Company: HEALTH CARE REIT INC /DE/
CIK: 766704
SIC: 6798
Filing Date: 2013-02-26 00:00:00

ITEM 1 - BUSINESS
Item 1. Business
General
Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of seniors housing and health care real estate since the company was founded in 1970. We are an S&P 500 company headquartered in Toledo, Ohio. Our portfolio spans the full spectrum of seniors housing and health care real estate, including seniors housing communities, skilled nursing/post-acute facilities, medical office buildings, inpatient and outpatient medical centers and life science facilities. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets. More information is available on the Internet at www.hcreit.com.
Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, customer and geographic location.
Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions and complete construction projects in process. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured line of credit arrangement, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured line of credit arrangement, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.
References herein to “we,” “us,” “our” or the “Company” refer to Health Care REIT, Inc. and its subsidiaries unless specifically noted otherwise.
Portfolio of Properties
Please see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation - Executive Summary - Company Overview” for a table that summarizes our portfolio as of December 31, 2012.
Property Types
We invest in seniors housing and health care real estate and evaluate our business on three reportable segments: seniors housing triple-net, seniors housing operating, and medical facilities. For additional information regarding our segments, please see Note 17 to our consolidated financial statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to our consolidated financial statements. The following is a summary of our various property types.
Seniors Housing Triple-Net
Our seniors housing triple-net properties include independent living facilities, continuing care retirement communities, assisted living facilities, Alzheimer’s/dementia facilities, skilled nursing/post-acute facilities and combinations thereof. We invest primarily through acquisitions and development. Our properties are primarily leased to operators under long-term, triple-net master leases. We are not involved in property management. Our properties include stand-alone facilities that provide one level of service, combination facilities that provide multiple levels of service, and communities or campuses that provide a wide range of services.
Independent Living Facilities. Independent living facilities are age-restricted, multifamily properties with central dining facilities that provide residents access to meals and other services such as housekeeping, linen service, transportation and social and recreational activities.
Continuing Care Retirement Communities. Continuing care retirement communities typically include a combination of detached homes, an independent living facility, an assisted living facility and/or a skilled nursing facility on one campus. These communities appeal to residents because there is no need to relocate when health and medical needs change. Resident payment plans vary, but can
include entrance fees, condominium fees and rental fees. Many of these communities also charge monthly maintenance fees in exchange for a living unit, meals and some health services.
Assisted Living Facilities. Assisted living facilities are state regulated rental properties that provide the same services as independent living facilities, but also provide supportive care from trained employees to residents who require assistance with activities of daily living, including, but not limited to, management of medications, bathing, dressing, toileting, ambulating and eating.
Alzheimer’s/Dementia Care Facilities. Certain assisted living facilities may include state licensed settings that specialize in caring for those afflicted with Alzheimer’s disease and/or other types of dementia.
Skilled Nursing/Post-Acute Facilities. Skilled nursing/post-acute facilities are licensed daily rate or rental properties where the majority of individuals require 24-hour nursing and/or medical care. Generally, these properties are licensed for Medicaid and/or Medicare reimbursement. All facilities offer some level of rehabilitation services. Some facilities focus on higher acuity patients and offer rehabilitation units specializing in cardiac, orthopedic, dialysis, neurological or pulmonary rehabilitation.
Our seniors housing triple-net segment accounted for 41%, 46% and 60% of total revenues (including discontinued operations) for the years ended December 31, 2012, 2011 and 2010, respectively. We lease 177 facilities to Genesis HealthCare, LLC pursuant to a long-term, triple-net master lease. In addition to rent, the 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. For the year ended December 31, 2012, our lease with Genesis accounted for approximately 31% of our seniors housing triple-net segment revenues and 13% of our total revenues.
Seniors Housing Operating
Our seniors housing operating properties include the same facility types described in “Item 1 - Business - Property Types - Seniors Housing Triple-Net.” Properties are primarily held in consolidated joint venture entities with operating partners. We utilize the structure proposed in the REIT Investment Diversification Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008).
Our seniors housing operating segment accounted for 37%, 32% and 7% of total revenues (including discontinued operations) for the years ended December 31, 2012, 2011 and 2010, respectively. We have relationships with eight operators to own and operate 154 facilities (plus 39 facilities in an unconsolidated joint venture). In each instance, our partner provides management services to the properties pursuant to an incentive-based management contract. We rely on our partners to effectively and efficiently manage these properties. Please see Note 21 to our consolidated financial statements for information regarding our acquisition of Sunrise Senior Living, Inc. on January 9, 2013. The following table provides information about our seniors housing operating concentration for the year ended December 31, 2012:
Partner % of Segment Revenues % of Total Revenues
Benchmark Senior Living, LLC 32% 12%
Merrill Gardens LLC 31% 11%
Medical Facilities
Our medical facilities include medical office buildings, hospitals and life science facilities. We typically lease our medical office buildings to multiple tenants and provide varying levels of property management. Our hospital investments are typically structured similar to our seniors housing triple-net investments. Our life science investment represents an investment in an unconsolidated joint venture entity (see Note 7 to our consolidated financial statements). Our medical facilities segment accounted for 22%, 22% and 32% of total revenues (including discontinued operations) for the years ended December 31, 2012, 2011 and 2010, respectively. No single tenant exceeds 20% of segment revenues.
Medical Office Buildings. The medical office building portfolio consists of health care related buildings that generally include physician offices, ambulatory surgery centers, diagnostic facilities, outpatient services and/or labs. Our portfolio has a strong affiliation with health systems. Approximately 92% of our medical office building portfolio is affiliated with health systems by having buildings on hospital campuses or serving as satellite locations for the health system and their physicians.
Hospitals. Our hospitals generally include acute care hospitals, inpatient rehabilitation hospitals, and long-term acute care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services, including, but not limited to, surgery,
rehabilitation, therapy and clinical laboratories. Inpatient rehabilitation hospitals provide inpatient services for patients with intensive rehabilitation needs. Long-term acute care hospitals provide inpatient services for patients with complex medical conditions that require more intensive care, monitoring or emergency support than is available in most skilled nursing facilities.
Life Science Facilities. The life science portfolio consists of laboratory and office facilities specifically designed and constructed for use by biotechnology and pharmaceutical companies. These facilities are located adjacent to The Massachusetts Institute of Technology, which is a well-established market known for pharmaceutical and biotechnology research. They are similar to commercial office buildings with advanced HVAC (heating, ventilation and air conditioning), electrical and mechanical systems.
Investments
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 invest in seniors housing and health care real estate primarily through acquisitions, developments and joint venture partnerships. For additional information regarding acquisition and development activity, please see Note 3 to our consolidated financial statements. We diversify our investment portfolio by property type, customer and geographic location. In determining whether to invest in a property, we focus on the following: (1) the experience of the obligor’s/partner’s management team; (2) the historical and projected financial and operational performance of the property; (3) the credit of the obligor/partner; (4) the security for any lease or loan; (5) the real estate attributes of the building and its location; (6) the capital committed to the property by the obligor/partner; and (7) the operating fundamentals of the applicable industry. We conduct market research and analysis for all potential investments. In addition, we review the value of all properties, the interest rates and covenant requirements of any facility-level debt to be assumed at the time of the acquisition and the anticipated sources of repayment of any existing debt that is not to be assumed at the time of the acquisition.
We monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the medical office building portfolio with a comprehensive process including tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends.
We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.
Investment Types
Real Property. Our properties are primarily comprised of land, building, improvements and related rights. Our hospitals and seniors housing triple-net properties are generally leased to operators under long-term operating leases. The leases generally have a fixed contractual term of 12 to 15 years and contain one or more five to 15-year renewal options. Certain of our leases also contain purchase options. Most of our rents are received under triple-net leases requiring the operator to pay rent and all additional charges incurred in the operation of the leased property. The tenants are required to repair, rebuild and maintain the leased properties. Substantially all of these operating leases are designed with 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.
At December 31, 2012, approximately 91% of our hospitals and seniors housing triple-net properties were subject to master leases. A master lease is a lease of multiple properties to one tenant entity under a single lease agreement. From time to time, we may acquire additional properties that are then leased to the tenant under the master lease. The tenant is required to make one monthly payment that represents rent on all the properties that are subject to the master lease. Typically, the master lease tenant can exercise its right to purchase the properties or to renew the master lease only with respect to all leased properties at the same time. This bundling feature benefits us because the tenant cannot limit the purchase or renewal to the better performing properties and terminate the leasing arrangement with respect to the poorer performing properties. This spreads our risk among the entire group of properties within the master lease. The bundling feature should provide a similar advantage if the master lease tenant is in bankruptcy. Subject to certain restrictions, a debtor in bankruptcy has the right to assume or reject each of its leases. It is our intent that a tenant in bankruptcy would be required to assume or reject the master lease as a whole, rather than deciding on a property by property basis.
Our medical office building portfolio is primarily self-managed and consists principally of multi-tenant properties leased to health care providers. Our leases have favorable lease terms that typically include increasers and some form of operating expense reimbursement by the tenant. As of December 31, 2012, 83% of our portfolio included leases with full pass through, 15% with a partial expense reimbursement (modified gross) and 2% with no expense reimbursement (gross). Our medical office building leases are non-cancellable operating leases that have a weighted-average remaining term of 8.0 years at December 31, 2012 and are often credit enhanced by guaranties and/or letters of credit.
Construction. We occasionally provide for the construction of properties for tenants as part of long-term operating leases. We capitalize certain interest costs associated with funds used for the construction of properties owned by us. The amount capitalized is based upon the amount advanced during the construction period using the rate of interest that approximates our company-wide cost of financing. Our interest expense is reduced by the amount capitalized. We also typically charge a transaction fee at the commencement of construction which we defer and amortize to income over the term of the resulting lease. The construction period commences upon funding and terminates upon the earlier of the completion of the applicable property or the end of a specified period. During the construction period, we advance funds to the tenants in accordance with agreed upon terms and conditions which require, among other things, periodic site visits by a Company representative. During the construction period, we generally require an additional credit enhancement in the form of payment and performance bonds and/or completion guaranties. At December 31, 2012, we had outstanding construction investments of $162,984,000 and were committed to provide additional funds of approximately $213,255,000 to complete construction for investment properties.
Real Estate Loans. Our real estate loans are typically structured to provide us with interest income, principal amortization and transaction fees and are generally secured by first/second mortgage liens, leasehold mortgages, corporate guaranties and/or personal guaranties. At December 31, 2012, we had outstanding real estate loans of $895,665,000. The interest yield averaged approximately 6.4% per annum on our outstanding real estate loan balances. Our yield on real estate loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan and any interest rate adjustments. The real estate loans outstanding at December 31, 2012 are generally subject to one to 15-year terms with principal amortization schedules and/or balloon payments of the outstanding principal balances at the end of the term. Typically, real estate loans are cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.
Investments in Unconsolidated Entities. Our investments in unconsolidated entities generally represent interests ranging from 10% to 50% in real estate assets. Investments in less than majority owned entities where our interests represent a general partnership interest but substantive participating or kick-out rights have been granted to the limited partners, or where our interests do not represent the general partnership interest and we do not control the major operating and financial policies of the entity, are reported under the equity method of accounting. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our consolidated results of operations. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. Other equity investments include an investment in available-for-sale securities. These equity investments represented a minimal ownership interest in these companies. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded. See Note 7 to our consolidated financial statements for more information.
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation.
At inception of the joint venture transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. Accounting Standards Codification Topic 810, Consolidations, requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.
For investments in joint ventures, we evaluate the type of rights held by the limited partner(s), which may preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership. The assessment of limited
partners’ rights and their impact on the presumption of control over a limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership in the limited partnership interests, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights of managing members of limited liability companies.
