC . . . . . . .
Wareham, MA . . . . . . . .
Warren, OH . . . . . . . . . .
Waterbury, CT . . . . . . . .
Waterford, CT . . . . . . . .
Waukesha, WI . . . . . . . .
Waxahachie, TX . . . . . . .
Weatherford, TX . . . . . . .
Webster, TX . . . . . . . . .
West Haven, CT . . . . . . .
West Worthington, OH . . .
Westerville, OH . . . . . . .
Westlake, OH . . . . . . . . .
Westlake, OH . . . . . . . . .
Westmoreland, TN . . . . . .
White Hall, IL . . . . . . . .
White Lake, MI . . . . . . .
Whitemarsh, PA . . . . . . .
Whittier, CA . . . . . . . . .
Wichita, KS . . . . . . . . . .
Williamsburg, VA . . . . . .
Williamstown, KY . . . . . .
Wilmington, NC . . . . . . .
Winchester, VA . . . . . . . .
Winston-Salem, NC . . . . .
Winston-Salem, NC . . . . .
Woodbridge, VA . . . . . . .
Worcester, MA . . . . . . . .
Worcester, MA . . . . . . . .
Zionsville, IN . . . . . . . . .
Total senior housing and
care facilities . . . . . . .
Medical facilities:
Akron, OH . . . . . . . . . .
Amarillo, TX . . . . . . . . .
Arcadia, CA. . . . . . . . . .
Atlanta, GA . . . . . . . . . .
Austell, GA . . . . . . . . . .
Bartlett, TN . . . . . . . . . .
Boynton Beach, FL . . . . .
Boynton Beach, FL . . . . .
Boynton Beach, FL . . . . .
Boynton Beach, FL . . . . .
Boardman, OH . . . . . . . .
Boardman, OH . . . . . . . .
Bellaire, TX . . . . . . . . . .
Bellaire, TX . . . . . . . . . .
Birmingham, AL . . . . . . .
Bowling Green, KY . . . . .
Bellingham, MA . . . . . . .
Bellevue, NE . . . . . . . . .
Bellevue, NE . . . . . . . . .
Boca Raton, FL . . . . . . .
Bridgeton, MO . . . . . . . .
Cedar Grove, WI . . . . . . .
Clarkson Valley, MO . . . .
Claremore, OK . . . . . . . .
—
14,683
22,409
—
—
—
10,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,713
—
—
—
—
—
—
—
11,145
—
12,295
—
—
—
—
—
—
—
—
—
—
—
24
900
4,000
2,330
112
108
1,820
500
1,150
263
297
2,930
2,650
200
875
240
370
1,360
1,100
650
660
360
580
510
740
1,330
571
330
50
2,920
2,310
4,470
1,400
1,360
70
210
640
360
5,700
680
3,500
2,300
1,610
6,716
17,100
18,000
15,407
2,558
2,962
19,042
6,000
10,674
3,187
3,263
40,070
5,980
3,003
10,313
3,810
2,166
12,540
14,910
5,763
5,261
5,940
1,620
5,090
8,287
17,926
5,411
1,822
5,550
20,179
6,190
22,151
11,000
7,440
6,430
2,991
1,510
2,514
13,550
4,423
54,099
9,060
22,400
—
1,127
1,341
—
—
—
—
—
—
—
—
3,202
—
1,742
1,701
—
1,859
—
—
—
—
—
1,529
—
2,736
—
—
2,634
670
—
1,702
—
—
—
—
—
—
459
13,154
330
—
—
—
24
900
4,000
2,330
112
108
1,820
500
1,150
263
297
2,930
2,650
200
875
240
370
1,360
1,100
650
660
360
580
510
740
1,330
571
330
50
2,920
2,310
4,470
1,400
1,360
70
210
640
360
5,700
680
3,500
2,300
1,610
6,716
18,227
19,341
15,407
2,558
2,962
19,042
6,000
10,674
3,187
3,263
43,272
5,980
4,745
12,014
3,810
4,025
12,540
14,910
5,763
5,261
5,940
3,149
5,090
11,023
17,926
5,411
4,456
6,220
20,179
7,892
22,151
11,000
7,440
6,430
2,991
1,510
2,973
26,704
4,753
54,099
9,060
22,400
925
2,312
2,428
444
688
780
484
1,108
302
830
858
3,677
1,146
1,417
2,917
660
1,085
3,043
402
410
514
1,470
1,019
733
5,344
4,559
2,121
1,218
3,316
—
1,236
596
1,289
805
1,044
990
112
630
2,730
1,155
1,448
576
148
660,567
479,062
4,993,512
330,111
484,308
5,318,377
599,276
—
—
10,154
—
—
8,498
4,225
4,603
4,129
6,164
—
—
—
—
—
—
—
—
—
13,809
11,972
—
—
8,357
300
72
5,408
4,931
2,223
187
214
2,048
2,048
109
1,200
80
4,551
2,972
651
3,800
9,270
4,500
—
109
450
113
—
132
20,200
11,928
23,219
18,720
7,982
15,015
6,574
7,692
7,403
11,235
12,800
13,619
45,900
33,445
39,552
26,700
—
99,186
15,833
34,002
21,221
618
—
12,829
—
1,400
1,082
1,481
59
657
206
188
645
458
—
—
205
1,238
1,157
45
—
—
—
934
—
—
35,592
270
130
300
72
5,618
5,293
2,223
187
214
2,048
2,048
117
1,200
80
4,551
2,972
651
3,800
9,270
4,500
—
124
450
113
—
132
20,200
13,328
24,091
19,839
8,041
15,672
6,780
7,880
8,048
11,685
12,800
13,619
46,105
34,683
40,709
26,745
—
99,186
15,833
34,921
21,221
618
35,592
13,099
528
1,793
3,567
3,691
2,048
2,205
978
1,620
1,169
1,624
862
—
5,270
4,462
6,014
1,726
—
1,465
239
5,075
—
19
568
1,811
2006
2005
2005
2010
2001
2001
2010
2004
2008
2001
2001
2007
2004
1998
2002
2005
2006
2002
2008
2007
2006
2002
2004
2006
1998
2001
1998
2001
2002
2010
2005
2010
2006
2007
2005
1999
2008
2003
2005
2002
2007
2008
2010
2009
2005
2006
2006
2006
2007
2007
2006
2006
2007
2008
2010
2006
2006
2006
2008
2010
2008
2010
2006
2010
2010
2009
2007
1977
1986
1989
1990
1998
1999
2006
1987
2009
1999
1996
2003
1905
1999
1989
1973
1972
2000
2009
2008
2007
2000
1971
1980
2001
1985
1957
1994
1971
2000
1967
1988
1997
1970
1987
1999
1964
1996
1997
1977
2009
1993
2009
2008
1986
1984
1992
1999
2004
2004
1995
1997
1996
2008
2007
2005
2005
1971
1992
2010
2010
1995
2006
1986
2010
2005
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Corpus Christi, TX . . . . .
