WELL 10-Q Quarterly Report June 30, 2011

WELLTOWER INC.

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10-Q 1 l42875e10vq.htm FORM 10-Q e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2011


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

For the transition period from to

Commission File number 1-8923

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter )


Delaware		34-1096634

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

4500 Dorr Street, Toledo, Ohio		43615

(Address of principal executive office)		(Zip Code)

(419) 247-2800
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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.


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 31, 2011, the registrant had 177,446,904 shares of common stock outstanding.

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — June 30, 2011 and December 31, 2010		3
Consolidated Statements of Income — Three and six months ended June 30, 2011 and 2010		4
Consolidated Statements of Equity — Six months ended June 30, 2011 and 2010		5
Consolidated Statements of Cash Flows — Six months ended June 30, 2011 and 2010		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures About Market Risk		49
Item 4. Controls and Procedures		50
PART II. OTHER INFORMATION
Item 1A. Risk Factors		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 6. Exhibits		51
Signatures		52
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES


	June 30,			December 31,
	2011			2010
	(Unaudited)			(Note)
	(In thousands)
Assets
Real estate investments:
Real property owned:
Land and land improvements	$	983,746		$	727,050
Buildings and improvements		11,497,863			7,627,132
Acquired lease intangibles		347,662			258,079
Real property held for sale, net of accumulated depreciation		18,202			23,441
Construction in progress		212,161			356,793

Gross real property owned		13,059,634			8,992,495
Less accumulated depreciation and amortization		(968,289	)		(836,966	)

Net real property owned		12,091,345			8,155,529
Real estate loans receivable:
Real estate loans receivable		326,651			436,580
Less allowance for losses on loans receivable		(1,692	)		(1,276	)

Net real estate loans receivable		324,959			435,304

Net real estate investments		12,416,304			8,590,833
Other assets:
Equity investments		250,933			237,107
Goodwill		51,207			51,207
Deferred loan expenses		48,808			32,960
Cash and cash equivalents		328,758			131,570
Restricted cash		42,497			79,069
Receivables and other assets		342,154			328,988

Total other assets		1,064,357			860,901

Total assets	$	13,480,661		$	9,451,734


Liabilities and equity
Liabilities:
Borrowings under unsecured line of credit arrangement	$	—		$	300,000
Senior unsecured notes		4,429,992			3,034,949
Secured debt		1,889,873			1,125,906
Capital lease obligations		83,794			8,881
Accrued expenses and other liabilities		325,550			244,345

Total liabilities		6,729,209			4,714,081
Redeemable noncontrolling interests		18,410			4,553
Equity:
Preferred stock		1,010,417			291,667
Common stock		177,290			147,155
Capital in excess of par value		6,314,692			4,932,468
Treasury stock		(13,493	)		(11,352	)
Cumulative net income		1,795,448			1,676,196
Cumulative dividends		(2,682,479	)		(2,427,881	)
Accumulated other comprehensive income (loss)		(10,145	)		(11,099	)
Other equity		6,460			5,697

Total Health Care REIT, Inc. stockholders’ equity		6,598,190			4,602,851
Noncontrolling interests		134,852			130,249

Total equity		6,733,042			4,733,100


Total liabilities and equity	$	13,480,661		$	9,451,734

NOTE: The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands, except per share data)
Revenues:
Rental income	$	239,703		$	141,764		$	406,848		$	274,761
Resident fees and services		123,149			—			194,435			—
Interest income		12,866			9,335			24,575			18,383
Other income		5,341			2,650			8,165			3,646

Total revenues		381,059			153,749			634,023			296,790

Expenses:
Interest expense		83,961			35,478			142,347			63,403
Property operating expenses		100,197			11,970			164,126			23,761
Depreciation and amortization		110,382			44,037			183,186			84,042
Transaction costs		13,738			752			49,803			8,466
General and administrative		19,562			11,878			37,276			28,700
Loss (gain) on extinguishment of debt		—			7,035			—			25,072
Provision for loan losses		168			—			416			—

Total expenses		328,008			111,150			577,154			233,444

Income from continuing operations before income taxes and income from unconsolidated joint ventures		53,051			42,599			56,869			63,346
Income tax (expense) benefit		(211	)		(188	)		(340	)		(273	)
Income from unconsolidated joint ventures		971			1,828			2,514			2,596

Income from continuing operations		53,811			44,239			59,043			65,669
Discontinued operations:
Gain (loss) on sales of properties		30,224			3,314			56,380			10,033
Impairment of assets		—			—			(202	)		—
Income (loss) from discontinued operations, net		2,173			3,511			2,797			7,056

Discontinued operations, net		32,397			6,825			58,975			17,089

Net income		86,208			51,064			118,018			82,758
Less: Preferred stock dividends		17,353			5,484			26,033			10,993
Less: Net income (loss) attributable to noncontrolling interests ⁽¹⁾		(992	)		(66	)		(1,234	)		307

Net income attributable to common stockholders	$	69,847		$	45,646		$	93,219		$	71,458


Average number of common shares outstanding:
Basic		176,445			123,808			165,755			123,541
Diluted		177,488			124,324			166,458			124,059

Earnings per share:
Basic:
Income from continuing operations attributable to common stockholders	$	0.21		$	0.31		$	0.20		$	0.44
Discontinued operations, net		0.18			0.06			0.36			0.14

Net income attributable to common stockholders*	$	0.40		$	0.37		$	0.56		$	0.58


Diluted:
Income from continuing operations attributable to common stockholders	$	0.21		$	0.31		$	0.20		$	0.44
Discontinued operations, net		0.18			0.05			0.35			0.14

Net income attributable to common stockholders*	$	0.39		$	0.37		$	0.56		$	0.58

Dividends declared and paid per common share	$	0.715		$	0.68		$	1.405		$	1.36


*		Amounts may not sum due to rounding

(1)		Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES
(in thousands)


	Six Months Ended June 30, 2011
																Accumulated
					Capital in											Other
	Preferred		Common		Excess of			Treasury			Cumulative		Cumulative			Comprehensive			Other			Noncontrolling
	Stock		Stock		Par Value			Stock			Net Income		Dividends			Income (Loss)			Equity			Interests			Total

Balances at beginning of period	$	291,667	$	147,155	$	4,932,468		$	(11,352	)	$	1,676,196	$	(2,427,881	)	$	(11,099	)	$	5,697		$	130,249		$	4,733,100
Comprehensive income:
Net income (loss)												119,252											(1,396	)		117,856
Other comprehensive income:
Unrealized gain (loss) on equity investments																	86									86
Cash flow hedge activity																	868									868

Total comprehensive income																										118,810

Contributions by noncontrolling interests						6,017																	22,226			28,243
Distributions to noncontrolling interests																							(16,227	)		(16,227	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures				1,385		69,524			(2,141	)										(888	)					67,880
Proceeds from issuance of common stock				28,750		1,328,996																				1,357,746
Proceeds from issuance of preferred stock		718,750				(22,313	)																			696,437
Option compensation expense																				1,651						1,651
Cash dividends paid:
Common stock cash dividends														(228,565	)											(228,565	)
Preferred stock cash dividends														(26,033	)											(26,033	)

Balances at end of period	$	1,010,417	$	177,290	$	6,314,692		$	(13,493	)	$	1,795,448	$	(2,682,479	)	$	(10,145	)	$	6,460		$	134,852		$	6,733,042


	Six Months Ended June 30, 2010
																	Accumulated
						Capital in											Other
	Preferred			Common		Excess of			Treasury			Cumulative		Cumulative			Comprehensive			Other			Noncontrolling
	Stock			Stock		Par Value			Stock			Net Income		Dividends			Income (Loss)			Equity			Interests			Total

Balances at beginning of period	$	288,683		$	123,385	$	3,900,666		$	(7,619	)	$	1,547,669	$	(2,057,658	)	$	(2,891	)	$	4,804		$	10,412		$	3,807,451
Comprehensive income:
Net income (loss)													82,451											307			82,758
Other comprehensive income:
Unrealized gain (loss) on equity investments																		(137	)								(137	)
Cash flow hedge activity																		(5,498	)								(5,498	)

Total comprehensive income																											77,123

Contributions by noncontrolling interests																								2,271			2,271
Distributions to noncontrolling interests																								(2,594	)		(2,594	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					1,080		44,290			(3,696	)										(243	)					41,431
Conversion of preferred stock		(2,273	)		55		2,218																				—
Equity component of convertible debt							(9,689	)																			(9,689	)
Option compensation expense																					1,194						1,194
Cash dividends paid:
Common stock cash dividends															(169,069	)											(169,069	)
Preferred stock cash dividends															(10,993	)											(10,993	)

Balances at end of period	$	286,410		$	124,520	$	3,937,485		$	(11,315	)	$	1,630,120	$	(2,237,720	)	$	(8,526	)	$	5,755		$	10,396		$	3,737,125

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
HEALTH CARE REIT, INC. AND SUBSIDIARIES


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)
Operating activities
Net income	$	118,018		$	82,758
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization		185,821			91,032
Other amortization expenses		7,900			8,047
Provision for loan losses		416			—
Impairment of assets		202			—
Stock-based compensation expense		7,274			8,747
Loss (gain) on extinguishment of debt		—			25,072
Income from unconsolidated joint ventures		(2,514	)		(2,596	)
Rental income in excess of cash received		(9,304	)		(4,530	)
Amortization related to above (below) market leases, net		(1,056	)		(1,296	)
Loss (gain) on sales of properties		(56,380	)		(10,033	)
Increase (decrease) in accrued expenses and other liabilities		38,416			5,552
Decrease (increase) in receivables and other assets		(47,195	)		(11,247	)

Net cash provided from (used in) operating activities		241,598			191,506

Investing activities
Investment in real property, net of cash acquired		(3,370,597	)		(389,873	)
Capitalized interest		(6,979	)		(12,352	)
Investment in real estate loans receivable		(28,467	)		(41,784	)
Other investments, net of payments		1,743			(10,051	)
Principal collected on real estate loans receivable		138,396			9,420
Contributions to unconsolidated joint ventures		(779	)		(174,574	)
Distributions from unconsolidated joint ventures		1,069			—
Decrease (increase) in restricted cash		42,023			(36,418	)
Proceeds from sales of real property		208,692			54,492

Net cash provided from (used in) investing activities		(3,014,899	)		(601,140	)

Financing activities
Net increase (decrease) under unsecured lines of credit arrangements		(300,000	)		66,000
Proceeds from issuance of senior unsecured notes		1,381,086			932,412
Payments to extinguish senior unsecured notes		—			(495,542	)
Net proceeds from the issuance of secured debt		58,470			79,127
Payments on secured debt		(13,081	)		(7,704	)
Net proceeds from the issuance of common stock		1,421,495			37,560
Net proceeds from the issuance of preferred stock		696,437			—
Decrease (increase) in deferred loan expenses		(11,603	)		(1,887	)
Contributions by noncontrolling interests ⁽¹⁾		9,087			2,271
Distributions to noncontrolling interests ⁽¹⁾		(16,804	)		(2,594	)
Cash distributions to stockholders		(254,598	)		(180,062	)

Net cash provided from (used in) financing activities		2,970,489			429,581

Increase (decrease) in cash and cash equivalents		197,188			19,947
Cash and cash equivalents at beginning of period		131,570			35,476

Cash and cash equivalents at end of period	$	328,758		$	55,423


Supplemental cash flow information:
Interest paid	$	112,711		$	71,027
Income taxes paid		31			149


(1)		Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED 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 June 30, 2011, our broadly diversified portfolio consisted of 868 properties in 45 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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2011 are not necessarily an indication of the results that may be expected for the year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011.