Borrowing Policies
We utilize a combination of debt and equity to fund investments. Our debt and equity levels are determined by management to maintain a conservative credit profile. Generally, we intend to issue unsecured, fixed-rate public debt with long-term maturities to approximate the maturities on our leases and loans. For short-term purposes, we may borrow on our primary unsecured line of credit arrangement. We replace these borrowings with long-term capital such as senior unsecured notes, common stock or preferred stock. When terms are deemed favorable, we may invest in properties subject to existing mortgage indebtedness. In addition, we may obtain secured financing for unleveraged properties in which we have invested or may refinance properties acquired on a leveraged basis. In our agreements with our lenders, we are subject to restrictions with respect to secured and unsecured indebtedness.
Competition
We compete with other real estate investment trusts, real estate partnerships, private equity and hedge fund investors, banks, insurance companies, finance/investment companies, government-sponsored agencies, taxable and tax-exempt bond funds, health care operators, developers and other investors in the acquisition, development, leasing and financing of health care and seniors housing properties. We compete for investments based on a number of factors including investment structures, underwriting criteria and reputation. Our ability to successfully compete is impacted by economic and demographic trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment terms, availability and cost of capital, construction and renovation costs and new and existing laws and regulations.
The operators/tenants of our properties compete on a local and regional basis with operators/tenants of properties that provide comparable services. Operators/tenants compete for patients and residents based on a number of factors including quality of care, reputation, physical appearance of properties, location, services offered, family preferences, physicians, staff and price. We also face competition from other health care facilities for tenants, such as physicians and other health care providers that provide comparable facilities and services.
For additional information on the risks associated with our business, please see “

ITEM 1A - RISK FACTORS
Item 1A. Risk Factors
Forward-Looking Statements and Risk Factors
This section discusses the most significant factors that affect our business, operations and financial condition. It does not describe all risks and uncertainties applicable to us, our industry or ownership of our securities. If any of the following risks, as well as other risks and uncertainties that are not yet identified or that we currently think are not material, actually occur, we could be materially adversely affected. In that event, the value of our securities could decline.
This Annual Report on Form 10-K and the documents incorporated by reference contain statements that constitute “forward-looking statements” as that term is defined in the federal securities laws. These forward-looking statements include, but are not limited to, those regarding:
• the possible expansion of our portfolio, including our ability to close our anticipated acquisitions and investments on currently anticipated terms, or within currently anticipated timeframes, or at all;
• the sale of properties;
• the performance of our operators/tenants and properties;
• our ability to enter into agreements with new viable tenants for vacant space or for properties that we take back from financially troubled tenants, if any;
• our occupancy rates;
• our ability to acquire, develop and/or manage properties;
• our ability to make distributions to stockholders;
• our policies and plans regarding investments, financings and other matters;
• our ability to successfully manage the risks associated with international expansion and operations;
• our tax status as a real estate investment trust;
• our critical accounting policies;
• our ability to appropriately balance the use of debt and equity;
• our ability to access capital markets or other sources of funds; and
• our ability to meet our earnings guidance.
When we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our 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, seniors 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;
• our ability to transition or sell facilities with profitable results;
• the failure to make new investments as and when anticipated;
• acts of God affecting our properties;
• our ability to re-lease space at similar rates as vacancies occur;
• our 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 our properties;
• changes in rules or practices governing our financial reporting;
• the movement of U.S. and foreign currency exchange rates;
• qualification as a REIT;
• key management personnel recruitment and retention; and
• the risks described below:
Risk factors related to our operators’ revenues and expenses
Our operators’ revenues are primarily driven by occupancy, private pay rates, and Medicare and Medicaid reimbursement, if applicable. Expenses for these facilities are primarily driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts and state budget shortfalls. Operating costs continue to increase for our operators. To the extent that any decrease in revenues and/or any increase in operating expenses result in a property not generating enough cash to make payments to us, the credit of our operator and the value of other collateral would have to be relied upon. To the extent the value of such property is reduced, we may need to record an impairment for such asset. Furthermore, if we determine to dispose of an underperforming property, such sale may result in a loss. Any such impairment or loss on sale would negatively affect our financial results.
The continued weakened economy may have an adverse effect on our operators and tenants, including their ability to access credit or maintain occupancy and/or private pay rates. If the operations, cash flows or financial condition of our operators are materially adversely impacted by economic conditions, our revenue and operations may be adversely affected.
Increased competition may affect our operators’ ability to meet their obligations to us
The operators of our properties compete on a local and regional basis with operators of properties and other health care providers that provide comparable services. We cannot be certain that the operators of all of our facilities will be able to achieve and maintain occupancy and rate levels that will enable them to meet all of their obligations to us. Our operators are expected to encounter increased competition in the future that could limit their ability to attract residents or expand their businesses.
Risk factors related to obligor bankruptcies
We are exposed to the risk that our obligors may not be able to meet the rent, principal and interest or other payments due us, which may result in an obligor bankruptcy or insolvency, or that an obligor might become subject to bankruptcy or insolvency proceedings for other reasons. Although our operating lease agreements provide us with the right to evict a tenant, demand immediate payment of rent and exercise other remedies, and our loans provide us with the right to terminate any funding obligation, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. An obligor in bankruptcy or subject to insolvency proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and interest in the case of a loan, and to exercise other rights and remedies.
We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of an investment property, avoid the imposition of liens on a property and/or transition a property to a new tenant. In some instances, we have terminated our lease with a tenant and relet the property to another tenant. In some of those situations, we have provided working capital loans to and limited indemnification of the new obligor. If we cannot transition a leased property to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.
Transfers of health care facilities may require regulatory approvals and these facilities may not have efficient alternative uses
Transfers of health care facilities to successor operators frequently are subject to regulatory approvals or notifications, including, but not limited to, change of ownership approvals under certificate of need (“CON”) or determination of need laws, state licensure laws and Medicare and Medicaid provider arrangements, that are not required for transfers of other types of real estate. The replacement of a health care facility operator could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility. Alternatively, given the specialized nature of our facilities, we may be required to spend substantial time and funds to adapt these properties to other uses. If we are unable
to timely transfer properties to successor operators or find efficient alternative uses, our revenue and operations may be adversely affected.
Risk factors related to government regulations
Some of our obligors’ businesses are affected by government reimbursement. To the extent that an operator/tenant receives a significant portion of its revenues from government payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, court decisions, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries or carriers, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing government investigations and audits at such property. In recent years, government payors have frozen or reduced payments to health care providers due to budgetary pressures. Health care reimbursement will likely continue to be of paramount importance to federal and state authorities. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of our obligors and properties. There can be no assurance that adequate reimbursement levels will be available for services provided by any property operator, whether the property receives reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an obligor’s liquidity, financial condition and results of operations, which could adversely affect the ability of an obligor to meet its obligations to us. See “Item 1 - Business - Certain Government Regulations - Reimbursement” above.
Our operators and tenants generally are subject to varying levels of federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards. Our operators’ or tenants’ failure to comply with any of these laws, regulations, or standards could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension, decertification or exclusion from federal and state health care programs, loss of license or closure of the facility. Such actions may have an effect on our operators’ or tenants’ ability to make lease payments to us and, therefore, adversely impact us. See “Item 1 - Business - Certain Government Regulations - Other Related Laws” above.
Many of our properties may require a license, registration, and/or CON to operate. Failure to obtain a license, registration, or CON, or loss of a required license, registration, or CON would prevent a facility from operating in the manner intended by the operators or tenants. These events could materially adversely affect our operators’ or tenants’ ability to make rent payments to us. State and local laws also may regulate the expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction or renovation of health care facilities, by requiring a CON or other similar approval from a state agency. See “Item 1 - Business - Certain Government Regulations - Licensing and Certification” above.
The Patient Protection and Affordable Care Act of 2010, as modified by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Laws”), provides states with an increased federal medical assistance percentage under certain conditions. On June 28, 2012, The United States Supreme Court upheld the individual mandate of the Health Reform Laws but partially invalidated the expansion of Medicaid. The ruling on Medicaid expansion will allow states not to participate in the expansion-and to forego funding for the Medicaid expansion-without losing their existing Medicaid funding. Given that the federal government substantially funds the Medicaid expansion, it is unclear whether any state will pursue this option, although at least some appear to be considering this option at this time. The participation by states in the Medicaid expansion could have the dual effect of increasing our tenants’ revenues, through new patients, but further straining state budgets. While the federal government will pay for approximately 100% of those additional costs from 2014 to 2016, states will be expected to begin paying for part of those additional costs in 2017. With increasingly strained budgets, it is unclear how states will pay their share of these additional Medicaid costs and what other health care expenditures could be reduced as a result. A significant reduction in other health care related spending by states to pay for increased Medicaid costs could affect our tenants’ revenue streams. See “Item 1 - Business - Certain Government Regulations - Reimbursement” above and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations-Health Care Industry-Health Reform Laws” below.
More generally, and because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal deficit and budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S. economy, our business or that of our tenants.
Risk factors related to liability claims and insurance costs
In recent years, skilled nursing and seniors housing operators have experienced substantial increases in both the number and size of patient care liability claims. As a result, general and professional liability costs have increased in some markets. General and professional liability insurance coverage may be restricted or very costly, which may adversely affect the property operators’ future
operations, cash flows and financial condition, and may have a material adverse effect on the property operators’ ability to meet their obligations to us.
Unfavorable resolution of pending and future litigation matters and disputes could have a material adverse effect on our financial condition.
From time to time, we may be directly involved in a number of legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits allegedly arising out of our actions or the actions of our operators/tenants or managers in which such operators/tenants or managers have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses. An unfavorable resolution of pending or future litigation may have a material adverse effect on our business, results of operations and financial condition. Regardless of its outcome, litigation may result in substantial costs and expenses and significantly divert the attention of management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, pending or future litigation. In addition, pending litigation or future litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations.
Risk factors related to acquisitions
We are exposed to the risk that some of our acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. If we agree to provide construction funding to an operator/tenant and the project is not completed, we may need to take steps to ensure completion of the project. Such expenditures may negatively affect our results of operations. Furthermore, there can be no assurance that our anticipated acquisitions and investments, the completion of which is subject to various conditions, will be consummated in accordance with anticipated timing, on anticipated terms, or at all.
Risk factors related to joint ventures
We have entered into, and may continue in the future to enter into, partnerships or joint ventures with other persons or entities. Joint venture investments involve risks that may not be present with other methods of ownership, including the possibility that our partner might become insolvent, refuse to make capital contributions when due or otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other commitments; that our partner might at any time have economic or other business interests or goals that are or become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which could require us to expend additional resources to resolve such disputes and could have an adverse impact on the operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. In addition, our ability to transfer our interest in a joint venture to a third party may be restricted. In some instances, we and/or our partner may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share decision-making authority with our partners, which could limit our ability to control the properties in the joint ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as the sale, acquisition or financing of a property.
Risk factors related to our seniors housing operating properties
We are exposed to various operational risks with respect to our seniors housing operating properties that may increase our costs or adversely affect our ability to generate revenues. These risks include fluctuations in occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions; competition; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; state regulation and rights of residents related to entrance fees; the availability and increases in the cost of labor (as a result of unionization or otherwise). Any one or a combination of these factors may adversely affect our revenue and operations.
Risk factors related to life science facilities
Our tenants in the life science industry face high levels of regulation, expense and uncertainty that may adversely affect their ability to make payments to us. Research, development and clinical testing of products and technologies can be very expensive and sources of funds may not be available to our life science tenants in the future. The products and technologies that are developed and
manufactured by our life science tenants may require regulatory approval prior to being made, marketed, sold and used. The regulatory process can be costly, long and unpredictable. Even after a tenant gains regulatory approval and market acceptance, the product still presents regulatory and liability risks, such as safety concerns, competition from new products and eventually the expiration of patent protection. These factors may affect the ability of our life science tenants to make timely payments to us, which may adversely affect our revenue and operations.
Risk factors related to indebtedness
Permanent financing for our investments is typically provided through a combination of public offerings of debt and equity securities and the incurrence or assumption of secured debt. The incurrence or assumption of indebtedness may cause us to become more leveraged, which could (1) require us to dedicate a greater portion of our cash flow to the payment of debt service, (2) make us more vulnerable to a downturn in the economy, (3) limit our ability to obtain additional financing, or (4) negatively affect our credit ratings or outlook by one or more of the rating agencies.