Coral Springs, FL . . . . . .
Covington, KY . . . . . . . .
Dallas, TX. . . . . . . . . . .
Denton, TX . . . . . . . . . .
Delray Beach, FL . . . . . .
Durham, NC . . . . . . . . .
Durham, NC . . . . . . . . .
Edina, MN . . . . . . . . . .
El Paso, TX . . . . . . . . . .
El Paso, TX . . . . . . . . . .
El Paso, TX . . . . . . . . . .
El Paso, TX . . . . . . . . . .
Fayetteville, GA . . . . . . .
Fresno, CA . . . . . . . . . .
Franklin, TN . . . . . . . . .
Franklin, WI . . . . . . . . .
Frisco, TX . . . . . . . . . . .
Frisco, TX . . . . . . . . . . .
Fort Wayne, IN . . . . . . . .
Green Bay, WI . . . . . . . .
Green Bay, WI . . . . . . . .
Glendale, CA . . . . . . . . .
Gallatin, TN . . . . . . . . .
Greeley, CO . . . . . . . . . .
Germantown, TN . . . . . .
Greeneville, TN . . . . . . .
Jupiter, FL . . . . . . . . . . .
Jupiter, FL . . . . . . . . . . .
Killeen, TX . . . . . . . . . .
Kenosha, WI . . . . . . . . .
Lafayette, LA . . . . . . . . .
Lenexa, KS . . . . . . . . . .
Los Gatos, CA . . . . . . . .
Lakeway, TX . . . . . . . . .
Lincoln, NE . . . . . . . . . .
Loxahatchee, FL . . . . . . .
Loxahatchee, FL . . . . . . .
Loxahatchee, FL . . . . . . .
Los Alamitos, CA . . . . . .
Lake St Louis, MO . . . . .
Las Vegas, NV . . . . . . . .
Las Vegas, NV . . . . . . . .
Las Vegas , NV . . . . . . .
Las Vegas, NV . . . . . . . .
Las Vegas, NV . . . . . . . .
Lakewood, CA . . . . . . . .
Lawrenceville, GA. . . . . .
Lawrenceville, GA. . . . . .
Marinette, WI. . . . . . . . .
Malabar, FL . . . . . . . . . .
Middletown, NY . . . . . . .
Midwest City, OK . . . . . .
Melbourne, FL . . . . . . . .
Melbourne, FL . . . . . . . .
Melbourne, FL . . . . . . . .
Merced, CA . . . . . . . . . .
Mesa, AZ . . . . . . . . . . .
Meridian, ID . . . . . . . . .
Marlton, NJ . . . . . . . . . .
Merrillville, IN . . . . . . . .
Merrillville, IN . . . . . . . .
Morrow, GA . . . . . . . . .
Mount Juliet, TN. . . . . . .
Muskego, WI . . . . . . . . .
Milwaukee, WI . . . . . . . .
Milwaukee, WI . . . . . . . .
Milwaukee, WI . . . . . . . .
Milwaukee, WI . . . . . . . .
Niagara Falls, NY . . . . . .
Nashville , TN . . . . . . . .