New Accounting Standards

In April 2011, FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”). It intended to provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Early adoption is permitted. We are continuing to evaluate the impact of adoption of this ASU.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU 2011-05”), which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 will only impact the company’s financial presentation as the company currently presents items of other comprehensive income in the statement of changes in equity. ASU 2011-05 will be effective for our fiscal year beginning January 1, 2012.

3. Real Property Acquisition and Development

Genesis Acquisition

On April 1, 2011, we completed the acquisition of substantially all of the real estate assets (147 properties) of privately-owned Genesis HealthCare Corporation. The total purchase price of approximately $2,475,144,000 is comprised of the $2,400,000,000 cash consideration and the fair value of capital lease obligations totaling approximately $75,144,000 and has been allocated on a preliminary basis in the amounts of $144,091,000 to land and land improvements and $2,331,053,000 to buildings and improvements. We funded the cash consideration and other associated costs of the acquisition primarily through the proceeds of the offerings of common stock, preferred stock and senior unsecured notes completed in March 2011. Effective April 1, 2011, we began leasing the acquired facilities to Genesis pursuant to a master lease. In addition to rent, the triple net master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC, which was spun-off by Genesis prior to closing the acquisition. The initial term is fifteen years. Genesis has one option to renew for an additional term of fifteen years. The master lease provides that the base rent for the first year is $198,000,000 and will increase at least 1.75% but no more than 3.50% (subject to CPI changes) for each of the years two through six during the initial term and at least 1.50% but no more than 3.00% per year thereafter (subject to CPI changes). We expect to recognize rental income based on the minimum rent escalators during the initial term.

The following unaudited pro forma consolidated results of operations have been prepared as if the Genesis acquisition had occurred as of January 1, 2010 based on the preliminary purchase price allocations discussed above. Amounts are in thousands, except per share data:

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended June 30,
	2011		2010
Revenues	$	689,630	$	408,005
Income from continuing operations attributable to common stockholders	$	50,550	$	73,928
Income from continuing operations attributable to common stockholders per share:
Basic	$	0.29	$	0.49
Diluted	$	0.29	$	0.48

Silverado Partnership

During the three months ended March 31, 2011, we completed the formation of our partnership with Silverado Senior Living, Inc. to own and operate a portfolio of 18 combination senior housing and care communities located in California, Texas, Arizona and Utah. We own a 95.4% partnership interest and Silverado owns the remaining 4.6% interest and continues to manage the communities. The partnership owns and operates six communities previously owned by us and 12 additional communities previously owned by Silverado. The transaction took advantage of the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). The results of operations for this partnership have been included in our consolidated results of operations beginning as of January 1, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

In conjunction with the formation of the partnership, we contributed $163,368,000 of cash and the six properties previously owned by us. Silverado contributed the remaining 12 properties to the partnership and the secured debt relating to these properties in exchange for its 4.6% interest in the partnership. The six 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 4.6% noncontrolling interest was recorded in capital in excess of par value. The total purchase price for the 12 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 June 30, 2011 is preliminary and subject to adjustment. The 4.6% noncontrolling interest relating to the acquired 12 properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):


Land and land improvements	$	11,170
Buildings and improvements		173,841
Acquired lease intangibles		19,305
Investment in unconsolidated subsidiary		14,960
Cash and cash equivalents		4,084

Total assets acquired		223,360
Secured debt		60,667

Total liabilities assumed		60,667
Capital in excess of par		6,017
Noncontrolling interests		7,836

Net assets acquired	$	148,840

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Benchmark Partnership

During the three months ended March 31, 2011, we completed the formation of our partnership with Benchmark Senior Living to own and operate a portfolio of 34 senior housing communities located in New England. We own a 95% partnership interest and Benchmark owns the remaining 5% interest and continues to manage the communities. The 34 communities included in the partnership were previously owned by The GPT Group and Benchmark. The transaction took advantage of the structure authorized by RIDEA. The results of operations for this partnership have been included in our consolidated results of operations beginning as of March 28, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

In conjunction with the formation of the partnership, we contributed $380,278,000 of cash and the partnership assumed the secured debt relating to these properties. Benchmark contributed the 34 properties to the partnership and the secured debt relating to these properties in exchange for its 5% interest in the partnership. The total purchase price for the 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 June 30, 2011 is preliminary and subject to adjustment. The 5% noncontrolling interest relating to the acquired properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):


Land and land improvements	$	60,440
Buildings and improvements		792,394
Acquired lease intangibles		68,980
Cash and cash equivalents		28,258
Restricted cash		5,451

Total assets acquired		955,523
Secured debt		524,989
Accrued expenses and other liabilities		17,412
Entrance fee liability		13,269

Total liabilities assumed		555,670
Noncontrolling interests		19,575

Net assets acquired	$	380,278

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Real Property Investment Activity

The following is a summary of our real property investment activity for the periods presented (in thousands):


	Six Months Ended
	June 30, 2011					June 30, 2010
	Properties		Amount			Properties		Amount
Real property acquisitions:
Senior housing operating		46	$	1,126,130			—	$	—
Senior housing triple-net		165		2,849,603			10		109,492
Medical facilities		6		65,599			19		246,582
Land parcels		1		6,770			—		—

Total acquisitions		218		4,048,102			29		356,074
Less: Assumed debt				(721,632	)				(117,892	)
Assumed other items, net ⁽¹⁾				(147,500	)				(31,690	)

Cash disbursed for acquisitions				3,178,970					206,492
Construction in progress additions:
Senior housing triple-net				75,999					50,726
Medical facilities				124,150					129,568

Total construction in progress additions				200,149					180,294
Less: Capitalized interest				(6,979	)				(11,983	)
Accruals ⁽²⁾				(30,736	)				(5,775	)

Cash disbursed for construction in progress				162,434					162,536
Capital improvements to existing properties				29,193					20,845

Total cash invested in real property			$	3,370,597				$	389,873


(1)		Includes $75,144,000 of capital lease obligations.

(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:


	Six Months Ended
	June 30, 2011		June 30, 2010
Development projects:
Senior housing triple-net	$	—	$	269,260
Medical facilities		325,563		110,481

Total development projects		325,563		379,741
Expansion projects		19,218		1,502

Total construction in progress conversions	$	344,781	$	381,243

Transaction costs for the six months ended June 30, 2011 primarily represent costs incurred with the Genesis, Silverado and Benchmark transactions (including due diligence costs, fees for legal and valuation services, and termination of a pre-existing relationship computed based on the fair value of the assets acquired), lease termination fees and costs incurred in connection with the new property acquisitions.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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):


	June 30, 2011			December 31, 2010
Assets:
In place lease intangibles	$	269,915		$	182,030
Above market tenant leases		24,480			24,089
Below market ground leases		46,992			46,992
Lease commissions		6,275			4,968

Gross historical cost		347,662			258,079
Accumulated amortization		(91,591	)		(49,145	)

Net book value	$	256,071		$	208,934

Weighted-average amortization period in years		17.2			18.2

Liabilities:
Below market tenant leases	$	57,695		$	57,261
Above market ground leases		5,020			5,020

Gross historical cost		62,715			62,281
Accumulated amortization		(18,523	)		(15,992	)

Net book value	$	44,192		$	46,289

Weighted-average amortization period in years		12.5			14.0

5. Dispositions, Assets Held for Sale and Discontinued Operations

During the six months ended June 30, 2011, we sold 38 properties for net gains of $56,380,000. At June 30, 2011, we had one medical facility and three senior housing triple-net 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 six months ended June 30, 2011, we recorded an impairment charge of $202,000 related to two senior housing triple-net 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):


	Six Months Ended
	June 30, 2011		June 30, 2010
Real property dispositions:
Senior housing triple-net	$	117,074	$	38,361
Medical facilities		35,238		7,568

Total dispositions		152,312		45,929
Add: Gain on sales of real property		56,380		10,033
Seller financing on sales of real property		—		(1,470	)

Proceeds from real property sales	$	208,692	$	54,492

We have reclassified the income and expenses attributable to all properties sold and attributable to properties held for sale at June 30, 2011 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):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Revenues:
Rental income	$	4,486	$	10,030	$	9,403	$	21,139
Expenses:
Interest expense		812		2,072		1,756		4,132
Property operating expenses		830		1,033		2,215		2,961
Provision for depreciation		671		3,414		2,635		6,990

Income (loss) from discontinued operations, net	$	2,173	$	3,511	$	2,797	$	7,056

6. Real Estate Loans Receivable

The following is a summary of our real estate loan activity for the periods presented (in thousands):


	Six Months Ended
	June 30, 2011								June 30, 2010
	Senior Housing			Medical					Senior Housing		Medical
	Triple-net			Facilities		Totals			Triple-net		Facilities			Totals
Advances on real estate loans receivable:
Investments in new loans	$	11,807		$	—	$	11,807		$	8,617	$	15,799		$	24,416
Draws on existing loans		8,824			7,836		16,660			18,838		—			18,838

Sub-total		20,631			7,836		28,467			27,455		15,799			43,254
Less: Seller financing on property sales		—			—		—			—		(1,470	)		(1,470	)

Net cash advances on real estate loans		20,631			7,836		28,467			27,455		14,329			41,784
Receipts on real estate loans receivable:
Loan payoffs		129,860			—		129,860			1,599		—			1,599
Principal payments on loans		5,164			3,372		8,536			7,705		116			7,821

Total receipts on real estate loans		135,024			3,372		138,396			9,304		116			9,420

Net advances (receipts) on real estate loans	$	(114,393	)	$	4,464	$	(109,929	)	$	18,151	$	14,213		$	32,364

We recorded $416,000 of provision for loan losses during the six months ended June 30, 2011, resulting in an allowance for loan losses of $1,692,000 relating to real estate loans with outstanding balances of $9,287,000, all of which were on non-accrual status at June 30, 2011.

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 aggregate remaining unamortized basis difference of our investment in this joint venture of $11,304,000 at June 30, 2011 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 December 2010, we entered into a strategic joint venture relationship 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 relationship was approximately $24,609,000 with weighted-average interest rates of 6.06%. During the first six months of 2011, we invested an additional $729,000 and assumed our share of non-recourse secured debt of approximately $3,668,000 with a weighted average interest rate of 4.5% for completion of construction in two medical office buildings. The aggregate remaining unamortized basis difference of our investment in this joint venture of $231,000 at June 30, 2011 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.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In addition, in January 2011, we completed the formation of a partnership with Silverado Senior Living, Inc. See Note 3 for additional information.

The results of operations for these investments 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.

8. Customer Concentration

The following table summarizes certain information about our customer concentration as of June 30, 2011 (dollars in thousands):


	Number of		Total		Percent of
	Properties ⁽²⁾		Investment ⁽²⁾		Investment ⁽³⁾
Concentration by investment: ⁽¹⁾
Genesis HealthCare Corporation		148	$	2,479,070		20	%
Benchmark Senior Living, LLC		34		908,290		7	%
Merrill Gardens, LLC		38		709,874		6	%
Senior Living Communities, LLC		12		606,056		5	%
Brandywine Senior Living, LLC		19		605,383		5	%
Remaining portfolio		604		7,109,323		57	%

Totals		855	$	12,417,996		100	%


(1)		All of our top five customers are in our senior housing triple-net segment, except for Benchmark and Merrill Gardens, which are in our senior housing operating 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 32% of total investments at December 31, 2010.

9. Borrowings Under Line of Credit Arrangement and Related Items

At June 30, 2011, we had an unsecured line of credit arrangement with a consortium of sixteen banks in the amount of $1,150,000,000. On January 24, 2011, we provided notice to KeyBank National Association, as administrative agent, of our desire to extend the line of credit. Under the terms of the loan agreement, we had the right to extend the revolving line of credit for one year if we were in compliance with all covenants and paid an extension fee of $1,725,000. As a result of the extension, the line of credit was set to expire on August 6, 2012. Borrowings under the agreement were 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 (0.79% at June 30, 2011). The applicable margin was based on certain of our debt ratings and was 0.6% at June 30, 2011. In addition, we paid a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depended on certain of our debt ratings and was 0.15% at June 30, 2011. We also paid an annual agent’s fee of $50,000. Principal was due upon expiration of the agreement. In July 2011, we expanded and extended the facility. See Note 18 for additional information.