Our debt agreements contain various covenants, restrictions and events of default. Among other things, these provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, in addition to any other indebtedness cross-defaulted against such instruments. These defaults could have a material adverse impact on our business, results of operations and financial condition.
In addition, adverse economic conditions may impact the availability of additional funds or could cause the terms on which we are able to borrow additional funds to become unfavorable. In those circumstances, we may be required to raise additional equity in the capital markets. Our access to capital depends upon a number of factors over which we have little or no control, including rising interest rates, inflation and other general market conditions and the market’s perception of our growth potential and our current and potential future earnings and cash distributions and the market price of the shares of our capital stock. We cannot assure you that we will be able to raise the capital necessary to make future investments or to meet our obligations and commitments as they mature.
Risk factors related to our credit ratings
We plan to manage the Company to maintain a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Any downgrades in terms of ratings or outlook by any or all of the 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.
Risk factors related to swaps
We enter into interest rate swap agreements from time to time to manage some of our exposure to interest rate and foreign currency exchange rate volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to changes in interest rates or foreign currency exchange rates. When we use forward-starting interest rate swaps, there is a risk that we will not complete the long-term borrowing against which the swap is intended to hedge. If such events occur, our results of operations may be adversely affected.
Risk factors related to environmental laws
Under various federal and state laws, owners or operators of real estate may be required to respond to the presence or release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination or exposure to hazardous substances. We may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property. Moreover, we review environmental site assessments of the properties that we own or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which we believe qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition or the business or financial condition of our obligors.
Risk factors related to facilities that require entrance fees
Certain of our seniors housing facilities require the payment of an upfront entrance fee by the resident, a portion of which may be refundable by the operator. Some of these facilities are subject to substantial oversight by state regulators relating to these funds. As a result of this oversight, residents of these facilities may have a variety of rights, including, for example, the right to cancel their contracts within a specified period of time and certain lien rights. The oversight and rights of residents within these facilities may have an effect on the revenue or operations of the operators of such facilities and therefore may negatively impact us.
Risk factors related to facilities under construction or development
At any given time, we may be in the process of constructing one or more new facilities that ultimately will require a CON and license before they can be utilized by the operator for their intended use. The operator also may need to obtain Medicare and Medicaid certification and enter into Medicare and Medicaid provider agreements and/or third party payor contracts. In the event that the operator is unable to obtain the necessary CON, licensure, certification, provider agreements or contracts after the completion of construction, there is a risk that we will not be able to earn any revenues on the facility until either the initial operator obtains a license or certification to operate the new facility and the necessary provider agreements or contracts or we find and contract with a new operator that is able to obtain a license to operate the facility for its intended use and the necessary provider agreements or contracts.
In connection with our renovation, redevelopment, development and related construction activities, we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These factors could result in increased costs or our abandonment of these projects. In addition, we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our development activities, and we may not be able to complete construction and lease-up of a property on schedule, which could result in increased debt service expense or construction costs.
Additionally, the time frame required for development, construction and lease-up of these properties means that we may have to wait years for significant cash returns. Because we are required to make cash distributions to our stockholders, if the cash flow from operations or refinancing is not sufficient, we may be forced to borrow additional money to fund such distributions. Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance.
In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy, rental rates and capital costs. If our financial projections with respect to a new property are inaccurate as a result of increases in capital costs or other factors, the property may fail to perform as we expected in analyzing our investment. Our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire new properties that are not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property.
We do not know if our tenants will renew their existing leases, and if they do not, we may be unable to lease the properties on as favorable terms, or at all
We cannot predict whether our tenants will renew existing leases at the end of their lease terms, which expire at various times. If these leases are not renewed, we would be required to find other tenants to occupy those properties or sell them. There can be no assurance that we would be able to identify suitable replacement tenants or enter into leases with new tenants on terms as favorable to us as the current leases or that we would be able to lease those properties at all.
Our ownership of properties through ground leases exposes us to the loss of such properties upon breach or termination of the ground leases
We have acquired an interest in certain of our properties by acquiring a leasehold interest in the property on which the building is located, and we may acquire additional properties in the future through the purchase of interests in ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing the property upon termination of the ground lease or an earlier breach of the ground lease by us.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties
Real estate investments are relatively illiquid. Our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions will be limited. No assurances can be given that we will recognize full value for any property that we are required to sell for liquidity reasons. Our inability to respond rapidly to changes in the performance of our investments could
adversely affect our financial condition and results of operations. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us.
Risk factors related to reinvestment of sale proceeds
From time to time, we will have cash available from (1) the proceeds of sales of our securities, (2) principal payments on our loans receivable and (3) the sale of properties, including non-elective dispositions, under the terms of master leases or similar financial support arrangements. In order to maintain current revenues and continue generating attractive returns, we expect to re-invest these proceeds in a timely manner. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us.
Failure to properly manage our rapid growth could distract our management or increase our expenses
We have experienced rapid growth and development in a relatively short period of time and expect to continue this rapid growth in the future. This growth has resulted in increased levels of responsibility for our management. Future property acquisitions could place significant additional demands on, and require us to expand, our management, resources and personnel. Our failure to manage any such rapid growth effectively could harm our business and, in particular, our financial condition, results of operations and cash flows, which could negatively affect our ability to make distributions to stockholders. Our growth could also increase our capital requirements, which may require us to issue potentially dilutive equity securities and incur additional debt.
Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations
We have operations in Canada and the United Kingdom. International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75% gross income test or the 95% gross income test that we must satisfy annually in order to qualify and maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally; challenges in managing international operations; challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and legal proceedings; foreign ownership restrictions with respect to operations in countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and economic instability; and changes in applicable laws and regulations in the United States that affect foreign operations. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected.
Risk factors related to changes in currency exchange rates
As we expand our operations internationally, currency exchange rate fluctuations could affect our results of operations and financial position. We expect to generate an increasing portion of our revenue and expenses in such foreign currencies as the Canadian dollar and the British pound. Although we may enter into foreign exchange agreements with financial institutions and/or obtain local currency mortgage debt in order to reduce our exposure to fluctuations in the value of foreign currencies, we cannot assure you that foreign currency fluctuations will not have a material adverse effect on us.
We might fail to qualify or remain qualified as a REIT
We intend to operate as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and believe we have and will continue to operate in such a manner. If we lose our status as a REIT, we will face serious income tax consequences that will substantially reduce the funds available for satisfying our obligations and for distribution to our stockholders because:
• we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;
• we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and
• unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we were disqualified.
Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and if we do, our earnings will be reduced by the amount of U.S. federal and other income taxes owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. If we do not qualify as a REIT, we would not be required to make distributions to stockholders since a non-REIT is not required to pay dividends to stockholders in order to maintain REIT status or avoid an excise tax. See “Item 1 - Business - Taxation - Federal Income Tax Considerations” for a discussion of the provisions of the Code that apply to us and the effects of failure to qualify as a REIT.
In addition, if we fail to qualify as a REIT, all distributions to stockholders would continue to be treated as dividends to the extent of our current and accumulated earnings and profits, although corporate stockholders may be eligible for the dividends received deduction, and individual stockholders may be eligible for taxation at the rates generally applicable to long-term capital gains (currently at a maximum rate of 20%) with respect to distributions.
As a result of all these factors, our failure to qualify as a REIT also could impair our ability to implement our business strategy and would adversely affect the value of our common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to remain qualified as a REIT. Although we believe that we qualify as a REIT, we cannot assure you that we will continue to qualify or remain qualified as a REIT for U.S. federal income tax purposes. See “Item 1 - Business - Taxation - Federal Income Tax Considerations” included in this Annual Report on Form 10-K.
The 90% annual distribution requirement will decrease our liquidity and may limit our ability to engage in otherwise beneficial transactions
To comply with the 90% distribution requirement applicable to REITs and to avoid the nondeductible excise tax, we must make distributions to our stockholders. See “Item 1 - Business - Taxation - Federal Income Tax Considerations - Qualification as a REIT - Annual Distribution Requirements” included in this Annual Report on Form 10-K. Although we anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the REIT distribution requirement, it is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, or we may decide to retain cash or distribute such greater amount as may be necessary to avoid income and excise taxation. This may be due to timing differences between the actual receipt of income and actual payment of deductible expenses, on the one hand, and the inclusion of that income and deduction of those expenses in arriving at our taxable income, on the other hand. In addition, non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement. In the event that timing differences occur, or we deem it appropriate to retain cash, we may borrow funds, issue additional equity securities (although we cannot assure you that we will be able to do so), pay taxable stock dividends, if possible, distribute other property or securities or engage in another transaction intended to enable us to meet the REIT distribution requirements. This may require us to raise additional capital to meet our obligations.
The lease of qualified health care properties to a taxable REIT subsidiary is subject to special requirements
We lease certain qualified health care properties to taxable REIT subsidiaries (or limited liability companies of which the taxable REIT subsidiaries are members), which lessees contract with managers (or related parties) to manage the health care operations at these properties. The rents from this taxable REIT subsidiary lessee structure are treated as qualifying rents from real property if (1) they are paid pursuant to an arms-length lease of a qualified health care property with a taxable REIT subsidiary and (2) the manager qualifies as an eligible independent contractor (as defined in the Code). If any of these conditions are not satisfied, then the rents will not be qualifying rents. See “Item 1 - Business - Taxation - Federal Income Tax Considerations - Qualification as a REIT - Income Tests.”
If certain sale-leaseback transactions are not characterized by the Internal Revenue Service as “true leases,” we may be subject to adverse tax consequences
We have purchased certain properties and leased them back to the sellers of such properties, and we may enter into similar transactions in the future. We intend for any such sale-leaseback transaction to be structured in such a manner that the lease will be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, depending on the terms of any specific transaction, the Internal Revenue Service might take the position that the transaction is not a “true lease” but is more properly treated in some other manner. In the event any sale-leaseback transaction is challenged and successfully re-characterized by the Internal Revenue Service, we would not be entitled to claim the deductions for depreciation and
cost recovery generally available to an owner of property. Furthermore, if a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT asset tests or income tests and, consequently, could lose our REIT status effective with the year of re-characterization. See “Item 1 - Business - Taxation - Federal Income Tax Considerations - Qualification as a REIT - Asset Tests” and “- Income Tests.” Alternatively, the amount of our REIT taxable income could be recalculated, which may cause us to fail to meet the REIT annual distribution requirements for a taxable year. See “Item 1 - Business - Taxation - Federal Income Tax Considerations - Qualification as a REIT - Annual Distribution Requirements.”
Other risk factors
We are also subject to other risks. First, our certificate of incorporation and by-laws contain anti-takeover provisions (restrictions on share ownership and transfer and super majority stockholder approval requirements for business combinations) that could make it more difficult for or even prevent a third party from acquiring us without the approval of our incumbent Board of Directors. Provisions and agreements that inhibit or discourage takeover attempts could reduce the market value of our common stock.
Additionally, we are dependent on key personnel. Although we have entered into employment agreements with our executive officers, losing any one of them could, at least temporarily, have an adverse impact on our operations. We believe that losing more than one could have a material adverse impact on our business.