—
—
—
15,533
12,327
—
—
—
6,033
—
10,405
—
—
3,327
—
—
8,122
9,253
—
—
10,223
—
8,311
—
—
—
—
7,255
4,518
—
10,528
—
12,440
—
—
11,550
—
2,708
—
8,442
—
—
—
6,058
—
3,095
—
—
—
8,391
—
—
—
—
—
—
—
—
—
—
—
—
—
5,288
1,758
25,963
7,289
5,067
1,749
—
—
77
1,598
1,290
137
—
1,882
6,814
—
310
112
677
2,400
600
959
2,500
2,338
6,872
—
—
170
—
—
37
20
877
3,049
970
2,252
—
760
—
1,928
540
488
2,801
1,420
1,340
1,553
1,637
—
240
6,127
6,734
74
2,319
—
146
2,279
1,054
—
5,000
1,756
146
600
1,400
7,000
—
1,558
3,600
—
700
—
818
1,566
964
—
1,425
540
922
1,335
1,806
3,923
10,627
8,093
28,690
19,407
34,767
10,825
—
15,132
15,888
17,075
32,800
6,700
7,540
35,800
12,138
7,550
18,635
15,309
8,232
14,891
31,794
18,398
19,480
6,707
12,456
10,032
11,415
5,858
22,977
18,058
10,483
16,013
22,386
—
29,692
6,509
4,694
5,048
18,635
11,937
—
54,886
15,287
4,612
6,921
14,885
10,732
4,974
13,538
12,000
20,364
3,854
9,400
24,400
69,000
13,772
9,561
20,802
38,300
11,699
22,134
8,064
11,697
2,159
44,535
11,520
8,457
2,185
17,702
7,165
—
541
1,150
257
395
3,333
1,838
157
—
44
516
424
—
388
73
267
—
48
1,023
—
—
—
—
—
—
561
—
69
2,868
—
—
26
—
466
—
—
10
466
762
158
—
—
89
250
688
499
483
49
25
—
—
465
—
—
—
—
—
225
251
36
154
—
151
—
—
—
—
—
—
731
748
131
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
77
1,635
1,290
137
—
1,941
7,007
13
310
112
677
2,400
600
959
2,500
2,338
6,872
—
—
170
—
—
37
20
877
3,049
970
2,252
2,825
760
—
1,928
540
488
2,801
1,420
1,340
1,562
1,646
39
240
6,127
6,734
74
2,319
433
146
2,298
1,070
—
5,000
1,756
146
600
1,400
7,000
—
1,558
3,600
—
700
—
834
1,566
964
—
1,425
540
922
1,524
1,806
3,923
11,131
9,243
28,947
19,802
38,041
12,470
144
15,132
15,932
17,591
33,224
6,700
7,928
35,873
12,405
7,550
18,683
16,332
8,232
14,891
31,794
18,398
19,480
6,707
13,017
10,032
11,484
5,901
22,977
18,058
10,509
16,013
22,852
—
29,692
6,519
5,151
5,801
18,754
11,937
—
54,975
15,537
5,300
6,987
15,368
10,762
4,983
13,538
12,000
20,829
3,854
9,400
24,400
69,000
13,772
9,786
21,053
38,336
11,853
22,134
8,199
11,697
2,159
44,535
11,520
8,457
2,185
18,244
7,913
653
1,967
261
4,174
2,180
6,299
3,451
52
—
2,259
2,794
2,886
511
1,282
2,314
1,933
242
2,458
2,185
722
422
1,010
2,421
—
1,031
1,808
—
1,952
943
—
501
1,629
—
3,644
—
—
1,004
700
752
2,506
—
—
7,170
2,756
785
998
2,145
1,706
822
452
—
4,247
625
—
—
—
417
1,469
1,941
2,475
835
1,623
1,213
1,703
60
1,208
451
254
107
2,833
1,487
2005
2006
2008
2006
2007
2006
2006
2006
2010
2005
2006
2008
2008
2006
2008
2007
2010
2007
2007
2006
2010
2010
2007
2010
2007
2006
2010
2006
2007
2010
2010
2006
2010
2006
2007
2010
2006
2006
2006
2007
2010
2007
2006
2006
2006
2007
2006
2006
2006
2010
2010
2006
2005
2010
2010
2010
2009
2008
2006
2008
2007
2008
2007
2007
2010
2010
2010
2010
2010
2007
2006
1968
1993
2009
1995
2005
1985
1980
1980
2003
1994
1997
2003
2003
1999
1991
1988
1984
2004
2004
2006
2002
2002
2002
1997
1997
2002
2005
2001
2004
2010
1993
1993
2008
1993
2003
1993
1994
1997
2003
2008
1991
2000
1991
1997
1993
2001
2002
2002
2008
1998
1996
1986
2003
2009
2010
1989
2008
1994
2008
2006
1990
2005
1993
1983
1962
1930
1958
1990
1986
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
Nashville, TN . . . . . . . . .
New Berlin, WI . . . . . . .
Okatie, SC. . . . . . . . . . .
Orange Village, OH . . . . .
Oshkosh, WI . . . . . . . . .
Oshkosh, WI . . . . . . . . .
Palm Springs , CA . . . . . .
Phoenix, AZ . . . . . . . . .
Pineville, NC . . . . . . . . .
Plantation, FL . . . . . . . .
Plantation, FL . . . . . . . .
Plano, TX . . . . . . . . . . .
Plano, TX . . . . . . . . . . .
Plymouth, WI . . . . . . . . .
Palmer, AK . . . . . . . . . .
Palm Springs, FL . . . . . .
Palm Springs, FL . . . . . .
Pearland, TX . . . . . . . . .
Pearland, TX . . . . . . . . .
Reno, NV . . . . . . . . . . .
Sacramento, CA . . . . . . .
San Bernardino, CA . . . . .
San Diego, CA . . . . . . . .
Seattle, WA . . . . . . . . . .
Shakopee, MN . . . . . . . .
Shakopee, MN . . . . . . . .
Sheboygan, WI . . . . . . . .
Somerville, NJ . . . . . . . .
San Antonio, TX . . . . . . .
San Antonio, TX . . . . . . .
Stafford, VA . . . . . . . . .
St. Louis, MO . . . . . . . .
Suffolk, VA . . . . . . . . . .
Summit, WI . . . . . . . . . .
Sewell, NJ . . . . . . . . . . .
Oro Valley, AZ . . . . . . . .
Tucson, AZ . . . . . . . . . .
Tempe, AZ . . . . . . . . . .
Tallahassee, FL . . . . . . . .
Tomball, TX . . . . . . . . .
Trussville, AL . . . . . . . .
Tulsa, OK . . . . . . . . . . .