The following information relates to aggregate borrowings under the unsecured line of credit arrangement for the periods presented (dollars in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Balance outstanding at quarter end	$	—	$	206,000		$	—		$	206,000
Maximum amount outstanding at any month end	$	20,000	$	431,000		$	495,000		$	431,000
Average amount outstanding (total of daily principal balances divided by days in period)	$	253	$	293,505		$	158,856		$	288,337
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		n/a		1.63	%		2.17	%		1.55	%

10. Senior Unsecured Notes and Secured Debt

We have $4,429,992,000 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 $4,464,930,000 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. The notes are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at an initial

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2011, 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. 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 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 June 30, 2011, we had $168,086,000 of these notes outstanding.

During the year ended December 31, 2010, we issued $494,403,000 of 3.00% senior unsecured convertible notes due December 2029. 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 three months ended June 30, 2010, we issued $450,000,000 of 6.125% senior unsecured notes due 2020, generating 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, generating net proceeds of $445,768,000. During the three months ended March 31, 2011, we issued $400,000,000 of 3.625% senior unsecured notes due 2016, $600,000,000 of 5.25% senior unsecured notes due 2022 and $400,000,000 of 6.50% senior unsecured notes due 2041, generating net proceeds of $1,381,086,000.

We have secured debt totaling $1,889,873,000, collateralized by owned properties, with annual interest rates ranging from 4.60% to 10.00%. The carrying amounts of the secured debt represent the par value of $1,869,129,000 adjusted for any unamortized fair value adjustments on loan assumptions. The carrying values of the properties securing the debt totaled $3,215,570,000 at June 30, 2011. During the six months ended June 30, 2010, we assumed $106,140,000 of first mortgage loans principal with an average rate of 7.35% secured by 17 properties. During the six months ended June 30, 2011, we assumed $689,876,000 of first mortgage loans principal with an average rate of 5.388% secured by 35 properties. During the six months ended June 30, 2011, we issued $58,470,000 of first mortgage loans principal with an average rate of 5.78% secured by 32 properties.

At June 30, 2011, the annual principal payments due on these debt obligations are as follows (in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Senior		Secured
	Unsecured Notes ⁽¹⁾		Debt ⁽¹⁾		Totals
2011	$	—	$	14,545	$	14,545
2012		76,853		101,796		178,649
2013		300,000		274,860		574,860
2014		—		186,539		186,539
2015		250,000		181,087		431,087
Thereafter		3,838,077		1,110,302		4,948,379

Totals	$	4,464,930	$	1,869,129	$	6,334,059


(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. Derivates 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	Fair Value
	Location	June 30, 2011		December 31, 2010
Cash flow hedge interest rate swaps	Other liabilities	$	1,414	$	482

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 $1,983,000 of losses, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.

The following presents the impact of derivative instruments on the statement of operations and OCI for the periods presented (dollars in thousands):


		Three Months Ended					Six Months Ended
	Location	June 30, 2011		June 30, 2010			June 30, 2011		June 30, 2010
Gain (loss) on interest rate swap recognized in OCI (effective portion)	n/a	$	949	$	(4,962	)	$	1,841	$	(7,016	)
Gain (loss) reclassified from AOCI into income (effective portion)	Interest expense		563		(794	)		973		(1,598	)
Gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)	Realized loss		—		—			—		—

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

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

On April 15, 2011, we assumed three interest rate swaps (the “April 2011 Swaps”) for a total notional amount of $33,795,000 to hedge interest payments associated with long-term LIBOR based borrowings. One swap with an effective date of December 20, 2010 and a maturity date of September 1, 2013 has the economic effect of fixing $13,095,000 of debt at 3.05%. The other two swaps have an effective date of October 15, 2010 and a maturity date of December 31, 2012 and have the economic effect of fixing $20,700,000 of debt at 2.73%. In June 2011, the April swaps were designated as cash flow hedges and we expect them to be highly effective at offsetting changes in cash flows of interest payments on $33,795,000 of long-term debt due to changes in the LIBOR swap rate.

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 June 30, 2011 or December 31, 2010.

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 operators. Our obligation to provide the letters of credit terminates in 2013. At June 30, 2011, 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 June 30, 2011, 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 June 30, 2011, our obligation under the letter of credit was $215,000.

We have an outstanding letter of credit issued for the benefit of a village in Illinois 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 August 2011. At June 30, 2011, our obligation under the letter of credit was $67,932.

At June 30, 2011, we had outstanding construction in process of $212,161,000 for leased properties and were committed to providing additional funds of approximately $219,306,000 to complete construction. At June 30, 2011, we had contingent purchase obligations totaling $80,151,000. 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. Certain leases contain bargain purchase options and have been classified as capital leases. At June 30, 2011, we had operating lease obligations of $220,688,000 relating to certain ground leases and company office space. We incurred rental expense relating to company office space of $615,000 and $1,130,000 for

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

the three and six months ended June 30, 2011, respectively, as compared to $303,000 and $635,000 for the same period in 2010. 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 June 30, 2011, aggregate future minimum rentals to be received under these noncancelable subleases totaled $30,354,000.

At June 30, 2011, future minimum lease payments due under operating and capital leases are as follows (in thousands):


	Operating Leases		Capital Leases ⁽¹⁾
2011	$	2,662	$	3,803
2012		5,322		7,622
2013		5,333		73,003
2014		5,353		660
2015		5,100		8,425
Thereafter		196,918		—

Totals	$	220,688	$	93,513


(1)		Related to gross assets of $181,254,000 recorded in real property.

13. Stockholders’ Equity

The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:


	June 30, 2011		December 31, 2010
Preferred Stock:
Authorized shares		50,000,000		50,000,000
Issued shares		25,724,854		11,349,854
Outstanding shares		25,724,854		11,349,854

Common Stock, $1.00 par value:
Authorized shares		400,000,000		225,000,000
Issued shares		177,656,452		147,381,191
Outstanding shares		177,327,590		147,097,381

Preferred Stock. During the six months ended June 30, 2010, certain holders of our 7.5% Series G Cumulative Convertible Preferred Stock converted 76,841 shares into 54,990 shares of our common stock, leaving 322,872 of such shares outstanding at June 30, 2010. The remaining Series G shares were subsequently converted into common shares on or prior to September 30, 2010. During the six months ended June 30, 2011, we issued 14,375,000 shares of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. These shares have a liquidation value of $50.00 per share. Dividends are payable quarterly in arrears. The Series I preferred stock is not redeemable by us. The preferred shares are convertible, at the holder’s option, into 0.8460 shares of common stock (equal to an initial conversion price of approximately $59.10).

Common Stock. The following is a summary of our common stock issuances during the six months ended June 30, 2011 and 2010 (dollars in thousands, except per share amounts):


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
2010 Dividend reinvestment plan issuances		855,343	$	41.59	$	35,570	$	35,570
2010 Option exercises		51,313		38.78		1,990		1,990

2010 Totals		906,656			$	37,560	$	37,560


March 2011 public issuance		28,750,000	$	49.25	$	1,415,938	$	1,358,694
2011 Dividend reinvestment plan issuances		1,200,418		49.44		59,348		58,400
2011 Option exercises		116,782		37.69		4,401		4,401

2011 Totals		30,067,200			$	1,479,687	$	1,421,495

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dividends . The following is a summary of our dividend payments (dollars in thousands, except per share amounts):


	Six Months Ended
	June 30, 2011				June 30, 2010
	Per Share		Amount		Per Share		Amount
Common Stock	$	1.4050	$	228,565	$	1.3600	$	169,069
Series D Preferred Stock		0.9844		3,937		0.9844		3,938
Series E Preferred Stock		—		—		0.7500		56
Series F Preferred Stock		0.9532		6,672		0.9532		6,672
Series G Preferred Stock		—		—		0.9376		327
Series H Preferred Stock		1.4293		500
Series I Preferred Stock		1.0382		14,924

Totals			$	254,598			$	180,062

Comprehensive Income

The following is a summary of accumulated other comprehensive income/(loss) as of the dates indicated (in thousands):


	June 30, 2011			December 31, 2010
Unrecognized losses on cash flow hedges	$	(9,101	)	$	(9,969	)
Unrecognized losses on equity investments		(411	)		(497	)
Unrecognized actuarial losses		(633	)		(633	)

Totals	$	(10,145	)	$	(11,099	)

The following is a summary of comprehensive income/(loss) for the periods indicated (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Unrecognized gains (losses) on cash flow hedges	$	386		$	(4,208	)	$	868		$	(5,498	)
Unrecognized gains (losses) on equity investments		(236	)		(227	)		86			(137	)

Total other comprehensive income (loss)		150			(4,435	)		954			(5,635	)
Net income attributable to controlling interests		87,200			51,130			119,252			82,451

Comprehensive income attributable to controlling interests		87,350			46,695			120,206			76,816
Net and comprehensive income (loss) attributable to noncontrolling interests ⁽¹⁾		(992	)		(66	)		(1,234	)		307

Total comprehensive income	$	86,358		$	46,629		$	118,972		$	77,123


(1)		Includes amounts attributable to redeemable noncontrolling interests.

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 $612,000 and $1,651,000 for the three and six months ended June 30, 2011 as compared to $221,000 and $1,194,000 for the same periods in 2010.

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 continued 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

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

three years for non-employee directors to five years for officers and key employees. Options expire ten years from the date of grant.

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:


	Six Months Ended
	June 30, 2011			June 30, 2010
Dividend yield		5.74	%		6.28	%
Expected volatility		34.80	%		34.08	%
Risk-free interest rate		2.87	%		3.23	%
Expected life (in years)		7.0			7.0
Weighted-average fair value	$	9.60		$	7.82

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 six months ended June 30, 2011:


	Number of			Weighted		Weighted Average		Aggregate
	Shares			Average		Remaining		Intrinsic
Stock Options	(000's)			Exercise Price		Contract Life (years)		Value ($000's)
Options at beginning of year		1,207		$	39.45		8.0
Options granted		289			49.17
Options exercised		(117	)		37.68
Options terminated		(6	)		42.87

Options at end of period		1,373		$	41.63		7.7	$	14,835

Options exercisable at end of period		542		$	38.74		6.1	$	7,421
Weighted average fair value of options granted during the period				$	9.60

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 June 30, 2011. During the six months ended June 30, 2011 and 2010, the aggregate intrinsic value of options exercised under our stock incentive plans was $1,686,000 and $550,000, respectively (determined as of the date of option exercise). Cash received from option exercises under our stock incentive plans was $4,401,000 for the six months ended June 30, 2011.