ITEM 1B - UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

ITEM 2 - PROPERTIES
Item 2. Properties
We own our corporate headquarters located at 4500 Dorr Street, Toledo, Ohio 43615. We also own corporate offices in Tennessee, lease corporate offices in Florida and California and have ground leases relating to certain of our properties. The following table sets forth certain information regarding the properties that comprise our consolidated real property and real estate loan investments as of December 31, 2012 (dollars in thousands):
Seniors Housing Triple-Net
Seniors Housing Operating
Property Location
Number of Properties
Total Investment
Annualized Revenues(1)
Number of Properties
Total Investment
Annualized Revenues(1)
Alabama
$
20,922
$
1,688
$
33,059
$
5,494
Arizona
14,287
1,364
43,930
16,143
California
31,144
4,296
1,095,637
268,985
Colorado
85,485
9,771
59,281
17,414
Connecticut
215,401
22,354
340,487
101,889
Delaware
157,444
15,741
-
-
-
Florida
630,924
50,877
5,706
4,366
Georgia
148,727
10,068
42,996
20,149
Idaho
17,253
1,970
-
-
-
Illinois
293,843
25,015
287,632
45,930
Indiana
249,678
24,969
-
-
-
Iowa
49,559
3,868
36,109
5,729
Kansas
158,640
15,494
52,492
10,515
Kentucky
66,869
8,764
23,099
6,416
Louisiana
4,914
1,376
-
-
-
Maine
-
-
-
25,884
5,269
Maryland
409,017
35,300
-
-
-
Massachusetts
451,096
53,093
319,158
83,638
Michigan
117,961
9,982
-
-
-
Minnesota
38,769
4,117
26,297
6,875
Mississippi
32,734
3,280
-
-
-
Missouri
30,470
2,790
71,148
9,562
Montana
6,914
1,366
-
-
-
Nebraska
37,170
4,067
-
-
-
Nevada
68,255
7,483
34,233
8,664
New Hampshire
185,972
19,868
51,208
10,103
New Jersey
1,215,282
96,180
-
-
-
New Mexico
-
-
-
20,102
1,375
New York
212,913
16,177
-
-
-
North Carolina
272,994
29,218
-
-
-
Ohio
239,641
32,809
191,366
13,233
Oklahoma
115,027
13,494
39,856
2,166
Oregon
3,643
-
-
-
Pennsylvania
803,478
81,401
-
-
-
Rhode Island
47,576
5,001
73,594
21,656
South Carolina
274,269
14,502
-
-
-
Tennessee
201,670
25,380
55,093
15,379
Texas
369,178
55,205
267,899
66,923
Utah
6,226
17,877
9,828
Vermont
27,728
2,917
29,373
6,172
Virginia
95,018
9,752
-
580,834 (2)
30,261 (2)
Washington
121,856
12,517
537,028
83,980
West Virginia
391,682
41,102
-
-
-
Wisconsin
195,883
19,913
-
-
-
Total domestic
8,117,512
796,149
4,361,378
878,114
International
37,138
587,158
76,434
Total
$
8,154,650
$
796,822
$
4,948,536
$
954,548
(1) Reflects annualized revenues adjusted for timing of investment.
(2) Amounts represent loan and related interest income for loan to Sunrise Senior Living that was acquired upon merger consummation on January 9, 2013. See Notes 6 and 21 to our consolidated financial statements for additional information.
Medical Facilities
Property Location
Number of Properties
Total Investment
Annualized Revenues(1)
Alabama
$
33,842
$
4,467
Alaska
24,996
3,309
Arizona
78,379
9,554
Arkansas
28,238
2,836
California
508,627
56,676
Colorado
6,008
Florida
548,568
52,370
Georgia
190,250
22,004
Idaho
19,288
2,677
Illinois
28,369
4,863
Indiana
136,101
15,732
Kansas
45,450
8,154
Kentucky
27,583
3,172
Louisiana
20,111
1,814
Maine
25,172
2,933
Maryland
21,119
Massachusetts
9,270
4,249
Minnesota
100,419
13,619
Missouri
156,078
14,099
Nebraska
149,739
16,885
Nevada
72,865
6,410
New Jersey
279,849
46,813
New Mexico
39,271
3,198
New York
89,684
9,520
North Carolina
55,385
5,930
Ohio
100,298
10,493
Oklahoma
17,475
2,344
Oregon
-
Pennsylvania
18,714
3,286
Tennessee
97,935
9,494
Texas
870,139
78,499
Virginia
68,400
6,327
Washington
149,070
7,804
Wisconsin
302,365
30,112
Total
$
4,319,823
$
460,334
(1) Reflects annualized revenues adjusted for timing of investment.
The following table sets forth occupancy, coverages and average annualized revenues for certain property types (excluding investments in unconsolidated entities):
Occupancy(1)
Coverages(1,2)
Average Annualized Revenues(3)
Seniors housing triple-net(4)
89.9%
88.2%
1.34x
1.38x
$
14,509
$
15,001
per unit
Skilled nursing/post-acute(4)
87.4%
88.0%
1.75x
2.22x
11,681
9,954
per bed
Seniors housing operating(5)
92.3%
90.1%
n/a
n/a
54,183
47,432
per unit
Hospitals(4)
60.3%
59.0%
2.40x
2.47x
49,244
43,929
per bed
Medical office buildings(6)
94.4%
93.4%
n/a
n/a
per sq. ft.
(1) We use unaudited, periodic financial information provided solely by tenants/borrowers to calculate occupancy and coverages for properties other than medical office buildings and have not independently verified the information.
(2) Represents the ratio of our triple-net customers' earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. Data reflects the 12 months ended September 30 for the periods presented.
(3) Represents annualized revenues divided by total beds, units or square feet as presented in the tables above.
(4) Occupancy represents average quarterly operating occupancy based on the quarters ended September 30 and excludes properties that are unstabilized, closed or for which data is not available or meaningful.
(5) Occupancy for seniors housing operating represents average occupancy for the three months ended December 31.
(6) Medical office building occupancy represents the percentage of total rentable square feet leased and occupied (including month-to-month and holdover leases and excluding terminations and discontinued operations) as of December 31.
The following table sets forth information regarding lease expirations for certain portions of our portfolio as of December 31, 2012 (dollars in thousands):
Expiration Year
Thereafter
Seniors housing triple-net:
Properties
-
-
Base rent(1)
$
13,437
$
25,900
$
4,669
$
-
$
15,594
$
37,194
$
-
$
14,944
$
60,927
$
12,817
$
566,733
% of base rent
1.8%
3.4%
0.6%
0.0%
2.1%
4.9%
0.0%
2.0%
8.1%
1.7%
77.1%
Hospitals:
Properties
-
-
-
-
-
-
-
-
-
Base rent(1)
$
-
$
-
$
-
$
-
$
2,350
$
-
$
-
$
-
$
-
$
-
$
77,818
% of base rent
0.0%
0.0%
0.0%
0.0%
2.9%
0.0%
0.0%
0.0%
0.0%
0.0%
97.1%
Medical office buildings:
Square feet
600,865
641,228
724,578
752,263
1,073,659
693,746
652,059
693,517
823,656
1,944,163
3,091,420
Base rent(1)
$
25,283
$
13,384
$
15,806
$
16,413
$
25,464
$
14,679
$
15,096
$
15,650
$
20,233
$
38,860
$
77,721
% of base rent
9.1%
4.8%
5.7%
5.9%
9.1%
5.3%
5.4%
5.6%
7.3%
13.9%
27.9%
(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.

ITEM 3 - LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, there are various legal proceedings pending to which we are a party or to which some of our properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on our consolidated financial position or results of operations.
In August 2012, we entered into a merger agreement with Sunrise Senior Living, Inc. (“Sunrise”). Following the announcement of the merger agreement, complaints were filed in the U.S. District Court for the Eastern District of Virginia and the Chancery Court for the State of Delaware challenging the merger. The complaints challenge the merger on behalf of a putative class of Sunrise public stockholders, and name as defendants Sunrise, its directors and us. The complaints generally allege that the individual defendants breached their fiduciary duties in connection with the merger and that the entity defendants aided and abetted that breach. The complaint filed in the U.S. District Court for the Eastern District of Virginia additionally alleges that the preliminary proxy statement filed with the Securities and Exchange Commission by Sunrise fails to provide material information in violation of Sections 14(a) and 20(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. The complaints seek, among other things, injunctive relief against the merger, unspecified damages and an award of plaintiffs’ expenses, including attorneys’ fees. On December 5, 2012, the parties executed a Memorandum of Understanding (the “MOU”) that provisionally settles the lawsuits subject to a number of conditions. On January 17, 2013, the parties filed a Joint Motion to Stay the Proceedings in the U.S. District Court for the Eastern District of Virginia based upon the MOU and, on January 23, 2013, the U.S. District Court for the Eastern District of Virginia entered an order staying the proceedings for six (6) months as the parties complete the settlement process. On February 11, 2013, the parties filed a [Proposed] Order Staying All Proceedings in the Chancery Court for the State of Delaware and, on February 13, 2013, the Chancery Court for the State of Delaware entered an order staying the proceedings pending the completion of the settlement process in the lawsuit in the U.S. District Court for the Eastern District of Virginia. On January 9, 2013, we completed our acquisition of the Sunrise property portfolio. Please see Note 21 to our consolidated financial statements for additional information.

ITEM 4 - RESERVED
Item 4. Mine Safety Disclosures
None.
PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
There were 4,936 stockholders of record as of January 31, 2013. The following table sets forth, for the periods indicated, the high and low prices of our common stock on the New York Stock Exchange (NYSE:HCN), and common dividends paid per share:
Sales Price
Dividends
High
Low
Paid
First Quarter
$
57.66
$
53.26
$
0.740
Second Quarter
58.34
52.40
0.740
Third Quarter
62.80
56.48
0.740
Fourth Quarter
61.33
56.88
0.740
First Quarter
$
52.74
$
46.75
$
0.690
Second Quarter
55.21
49.79
0.715
Third Quarter
54.63
41.03
0.715
Fourth Quarter
55.17
43.65
0.715
Our Board of Directors has approved a new quarterly cash dividend rate of $0.765 per share of common stock per quarter, commencing with the February 2013 dividend. The declaration and payment of quarterly dividends remains subject to the review and approval of the Board of Directors.
Stockholder Return Performance Presentation
Set forth below is a line graph comparing the yearly percentage change and the cumulative total stockholder return on our shares of common stock against the cumulative total return of the S & P Composite-500 Stock Index and the FTSE NAREIT Equity Index. As of December 31, 2012, 126 companies comprised the FTSE NAREIT Equity Index. The Index consists of REITs identified by NAREIT as equity (those REITs which have at least 75% of their investments in real property). The data are based on the closing prices as of December 31 for each of the five years. 2007 equals $100 and dividends are assumed to be reinvested.
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
S & P 500
100.00
63.00
79.68
91.68
93.61
108.59
Health Care REIT, Inc.
100.00
100.30
113.19
129.42
156.94
185.53
FTSE NAREIT Equity
100.00
62.27
79.70
101.98
110.42
132.18
Except to the extent that we specifically incorporate this information by reference, the foregoing Stockholder Return Performance Presentation shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended. This information shall not otherwise be deemed filed under such acts.
Issuer Purchases of Equity Securities
Period
Total Number of Shares Purchased(1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2012 through October 31, 2012
-
$
-
November 1, 2012 through November 30, 2012
5,804
59.37
December 1, 2012 through December 31, 2012
-
-
Totals
5,804
$
59.37
(1) During the three months ended December 31, 2012, 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 - SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31, 2012 are derived from our audited consolidated financial statements (in thousands, except per share data):
Year Ended December 31,
Operating Data
Revenues(1)
$
407,458
$
445,564
$
578,571
$
1,330,060
$
1,822,099
Expenses(1)
313,044
337,628
542,071
1,217,450
1,636,446
Income from continuing operations before income taxes and income from unconsolidated entities
94,414
107,936
36,500
112,610
185,653
Income tax expense
(1,306)
(168)
(364)
(1,388)
(7,612)
Income from unconsolidated entities
-
-
6,673
5,772
2,482
Income from continuing operations
93,108
107,768
42,809
116,994
180,523
Income from discontinued operations, net(1)
190,317
85,159
86,075
95,722
114,317
Net income
283,425
192,927
128,884
212,716
294,840
Preferred stock dividends
23,201
22,079
21,645
60,502
69,129
Preferred stock redemption charge
-
-
-
-
6,242
Net income (loss) attributable to noncontrolling interests
(342)
(4,894)
(2,415)
Net income attributable to common stockholders
$
260,098
$
171,190
$
106,882
$
157,108
$
221,884
Other Data
Average number of common shares outstanding:
Basic
93,732
114,207
127,656
173,741
224,343
Diluted
94,309
114,612
128,208
174,401
225,953
Per Share Data
Basic:
Income from continuing operations attributable to common stockholders
$
0.74
$
0.75
$
0.16
$
0.35
$
0.48
Discontinued operations, net
2.03
0.75
0.67
0.55
0.51
Net income attributable to common stockholders *
$
2.77
$
1.50
$
0.84
$
0.90
$
0.99
Diluted:
Income from continuing operations attributable to common stockholders
$
0.74
$
0.75
$
0.16
$
0.35
$
0.48
Discontinued operations, net
2.02
0.74
0.67
0.55
0.51
Net income attributable to common stockholders *
$
2.76
$
1.49
$
0.83
$
0.90
$
0.98
Cash distributions per common share
$
2.70
$
2.72
$
2.74
$
2.835
$
2.960
* Amounts may not sum due to rounding
(1) We have reclassified the income and expenses attributable to properties sold prior to or held for sale at December 31, 2012, to discontinued operations for all periods presented. See Note 5 to our audited consolidated financial statements.