Viera, FL . . . . . . . . . . .
Van Nuys, CA . . . . . . . .
Voorhees, NJ . . . . . . . . .
Pewaukee, WI . . . . . . . .
Webster, TX . . . . . . . . .
Wellington, FL . . . . . . . .
Wellington , FL . . . . . . .
Warrington, PA . . . . . . . .
West Palm Beach, FL . . . .
West Palm Beach, FL . . . .
West Allis, WI . . . . . . . .
West Seneca, NY . . . . . .
Yorkville, IL . . . . . . . . .
Total medical facilities . .
Construction in
progress . . . . . . . . . .
Total continuing
operations properties . .
Assets held for sale:
Cedar Hill, TX . . . . . . . .
Chicago, IL . . . . . . . . . .
Duncan, OK. . . . . . . . . .
Desoto, TX . . . . . . . . . .
Edmond, OK . . . . . . . . .
Enid, OK . . . . . . . . . . .
Midwest City, OK . . . . . .
Oklahoma City, OK . . . . .
Oklahoma City, OK . . . . .
—
6,774
7,983
—
10,381
—
—
29,194
—
9,824
9,147
—
—
1,757
19,746
2,774
—
—
1,279
—
—
—
—
—
7,266
12,337
1,818
—
—
—
—
7,602
—
—
—
10,363
—
5,522
—
—
—
—
—
—
—
—
—
7,066
6,338
—
7,061
6,518
2,486
12,698
—
463,478
4,300
3,739
171
610
—
—
365
1,149
961
8,563
8,848
195
5,423
1,250
—
739
1,182
781
948
1,117
866
3,700
—
4,410
420
640
1,012
3,400
2,050
—
—
—
1,530
2,899
—
89
1,302
—
—
1,404
1,336
3,003
1,600
—
6,404
4,700
2,418
107
—
85
628
610
1,106
917
1,419
232,281
—
8,290
17,791
7,419
15,881
18,339
12,396
48,018
6,974
10,666
9,262
14,805
20,752
1,870
29,705
4,066
7,765
5,517
4,556
21,972
12,756
14,300
22,003
39,015
11,360
18,094
2,216
22,244
16,251
17,303
11,260
17,247
10,979
87,666
53,360
18,339
4,925
9,112
16,404
5,071
2,177
6,025
10,600
36,187
24,251
20,669
12,028
16,933
13,697
23,231
14,740
14,618
3,309
22,435
2,816
2,486,537
—
—
53
28
—
—
909
5,921
901
1,519
—
500
—
—
630
—
103
3
74
260
423
326
74
—
—
—
—
2
771
—
—
447
—
—
3,979
325
146
1,864
—
560
119
20
—
—
1,203
—
32
129
351
1,653
100
80
—
879
73
90,758
4,300
3,739
194
610
—
—
365
1,149
1,069
8,575
8,896
195
5,423
1,250
217
739
1,182
781
948
1,117
866
3,700
—
4,410
420
640
1,012
3,400
2,050
—
—
336
1,530
2,899
—
89
1,302
1,486
—
1,404
1,336
3,003
1,600
—
6,404
4,700
2,418
107
381
3,104
628
610
1,106
1,296
1,419
242,742
—
8,290
17,821
7,447
15,881
18,339
13,305
53,939
7,767
12,173
9,214
15,305
20,752
1,870
30,118
4,066
7,868
5,520
4,630
22,232
13,179
14,626
22,077
39,015
11,360
18,094
2,216
22,246
17,022
17,303
11,260
17,358
10,979
87,666
57,339
18,664
5,071
9,490
16,404
5,631
2,296
6,045
10,600
36,187
25,454
20,669
12,060
17,062
13,667
21,865
14,840
14,698
3,309
22,935
2,889
2,566,834
—
249
1,913
1,385
433
505
1,989
6,803
1,077
2,503
3,563
2,133
3,107
63
3,723
690
1,502
969
705
3,404
1,748
876
1,333
—
—
—
75
1,345
3,690
2,387
502
2,662
327
4,600
3,100
2,424
827
1,486
—
1,242
828
1,307
—
1,094
3,181
2,308
2,043
2,259
1,702
3,360
2,217
2,691
135
3,140
623
237,690
—
—
356,793
—
—
356,793
—
1,124,045
711,343
7,836,842
420,869
727,050
8,242,004
836,966
—
—
—
—
—
—
—
—
—
171
3,650
103
205
175
90
95
87
130
894
1,900
802
844
940
817
813
919
802
—
—
—
—
—
—
—
—
—
171
3,650
103
205
175
90
95
87
130
894
1,900
802
844
940
817
813
919
802
—
—
—
—
—
—
—
—
—
132
2010
2010
2007
2007
2010
2010
2006
2006
2006
2006
2006
2005
2008
2010
2007
2006
2006
2006
2006
2010
2006
2008
2008
2010
2010
2010
2010
2008
2006
2007
2008
2007
2010
2008
2007
2007
2008
2007
2010
2006
2006
2006
2010
2009
2006
2007
2006
2006
2007
2008
2006
2006
2010
2007
2006
1997
2002
1995
1996
1995
1995
1996
1996
1995
1993
1998
1985
2000
2000
1998
1998
1988
1997
1996
1995
2007
1991
2006
1993
1997
2000
2002
1991
1990
1993
1992
2010
1996
2007
1958
2007
1999
2007
2009
2001
2007
2009
2009
2004
1995
1996
2011
1982
1990
1992
1998
1991
1997
2007
1991
2000
2003
2001
1993
1991
1961
1990
1980
1996
1979
1996
1996
1996
1995
1995
1996
1996
Description
Encumbrances
Initial Cost to Company
Buildings &
Improvements
Land
Cost Capitalized
Subsequent to
Acquisition
(Dollars in thousands)
Gross Amount at Which
Carried at Close of Period
Land
Buildings &
Improvements
Accumulated
Depreciation
Year
Acquired
Year
Built
Palestine, TX . . . . . . . . .