As of June 30, 2011, there was approximately $4,701,000 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 June 30, 2011, there was approximately $16,084,000 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 June 30, 2011 and changes for the six months ended June 30, 2011:

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Stock Options					Restricted Stock
	Number of			Weighted Average		Number of			Weighted Average
	Shares			Grant Date		Shares			Grant Date
	(000's)			Fair Value		(000's)			Fair Value
Non-vested at December 31, 2010		768		$	6.19		420		$	41.09
Vested		(220	)		6.12		(145	)		41.86
Granted		289			9.60		242			49.19
Terminated		(6	)		5.54		(6	)		26.31

Non-vested at June 30, 2011		831		$	7.40		511		$	44.86

15. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Numerator for basic and diluted earnings per share — net income attributable to common stockholders	$	69,847	$	45,646	$	93,219	$	71,458

Denominator for basic earnings per share — weighted average shares		176,445		123,808		165,755		123,541
Effect of dilutive securities:
Employee stock options		178		102		184		104
Non-vested restricted shares		249		414		232		414
Convertible senior unsecured notes		616		—		287		—

Dilutive potential common shares		1,043		516		703		518

Denominator for diluted earnings per share — adjusted weighted average shares		177,488		124,324		166,458		124,059

Basic earnings per share	$	0.40	$	0.37	$	0.56	$	0.58

Diluted earnings per share	$	0.39	$	0.37	$	0.56	$	0.58

The diluted earnings per share calculations exclude the dilutive effect of 287,000 and 381,000 stock options for the three and six months ended June 30, 2011 and 2010, respectively, because the exercise prices were more than the average market price. The Series H Cumulative Convertible and Redeemable Preferred Stock and Series I Cumulative Convertible Perpetual Preferred Stock were not included in the 2011 calculation as the effect of conversions into common stock was anti-dilutive for that period.

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.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on publicly available trading prices.

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):


	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Mortgage loans receivable	$	75,171	$	81,005	$	109,283	$	111,255
Other real estate loans receivable		251,480		253,360		327,297		333,003
Available-for-sale equity investments		1,189		1,189		1,103		1,103
Cash and cash equivalents		328,758		328,758		131,570		131,570

Financial Liabilities:
Borrowings under unsecured lines of credit arrangements	$	—	$	—	$	300,000	$	300,000
Senior unsecured notes		4,429,992		4,464,930		3,034,949		3,267,638
Secured debt		1,889,873		1,977,949		1,125,906		1,178,081
Interest rate swap agreements		1,414		1,414		482		482

U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. 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.

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.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Fair Value Measurements as of June 30, 2011
	Total			Level 1		Level 2			Level 3
Available-for-sale equity investments ⁽¹⁾	$	1,189		$	1,189	$	—		$	—
Interest rate swap agreements ⁽²⁾		(1,414	)		—		(1,414	)		—

Totals	$	(225	)	$	1,189	$	(1,414	)	$	—


(1)		Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date.

(2)		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 on 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 table 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), assets held for sale and asset impairments (see Note 5 for impairments of real property and Note 6 for allowances on 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

During the six months ended June 30, 2011, we changed the name of our senior housing and care segment to senior housing triple-net. Additionally, we added a new senior housing operating segment. There was no activity related to this segment for the six months ended June 30, 2010. We invest in senior housing and health care real estate. We evaluate our business and make resource allocations on our three business segments: senior housing triple-net, senior housing operating and medical facilities. Our senior housing triple-net properties include skilled nursing facilities, assisted living facilities, independent living/continuing care retirement communities and combinations thereof. Under the senior housing triple-net segment, we invest in senior housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our senior housing operating properties include assisted living facilities and independent living/continuing care retirement communities that are owned and/or operated through RIDEA partnership structures. 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 triple-net investments. Our life science investments represent investments in an unconsolidated joint venture (see Note 7 for additional information). The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010). 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 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 three and six months ended June 30, 2011 and 2010 is as follows (in thousands and includes amounts from discontinued operations):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


											Property		Net		Real Estate
	Rental		Resident Fees		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income		and Services		Income		Income		Revenues		Expenses		Income ⁽¹⁾		Amortization		Expense		Assets
Three Months Ended June 30, 2011
Senior housing triple-net	$	169,247	$	—	$	11,036	$	4,497	$	184,780	$	—	$	184,780	$	47,443	$	3,637	$	7,338,125
Senior housing operating		—		123,149		—		—		123,149		84,334		38,815		38,176		12,974		2,257,709
Medical facilities ⁽²⁾		74,942		—		1,830		466		77,238		16,693		60,545		25,434		7,681		3,428,309
Non-segment/Corporate		—		—		—		378		378		—		378		—		60,481		456,518

	$	244,189	$	123,149	$	12,866	$	5,341	$	385,545	$	101,027	$	284,518	$	111,053	$	84,773	$	13,480,661

Three Months Ended June 30, 2010
Senior housing triple-net	$	97,254	$	—	$	8,830	$	1,536	$	107,620	$	—	$	107,620	$	28,553	$	5,022
Medical facilities ⁽²⁾		54,540		—		505		302		55,347		13,003		42,344		18,898		6,476
Non-segment/Corporate		—		—		—		812		812		—		812		—		26,052

	$	151,794	$	—	$	9,335	$	2,650	$	163,779	$	13,003	$	150,776	$	47,451	$	37,550


											Property		Net		Real Estate
	Rental		Resident Fees		Interest		Other		Total		Operating		Operating		Depreciation/		Interest
	Income		and Services		Income		Income		Revenues		Expenses		Income ⁽¹⁾		Amortization		Expense
Six Months Ended June 30, 2011
Senior housing triple-net	$	274,988	$	—	$	20,414	$	5,004	$	300,406	$	—	$	300,406	$	78,399	$	5,703
Senior housing operating		—		194,435		—		—		194,435		133,606		60,829		58,307		19,501
Medical facilities ⁽²⁾		141,263		—		4,161		2,251		147,675		32,735		114,940		49,115		14,967
Non-segment/Corporate		—		—		—		910		910		—		910		—		103,932

	$	416,251	$	194,435	$	24,575	$	8,165	$	643,426	$	166,341	$	477,085	$	185,821	$	144,103

Six Months Ended June 30, 2010
Senior housing triple-net	$	190,490	$	—	$	17,405	$	2,028	$	209,923	$	—	$	209,923	$	54,954	$	9,693
Medical facilities		105,410		—		978		574		106,962		26,722		80,240		36,078		12,053
Non-segment/Corporate		—		—		—		1,044		1,044		—		1,044		—		45,789

	$	295,900	$	—	$	18,383	$	3,646	$	317,929	$	26,722	$	291,207	$	91,032	$	67,535


(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 properties held in unconsolidated joint ventures. Please see Note 7 for additional information.

18. Subsequent Events

Line of Credit Expansion On July 27, 2011, we closed on a $2,000,000,000 unsecured revolving credit facility to replace our $1,150,000,000 facility which was scheduled to mature in August 2012. Among other things, the new facility provides us with additional financial flexibility and borrowing capacity and extends our agreement to July 2015. The facility is priced at 1.35% over LIBOR with a 0.25% annual facility fee based on current credit ratings.

Item 2. 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 Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 June 30, 2011:


	Investments		Percentage of			Number of		# Beds/Units			Investment per
Type of Property	(in thousands)		Investments			Properties		or Sq. Ft.			metric ⁽¹⁾			States
Senior housing triple-net	$	3,581,102		28.0	%		262		23,626	units	$	172,287	per unit		37
Skilled nursing facilities		3,577,149		27.9	%		303		39,478	beds		90,793	per bed		28
Senior housing operating		2,207,194		17.2	%		99		10,536	units		209,491	per unit		21
Hospitals		817,632		6.4	%		31		1,857	beds		441,517	per bed		13
Medical office buildings ⁽²⁾		2,282,355		17.8	%		166		9,555,262	sq. ft.		251	per sq. ft.		27
Life science buildings ⁽²⁾		342,725		2.7	%		7						n/a		1

Totals	$	12,808,157		100.0	%		868								45


(1)		Investment per metric was computed by using the total committed investment amount of $13,027,463,000, which includes net real estate investments, our share of unconsolidated joint venture investments and unfunded construction commitments for which initial funding has commenced which amounted to $12,417,996,000, $390,161,000 and $219,306,000, respectively.

(2)		Includes our share of unconsolidated joint venture investments. Please see Note 7 to our unaudited financial statements for additional information.

Health Care Industry

The demand for health care services, and consequently health care properties, is projected to reach unprecedented 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 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:

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

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:

	•		The specialized nature of the industry, which enhances the credibility and experience of our company;

	•		The projected population growth combined with stable or increasing health care utilization rates, which ensures demand; and

	•		The on-going merger and acquisition activity.

Current Economic and Capital Market Outlook

In the commercial real estate market, property prices generally continue to fluctuate. Likewise, the U.S. credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which sometimes impact access to and cost of capital. In spite of these challenges, we successfully raised over $3 billion of debt and equity capital during the first quarter of 2011 in order to fund our attractive investment opportunities. We believe our success in sourcing capital is due to our strategic deal sourcing and the significant growth underlying the health care real estate sector in general.

We will continue to be selective as further income-enhancing acquisition opportunities are pursued. Investment opportunities must adhere to our strict underwriting and risk allocation criteria. In addition, we will continue to monitor the commercial real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly. See our discussion of “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

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, resident fees and services, 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.

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

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 six months ended June 30, 2011, rental income, resident fees and services and interest income represented 65%, 31% and 4%, 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 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 internal cash from rent and interest receipts and principal payments on loans receivable. Permanent financing 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.

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 capital expenditures and construction advances), loan advances, property operating expenses and general and administrative expenses. 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 anticipate the sale of real property and the repayment of loans receivable totaling approximately $300,000,000 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 June 30, 2011, we had $328,758,000 of cash and cash equivalents, $42,497,000 of restricted cash and $1,150,000,000 of available borrowing capacity under our unsecured line of credit arrangement.

Key Transactions in 2011

We have completed the following key transactions to date in 2011:

	•		our Board of Directors increased the quarterly cash dividend to $0.715 per common share, as compared to $0.69 per common share for 2010, beginning in May 2011. The dividend declared for the quarter ended June 30, 2011 represents the 161 ^st consecutive quarterly dividend payment;

	•		we raised $3,534,688,000 of equity and unsecured debt capital in March 2011;

	•		we completed $4,177,716,000 of gross investments and had $282,230,000 of investment payoffs during the six months ended June 30, 2011; and

	•		we extended our unsecured line of credit arrangement to July 2015 and expanded it to $2,000,000,000 in July 2011.

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):

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


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
	2010		2010		2010		2010		2011		2011
Net income attributable to common stockholders	$	25,812	$	45,646	$	1,124	$	34,301	$	23,372	$	69,847
Funds from operations		63,087		92,214		41,108		82,670		70,851		149,553
Net operating income ⁽¹⁾		143,055		157,415		164,292		175,585		201,084		292,789
Per share data (fully diluted):
Net income attributable to common stockholders	$	0.21	$	0.37	$	0.01	$	0.25	$	0.15	$	0.39
Funds from operations		0.51		0.74		0.33		0.60		0.46		0.84


(1)		Includes our share of net operating income from unconsolidated joint ventures.

Concentration Risk . We evaluate our concentration risk in terms of asset mix, investment mix, relationship 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. Investment mix measures the portion of our investments that relate to our various segment types. Relationship mix measures the portion of our investments that relate to our top five relationships. 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:


	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2010			2010			2010			2010			2011			2011
Asset mix:
Real property		88	%		88	%		90	%		91	%		92	%		94	%
Real estate loans receivable		7	%		7	%		5	%		5	%		4	%		3	%
Joint venture investments		5	%		5	%		5	%		4	%		4	%		3	%

Investment mix: ⁽¹⁾
Senior housing triple-net		60	%		60	%		52	%		51	%		45	%		56	%
Senior housing operating		0	%		0	%		10	%		12	%		22	%		17	%
Medical facilities		40	%		40	%		38	%		37	%		33	%		27	%

Relationship mix: ⁽¹⁾
Genesis HealthCare, LLC																	19	%
Benchmark Senior Living, LLC								10	%		8	%		9	%		7	%
Merrill Gardens, LLC											7	%		7	%		6	%
Senior Living Communities, LLC		8	%		8	%		8	%		7	%		6	%		5	%
Brandywine Senior Living, LLC											5	%		6	%		5	%
Senior Star Living		5	%		4	%		4	%		4	%		5	%
Brookdale Senior Living, Inc.		5	%		5	%		4	%
Capital Senior Living Corporation		4	%		4	%		4	%
Silverado Senior Living, Inc.		4	%		3	%
Remaining relationships		74	%		76	%		70	%		69	%		67	%		58	%

Geographic mix: ⁽¹⁾
Massachusetts		9	%		9	%		11	%		10	%		10	%		9	%
California		11	%		11	%		9	%		7	%		10	%		8	%
New Jersey		12	%		11	%		10	%		10	%					8	%
Florida		10	%		10	%		9	%		8	%		9	%		7	%
Texas								7	%		6	%		8	%		7	%
Washington														6	%
Wisconsin		7	%		7	%
Remaining states		51	%		52	%		54	%		59	%		57	%		61	%


(1)		Includes our share of unconsolidated joint venture investments.