December 31,
Balance Sheet Data
Net real estate investments
$
5,854,179
$
6,080,620
$
8,590,833
$
13,942,350
$
17,423,009
Total assets
6,215,031
6,367,186
9,451,734
14,924,606
19,549,109
Total long-term obligations
2,847,676
2,414,022
4,469,736
7,240,752
8,531,899
Total liabilities
2,976,746
2,559,735
4,714,081
7,612,309
8,993,998
Total preferred stock
289,929
288,683
291,667
1,010,417
1,022,917
Total equity
3,238,285
3,807,451
4,733,100
7,278,647
10,520,519

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
EXECUTIVE SUMMARY
Company Overview
Business Strategy
Capital Market Outlook
Key Transactions in 2012
Key Performance Indicators, Trends and Uncertainties
Corporate Governance
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
Off-Balance Sheet Arrangements
Contractual Obligations
Capital Structure
RESULTS OF OPERATIONS
Summary
Seniors Housing Triple-net
Senior Housing Operating
Medical Facilities
Non-Segment/Corporate
NON-GAAP FINANCIAL MEASURES & OTHER
FFO Reconciliation
Adjusted EBITDA Reconciliation
NOI Reconciliation
Health Care Industry
Critical Accounting Policies
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1 - Business” and “Item 1A - Risk Factors” above.
Executive Summary
Company Overview
Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of seniors housing and health care real estate since the company was founded in 1970. We are an S&P 500 company headquartered in Toledo, Ohio. Our portfolio spans the full spectrum of seniors housing and health care real estate, including seniors housing communities, skilled nursing/post-acute 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 consolidated portfolio as of December 31, 2012:
Investments
Percentage of
Number of
Type of Property
(in thousands)
Investments
Properties
Seniors housing triple-net
$
8,154,650
46.8%
Seniors housing operating(1)
4,948,536
28.4%
Medical facilities(2)
4,319,823
24.8%
Totals
$
17,423,009
100.0%
(1) Excludes 39 properties with an investment amount of $427,187,000 which relates to our share of investments in unconsolidated entities with Chartwell. Please see Note 7 to our consolidated financial statements for additional information.
(2) Excludes 13 properties with an investment amount of $375,780,000 which relates to our share of investments in unconsolidated entities with Forest City and a strategic medical partnership. Please see Note 7 to our consolidated financial statements for additional information.
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 net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, customer and geographic location.
Substantially all of our revenues are derived from operating lease rentals, resident fees and services, and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our customers/partners experience operating difficulties and become 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. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the medical office building portfolio with a comprehensive process including tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.
In addition to our asset management and research efforts, we also structure our investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.
For the year ended December 31, 2012, rental income, resident fees and services and interest and other income represented 61%, 37%, and 2% respectively, of total revenues (including discontinued operations). Substantially all of our operating leases are designed
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
with 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.
Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured line of credit arrangement, public issuances of debt and equity securities, proceeds from investment dispositions 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 acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.
We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured line of credit arrangement, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured line of credit arrangement, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.
Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also possible that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our primary unsecured line of credit arrangement. At December 31, 2012, we had $1.0 billion of cash and cash equivalents, $107.7 million of restricted cash and $2.0 billion of available borrowing capacity under our primary unsecured line of credit arrangement. Please see Note 21 of our consolidated financial statements for information regarding subsequent events that impact our liquidity.
Capital Market Outlook
The capital markets remain supportive of our investment strategy. For the year ended December 31, 2012, we raised over $6.0 billion in aggregate gross proceeds through issuance of common and preferred stock, unsecured debt and a Canadian denominated term loan. The capital raised, in combination with available cash and borrowing capacity under our primary unsecured line of credit arrangement, supported $4.9 billion in gross new investments for the year. We expect attractive investment opportunities to remain available in the future as we continue to leverage the benefits of our relationship investment strategy.
Key Transactions in 2012
We completed the following capital transactions during the year ended December 31, 2012:
· issued 64.4 million shares of common stock, generating $3.4 billion of proceeds in three public issuances;
· raised $120.4 million in proceeds from issuance of 2.1 million shares of common stock under our DRIP;
· issued 11.5 million shares of 6.5% preferred stock, generating $287.5 million of proceeds, and redeemed $275 million of 7.716% preferred stock;
· issued $1.8 billion of senior unsecured notes with average rates of 3.7% and average terms of 10.5 years;
· funded $250 million Canadian denominated unsecured term loan to help hedge our Chartwell investment;
· completed the redemption/conversion of $293.7 million of 4.75% convertible senior unsecured notes; and
· extinguished $360 million of secured debt bearing a weighted-average interest rate of 4.67%.
We completed $4.9 billion of gross investments during the year, including 76% from existing relationships. The following summarizes investments made during the year ended December 31, 2012 (dollars in thousands):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Properties
Investment Amount(1)
Capitalization Rates(2)
Book Amount(3)
Acquisitions/JVs:
Seniors housing triple-net
$
1,068,123
7.3%
$
1,071,438
Seniors housing operating
2,029,109
6.7%
1,840,524
Medical facilities
791,279
6.9%
837,705
Total acquisitions/JVs
3,888,511
7.0%
3,749,667
Construction in progress
314,514
314,514
Loan advances(4)
665,094
665,094
Total
$
4,868,119
$
4,729,275
(1) Represents stated purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(2) Represents annualized contractual or projected income to be received in cash divided by investment amounts.
(3) Represents amounts recorded on our books including fair value adjustments pursuant to U.S. GAAP. See Notes 3, 6 and 7 to our consolidated financial statements for additional information.
(4) Includes $580,834,000 in advances under the Sunrise loan which was acquired upon merger consummation on January 9, 2013. See Note 21 to our consolidated financial statements for additional information.
We completed $534 million of dispositions during the year, generating $635 million in proceeds and $101 million in net gains. The following summarizes dispositions made during the year ended December 31, 2012 (dollars in thousands):
Properties
Proceeds(1)
Capitalization Rates(2)
Book Amount(3)
Property sales:
Seniors housing triple-net
$
489,216
8.5%
$
372,378
Seniors housing operating
-
-
0.0%
-
Medical facilities
133,055
9.9%
149,344
Total property sales
622,271
8.8%
521,722
Loan payoffs
12,555
12,555
Total dispositions
$
634,826
$
534,277
(1) Represents proceeds received upon disposition including any seller financing. See Notes 5 and 6 to our consolidated financial statements for additional information.
(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds.
(3) Represents carrying value of assets at time of disposition.
The following other events occurred during the year ended December 31, 2012:
· Our Board of Directors increased the annual cash dividend to $3.06 per common share ($0.765 per share quarterly), as compared to $2.96 per common share for 2012, beginning in February 2013. The dividend declared for the quarter ended December 31, 2012 represents the 167th consecutive quarterly dividend payment.
· We declassified our Board of Directors in May.
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, credit strength and concentration risk. 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”), net operating income from continuing operations (“NOI”) and same store cash NOI (“SSCNOI”); 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, NOI and SSCNOI. 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):
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended December 31,
Net income attributable to common stockholders
$
106,882
$
157,108
$
221,884
Funds from operations
280,022
524,902
697,557
Net operating income from continuing operations
500,784
952,321
1,251,982
Same store cash net operating income
322,691
331,999
334,077
Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain compliance with our debt covenants. The coverage ratios are based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:
Year Ended December 31,
Debt to book capitalization ratio
49%
50%
45%
Debt to undepreciated book capitalization ratio
45%
46%
41%
Debt to market capitalization ratio
38%
38%
33%
Adjusted interest coverage ratio
3.39x
3.02x
3.31x
Adjusted fixed charge coverage ratio
2.76x
2.37x
2.58x
Concentration Risk. We evaluate our concentration risk in terms of asset mix, investment mix, customer mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property. In order to qualify as an equity REIT, at least 75% of our real estate investments must be real property whereby each property, which includes the land, buildings, improvements, intangibles and related rights, is owned by us. Investment mix measures the portion of our investments that relate to our various property types. Customer mix measures the portion of our investments that relate to our top five customers. Geographic mix measures the portion of our investments that relate to our top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by investment balance for the periods presented:
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
December 31,
Asset mix:
Real property
91%
95%
91%
Real estate loans receivable
5%
2%
5%
Investments in unconsolidated entities
4%
3%
4%
Investment mix:(1)
Seniors housing triple-net
53%
54%
47%
Seniors housing operating
13%
20%
28%
Medical facilities
34%
26%
25%
Customer mix:(1)
Genesis HealthCare, LLC
18%
15%
Sunrise Senior Living Inc.
6%
Merrill Gardens L.L.C.
9%
8%
6%
Belmont Village, LP
5%
Benchmark Senior Living, LLC
6%
5%
Brandywine Senior Living, LLC
7%
5%
Senior Living Communities, LLC
7%
4%
Senior Star Living
5%
Brookdale Senior Living Inc.
4%
Remaining customers
68%
59%
63%
Geographic mix:(1)
California
10%
10%
9%
Texas
8%
7%
9%
New Jersey
10%
9%
Florida
11%
7%
7%
Pennsylvania
5%
Massachusetts
6%
Washington
6%
Ohio
6%
Remaining
59%
60%
61%
(1) Excludes our share of investments in unconsolidated entities.
We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Forward-Looking Statements and Risk Factors” and other sections of this Annual Report on Form 10-K. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for further discussion of these risk factors.
Corporate Governance
Maintaining investor confidence and trust has become is 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 the Internet at www.hcreit.com.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured line of credit arrangement, public issuances of debt and equity securities, proceeds from investment dispositions and principal
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December,
December,
December,
$
%
$
%
$
%
Beginning cash and cash equivalents
$
35,476
$
131,570
$
96,094
271%
$
163,482
$
31,912
24%
$
128,006
361%
Cash provided from (used in):
Operating activities
364,741
588,224
223,483
61%
818,133
229,909
39%
453,392
124%
Investing activities
(2,312,039)
(4,520,129)
(2,208,090)
96%
(3,592,979)
927,150
-21%
(1,280,940)
55%
Financing activities
2,043,392
3,963,817
1,920,425
94%
3,645,128
(318,689)
-8%
1,601,736
78%
Ending cash and cash equivalents
$
131,570
$
163,482
$
31,912
24%
$
1,033,764
$
870,282
532%
$
902,194
686%
Operating Activities. The change in net cash provided from operating activities is primarily attributable to increases in NOI which is primarily due to acquisitions. Please see “Results of Operations” for further discussion.
Investing Activities. The changes in net cash used in investing activities are primarily attributable to net changes in real property investments, real estate loans receivable and investments in unconsolidated entities which are summarized above in “Key Transactions in 2012.” Please refer to Notes 3, 6 and 7 of our consolidated financial statements for additional information.