Ponca City, OK . . . . . . .
Waxahachie, TX . . . . . . .
Houston, TX . . . . . . . . .
Houston, TX . . . . . . . . .
Oklahoma City, OK . . . . .
Total assets held for
sale . . . . . . . . . . . . .
Total investments in real
—
—
—
—
—
—
—
173
114
154
360
360
220
853
906
865
1,999
2,006
1,994
6,087
17,354
—
—
—
—
—
—
—
173
114
154
360
360
220
853
906
865
1,999
2,006
1,994
6,087
17,354
1996
1995
1996
2002
2002
1999
1996
1995
1996
1999
1999
1999
—
—
—
—
—
—
—
property owned . . . . .
$1,124,045
$717,430
$7,854,196
$420,869
$733,137
$8,259,358
$836,966
(1) Represents real property asset associated with a capital lease.
133
HEALTH CARE REIT, INC.
2010
Year Ended December 31,
2009
(In thousands)
2008
Reconciliation of real property:
Investment in real estate:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . $6,336,291
Additions:
$5,979,575
$5,117,005
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversions from loans receivable . . . . . . . . . . . . .
Assumed other items, net . . . . . . . . . . . . . . . . . . .
Assumed debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase price adjustments . . . . . . . . . . . . . . . . . .
Reclassification of lease commissions . . . . . . . . . .
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions:
Cost of real estate sold . . . . . . . . . . . . . . . . . . . . .
Reclassification of accumulated depreciation and
amortization for assets held for sale . . . . . . . . . .
Impairment of assets . . . . . . . . . . . . . . . . . . . . . . .
1,707,421
398,510
10,070
208,314
559,508
—
—
2,883,823
67,673
590,394
—
—
—
665
—
451,363
646,161
23,097
1,899
—
—
2,359
658,732
1,124,879
(216,300)
(260,956)
(219,079)
(10,372)
(947)
(15,837)
(25,223)
(10,582)
(32,648)
Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(227,619)
(302,016)
(262,309)
Balance at end of year(2) . . . . . . . . . . . . . . . . . . . . . $8,992,495
$6,336,291
$5,979,575
Accumulated depreciation:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . $ 677,851
Additions:
$ 600,781
$ 478,373
Depreciation and amortization expenses . . . . . . . . .
Amortization of above market leases . . . . . . . . . . .
Reclassification of lease commissions . . . . . . . . . .
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions:
Sale of properties . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification of accumulated depreciation and
amortization for assets held for sale . . . . . . . . . .
Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202,543
2,524
—
205,067
164,923
2,061
—
166,984
163,045
3,477
423
166,945
(31,919)
(74,244)
(33,578)
(14,033)
(45,952)
(15,670)
(89,914)
(10,959)
(44,537)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . $ 836,966
$ 677,851
$ 600,781
(2) The aggregate cost for tax purposes for real property equals $8,802,656,000, $6,378,056,000 and $5,977,346,000 at December 31, 2010,
2009 and 2008, respectively.
134
HEALTH CARE REIT, INC.
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
December 31, 2010
Description
Interest Rate
Final
Maturity
Date
Periodic
Payment
Terms
Prior
Liens
Face Amount
of Mortgages
Carrying
Amount of
Mortgages
Principal Amount
of Loans Subject to
Delinquent
Principal or
Interest
(In thousands)
First mortgage relating to one
senior housing facility in
New York
First mortgage relating to one
hospital in California
First mortgage relating to one
hospital in California
First mortgage relating to one
senior housing facility in
North Carolina
First mortgage relating to one
medical office building in
Georgia
First mortgage relating to one
hospital in California
First mortgage relating to one
senior housing facility in
Arizona
Second mortgage relating to
one hospital in California
Second mortgage relating to
one senior housing facility in
Wisconsin
Seven first mortgages relating
to four senior housing
facilities and three medical
office buildings
Second mortgage relating to
one hospital in
Massachusetts
Totals
7.60%
06/30/13
8.11%
12/01/17
9.50%
06/01/20
7.35%
04/30/15
6.50%
10/01/14
9.63%
01/14/14
3.55%
01/01/13
9.13%
10/31/13
15.21%
01/15/15
Monthly Payments
$234,829
Monthly Payments
$99,373
Monthly Payments
$146,191
Monthly Payments
$40,234
Monthly Payments
$33,042
Monthly Payments
$140,072
Monthly Payments
$12,511
Monthly Payments
$137,558
Monthly Payments
$42,625
$ — $ 40,000
$ 37,799
$ —
—
—
—
—
—
—
17,500
15,218
17,500
13,747
7,000
6,525
6,100
6,100
18,800
4,888
—
—
—
—
—
4,151
4,151
4,151
13,747
13,000
4,107
7,792
3,300
3,300
From 3.00%
to 10.90%
From 09/01/11
to 06/30/20
Monthly Payments
from $739 to 52,811
—
13,605
11,598
12.17%
06/30/10
Monthly Payments
$16,900
4,100
2,000
1,850
$25,639
$142,956
$109,283
1,850
$6,001
—
—
—
2010
Year Ended December 31,
2009
(In thousands)
2008
Reconciliation of mortgage loans:
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . $ 74,517
Additions:
$137,292
$143,091
New mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions:
73,439
73,439
9,456
9,456
22,142
22,142
Collections of principal(1) . . . . . . . . . . . . . . . . . . . . . . . . .