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

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 earnings before interest, taxes, depreciation and amortization (“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:


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2010			2010			2010			2010			2011			2011
Debt to book capitalization ratio		43	%		46	%		45	%		49	%		48	%		49	%
Debt to undepreciated book capitalization ratio		39	%		41	%		41	%		45	%		45	%		45	%
Debt to market capitalization ratio		32	%		36	%		34	%		38	%		37	%		38	%
Interest coverage ratio		3.08	x		3.48	x		2.25	x		3.02	x		2.75	x		3.34	x
Fixed charge coverage ratio		2.44	x		2.78	x		1.86	x		2.51	x		2.22	x		2.60	x

Lease Expirations. The following table sets forth information regarding lease expirations for certain portions of our portfolio as of June 30, 2011 (dollars in thousands):


	Expiration Year
	2011			2012			2013			2014			2015			2016			2017			2018			2019			2020			Thereafter
Senior housing triple-net:
Properties		18			16			20			7			2			—			37			55			33			46			325
Base rent ⁽¹⁾	$	2,243		$	12,436		$	44,499		$	6,400		$	2,014		$	—		$	16,605		$	36,751		$	27,928		$	40,474		$	466,300
% of base rent		0.3	%		1.9	%		6.8	%		1.0	%		0.3	%		0.0	%		2.5	%		5.6	%		4.3	%		6.2	%		71.1	%

Hospitals:
Properties		—			—			—			—			—			—			3			—			—			5			17
Base rent ⁽¹⁾	$	—		$	—		$	—		$	—		$	—		$	—		$	2,350		$	—		$	—		$	5,954		$	62,641
% of base rent		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		3.3	%		0.0	%		0.0	%		8.4	%		88.3	%

Medical office buildings:
Square feet		183,822			637,540			486,772			570,734			501,994			643,941			478,252			227,761			420,870			364,123			3,908,095
Base rent ⁽¹⁾	$	4,036		$	13,793		$	10,565		$	12,064		$	11,276		$	15,197		$	11,216		$	5,138		$	10,631		$	9,987		$	72,659
% of base rent		2.3	%		7.8	%		6.0	%		6.8	%		6.4	%		8.6	%		6.4	%		2.9	%		6.0	%		5.7	%		41.2	%


(1)		The most recent monthly base rent including straight line for leases with fixed escalators or annual cash rents with contingent escalators. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles.

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 Quarterly Report on Form 10-Q. 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 our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011, under the headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

Portfolio Update

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

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):


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
	2010		2010		2010		2010		2011		2011
Net operating income:
Senior housing triple-net	$	102,307	$	107,620	$	107,535	$	105,008	$	115,626	$	184,780
Senior housing operating		—		—		4,816		13,569		22,014		38,815
Medical facilities ⁽¹⁾		40,517		48,983		51,710		55,411		62,913		68,816
Non-segment/corporate		231		812		231		1,597		531		378

Net operating income	$	143,055	$	157,415	$	164,292	$	175,585	$	201,084	$	292,789


(1)		Includes our share of net operating income from unconsolidated joint ventures.

Payment coverage . Payment coverage of our triple-net customers continues to remain strong. Our overall payment coverage is at 2.05 times. The table below reflects our recent historical trends of portfolio coverage. Coverage represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us.

Twelve months ended

March 31, 2009

March 31, 2010

March 31, 2011

Senior housing

1.49

1.48

1.47

Skilled nursing

2.20

2.34

2.42

Hospitals

2.33

2.56

2.71

Weighted averages

1.94

2.03

2.05

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. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on our website at www.hcreit.com.

Liquidity and Capital Resources

Sources and Uses of Cash

The following is a summary of our sources and uses of cash flows (dollars in thousands):


	Six Months Ended						Change
	June 30, 2011			June 30, 2010			$			%
Cash and cash equivalents at beginning of period	$	131,570		$	35,476		$	96,094			271	%
Cash provided from operating activities		241,598			191,506			50,092			26	%
Cash used in investing activities		(3,014,899	)		(601,140	)		(2,413,759	)		402	%
Cash provided from financing activities		2,970,489			429,581			2,540,908			591	%

Cash and cash equivalents at end of period	$	328,758		$	55,423		$	273,335			493	%

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 and debt extinguishment charges. These items are

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

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):


	Six Months Ended						Change
	June 30, 2011			June 30, 2010			$			%
Gross straight-line rental income	$	16,018		$	8,598		$	7,420			86	%
Cash receipts due to real property sales		(815	)		(752	)		(63	)		8	%
Prepaid rent receipts		(5,899	)		(3,316	)		(2,583	)		78	%
Amortization related to below (above) market leases, net		1,056			1,296			(240	)		-19	%

	$	10,360		$	5,826		$	4,534			78	%

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 the lack of 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.

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):


	Six Months Ended
	June 30, 2011					June 30, 2010
	Properties		Amount			Properties		Amount
Real property acquisitions:
Senior housing operating		46	$	1,126,130			—	$	—
Senior housing triple-net		165		2,849,603			10		109,492
Medical office buildings		6		65,599			19		246,582
Land parcels		1		6,770			—		—

Total acquisitions		218		4,048,102			29		356,074
Less: Assumed debt				(721,632	)				(117,892	)
Assumed other items, net				(147,500	)				(31,690	)

Cash disbursed for acquisitions				3,178,970					206,492
Construction in progress cash additions				162,434					162,536
Capital improvements to existing properties				29,193					20,845

Total cash invested in real property				3,370,597					389,873

Real property dispositions:
Senior housing triple-net		34		117,074			6		38,361
Medical facilities		4		35,238			3		7,568

Total dispositions		38		152,312			9		45,929
Less: Gains (losses) on sales of real property				56,380					10,033
Seller financing on sales of real property				—					(1,470	)

Proceeds from real property sales				208,692					54,492

Net cash investments in real property		180	$	3,161,905			20	$	335,381

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


	Six Months Ended
	June 30, 2011								June 30, 2010
	Senior Housing			Medical					Senior Housing		Medical
	Triple-net			Facilities		Totals			Triple-net		Facilities		Totals
Advances on real estate loans receivable:
Investments in new loans	$	11,807		$	—	$	11,807		$	8,617	$	15,799	$	24,416
Draws on existing loans		8,824			7,836		16,660			18,838		—		18,838

Net cash advances on real estate loans		20,631			7,836		28,467			27,455		14,329		41,784
Receipts on real estate loans receivable:
Loan payoffs		129,860			—		129,860			1,599		—		1,599
Principal payments on loans		5,164			3,372		8,536			7,705		116		7,821

Total receipts on real estate loans		135,024			3,372		138,396			9,304		116		9,420

Net advances (receipts) on real estate loans	$	(114,393	)	$	4,464	$	(109,929	)	$	18,151	$	14,213	$	32,364

Capitalization rates for acquisitions represent annualized contractual income to be received in cash at date of investment divided by investment amounts. Capitalization rates for dispositions represent annualized contractual income that was being received in cash at date of disposition divided by cash proceeds. For the six months ended June 30, 2011, weighted-average capitalization rates for acquisitions and dispositions were as follows:


	Acquistions			Dispositions
Senior Housing Triple-net		8.2	%		10.6	%
Senior Housing Operating		7.1	%		n/a
Medical Facilities		7.6	%		7.1	%

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.

For the six months ended June 30, 2011, we had a net decrease of $300,000,000 on our unsecured line of credit arrangement as compared to a net increase of $66,000,000 for the same period in 2010. The change in our senior unsecured notes is due to (i) the issuance of $400,000,000 of 3.625% senior unsecured notes due 2016, $600,000,000 of 5.25% senior unsecured notes due 2022 and $400,000,000 of 6.50% senior unsecured notes due 2041 in March 2011; (ii) the issuance of $494,403,000 of convertible senior unsecured notes in March and June 2010; (iii) the repurchase of $441,326,000 of convertible senior unsecured notes in March and June 2010; and (iv) the issuance of $450,000,000 of senior unsecured notes in April and June 2010.

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 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 March and June 2010 convertible senior unsecured notes 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 six months ended June 30, 2011 and 2010 (dollars in thousands, except per share amounts):

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


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
2010 Dividend reinvestment plan issuances		855,343	$	41.59	$	35,570	$	35,570
2010 Option exercises		51,313		38.78		1,990		1,990

2010 Totals		906,656			$	37,560	$	37,560


March 2011 public issuance		28,750,000	$	49.25	$	1,415,938	$	1,358,694
2011 Dividend reinvestment plan issuances		1,200,418		49.44		59,348		58,400
2011 Option exercises		116,782		37.69		4,401		4,401

2011 Totals		30,067,200			$	1,479,687	$	1,421,495

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):


	Six Months Ended
	June 30, 2011				June 30, 2010
	Per Share		Amount		Per Share		Amount
Common Stock	$	1.4050	$	228,565	$	1.3600	$	169,069
Series D Preferred Stock		0.9844		3,937		0.9844		3,938
Series E Preferred Stock		—		—		0.7500		56
Series F Preferred Stock		0.9532		6,672		0.9532		6,672
Series G Preferred Stock		—		—		0.9376		327
Series H Preferred Stock		1.4293		500
Series I Preferred Stock		1.0382		14,924

Totals			$	254,598			$	180,062

Off-Balance Sheet Arrangements

During the three months ended March 31, 2010, we entered into a joint venture investment with Forest City Enterprises (NYSE:FCE.A and FCE.B). 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 our balance sheet. Our share of non-recourse debt was approximately $24,609,000 with weighted average interest rates of 6.06%. Please see Note 7 to our unaudited 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 unaudited consolidated financial statements for additional information.

At June 30, 2011, we had five outstanding letter of credit obligations totaling $5,482,932 and expiring between 2011 and 2013. Please see Note 12 to our unaudited consolidated financial statements for additional information.

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

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of June 30, 2011 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2011		2012-2013		2014-2015		Thereafter
Unsecured line of credit arrangement	$	—	$	—	$	—	$	—	$	—
Senior unsecured notes ⁽¹⁾		4,464,930		—		376,853		250,000		3,838,077
Secured debt ⁽¹⁾		2,061,647		16,894		445,380		401,891		1,197,482
Contractual interest obligations		3,221,198		170,045		665,197		567,314		1,818,642
Capital lease obligations		93,513		3,803		80,625		9,085		—
Operating lease obligations		220,688		2,662		10,655		10,453		196,918
Purchase obligations		299,457		62,176		193,338		43,943		—
Other long-term liabilities		4,852		1,576		—		866		2,410

Total contractual obligations	$	10,366,285	$	257,156	$	1,772,048	$	1,283,552	$	7,053,529


(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 June 30, 2011, 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 (0.79% at June 30, 2011). The applicable margin is based on certain of our debt ratings and was 0.6% at June 30, 2011. 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 June 30, 2011. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. In July 2011, we expanded and extended the facility. See Note 18 to our unaudited consolidated financial statements for additional information.

We have $4,464,930,000 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 $2,510,327,940 at June 30, 2011. 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 unaudited consolidated financial statements for additional information.