Financing Activities. The changes in net cash provided from financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuance/redemptions of common and preferred stock, and dividend payments which are summarized above in “Key Transactions in 2012.” Please refer to Notes 9, 10 and 13 of our consolidated financial statements for additional information.
Subsequent Events. Subsequent to December 31, 2012, we closed on a new unsecured line of credit arrangement and completed our acquisition of Sunrise Senior Living, Inc. Please refer to Note 21 of our consolidated financial statements for additional information.
Off-Balance Sheet Arrangements
At December 31, 2012, we had investments in unconsolidated entities with our ownership ranging from 10% to 50%. Please see Note 7 to our consolidated financial statements for additional information. We use financial derivative instruments to hedge interest rate exposure. Please see Note 11 to our consolidated financial statements for additional information. At December 31, 2012, we had nine outstanding letter of credit obligations. Please see Note 12 to our consolidated financial statements for additional information.
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of December 31, 2012 (in thousands):
Payments Due by Period
Contractual Obligations
Total
2014-2015
2016-2017
Thereafter
Unsecured line of credit arrangements
$
-
$
-
$
-
$
-
$
-
Senior unsecured notes(1)
6,145,457
300,000
501,054
1,150,000
4,194,403
Secured debt(1)
2,728,500
175,652
590,095
765,624
1,197,129
Contractual interest obligations
3,601,325
411,053
756,197
607,765
1,826,310
Capital lease obligations
85,853
73,562
10,203
1,118
Operating lease obligations
699,990
11,046
22,339
22,348
644,257
Purchase obligations
2,340,618
2,221,934
118,684
-
-
Other long-term liabilities
6,522
-
1,580
2,463
2,479
Total contractual obligations
$
15,608,265
$
3,193,247
$
2,000,152
$
2,549,318
$
7,865,548
(1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
At December 31, 2012, we had a $2,000,000,000 unsecured line of credit arrangement that is described in Note 9 to our consolidated financial statements. At December 31, 2012, we had no balance outstanding under the unsecured line of credit arrangement. Please see Note 21 to our consolidated financial statements for subsequent event information regarding our unsecured line of credit arrangement.
We have $6,145,457,000 of senior unsecured notes principal outstanding with fixed annual interest rates ranging from 2.25% to 6.50%, payable semi-annually. A total of $494,403,000 of our senior unsecured notes are convertible notes that also contain put features. Please see Note 10 to our consolidated financial statements for additional information. In addition, we have a $250,000,000 Canadian denominated unsecured term loan (approximately $251,054,000 USD at exchange rates on December 31, 2012.) The loan matures on July 27, 2015 and includes an option to extend for an additional year at our discretion. Total contractual interest obligations on senior unsecured notes and the Canadian term loan totaled $2,777,745,000 at December 31, 2012.
We have consolidated secured debt with total outstanding principal of $2,311,586,000, collateralized by owned properties, with annual interest rates ranging from 1.00% to 10.00%, payable monthly. The carrying values of the properties securing the debt totaled $3,953,516,000 at December 31, 2012. Total contractual interest obligations on consolidated secured debt totaled $757,025,000 at December 31, 2012. Our share of non-recourse secured debt associated with unconsolidated entities (as reflected in the contractual obligations table above) is $416,914,000 at December 31, 2012. Our share of contractual interest obligations on our unconsolidated entities’ secured debt is $66,555,000 at December 31, 2012.
At December 31, 2012, we had operating lease obligations of $699,990,000 relating primarily to ground leases at certain of our properties and office space leases and capital lease obligations of $85,853,000 relating to certain lease investment properties that contain bargain purchase options.
Purchase obligations include $2,047,400,000 representing the cash portion of the Sunrise merger and management business sale commitments discussed in Note 21 to our audited financial statements. Purchase obligations also include unfunded construction commitments and contingent purchase obligations. At December 31, 2012, we had outstanding construction financings of $162,984,000 for leased properties and were committed to providing additional financing of approximately $213,255,000 to complete construction. At December 31, 2012, we had contingent purchase obligations totaling $79,963,000. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. 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, which is discussed in Note 19 to our consolidated financial statements.
Capital Structure
As of December 31, 2012, we had total equity of $10,520,519,000 and a total debt balance of $8,450,347,000, which represents a debt to total book capitalization ratio of 45%. Our ratio of debt to market capitalization was 33% at December 31, 2012. For the year ended December 31, 2012, our adjusted interest coverage ratio was 3.31x and our adjusted fixed charge coverage ratio was 2.58x. Also, at December 31, 2012, we had $1,033,764,000 of cash and cash equivalents, $107,657,000 of restricted cash and $2,000,000,000 of available borrowing capacity under our primary unsecured line of credit arrangement.
Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2012, 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 primary unsecured line of credit arrangement, the ratings on our senior unsecured notes are used to determine the fees and interest charged. A summary of certain covenants and our results as of and for the year ended December 31, 2012 is as follows:
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Per Agreement
Covenant
Unsecured Line of Credit(1)
Senior Unsecured Notes
Actual At December 31, 2012
Total Indebtedness to Book Capitalization Ratio maximum:
60%
n/a
45%
Secured Indebtedness to Total Assets Ratio maximum:
30%
40%
12%
Total Indebtedness to Total Assets maximum:
n/a
60%
44%
Unsecured Debt to Unencumbered Assets maximum:
60%
n/a
38%
Adjusted Interest Coverage Ratio minimum:
n/a
1.50x
3.31x
Adjusted Fixed Charge Coverage minimum:
1.50x
n/a
2.58x
(1) Canadian denominated term loan covenants are the same as those contained in our primary unsecured line of credit agreement.
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 4, 2012, we filed an open-ended automatic or “universal” shelf registration statement with the Securities and Exchange Commission covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units. As of January 31, 2013, we had an effective registration statement on file in connection with our enhanced dividend reinvestment plan under which we may issue up to 10,000,000 shares of common stock. As of January 31, 2013, 3,752,914 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $630,015,000 aggregate amount of our common stock (“Equity Shelf Program”). As of January 31, 2013, we had $457,112,000 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 arrangements.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Results of Operations
Our primary sources of revenue include rent, resident fees and services, and interest income. Our primary expenses include interest expense, depreciation and amortization, property operating expenses, transaction costs and general and administrative expenses. These revenues and expenses are reflected in our Consolidated Statements of Comprehensive Income and are discussed in further detail below. The following is a summary of our results of operations (dollars in thousands, except per share amounts):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
Amount
%
Amount
%
Amount
%
Net income attributable to common stockholders
$
106,882
$
157,108
$
50,226
47%
$
221,884
$
64,776
41%
$
115,002
108%
Funds from operations
280,022
524,902
244,880
87%
697,557
172,655
33%
417,535
149%
Adjusted EBITDA
568,429
971,525
403,096
71%
1,264,091
292,566
30%
695,662
122%
Net operating income from continuing operations
500,784
952,321
451,537
90%
1,251,982
299,661
31%
751,198
150%
Same store cash NOI
322,691
331,999
9,308
3%
334,077
2,078
1%
11,386
4%
Per share data (fully diluted):
Net income attributable to common stockholders
$
0.83
$
0.90
$
0.07
8%
$
0.98
$
0.08
9%
$
0.15
18%
Funds from operations
2.18
3.01
0.83
38%
3.09
0.08
3%
0.91
42%
Adjusted interest coverage ratio
3.39x
3.02x
-0.37x
-11%
3.31x
0.29x
10%
-0.08x
-2%
Adjusted fixed charge coverage ratio
2.76x
2.37x
-0.39x
-14%
2.58x
0.21x
9%
-0.18x
-7%
The following table represents the changes in outstanding common stock for the period from January 1, 2010 to December 31, 2012 (in thousands):
Year Ended
December 31, 2010
December 31, 2011
December 31, 2012
Totals
Beginning balance
123,385
147,097
192,275
123,385
Public offerings
20,700
41,400
64,400
126,500
DRIP issuances
1,957
2,534
2,136
6,627
ESP issuances
-
1,280
Senior note conversions
-
-
1,040
1,040
Preferred stock conversions
-
-
Option exercises
Other, net
Ending balance
147,097
192,275
260,374
260,374
Average number of shares outstanding:
Basic
127,656
173,741
224,343
Diluted
128,208
174,401
225,953
We evaluate our business and make resource allocations on our three business segments: seniors housing triple-net, seniors housing operating and medical facilities. The primary performance measures for our properties are NOI and SSCNOI, which are discussed below. Please see Note 17 to our consolidated financial statements for additional information.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Seniors Housing Triple-net
The following is a summary of our NOI for the seniors housing triple-net segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
SSCNOI(1)
$
217,230
$
224,497
$
7,267
3%
$
226,481
$
1,984
1%
$
9,251
4%
Non-cash NOI attributable to same store properties(1)
7,591
6,254
(1,337)
-18%
4,688
(1,566)
-25%
(2,903)
-38%
NOI attributable to non same store properties(2)
98,246
356,888
258,642
263%
488,430
131,542
37%
390,184
397%
NOI
$
323,067
$
587,639
$
264,572
82%
$
719,599
$
131,960
22%
$
396,532
123%
(1) Due to increases in cash and non-cash revenues (described below) related to 235 same store properties.
(2) Primarily due to acquisitions of properties, which totaled 46, 184 and 51 for the years ended December 31, 2010, 2011 and 2012, respectively, and conversions of construction projects into revenue-generating properties, which totaled nine, seven and 11 for the years ended December 31, 2010, 2011 and 2012, respectively.
The following is a summary of our results of operations for the seniors housing triple-net segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Rental income
$
283,505
$
546,951
$
263,446
93%
$
692,807
$
145,856
27%
$
409,302
144%
Interest income
36,176
34,068
(2,108)
-6%
24,380
(9,688)
-28%
(11,796)
-33%
Other income
3,386
6,620
3,234
96%
2,412
(4,208)
-64%
(974)
-29%
Net operating income from continuing operations (NOI)
323,067
587,639
264,572
82%
719,599
131,960
22%
396,532
123%
Expenses:
Interest expense
(4,524)
4,762
n/a
4,601
4,363
1833%
9,125
-202%
Loss (gain) on derivatives, net
-
-
-
n/a
n/a
n/a
Depreciation and amortization
81,718
158,882
77,164
94%
203,987
45,105
28%
122,269
150%
Transaction costs
20,612
27,993
7,381
36%
35,705
7,712
28%
15,093
73%
Loss (gain) on extinguishment of debt, net
7,791
-
(7,791)
-100%
2,405
2,405
n/a
(5,386)
-69%
Provision for loan losses
29,684
-
(29,684)
-100%
27,008
27,008
n/a
(2,676)
-9%
135,281
187,113
51,832
38%
273,802
86,689
46%
138,521
102%
Income from continuing operations before income taxes and income (loss) from unconsolidated entities
187,786
400,526
212,740
113%
445,797
45,271
11%
258,011
137%
Income tax expense
-
(143)
(143)
n/a
(2,852)
(2,709)
1894%
(2,852)
n/a
Income (loss) from unconsolidated entities
-
(9)
(9)
n/a
(33)
(24)
267%
(33)
n/a
Income from continuing operations
187,786
400,374
212,588
113%
442,912
42,538
11%
255,126
136%
Discontinued operations:
Gain (loss) on sales of properties, net
36,274
59,108
22,834
63%
116,838
57,730
98%
80,564
222%
Impairment of assets
-
(1,103)
(1,103)
n/a
(14,699)
(13,596)
1233%
(14,699)
n/a
Income from discontinued operations, net
50,269
40,869
(9,400)
-19%
36,040
(4,829)
-12%
(14,229)
-28%
Discontinued operations, net
86,543
98,874
12,331
14%
138,179
39,305
40%
51,636
60%
Net income
274,329
499,248
224,919
82%
581,091
81,843
16%
306,762
112%
Less: Net income attributable to noncontrolling interests
(18)
n/a
97%
-2483%
Net income attributable to common stockholders
$
274,347
$
499,030
$
224,683
82%
$
580,662
$
81,632
16%
$
306,315
112%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed seniors housing triple-net properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2012, we had no lease renewals but we had 12 leases with rental rate increasers ranging from 0.16% to 0.30% in our seniors housing triple-net portfolio. The decrease in interest income is attributable to loan payoffs (see Note 6 to our consolidated financial statements for additional information).