Conversions to real property . . . . . . . . . . . . . . . . . . . . . . .
Charge-offs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(10,540)
(10,070)
(18,063)
(54,696)
—
(17,535)
(4,844)
(23,097)
—
(38,673)
Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109,283
(72,231)
$ 74,517
(27,941)
$137,292
(1) Includes collection of negative principal amortization.
135
EXHIBIT INDEX
1.1
Form of Equity Distribution Agreement, dated as of November 12, 2010, entered into by and between the
Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and
Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s
Form 8-K filed November 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
2.1(a) Agreement and Plan of Merger, dated as of September 12, 2006, by and among the Company,
Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and
Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s
Form 8-K filed September 15, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
2.1(b) Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among the
Company, Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and
Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K
filed October 13, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1
to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by
reference thereto).
3.1(a)
3.1(b) Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of
the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20,
2000 (File No. 001-08923), and incorporated herein by reference thereto).
Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923),
and incorporated herein by reference thereto).
3.1(c)
3.1(e)
3.1(d) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.1 to the Company’s Form 8-K filed June 13, 2003 (File No. 001-08923), and
incorporated herein by reference thereto).
Certificate of Designation of 77⁄8% Series D Cumulative Redeemable Preferred Stock of the Company (filed
with the Commission as Exhibit 2.5 to the Company’s Form 8-A/A filed July 8, 2003 (File No. 001-08923),
and incorporated herein by reference thereto).
Certificate of Designation of 75⁄8% Series F Cumulative Redeemable Preferred Stock of the Company
(filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A filed September 10, 2004
(File No. 001-08923), and incorporated herein by reference thereto).
3.1(f)
3.1(g) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with
the Commission as Exhibit 3.9 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923),
and incorporated herein by reference thereto).
3.2
3.1(i)
3.1(h) Certificate of Change of Location of Registered Office and of Registered Agent of the Company (filed
with the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed August 6, 2010 (File
No. 001-08923), and incorporated herein by reference thereto).
Certificate of Designation of 6% Series H Cumulative Convertible and Redeemable Preferred Stock of
the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed January 11,
2011 (File No. 001-08923), and incorporated herein by reference thereto).
Second Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to
the Company’s Form 8-K filed October 29, 2007 (File No. 001-08923), and incorporated herein by
reference thereto).
Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth
Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 9,
2002 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.2 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and
incorporated herein by reference thereto).
4.1(b)
4.1(a)
4.1(c) Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6,
2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and
Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 14,
2003 (File No. 001-08923), and incorporated herein by reference thereto).
136
4.1(d)
Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.2 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and
incorporated herein by reference thereto).
4.1(e) Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September
10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company
and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’s Form 8-K filed
September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission
as Exhibit 4.1 to the Company’s Form 8-K filed October 30, 2003 (File No. 001-08923), and incorporated
herein by reference thereto).
4.1(f)
4.1(i)
4.2(a)
4.1(h)
4.2(b)
4.1(g) Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29,
2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and
The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the
Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 13, 2004 (File
No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated
as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed
with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed April 28, 2005 (File
No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities,
dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A.
(filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 30, 2005 (File No.
001-08923), and incorporated herein by reference thereto).
Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust
Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November
20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of
New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K
filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 2, dated as of July 20, 2007, between the Company and The Bank of
New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K
filed July 20, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
Indenture, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust
Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 15,
2010 (File No. 001-08923), and incorporated herein by reference thereto).
Supplemental Indenture No. 1, dated as of March 15, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(c) Amendment No. 1 to Supplemental Indenture No. 1, dated as of June 18, 2010, between the Company
and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the
Company’s Form 8-K filed June 18, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).
Supplemental Indenture No. 2, dated as of April 7, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed April 7, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(b)
4.3(d)
4.3(a)
4.2(c)
4.3(e) Amendment No. 1 to Supplemental Indenture No. 2, dated as of June 8, 2010, between the Company and
The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the
Company’s Form 8-K filed June 8, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).
Supplemental Indenture No. 3, dated as of September 10, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed September 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(f)
137
4.3(g)
4.4
4.5
10.1
10.2
10.3(a)
10.3(b)
10.3(c)
10.3(d)
10.3(e)
10.4(a)
10.4(b)
10.4(c)
Supplemental Indenture No. 4, dated as of November 16, 2010, between the Company and The Bank of
New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s
Form 8-K filed November 16, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to
the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by
reference thereto).
Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to
the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by
reference thereto).
Fourth Amended and Restated Loan Agreement, dated as of August 6, 2007, by and among the Company
and certain of its subsidiaries,
the banks signatory thereto, KeyBank National Association, as
administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC,
Bank of America, N.A., JPMorgan Chase Bank, N.A., Calyon New York Branch, Barclays Bank PLC and
Fifth Third Bank, as documentation agents (filed with the SEC as Exhibit 10.2 to the Company’s Form
10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed
with the Commission as Exhibit 10.6 to the Company’s Form 10-Q filed July 23, 2004 (File
No. 001-08923), and incorporated herein by reference thereto).