We have consolidated secured debt with total outstanding principal of $1,869,129,000, collateralized by owned properties, with fixed annual interest rates ranging from 4.60% to 10.00%, payable monthly. The carrying values of the properties securing the debt totaled $3,215,570,000 at June 30, 2011. Total contractual interest obligations on consolidated secured debt totaled $665,118,000 at June 30, 2011. Additionally, our share of non-recourse debt associated with unconsolidated joint ventures (as reflected in the contractual obligations table above) is $192,518,000 at June 30, 2011. Our share of contractual interest obligations on our unconsolidated joint venture secured debt is $45,752,000 at June 30, 2011.

At June 30, 2011, we had operating lease obligations of $220,688,000 relating primarily to ground leases at certain of our properties and office space leases. One lease related to a senior housing triple-net facility contains a bargain purchase option and has been classified as a capital lease.

Purchase obligations include unfunded construction commitments and contingent purchase obligations. At June 30, 2011, we had outstanding construction financings of $212,161,000 for leased properties and were committed to providing additional financing of approximately $219,306,000 to complete construction. At June 30, 2011, we had contingent purchase obligations totaling $80,151,000. 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 a non-compete agreement. 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 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 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 $4,395,000 and $4,066,000 at June 30, 2011 and December 31, 2010, respectively.

In connection with the Windrose merger, we entered into a consulting agreement with Frederick L. Farrar, which expired in

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

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 June 30, 2011, we had total equity of $6,733,042,000 and a total debt balance of $6,319,865,000, which represents a debt to total book capitalization ratio of 49%. Our ratio of debt to market capitalization was 38% at June 30, 2011. For the three months ended June 30, 2011, our interest coverage ratio was 3.34x and our fixed charge coverage ratio was 2.60x. Also, at June 30, 2011, we had $328,758,000 of cash and cash equivalents, $42,497,000 of restricted cash and $1,150,000,000 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 June 30, 2011, 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.

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 July 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 July 31, 2011, 7,209,857 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with 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 July 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, interest and resident fees and services. 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):


	Three Months Ended						Change						Six Months Ended						Change
	June 30,			June 30,									June 30,			June 30,
	2011			2010			Amount			%			2011			2010			Amount			%
Net income attributable to common stockholders	$	69,847		$	45,646		$	24,201			53	%	$	93,219		$	71,458		$	21,761			30	%
Funds from operations		149,553			92,214			57,339			62	%		220,404			155,300			65,104			42	%
EBITDA		282,245			136,253			145,992			107	%		448,281			241,598			206,683			86	%
Net operating income		292,789			157,415			135,374			86	%		493,874			300,470			193,404			64	%

Per share data (fully diluted):
Net income attributable to common stockholders	$	0.39		$	0.37		$	0.02			5	%	$	0.56		$	0.58		$	(0.02	)		-3	%
Funds from operations		0.84			0.74			0.10			14	%		1.32			1.25			0.07			6	%
Interest coverage ratio		3.34	x		3.48	x		-0.14	x		-4	%		3.10	x		3.29	x		-0.19	x		-6	%
Fixed charge coverage ratio		2.60	x		2.78	x		-0.18	x		-6	%		2.44	x		2.62	x		-0.18	x		-7	%

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

We evaluate our business and make resource allocations on our three business segments: senior housing triple-net, senior housing operating and medical facilities. Please see Note 17 to our unaudited consolidated financial statements for additional information.

Senior Housing Triple-net

The following is a summary of our results of operations for the senior housing triple-net segment (dollars in thousands):


	Three Months Ended				Change						Six Months Ended					Change
	June 30,		June 30,								June 30,			June 30,
	2011		2010		$			%			2011			2010		$			%
Revenues:
Rental income	$	165,811	$	88,644	$	77,167			87	%	$	267,780		$	172,570	$	95,210			55	%
Interest income		11,036		8,830		2,206			25	%		20,416			17,405		3,011			17	%
Other income		4,497		1,536		2,961			193	%		5,004			2,028		2,976			147	%

Net operating income from continuing operations		181,344		99,010		82,334			83	%		293,200			192,003		101,197			53	%
Other expenses:
Interest expense		2,987		3,231		(244	)		-8	%		4,330			6,101		(1,771	)		-29	%
Depreciation and amortization		47,109		25,464		21,645			85	%		76,438			48,622		27,816			57	%
Transaction costs		12,692		644		12,048			1871	%		16,699			5,663		11,036			195	%

		62,788		29,339		33,449			114	%		97,467			60,386		37,081			61	%

Income from continuing operations		118,556		69,671		48,885			70	%		195,733			131,617		64,116			49	%
Discontinued operations:
Gain on sales of properties		28,186		2,639		25,547			968	%		54,342			8,368		45,974			549	%
Impairment of assets		—		—		—			n/a			(202	)		—		(202	)		n/a
Income from discontinued operations, net		2,452		3,730		(1,278	)		-34	%		3,877			7,996		(4,119	)		-52	%

Discontinued operations, net		30,638		6,369		24,269			381	%		58,017			16,364		41,653			255	%

Net income		149,194		76,040		73,154			96	%		253,750			147,981		105,769			71	%
Less: Net income attributable to noncontrolling interests		40		—		40			n/a			115			—		115			n/a

Net income attributable to common stockholders	$	149,154	$	76,040	$	73,114			96	%	$	253,635		$	147,981	$	105,654			71	%

The increase in rental income is primarily attributable to acquisitions and the conversion of newly constructed senior housing triple-net properties subsequent to June 30, 2010 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. For the three months ended June 30, 2011, we had no lease renewals but we had 18 leases with rental rate increasers ranging from 0.15% to 0.31% in our senior housing triple-net portfolio.

Interest expense for the six months ended June 30, 2011 and 2010 represents $5,703,000 and $9,693,000, respectively, of secured debt interest expense offset by interest allocated to discontinued operations. 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 triple-net property secured debt principal activity (dollars in thousands):

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


	Three Months Ended						Three Months Ended						Six Months Ended						Six Months Ended
	June 30, 2011						June 30, 2010						June 30, 2011						June 30, 2010
				Weighted Avg.						Weighted Avg.						Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	178,780			5.236	%	$	297,151			5.997	%	$	172,862			5.265	%	$	298,492			5.998	%
Debt issued		—						92,265			4.772	%		—			0.000	%		92,265			4.772	%
Debt assumed		83,507			4.837	%		—			0.000	%		90,120			4.819	%		—			0.000	%
Principal payments		(1,088	)		5.529	%		(1,324	)		6.407	%		(1,783	)		5.566	%		(2,665	)		6.208	%

Ending balance	$	261,199			5.109	%	$	388,092			5.705	%	$	261,199			5.109	%	$	388,092			5.705	%

Monthly averages	$	240,876			5.133	%	$	324,699			5.912	%	$	212,580			5.176	%	$	313,292			5.947	%

Depreciation and amortization increased primarily as a result of the conversions of newly constructed investment properties subsequent to June 30, 2010. 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 six months ended June 30, 2011 were incurred in connection with the Genesis transaction and other acquisitions.

During the six months ended June 30, 2011, we sold 34 senior housing triple-net properties for net gains of $54,342,000. Additionally, at June 30, 2011 we had three senior housing triple-net facilities that satisfied the requirements for held for sale treatment. We recorded an impairment charge of $202,000 related to two of these facilities to adjust the carrying values to estimated fair values less costs to sell based on current sales price expectations. The following illustrates the reclassification impact as a result of classifying the properties sold subsequent to January 1, 2010 or held for sale at June 30, 2011 as discontinued operations for the periods presented. Please refer to Note 5 to our unaudited consolidated financial statements for further discussion.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Rental income	$	3,436	$	8,610	$	7,209	$	17,920
Expenses:
Interest expense		650		1,791		1,372		3,592
Provision for depreciation		334		3,089		1,960		6,332

Income from discontinued operations, net	$	2,452	$	3,730	$	3,877	$	7,996

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

Senior Housing Operating

As discussed in Note 3 to our consolidated financial statements, we completed two senior housing operating partnerships during the six months ended June 30, 2011. The results of operations for these partnerships have been included in our consolidated results of operations from the dates of acquisition. The senior housing operating partnerships were formed using the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). When considering new partnerships utilizing the RIDEA structure, we look for opportunities with best-in-class operators with a strong seasoned leadership team, high-quality real estate in attractive markets, growth potential above the rent escalators in our triple-net lease senior housing portfolio, and alignment of economic interests with our operating partner. Our senior housing operating partnerships offer us the opportunity for external growth because we have the right to fund future senior housing investment opportunities sourced by our operating partners. There were no senior housing operating segment investments prior to September 1, 2010. The following is a summary of our senior housing operating results of operations (dollars in thousands):


	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2011			2011
Resident fees and services	$	123,149		$	194,435
Property operating expenses		84,334			133,606

Net operating income from continuing operations		38,815			60,829
Other expenses:
Interest expense		12,974			19,501
Depreciation and amortization		38,176			58,307
Transaction costs		488			32,557

		51,638			110,365

Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated joint ventures		(12,823	)		(49,536	)
Income (loss) from unconsolidated joint ventures		(561	)		(1,126	)

Net income (loss)		(13,384	)		(50,662	)
Less: Net income (loss) attributable to noncontrolling interests		(1,203	)		(2,685	)

Net income (loss) attributable to common stockholders	$	(12,181	)	$	(47,977	)

Transaction costs for the six months ended June 30, 2011 primarily represent costs incurred with the Silverado and Benchmark transactions (including due diligence costs, fees for legal and valuation services, and termination of a pre-existing relationship computed based on the fair value of the assets acquired), lease termination fees and costs incurred in connection with the new property acquisitions.

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

Medical Facilities

The following is a summary of our results of operations for the medical facilities segment (dollars in thousands):


	Three Months Ended						Change						Six Months Ended						Change
	June 30,			June 30,									June 30,			June 30,
	2011			2010			$			%			2011			2010			$			%
Revenues:
Rental income	$	73,892		$	53,120		$	20,772			39	%	$	139,069		$	102,191		$	36,878			36	%
Interest income		1,830			505			1,325			262	%		4,160			978			3,182			325	%
Other income		466			302			164			54	%		2,251			574			1,677			292	%

		76,188			53,927			22,261			41	%		145,480			103,743			41,737			40	%
Property operating expenses		15,863			11,970			3,893			33	%		30,520			23,761			6,759			28	%

Net operating income from continuing operations		60,325			41,957			18,368			44	%		114,960			79,982			34,978			44	%
Other expenses:
Interest expense		7,519			6,195			1,324			21	%		14,583			11,513			3,070			27	%
Depreciation and amortization		25,097			18,573			6,524			35	%		48,440			35,420			13,020			37	%
Transaction costs		558			108			450			417	%		547			2,803			(2,256	)		-80	%
Provision for loan losses		168			—			168			n/a			416			—			416			n/a

		33,342			24,876			8,466			34	%		63,986			49,736			14,250			29	%
Income from continuing operations before income taxes and income from unconsolidated joint ventures		26,983			17,081			9,902			58	%		50,974			30,246			20,728			69	%
Income tax expense		(41	)		(188	)		147			-78	%		(152	)		(247	)		95			-38	%
Income from unconsolidated joint ventures		1,532			1,828			(296	)		-16	%		3,640			2,596			1,044			40	%

Income from continuing operations		28,474			18,721			9,753			52	%		54,462			32,595			21,867			67	%
Discontinued operations:
Gain (loss) on sales of properties		2,038			675			1,363			202	%		2,038			1,665			373			22	%
Loss from discontinued operations, net		(279	)		(219	)		(60	)		27	%		(1,080	)		(940	)		(140	)		15	%

Discontinued operations, net		1,759			456			1,303			286	%		958			725			233			32	%

Net income (loss)		30,233			19,177			11,056			58	%		55,420			33,320			22,100			66	%
Less: Net income (loss) attributable to noncontrolling interests		171			(66	)		237			n/a			1,336			307			1,029			335	%

Net income (loss) attributable to common stockholders	$	30,062		$	19,243		$	10,819			56	%	$	54,084		$	33,013		$	21,071			64	%

The increase in rental income is primarily attributable to the acquisitions and construction conversions of medical facilities subsequent to June 30, 2010 from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index (CPI). 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 CPI 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, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended June 30, 2011, our consolidated medical office building portfolio signed 65,429 square feet of new leases and 113,869 square feet of renewals. The weighted average term of these leases was six years, with a rate of $23.00 per square foot and tenant improvement and lease commission costs of $14.20 per square foot. Substantially all of these leases during the referenced quarter contain an annual fixed or contingent escalation rent structure ranging from the change in CPI to 3%. For the three months ended June 30, 2011, we had no lease renewals and one lease’s rental rate increase by 0.25% in our hospital portfolio.