Interest expense for the years ended December 31, 2012, 2011 and 2010 represents $13,572,000, $15,306,000 and $15,111,000, 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 seniors housing triple-net property secured debt principal activity (dollars in thousands):
Year Ended
Year Ended
Year Ended
December 31, 2010
December 31, 2011
December 31, 2012
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
298,492
5.998%
$
172,862
5.265%
$
259,000
5.105%
Debt transferred
(131,214)
6.100%
-
0.000%
-
0.000%
Debt issued
81,977
4.600%
-
0.000%
9,387
4.080%
Debt assumed
78,794
5.867%
90,120
4.819%
83,002
5.304%
Debt extinguished
(150,982)
5.924%
-
0.000%
(128,818)
4.743%
Principal payments
(4,205)
4.388%
(3,982)
5.556%
(3,830)
5.556%
Ending balance
$
172,862
5.265%
$
259,000
5.105%
$
218,741
5.393%
Monthly averages
$
242,123
5.663%
$
234,392
5.141%
$
216,314
5.254%
In connection with secured debt extinguishments, we recognized losses of $7,791,000 and $2,405,000 during the years ended December 31, 2010 and 2012, respectively.
Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions of newly constructed investment properties. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.
Transaction costs represent costs incurred with property acquisitions (including due diligence costs, fees for legal and valuation services, and termination of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and other similar costs.
Changes in gains on sales of properties are related to property sales which totaled 31, 39 and 73 for the years ended December 31, 2010, 2011 and 2012, respectively. We recognized impairment losses on certain held-for-sale facilities as the fair value less estimated costs to sell exceeded our carrying values. The following illustrates the reclassification impact as a result of classifying the properties sold prior to or held for sale at December 31, 2012 as discontinued operations for the periods presented. Please refer to Note 5 to our consolidated financial statements for further discussion.
Year Ended December 31,
Rental income
$
99,398
$
75,367
$
55,274
Expenses:
Interest expense
19,635
15,058
8,971
Provision for depreciation
29,494
19,439
10,263
Income (loss) from discontinued operations, net
$
50,269
$
40,869
$
36,040
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
During the year ended December 31, 2010, we recorded $29,684,000 of provision for loan losses, which is primarily attributable to the write-off of loans related to certain early stage seniors housing and CCRC development projects. We did not record any provision for loan loss or have any loan write-offs for seniors housing triple-net investments during the year ended December 31, 2011. During the year ended December 31, 2012, we wrote off loans totaling $27,008,000, which is attributable to the write-off of one loan at an entrance fee community. The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed in “Critical Accounting Policies” and Note 6 to our consolidated financial statements.
During the year ended December 31, 2012 a portion of our seniors housing triple-net properties were formed through partnership interests. Net income attributable to noncontrolling interests for the year ended December 31, 2012 represents our partners’ share of net income (loss) relating to those properties. In connection with a seniors housing triple-net partnership, we also acquired a minority interest in a separate unconsolidated entity. This investment is reflected as an investment in unconsolidated entities on our consolidated balance sheet. Accordingly, our proportionate share of net income (loss) is reflected as income (loss) from unconsolidated entities on our consolidated income statement.
Seniors Housing Operating
As discussed in Note 3 to our consolidated financial statements, we completed additional acquisitions within our seniors housing operating segment during the year ended December 31, 2012. The results of operations for these properties have been included in our consolidated results of operations from the dates of acquisition. The seniors housing operating acquisitions were structured under RIDEA, which is discussed in Note 18 to our consolidated financial statements. When considering new acquisitions 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 standard rent escalators in our triple-net lease seniors housing portfolio, and alignment of economic interests with our operating partner. Our seniors housing operating properties offer us the opportunity for external growth because we have the right to fund future seniors housing investment opportunities sourced by our operating partners. There were no seniors housing operating segment investments prior to September 1, 2010. As such, the increases in NOI are almost entirely attributable to property acquisitions which totaled 32, 58, and 80 for the years ended December 31, 2010, 2011 and 2012, respectively. The following is a summary of our seniors housing operating results of operations (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Resident fees and services
$
51,006
$
456,085
$
405,079
794%
$
697,494
$
241,409
53%
$
646,488
1267%
Interest income
-
-
-
n/a
6,208
6,208
n/a
6,208
n/a
51,006
456,085
405,079
794%
703,702
247,617
54%
652,696
1280%
Property operating expenses
32,621
314,142
281,521
863%
471,678
157,536
50%
439,057
1346%
Net operating income from continuing operations (NOI)
18,385
141,943
123,558
672%
232,024
90,081
63%
213,639
1162%
Other expenses:
Interest expense
7,794
46,342
38,548
495%
67,524
21,182
46%
59,730
766%
Loss (gain) on derivatives, net
-
-
-
n/a
(1,921)
(1,921)
n/a
(1,921)
n/a
Depreciation and amortization
15,504
138,192
122,688
791%
165,798
27,606
20%
150,294
969%
Transaction costs
20,936
36,328
15,392
74%
12,756
(23,572)
-65%
(8,180)
-39%
Loss (gain) on extinguishment of debt, net
-
(979)
(979)
n/a
(2,697)
(1,718)
175%
(2,697)
n/a
44,234
219,883
175,649
397%
241,460
21,577
10%
197,226
446%
Income from continuing operations before income from unconsolidated entities
(25,849)
(77,940)
(52,091)
202%
(9,436)
68,504
-88%
16,413
-63%
Income tax expense
(229)
-
n/a
(1,086)
(1,086)
n/a
(857)
374%
Income from unconsolidated entities
-
(1,531)
(1,531)
n/a
(6,364)
(4,833)
316%
(6,364)
n/a
Net income (loss)
(26,078)
(79,471)
(53,393)
205%
(16,886)
62,585
-79%
9,192
-35%
Less: Net income (loss) attributable to noncontrolling interests
(1,656)
(6,006)
(4,350)
263%
(3,015)
2,991
-50%
(1,359)
82%
Net income (loss) attributable to common stockholders
$
(24,422)
$
(73,465)
$
(49,043)
201%
(13,871)
59,594
-81%
10,551
-43%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Fluctuations in revenues and property operating expenses are primarily a result of acquisitions subsequent to September 30, 2010. Interest income relates to the Sunrise loan funded during the three months ended December 31, 2012 (please see Note 6 to our consolidated financial statements for additional information). The fluctuations in depreciation and amortization are due to acquisitions offset by variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. Loss from unconsolidated entities during the year ended December 31, 2012 is primarily attributable to depreciation and amortization of short-lived intangible assets related to our joint venture with Chartwell described in Note 7 to our consolidated financial statements.
Interest expense represents secured debt interest expense as well as interest expense related to our unsecured Canadian term loan discussed further in Note 10 of our audited consolidated financial statements. The following is a summary of our seniors housing operating property secured debt principal activity, which excludes the Canadian term loan (dollars in thousands):
Year Ended
Year Ended
Year Ended
December 31, 2010
December 31, 2011
December 31, 2012
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
-
0.000%
$
487,706
5.939%
$
1,318,599
4.665%
Debt transferred
131,214
6.100%
-
0.000%
-
0.000%
Debt issued
75,179
6.386%
114,903
5.779%
148,031
4.220%
Debt assumed
318,125
5.855%
780,955
4.269%
115,371
5.512%
Debt extinguished
(35,017)
6.723%
(55,317)
5.949%
(193,962)
4.395%
Foreign currency
-
0.000%
-
0.000%
5.624%
Principal payments
(1,795)
6.165%
(9,648)
5.474%
(18,700)
4.850%
Ending balance
$
487,706
5.939%
$
1,318,599
4.665%
$
1,369,526
4.874%
Monthly averages
$
350,259
5.957%
$
969,265
5.679%
$
1,366,758
4.866%
In connection with secured debt extinguishments, we recognized gains of $979,000 and $2,697,000 during the years ended December 31, 2011 and 2012, respectively. In addition, during the year ended December 31, 2012, we recognized a net realized gain on derivatives of $1,921,000 associated with our Chartwell transaction discussed in Note 7 to our audited consolidated financial statements.
Transaction costs were incurred in connection with acquisitions that occurred during the relevant periods. Transaction costs generally include due diligence costs and fees for legal and valuation services, charges associated with the termination of pre-existing relationships computed based on the fair value of the assets acquired and lease termination fees. The decline in transaction costs from 2011 to 2012 is primarily attributable to termination of pre-existing relationships incurred during 2011. The majority of our seniors housing operating properties are formed through partnership interests. Net income attributable to noncontrolling interests for the year ended December 31, 2012 represents our partners’ share of net income (loss) related to those properties.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Medical Facilities
The following is a summary of our NOI for the medical facilities segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
SSCNOI(1)
$
105,461
$
107,502
$
2,041
2%
$
107,596
$
0%
$
2,135
2%
Non-cash NOI attributable to same store properties(1)
5,862
4,426
(1,436)
-24%
2,909
(1,517)
-34%
(2,953)
-50%
NOI attributable to non same store properties(2)
45,135
110,121
64,986
144%
188,942
78,821
72%
143,807
319%
NOI
$
156,458
$
222,049
$
65,591
42%
$
299,447
$
77,398
35%
$
142,989
91%
(1) Due to increases in cash and non-cash revenues (described below) related to 95 same store properties.
(2) Primarily due to acquisitions of properties, which totaled 36, 35 and 34 for the years ended December 31, 2010, 2011 and 2012, respectively, and conversions of construction projects into revenue-generating properties, which totaled four, seven and five for the years ended December 31, 2010, 2011 and 2012, respectively.
The following is a summary of our results of operations for the medical facilities segment (dollars in thousands):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Rental income
$
195,960
$
274,659
$
78,699
40%
$
387,462
$
112,803
41%
$
191,502
98%
Interest income
4,679
7,002
2,323
50%
8,477
1,475
21%
3,798
81%
Other income
3,985
3,000
305%
1,947
(2,038)
-51%
98%
201,624
285,646
84,022
42%
397,886
112,240
39%
196,262
97%
Property operating expenses
45,166
63,597
18,431
41%
98,439
34,842
55%
53,273
118%
Net operating income from continuing operations (NOI)
156,458
222,049
65,591
42%
299,447
77,398
35%
142,989
91%
Other expenses:
Interest expense
17,579
21,909
4,330
25%
31,540
9,631
44%
13,961
79%
Depreciation and amortization
67,943
96,808
28,865
42%
146,103
49,295
51%
78,160
115%
Transaction costs
5,112
5,903
15%
13,148
7,245
123%
8,036
157%
Loss (gain) on extinguishment of debt, net
1,308
-
(1,308)
-100%
(483)
(483)
n/a
(1,791)
n/a
Provision for loan losses
-
2,010
2,010
n/a
-
(2,010)
n/a
-
n/a
91,942
126,630
34,688
38%
190,308
63,678
50%
98,366
107%
Income from continuing operations before income taxes and income from unconsolidated entities
64,516
95,419
30,903
48%
109,139
13,720
14%
44,623
69%
Income tax expense
(77)
(361)
(284)
369%
(2,381)
(2,020)
560%
(2,304)
2992%
Income from unconsolidated entities
6,673
7,312
10%
8,879
1,567
21%
2,206
33%
Income from continuing operations
71,112
102,370
31,258
44%
115,637
13,267
13%
44,525
63%
Discontinued operations:
Gain (loss) on sales of properties, net
(159)
2,052
2,211
n/a
(16,289)
(18,341)
-894%
(16,130)
10145%
Impairment of assets
(947)
(11,091)
(10,144)
1071%
(14,588)
(3,497)
32%
(13,641)
1440%
Income (loss) from discontinued operations, net
5,887
5,249
823%
7,015
1,128
19%
6,377
1000%
Discontinued operations, net
(468)
(3,152)
(2,684)
574%
(23,862)
(20,710)
657%
(23,394)
4999%
Net income (loss)
70,644
99,218
28,574
40%
91,775
(7,443)
-8%
21,131
30%
Less: Net income (loss) attributable to noncontrolling interests
2,031
(1,137)
-56%
(723)
-81%
(1,860)
-92%
Net income (loss) attributable to common stockholders
$
68,613
$
98,324
$
29,711
43%
$
91,604
$
(6,720)
-7%
$
22,991
34%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The increase in rental income is primarily attributable to the acquisitions of new properties and the construction conversions of medical facilities from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, 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 December 31, 2012, our consolidated medical office building portfolio signed 50,323 square feet of new leases and 172,647 square feet of renewals. The weighted-average term of these leases was five years, with a rate of $20.55 per square foot and tenant improvement and lease commission costs of $8.77 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 December 31, 2012, we had no lease renewals but we had one lease with a rental rate increaser of 2.0% in our hospital portfolio. Interest income increased from the prior period primarily due to an increase in outstanding balances for medical facility real estate loans.