The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to
the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995
(File No. 001-08923), and incorporated herein by reference thereto).*
First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission
as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-40771) filed November 21, 1997, and
incorporated herein by reference thereto).*
Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the
Commission as Exhibit 4.3 to the Company’s Form S-8 (File No. 333-73916) filed November 21,
2001, and incorporated herein by reference thereto).*
Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the
Commission as Exhibit 10.15 to the Company’s Form 10-K filed March 12, 2004 (File
No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with
the Commission as Exhibit 10.17 to the Company’s Form 10-K filed March 16, 2005 (File
No. 001-08923), and incorporated herein by reference thereto).*
Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit
10.1 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by
reference thereto).*
First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective
April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10,
2004 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the
Commission as Exhibit 10.3 to the Company’s Form 10-Q/A filed October 27, 2004 (File
No. 001-08923), and incorporated herein by reference thereto).*
10.5(b)
10.5(a) Amended and Restated Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the
Commission as Appendix A to the Company’s Proxy Statement for the 2009 Annual Meeting of
Stockholders, filed March 25, 2009 (File No. 001-08923), and incorporated herein by reference
thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for the Chief
Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.6
to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by
reference thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.8 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.5(d)
10.5(c)
138
10.5(e)
10.5(f)
10.5(g)
10.5(h)
10.5(i)
10.5(j)
10.5(k)
10.5(l)
Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for Executive Officers
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.7 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.9 to the Company’s Form 8-K
filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer
under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer
under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit
10.1 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by
reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’s
Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the
Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.2 to the
Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference
thereto).*
Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’s Form 10-K filed March 10,
2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.5(o)
10.5(q)
10.5(n)
10.5(p)
10.5(m) Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan
(filed with the Commission as Exhibit 10.23 to the Company’s Form 10-K filed March 10, 2006 (File No.
001-08923), and incorporated herein by reference thereto).*
Form of Restricted Stock Agreement for the Chief Executive Officer under the Amended and Restated
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q
filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Restricted Stock Agreement for Executive Officers under the Amended and Restated 2005
Long-Term Incentive Plan (filed with the Commission as Exhibit 10.4 to the Company’s Form 10-Q filed
May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’s Form 10-K filed March 10,
2006 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Amendment to Deferred Stock Unit Grant Agreements for Non-Employee Directors under the
2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.10 to the Company’s Form 8-K
filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term
Incentive Plan (filed with the Commission as Exhibit 10.11 to the Company’s Form 8-K filed January 5,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the Amended and
Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.5 to the Company’s
Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Fifth Amended and Restated Employment Agreement, dated December 2, 2010, by and between the
Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’s
Form 8-K filed December 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the
Company and Scott A. Estes (filed with the Commission as Exhibit 10.4 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the
Company and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.3 to the Company’s
Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.5(s)
10.5(r)
10.8
10.7
10.6
139
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
12
14
21
23
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
24.9
24.10
24.11
24.12
31.1
31.2
32.1
32.2
Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and
Jeffrey H. Miller (filed with the Commission as Exhibit 10.8 to the Company’s Form 10-K filed March 2,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Employment Agreement, dated January 19, 2009, between the Company and John T. Thomas (filed with
the Commission as Exhibit 10.10 to the Company’s Form 10-K filed March 2, 2009 (File
No. 001-08923), and incorporated herein by reference thereto).*
Third Amended and Restated Employment Agreement, dated December 29, 2008, between the Company
and Erin C. Ibele (filed with the Commission as Exhibit 10.11 to the Company’s Form 10-K filed March
2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Second Amended and Restated Employment Agreement, dated December 29, 2008, between the
Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.12 to the Company’s Form
10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and
Fred S. Klipsch (filed with the Commission as Exhibit 10.5 to the Company’s Form 8-K filed January 5,
2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and
Frederick L. Farrar (filed with the Commission as Exhibit 10.14 to the Company’s Form 10-K filed
March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Amended and Restated Health Care REIT, Inc. Supplemental Executive Retirement Plan, dated
December 29, 2008 (filed with the Commission as Exhibit 10.12 to the Company’s Form 8-K filed
January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
Form of Indemnification Agreement between the Company and each director, executive officer and
officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed
February 18, 2005 (File No. 001-08923), and incorporated herein by reference thereto).*
Summary of Director Compensation.*
Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends (Unaudited).
Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’s
Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).
Subsidiaries of the Company.
Consent of Ernst & Young LLP, independent registered public accounting firm.
Power of Attorney executed by William C. Ballard, Jr. (Director).
Power of Attorney executed by Pier C. Borra (Director).
Power of Attorney executed by Thomas J. DeRosa (Director).
Power of Attorney executed by Jeffrey H. Donahue (Director).
Power of Attorney executed by Peter J. Grua (Director).
Power of Attorney executed by Fred S. Klipsch (Director).
Power of Attorney executed by Sharon M. Oster (Director).
Power of Attorney executed by Jeffrey R. Otten (Director).
Power of Attorney executed by R. Scott Trumbull (Director).
Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive
Officer and President and Principal Executive Officer).
Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and
Principal Financial Officer).
Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal
Accounting Officer).
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
* Management Contract or Compensatory Plan or Arrangement.
140
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, George L. Chapman, certify that:
1. I have reviewed this quarterly report on Form 10-K of Health Care REIT, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2011
/s/ GEORGE L. CHAPMAN
George L. Chapman,
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Scott A. Estes, certify that:
1. I have reviewed this quarterly report on Form 10-K of Health Care REIT, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 25, 2011
/s/ SCOTT A. ESTES
Scott A. Estes,
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
I, George L. Chapman, the Chief Executive Officer of Health Care REIT, Inc. (the “Company”), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Annual Report on
Form 10-K for the Company for the year ended December 31, 2010 (the “Report”), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in
the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
EXHIBIT 32.1
/s/ GEORGE L. CHAPMAN
George L. Chapman,
Chief Executive Officer
Date: February 25, 2011
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
I, Scott A. Estes, the Chief Financial Officer of Health Care REIT, Inc. (the “Company”), certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Annual Report on Form 10-K
for the Company for the year ended December 31, 2010 (the “Report”), fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the Company.