Interest income increased from the prior period primarily due to an increase in outstanding balances for medical facility real estate

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

loans. Other income is attributable to third party management fee income.

Interest expense for the six months ended June 30, 2011 and 2010 represents $14,967,000 and $12,053,000, 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):


	Three Months Ended						Three Months Ended						Six Months Ended						Six Months Ended
	June 30, 2011						June 30, 2010						June 30, 2011						June 30, 2010
				Weighted Avg.						Weighted Avg.						Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	460,553			5.996	%	$	418,368			6.101	%	$	463,477			6.005	%	$	314,065			5.677	%
Debt assumed		42,551			6.166	%		—			0.000	%		42,551			6.166	%		106,140			7.352	%
Principal payments		(3,464	)		6.355	%		(2,798	)		6.470	%		(6,388	)		6.218	%		(4,635	)		6.234	%

Ending balance	$	499,640			6.008	%	$	415,570			6.098	%	$	499,640			6.008	%	$	415,570			6.098	%


Monthly averages	$	483,946			5.997	%	$	416,843			6.099	%	$	474,781			5.997	%	$	387,749			6.002	%

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.

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 investments with Forest City Enterprises (effective February 2010) and a strategic medical office partnership (effective January 2011). The following is a summary of our share of net income from these investments for the periods presented (in thousands):


	Three Months Ended				Change						Six Months Ended				Change
	June 30,		June 30,								June 30,		June 30,
	2011		2010		$			%			2011		2010		$		%
Revenues	$	11,698	$	9,355	$	2,343			25	%	$	24,082	$	13,080	$	11,002		84	%
Operating expenses		3,479		2,716		763			28	%		7,347		3,817		3,530		92	%

Net operating income		8,219		6,639		1,580			24	%		16,735		9,263		7,472		81	%
Depreciation and amortization		3,056		2,323		733			32	%		6,189		3,098		3,091		100	%
Interest expense		2,904		2,114		790			37	%		5,755		3,037		2,718		89	%
Loss on extinguishment of debt		355		—		355			n/a			355		—		355		n/a
Asset management fee		434		374		60			16	%		858		532		326		61	%

Net income	$	1,470	$	1,828	$	(358	)		-20	%	$	3,578	$	2,596	$	982		38	%

During the six months ended June 30, 2011, we sold four medical facilities for net gains of $2,038,000. Additionally, at June 30, 2011, we had one medical facility that satisfied the requirements for held for sale treatment. The following illustrates the reclassification impact as a result of classifying the properties sold subsequent to January 1, 2010 or held for sale at June 30, 2011 as discontinued operations for the periods presented. Please refer to Note 5 to our unaudited consolidated financial statements for further discussion.


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Rental income	$	1,050		$	1,420		$	2,194		$	3,219
Expenses:
Interest expense		162			281			384			540
Property operating expenses		830			1,033			2,215			2,961
Provision for depreciation		337			325			675			658

Loss from discontinued operations, net	$	(279	)	$	(219	)	$	(1,080	)	$	(940	)

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

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):


	Three Months Ended						Change						Six Months Ended						Change
	June 30,			June 30,									June 30,			June 30,
	2011			2010			$			%			2011			2010			$			%
Revenues:
Other income	$	378		$	812		$	(434	)		-53	%	$	910		$	1,044		$	(134	)		-13	%
Expenses:
Interest expense		60,481			26,052			34,429			132	%		103,932			45,789			58,143			127	%
General and administrative		19,562			11,878			7,684			65	%		37,276			28,700			8,576			30	%
Loss (gain) on extinguishments of debt		—			7,035			(7,035	)		-100	%		—			25,072			(25,072	)		-100	%

		80,043			44,965			35,078			78	%		141,208			99,561			41,647			42	%

Loss from continuing operations before income taxes		(79,665	)		(44,153	)		(35,512	)		80	%		(140,298	)		(98,517	)		(41,781	)		42	%
Income tax (expense) benefit		(170	)		—			(170	)		n/a			(187	)		(26	)		(161	)		619	%

Net loss		(79,835	)		(44,153	)		(35,682	)		81	%		(140,485	)		(98,543	)		(41,942	)		43	%
Preferred stock dividends		17,353			5,484			11,869			216	%		26,033			10,993			15,040			137	%

Net loss attributable to common stockholders	$	(97,188	)	$	(49,637	)	$	(47,551	)		96	%	$	(166,518	)	$	(109,536	)	$	(56,982	)		52	%

Other income primarily represents income from non-real estate activities such as interest earned on temporary investments of cash reserves.

The following is a summary of our non-segment/corporate interest expense (dollars in thousands):


	Three Months Ended						Change						Six Months Ended						Change
	June 30,			June 30,									June 30,			June 30,
	2011			2010			$			%			2011			2010			$			%
Senior unsecured notes	$	59,442		$	28,305		$	31,137			110	%	$	103,901		$	52,371		$	51,530			98	%
Secured debt		147			163			(16	)		-10	%		276			304			(28	)		-9	%
Unsecured lines of credit		688			1,198			(510	)		-43	%		1,961			2,238			(277	)		-12	%
Capitalized interest		(2,313	)		(5,276	)		2,963			-56	%		(6,979	)		(12,352	)		5,373			-43	%
SWAP savings		(40	)		(40	)		—			0	%		(80	)		(80	)		—			0	%
Loan expense		2,557			1,702			855			50	%		4,853			3,308			1,545			47	%

Totals	$	60,481		$	26,052		$	34,429			132	%	$	103,932		$	45,789		$	58,143			127	%

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):

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


	Three Months Ended					Three Months Ended						Six Months Ended					Six Months Ended
	June 30, 2011					June 30, 2010						June 30, 2011					June 30, 2010
			Weighted Avg.						Weighted Avg.					Weighted Avg.						Weighted Avg.
	Amount		Interest Rate			Amount			Interest Rate			Amount		Interest Rate			Amount			Interest Rate
Beginning balance	$	4,464,930		5.133	%	$	1,702,129			5.186	%	$	3,064,930		5.129	%	$	1,661,853			5.557	%
Debt issued		—		0.000	%		602,009			5.336	%		1,400,000		5.143	%		944,403			4.489	%
Debt extinguished		—					(139,208	)		4.750	%		—					(441,326	)		4.750	%

Ending balance	$	4,464,930		5.133	%	$	2,164,930			5.256	%	$	4,464,930		5.133	%	$	2,164,930			5.256	%


Monthly averages	$	4,464,930		5.133	%	$	1,967,829			5.277	%	$	3,864,930		5.167	%	$	1,836,697			5.385	%

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):


	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Balance outstanding at quarter end	$	—	$	206,000		$	—		$	206,000
Maximum amount outstanding at any month end	$	20,000	$	431,000		$	495,000		$	431,000
Average amount outstanding (total of daily principal balances divided by days in period)	$	253	$	293,505		$	158,856		$	288,337
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		n/a		1.63	%		2.17	%		1.55	%

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 unaudited 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.

General and administrative expenses as a percentage of consolidated revenues (including revenues from discontinued operations) for the three months ended June 30, 2011 and 2010 were 5.07% and 7.25%, respectively. The change from prior year is primarily related to the increasing revenue base as a result of our senior housing operating partnerships.

The following is a summary of our preferred stock activity (dollars in thousands):


	Three Months Ended					Three Months Ended						Six Months Ended					Six Months Ended
	June 30, 2011					June 30, 2010						June 30, 2011					June 30, 2010
			Weighted Avg.						Weighted Avg.					Weighted Avg.						Weighted Avg.
	Shares		Dividend Rate			Shares			Dividend Rate			Shares		Dividend Rate			Shares			Dividend Rate
Beginning balance		25,724,854		7.013	%		11,450,107			7.697	%		11,349,854		7.663	%		11,474,093			7.697	%
Shares issued		—		0.000	%		—			0.000	%		14,375,000		6.500	%		—			0.000	%
Shares converted		—		0.000	%		(52,855	)		7.500	%		—		0.000	%		(76,841	)		7.500	%

Ending balance		25,724,854		7.013	%		11,397,252			7.699	%		25,724,854		7.013	%		11,397,252			7.699	%


Monthly averages		25,724,854		7.013	%		11,410,466			7.698	%		19,564,140		7.175	%		11,434,308			7.698	%

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

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. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends.

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 adjusted for stock-based compensation expense, provision for loan losses and gain/loss on extinguishment of debt. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Effective July 27, 2011, our covenant requires an adjusted fixed charge ratio of at least 1.50 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. Multi-period amounts may not equal the sum of the individual quarterly amounts due to rounding.

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

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 amortization 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.


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2010			2010			2010			2010			2011			2011
FFO Reconciliation:
Net income attributable to common stockholders	$	25,812		$	45,646		$	1,124		$	34,301		$	23,372		$	69,847
Depreciation and amortization		43,581			47,451			49,106			62,406			74,768			111,053
Gain on sales of properties		(6,718	)		(3,314	)		(10,526	)		(15,557	)		(26,156	)		(30,224	)
Noncontrolling interests		(363	)		108			(1,292	)		(1,200	)		(4,160	)		(4,487	)
Unconsolidated joint ventures		775			2,323			2,696			2,720			3,027			3,364

Funds from operations	$	63,087		$	92,214		$	41,108		$	82,670		$	70,851		$	149,553

Average common shares outstanding:
Basic		123,270			123,808			125,298			138,126			154,945			176,445
Diluted		123,790			124,324			125,842			138,738			155,485			177,487

Per share data:
Net income attributable to common stockholders
Basic	$	0.21		$	0.37		$	0.01		$	0.25		$	0.15		$	0.40
Diluted		0.21			0.37			0.01			0.25			0.15			0.39

Funds from operations
Basic	$	0.51		$	0.74		$	0.33		$	0.60		$	0.46		$	0.85
Diluted		0.51			0.74			0.33			0.60			0.46			0.84


	Six Months Ended
	June 30,			June 30,
	2010			2011
FFO Reconciliation:
Net income attributable to common stockholders	$	71,458		$	93,219
Depreciation and amortization		91,032			185,821
Loss (gain) on sales of properties		(10,033	)		(56,380	)
Noncontrolling interests		(255	)		(8,647	)
Unconsolidated joint ventures		3,098			6,391

Funds from operations	$	155,300		$	220,404

Average common shares outstanding:
Basic		123,541			165,755
Diluted		124,059			166,458

Per share data:
Net income attributable to common stockholders
Basic	$	0.58		$	0.56
Diluted		0.58			0.56

Funds from operations
Basic	$	1.26		$	1.33
Diluted		1.25			1.32

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

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 are included in medical facilities. Amounts are in thousands.


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
	2010		2010		2010		2010		2011		2011
NOI Reconciliation:
Total revenues:
Senior housing triple-net:
Rental income:
Senior housing	$	52,366	$	56,197	$	56,162	$	55,658	$	68,654	$	76,128
Skilled nursing facilities		40,872		41,057		41,496		39,096		37,087		93,119

Sub-total		93,238		97,254		97,658		94,754		105,741		169,247
Interest income		8,575		8,830		9,179		9,593		9,378		11,036
Other income		494		1,536		698		661		507		4,497

Total senior housing triple-net		102,307		107,620		107,535		105,008		115,626		184,780
Senior housing operating:
Resident fees and services		—		—		12,809		38,197		71,286		123,149
Medical facilities:
Rental income
Medical office buildings		40,088		42,056		43,758		44,532		54,769		58,560
Hospitals		10,781		12,484		13,313		13,494		12,667		17,561
Life science buildings		3,725		9,355		10,401		10,521		11,270		10,584

Sub-total		54,594		63,895		67,472		68,547		78,706		86,705
Interest income		473		505		875		2,826		2,331		1,830
Other income		271		302		227		185		1,786		466

Total medical facilities revenues		55,338		64,702		68,574		71,558		82,823		89,001
Corporate other income		231		812		231		1,597		531		378

Total revenues		157,876		173,134		189,149		216,360		270,266		274,159
Property operating expenses:
Senior housing operating		—		—		7,993		24,628		49,272		84,334
Medical office buildings		12,992		12,853		13,307		12,936		15,439		16,668
Hospitals		728		150		522		352		870		305
Life science buildings		1,101		2,716		3,035		2,857		3,601		3,212

Sub-total		14,821		15,719		16,864		16,145		19,910		20,185

Total property operating expenses		14,821		15,719		24,857		40,773		69,182		104,519
Net operating income:
Senior housing triple-net		102,307		107,620		107,535		105,008		115,626		184,780
Senior housing operating						4,816		13,569		22,014		38,815
Medical facilities		40,517		48,983		51,710		55,413		62,913		68,816
Non-segment/corporate		231		812		231		1,597		531		378

Net operating income	$	143,055	$	157,415	$	164,292	$	175,587	$	201,084	$	292,789

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


	Six Months Ended
	June 30,		June 30,
	2010		2011
NOI Reconciliation:
Total revenues:
Senior housing and care:
Rental income:
Senior housing	$	108,561	$	144,781
Skilled nursing facilities		81,929		130,207

Sub-total		190,490		274,988
Interest income		17,405		20,414
Other income		2,028		5,004

Senior housing triple-net		209,923		300,406
Resident fees and services		—		194,435
Medical facilities:
Rental income
Medical office buildings		82,145		113,329
Hospitals		23,265		30,228
Life science buildings		13,080		21,854

Sub-total		118,490		165,411
Interest income		978		4,161
Other income		574		2,251

Total medical facilities revenues		120,042		171,823
Corporate other income		1,044		910

Total revenues		331,009		473,139
Property operating expenses:
Senior housing triple-net		—		—
Senior housing operating		—		133,606
Medical facilities:
Medical office buildings		25,844		32,107
Hospitals		878		1,174
Life science buildings		3,817		6,813

Sub-total		30,539		40,094
Non-segment/corporate		—		—

Total property operating expenses		30,539		40,094
Net operating income:
Senior housing triple-net		209,923		300,406
Senior housing operating		—		60,829
Medical facilities		89,503		131,729
Non-segment/corporate		1,044		910

Net operating income	$	300,470	$	493,874

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

The tables below reflect the reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Interest expense and the provisions for depreciation and amortization include discontinued operations. Dollars are in thousands.


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2010			2010			2010			2010			2011			2011
EBITDA Reconciliation:
Net income	$	31,694		$	51,064		$	5,781		$	40,346		$	31,810		$	86,208
Interest expense		29,985			37,550			44,985			48,440			59,330			84,773
Income tax expense		84			188			52			38			129			211
Depreciation and amortization		43,581			47,451			49,106			62,406			74,768			111,053

EBITDA	$	105,344		$	136,253		$	99,924		$	151,230		$	166,037		$	282,245

Interest Coverage Ratio:
Interest expense	$	29,985		$	37,550		$	44,985		$	48,440		$	59,330		$	84,773
Non-cash interest expense		(2,841	)		(3,659	)		(4,258	)		(3,187	)		(3,716	)		(2,698	)
Capitalized interest		7,076			5,276			3,656			4,784			4,665			2,313

Total interest		34,220			39,167			44,383			50,037			60,279			84,388
EBITDA	$	105,344		$	136,253		$	99,924		$	151,230		$	166,037		$	282,245

Interest coverage ratio		3.08	x		3.48	x		2.25	x		3.02	x		2.75	x		3.34	x

Fixed Charge Coverage Ratio:
Total interest	$	34,220		$	39,167		$	44,383		$	50,037		$	60,279		$	84,388
Secured debt principal payments		3,378			4,325			4,019			4,930			5,906			7,011
Preferred dividends		5,509			5,484			5,347			5,305			8,680			17,353

Total fixed charges		43,107			48,976			53,749			60,272			74,865			108,752
EBITDA	$	105,344		$	136,253		$	99,924		$	151,230		$	166,037		$	282,245

Fixed charge coverage ratio		2.44	x		2.78	x		1.86	x		2.51	x		2.22	x		2.60	x


	Six Months Ended
	June 30,			June 30,
	2010			2011
EBITDA Reconciliation:
Net income	$	82,758		$	118,018
Interest expense		67,535			144,103
Income tax expense		273			340
Depreciation and amortization		91,032			185,820

EBITDA	$	241,598		$	448,281

Interest Coverage Ratio:
Interest expense	$	67,535		$	144,103
Non-cash interest expense		(6,500	)		(6,415	)
Capitalized interest		12,352			6,979

Total interest		73,387			144,667
EBITDA	$	241,598		$	448,281

Interest coverage ratio		3.29	x		3.10	x

Fixed Charge Coverage Ratio:
Total interest	$	73,387		$	144,667
Secured debt principal payments		7,704			12,918
Preferred dividends		10,993			26,033

Total fixed charges		92,084			183,618
EBITDA	$	241,598		$	448,281

Fixed charge coverage ratio		2.62	x		2.44	x

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

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 amortization include discontinued operations. Dollars are in thousands.


	Twelve Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,
	2010			2010			2010			2010			2011			2011

Adjusted EBITDA Reconciliation:
Net income	$	157,976		$	144,282		$	125,377		$	128,884		$	129,001		$	164,146
Interest expense		111,746			121,964			138,116			160,960			190,305			237,528
Income tax expense		201			368			475			364			407			430
Depreciation and amortization		167,177			173,897			181,918			202,543			233,731			297,333
Stock-based compensation expense		10,619			10,736			10,669			11,823			9,866			10,350
Provision for loan losses		23,121			23,121			52,039			29,684			29,932			30,100
Loss (gain) on extinguishment of debt		44,822			51,857			34,582			34,171			16,134			9,099

Adjusted EBITDA	$	515,662		$	526,225		$	543,176		$	568,429		$	609,376		$	748,986

Adjusted Fixed Charge Coverage Ratio:
Interest expense	$	111,746		$	121,964		$	138,116		$	160,960		$	190,305		$	237,528
Capitalized interest		38,381			32,631			26,313			20,792			18,381			15,418
Non-cash interest expense		(11,967	)		(12,782	)		(14,145	)		(13,945	)		(14,820	)		(13,859	)
Secured debt principal payments		10,464			12,612			14,333			16,652			19,180			21,866
Preferred dividends		22,064			22,032			21,860			21,645			24,816			36,685

Total fixed charges		170,688			176,457			186,477			206,104			237,862			297,638
Adjusted EBITDA	$	515,662		$	526,225		$	543,176		$	568,429		$	609,376		$	748,986

Adjusted fixed charge coverage ratio		3.02	x		2.98	x		2.91	x		2.76	x		2.56	x		2.52	x

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

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 an accounting estimate or assumption critical if:

	•		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

	•		the impact of the estimates and assumptions on financial condition or operating performance is material.

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors. 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 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011, for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2011.

Forward-Looking Statements and Risk Factors

This Quarterly Report on Form 10-Q may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern and are based upon, among other things, the possible expansion of the company’s portfolio; the sale of properties; the performance of its operators/tenants and properties; its ability to enter into agreements with viable new tenants for vacant space or for properties that the company takes back from financially troubled tenants, if any; its occupancy rates; its ability to acquire, develop and/or manage properties; its ability to make distributions to stockholders; its policies and plans regarding investments, financings and other matters; its tax status as a real estate investment trust; its critical accounting policies; its ability to appropriately balance the use of debt and equity; its ability to access capital markets or other sources of funds; and its ability to meet its earnings guidance. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company’s expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; 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; changes in financing terms; competition within the health care, senior housing and life science industries; 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; the company’s ability to transition or sell facilities with profitable results; the failure to make new investments as and when anticipated; acts of God affecting the company’s properties; the company’s ability to re-lease space at similar rates as vacancies occur; the company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; regulatory approval and market acceptance of the products and technologies of life science tenants; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions; environmental laws affecting the company’s properties; changes in rules or practices governing the company’s financial reporting; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Other important factors are identified in the company’s Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the company assumes 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.

Item 3. 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):


	June 30, 2011					December 31, 2010
	Principal		Change in			Principal		Change in
	balance		fair value			balance		fair value
Senior unsecured notes	$	4,464,930	$	(201,682	)	$	3,064,930	$	(248,884	)
Secured debt		1,653,397		(78,240	)		1,030,070		(51,973	)

Totals	$	6,188,327	$	(279,923	)	$	4,095,000	$	(300,857	)

Our variable rate debt, including our unsecured line of credit arrangement, is reflected at fair value. At June 30, 2011, we had $0 outstanding related to our variable rate line of credit and $215,894,000 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 $2,159,000. 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 have resulted in increased annual interest expense of $4,036,000.

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 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Note 16 to our consolidated financial statements.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports we file with or submit to the Securities and Exchange Commission (“SEC”) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. No changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

Except as provided in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward Looking Statements and Risk Factors,” there have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Total Number of Shares

Maximum Number of

Total Number

Purchased as Part of

Shares that May Yet Be

of Shares

Average Price Paid

Publicly Announced Plans

Purchased Under the Plans

Period

Purchased ⁽¹⁾

Per Share

or Programs ⁽²⁾

or Programs

April 1, 2011 through April 30, 2011

134

53.44

May 1, 2011 through May 31, 2011

117

50.65

June 1, 2011 through June 30, 2011

—

Totals

251

52.14


(1)		During the three months ended June 30, 2011, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

(2)		No shares were purchased as part of publicly announced plans or programs.

Item 6. Exhibits


3.1		Certificate of Amendment of Second Restated Certificate of Incorporation of the company (filed with the Securities and Exchange Commission as Exhibit 3.1 to the company’s Form 8-K filed May 10, 2011, and incorporated herein by reference thereto).
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1		Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
32.2		Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*


*		Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2011 and December 31, 2010, (ii) the Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010, (iii) the Consolidated Statements of Equity for the six months ended June 30, 2011 and 2010, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 and (v) the Notes to Unaudited Consolidated Financial Statements.

		Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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.

Date: August 9, 2011	By:	/s/ GEORGE L. CHAPMAN
	George L. Chapman, Chairman, Chief Executive Officer and President (Principal Executive Officer)

Date: August 9, 2011	By:	/s/ SCOTT A. ESTES
	Scott A. Estes, Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August 9, 2011	By:	/s/ PAUL D. NUNGESTER, JR.
	Paul D. Nungester, Jr., Vice President and Controller (Principal Accounting Officer)

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

Exhibits

EX-31.1 EX-31.2 EX-32.1 EX-32.2

WELL 10-Q Quarter ended June 30, 2011

Exhibits