EXHIBIT 32.2
/s/ SCOTT A. ESTES
Scott A. Estes,
Chief Financial Officer
Date: February 25, 2011
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Board of Directors
William C. Ballard, Jr.
Age 70
Former Of Counsel
Greenebaum Doll & McDonald PLLC
Louisville, Kentucky
Pier C. Borra
Age 71
Chairman
CORA Health Services, Inc.
Lima, Ohio
George L. Chapman
Age 63
Chairman, Chief Executive Offi cer & President
Health Care REIT, Inc.
Toledo, Ohio
Thomas J. DeRosa
Age 53
Former Vice Chairman & Chief Financial Offi cer
The Rouse Company
Columbia, Maryland
Jeffrey H. Donahue
Age 64
Former President & Chief Executive Offi cer
Enterprise Community Investment, Inc.
Columbia, Maryland
Peter J. Grua
Age 57
Partner
HLM Venture Partners
Boston, Massachusetts
Fred S. Klipsch
Age 69
Chairman & Chief Executive Offi cer
Klipsch Group, Inc.
Indianapolis, Indiana
Sharon M. Oster
Age 62
Dean
Yale University School of Management
New Haven, Connecticut
Jeffrey R. Otten
Age 60
President
JRO Ventures Inc.
Oak Bluffs, Massachusetts
R. Scott Trumbull
Age 62
Chairman & Chief Executive Offi cer
Franklin Electric Co., Inc.
Bluffton, Indiana
Committees of the Board
Audit Committee
Borra, DeRosa (Chair), Otten, Trumbull
Compensation Committee
Ballard, Donahue (Chair), Oster
Nominating/Corporate
Governance Committee
Borra, DeRosa, Grua (Chair), Otten
Executive Committee
Ballard, Chapman, Grua
Investment Committee
Ballard, Borra, Chapman, DeRosa, Donahue,
Grua, Klipsch, Oster, Otten, Trumbull
Planning Committee
Ballard, Borra, Chapman, DeRosa, Donahue,
Grua, Klipsch, Oster, Otten, Trumbull
Executive Offi cers
George L. Chapman
Chairman, Chief Executive Offi cer & President
Scott A. Estes
Executive Vice President &
Chief Financial Offi cer
Charles J. Herman, Jr.
Executive Vice President &
Chief Investment Offi cer
Jeffrey H. Miller
Executive Vice President – Operations &
General Counsel
John T. Thomas
Executive Vice President –
Medical Facilities
Michael A. Crabtree
Senior Vice President & Treasurer
Erin C. Ibele
Senior Vice President – Administration &
Corporate Secretary
Daniel R. Loftus
Senior Vice President
Corporate Offi ces
Health Care REIT, Inc.
4500 Dorr Street
Toledo, Ohio 43615-4040
877/670-0070
419/247-2800
419/247-2826 Fax
www.hcreit.com
263 employees as of 12/31/10
4,999 registered stockholders
as of 12/31/10
Legal Counsel
Shumaker, Loop & Kendrick, LLP
Toledo, Ohio
Independent Auditors
Ernst & Young LLP
Toledo, Ohio
Transfer Agent
BNY Mellon
480 Washington Boulevard
Jersey City, New Jersey 07310-1900
888/216-7206
www.bnymellon.com/shareowner/equityaccess
Dividend Reinvestment
Administrator
BNY Mellon
P.O. Box 358035
Pittsburgh, Pennsylvania 15252-8035
888/216-7206
www.bnymellon.com/shareowner/equityaccess
Stockholder Services
BNY Mellon provides stockholder services
to registered stockholders via telephone
and online. BNY Mellon representatives can
assist you in change of name or address,
consolidation of accounts, duplicate
mailings, dividend reinvestment enrollment,
lost stock certifi cates, transfer of stock to
another person and additional administrative
services. For more information, go to
www.bnymellon.com/shareowner/equityaccess
or call toll free 888/216-7206.
Investor Information
Current and prospective investors
can access the Annual Report, Proxy
Statement, SEC fi lings, earnings
announcements and other press releases
on our website at www.hcreit.com, or by
e-mail request to info@hcreit.com.
Annual Meeting
The Annual Meeting of Stockholders will
be held on May 5, 2011 in the Bruce G.
Thompson Auditorium at 4500 Dorr Street,
Toledo, Ohio.
Exchange Listing
New York Stock Exchange
Trading Symbol: HCN
Member
National Association of Real Estate
Investment Trusts, Inc.
This Annual Report and the Letter to
Stockholders contain “forward-looking
statements” as that term is defi ned in the
Private Securities Litigation Reform Act of
1995. For example, when we use words
such as “may,” “will,” “intend,” “should,”
“believe,” “expect,” “anticipate,” “project,”
“estimate” or similar expressions, we
are making forward-looking statements.
Forward-looking statements are not
guarantees of future performance and
involve risks and uncertainties. Our
expected results may not be achieved, and
actual results may differ materially from our
expectations. Important factors that could
cause our actual results to be materially
different from the forward-looking
statements are discussed in our Form
10-K under the heading “Risk Factors.”
We assume no obligation to update or
revise any forward-looking statements or
to update the reasons why actual results
could differ from those projected in any
forward-looking statements.
4500 Dorr Street
Toledo, Ohio 43615-4040
www.hcreit.com
©2011 Health Care REIT, Inc.