Interest expense for the years ended December 31, 2012, 2011 and 2010 represents $38,786,000, $31,477,000, and $24,926,000, respectively, of secured debt interest expense offset by interest allocated to discontinued operations. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our medical facilities secured debt principal activity (dollars in thousands):
Year Ended
Year Ended
Year Ended
December 31, 2010
December 31, 2011
December 31, 2012
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
314,065
5.677%
$
463,477
5.286%
$
520,066
5.981%
Debt assumed
167,737
6.637%
69,779
5.921%
246,371
5.888%
Debt extinguished
(8,494)
6.045%
-
0.000%
(37,622)
5.858%
Principal payments
(9,831)
6.279%
(13,190)
6.208%
(15,095)
6.180%
Ending balance
$
463,477
5.286%
$
520,066
5.981%
$
713,720
5.950%
Monthly averages
$
458,196
5.961%
$
489,923
6.179%
$
669,753
5.952%
In connection with secured debt extinguishments, we recognized a loss of $1,308,000 and a gain of $483,000 during the years ended December 31, 2010 and 2012, respectively.
The increase in property operating expenses and depreciation and amortization is primarily attributable to acquisitions and construction conversions of new medical facilities for which we incur certain property operating expenses offset by property operating expenses associated with discontinued operations.
Transaction costs for the year ended December 31, 2012 represent costs incurred in connection with the acquisition of new properties.
During the year ended December 31, 2011, we recorded $2,010,000 of provision for loan losses, which is primarily attributable to the write-off of a hospital loan.
Income from unconsolidated entities includes our share of net income related to our joint venture investment with Forest City Enterprises and certain unconsolidated property investments related to our strategic joint venture relationship with a national medical office building company. See Note 7 to our consolidated financial statements for additional information.
Changes in gains/losses on sales of properties is related to property sales which totaled seven, three and 20 for the years ended December 31, 2010, 2011, and 2012, respectively. We recognized impairment losses on certain held for sale facilities as the fair value less estimated costs to sell exceeded our carrying values. The following illustrates the reclassification impact as a result of classifying the properties sold prior to or held for sale at December 31, 2012 as discontinued operations for the periods presented. Please refer to Note 5 to our consolidated financial statements for further discussion.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended December 31,
Rental income
$
24,547
$
31,870
$
24,049
Expenses:
Interest expense
7,347
9,568
7,246
Property operating expenses
8,678
6,131
2,354
Provision for depreciation
7,884
10,284
7,434
Income (loss) from discontinued operations, net
$
$
5,887
$
7,015
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):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Revenues:
Other income
$
2,874
$
$
(2,184)
-76%
$
$
32%
$
(1,962)
-68%
Expenses:
Interest expense
113,129
228,884
115,755
102%
263,418
34,534
15%
150,289
133%
General and administrative
54,626
77,201
22,575
41%
97,341
20,140
26%
42,715
78%
Loss (gain) on extinguishments of debt, net
25,072
-
(25,072)
-100%
-
-
n/a
(25,072)
-100%
192,827
306,085
113,258
59%
360,759
54,674
18%
167,932
87%
Loss from continuing operations before income taxes
(189,953)
(305,395)
(115,442)
61%
(359,847)
(54,452)
18%
(169,894)
89%
Income tax expense (benefit)
(58)
(884)
(826)
1424%
(1,293)
(409)
46%
(1,235)
2129%
Net loss
(190,011)
(306,279)
(116,268)
61%
(361,140)
(54,861)
18%
(171,129)
90%
Preferred stock dividends
21,645
60,502
38,857
180%
69,129
8,627
14%
47,484
219%
Preferred stock redemption charge
-
-
-
n/a
6,242
6,242
n/a
6,242
n/a
Net loss attributable to common stockholders
$
(211,656)
$
(366,781)
$
(155,125)
73%
$
(436,511)
$
(69,730)
19%
$
(224,855)
106%
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):
Year Ended
One Year Change
Year Ended
One Year Change
Two Year Change
December 31,
December 31,
December 31,
$
%
$
%
$
%
Senior unsecured notes
$
122,492
$
222,559
$
100,067
82%
$
249,564
$
27,005
12%
$
127,072
104%
Secured debt
(41)
-6%
(47)
-8%
(88)
-14%
Unsecured lines of credit
3,974
7,917
3,943
99%
11,769
3,852
49%
7,795
196%
Capitalized interest
(20,792)
(13,164)
7,628
-37%
(9,777)
3,387
-26%
11,015
-53%
Interest SWAP savings
(161)
(161)
-
0%
(96)
-40%
-40%
Loan expense
6,971
11,129
4,158
60%
11,401
2%
4,430
64%
Totals
$
113,129
$
228,884
$
115,755
102%
$
263,418
$
34,534
15%
$
150,289
133%
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments. Please refer to Note 10 of our consolidated financial statements for additional information. We capitalize certain interest costs associated with funds used for the construction of properties owned directly by us. The amount capitalized is based upon the balances outstanding during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. Please see Note 11 to our consolidated financial statements for a discussion of our interest rate swap agreements and their impact on interest expense. Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. Loan expense changes are due to amortization of charges for costs incurred for senior unsecured note issuance. The change in interest expense on the unsecured line of credit arrangements is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 9 of our consolidated financial statements for additional information regarding our unsecured line of credit arrangements.
General and administrative expenses as a percentage of consolidated revenues (including revenues from discontinued operations) for the years ended December 31, 2012, 2011 and 2010 were 5.12%, 5.37% and 7.78%, respectively. The increase in general and administrative expenses is primarily related to costs associated with our initiatives to attract and retain appropriate personnel to achieve our business objectives. The decline in percent of revenue is primarily related to the increasing revenue base as a result of our acquisitions.
The changes in preferred stock dividends and redemption charge are primarily attributable to the net effect of issuances, redemptions and conversions. Please see Note 13 to our consolidated financial statements for additional information.
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 and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities.
Net operating income from continuing operations (“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. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our seniors housing operating and medical facility properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations or transaction costs. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store cash NOI (“SSCNOI”) is used to evaluate the cash-based operating performance of our properties under a consistent population which eliminates changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the full three year reporting period. Any properties acquired, developed, transitioned or classified in discontinued operations during that period are excluded from the same store amounts. We believe NOI and SSCNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSCNOI 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 primary unsecured line of credit arrangement and Canadian denominated term loan contains a financial ratio based on a definition of EBITDA that is specific to that agreement. Failure to satisfy these covenants 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 these debt agreements and the financial covenants, 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
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. 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 in our primary line of credit arrangement and Canadian denominated term loan and is not being presented for use by investors for any other purpose. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.
The table below reflects 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 entity amounts represent our share of unconsolidated entities’ depreciation and amortization. Amounts are in thousands except for per share data.
Year Ended December 31,
FFO Reconciliation:
Net income attributable to common stockholders
$
106,882
$
157,108
$
221,884
Depreciation and amortization
202,543
423,605
533,585
Impairment of assets
12,194
29,287
Loss (gain) on sales of properties
(36,115)
(61,160)
(100,549)
Noncontrolling interests
(2,749)
(18,557)
(21,058)
Unconsolidated entities
8,514
11,712
34,408
Funds from operations
$
280,022
$
524,902
$
697,557
Average common shares outstanding:
Basic
127,656
173,741
224,343
Diluted
128,208
174,401
225,953
Per share data:
Net income attributable to common stockholders
Basic
$
0.84
$
0.90
$
0.99
Diluted
0.83
0.90
0.98
Funds from operations
Basic
$
2.19
$
3.02
$
3.11
Diluted
2.18
3.01
3.09
Item 7. 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.
Year Ended December 31,
Adjusted EBITDA Reconciliation:
Net income
$
128,884
$
212,716
$
294,840
Interest expense
160,960
321,999
383,300
Income tax expense (benefit)
1,388
7,612
Depreciation and amortization
202,543
423,605
533,585
Stock-based compensation expense
11,823
10,786
18,521
Provision for loan losses
29,684
2,010
27,008
Loss (gain) on extinguishment of debt
34,171
(979)
(775)
Adjusted EBITDA
$
568,429
$
971,525
$
1,264,091
Adjusted Interest Coverage Ratio:
Interest expense
$
160,960
$
321,999
$
383,300
Capitalized interest
20,792
13,164
9,777
Non-cash interest expense
(13,945)
(13,905)
(11,395)
Total interest
167,807
321,258
381,682
Adjusted EBITDA
$
568,429
$
971,525
$
1,264,091
Adjusted interest coverage ratio
3.39x
3.02x
3.31x
Adjusted Fixed Charge Coverage Ratio:
Interest expense
$
160,960
$
321,999
$
383,300
Capitalized interest
20,792
13,164
9,777
Non-cash interest expense
(13,945)
(13,905)
(11,395)
Secured debt principal payments
16,652
27,804
38,554
Preferred dividends
21,645
60,502
69,129
Total fixed charges
206,104
409,564
489,365
Adjusted EBITDA
$
568,429
$
971,525
$
1,264,091
Adjusted fixed charge coverage ratio
2.76x
2.37x
2.58x
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The following tables reflect the reconciliation of NOI and SSCNOI to net income attributable to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. Amounts are in thousands.
Year Ended December 31,
NOI Reconciliation:
Total revenues:
Seniors housing triple-net
$
323,067
$
587,639
$
719,599
Seniors housing operating
51,006
456,085
703,702
Medical facilities
201,624
285,646
397,886
Non-segment/corporate
2,874
Total revenues
578,571
1,330,060
1,822,099
Property operating expenses:
Seniors housing operating
32,621
314,142
471,678
Medical facilities
45,166
63,597
98,439
Total property operating expenses
77,787
377,739
570,117
Net operating income:
Seniors housing triple-net
323,067
587,639
719,599
Seniors housing operating
18,385
141,943
232,024
Medical facilities
156,458
222,049
299,447
Non-segment/corporate
2,874
Net operating income from continuing operations
$
500,784
$
952,321
$
1,251,982
Reconciling items:
Interest expense
(133,978)
(297,373)
(367,083)
Loss (gain) on derivatives, net
-
-
1,825
Depreciation and amortization
(165,165)
(393,882)
(515,888)
General and administrative
(54,626)
(77,201)
(97,341)
Transaction costs
(46,660)
(70,224)
(61,609)
Loss (gain) on extinguishment of debt
(34,171)
Provision for loan losses
(29,684)
(2,010)
(27,008)
Income tax benefit (expense)
(364)
(1,388)
(7,612)
Income from unconsolidated entities
6,673
5,772
2,482
Income (loss) from discontinued operations, net
86,075
95,722
114,317
Preferred dividends
(21,645)
(60,502)
(69,129)
Preferred stock redemption charge
-
-
(6,242)
Loss (income) attributable to noncontrolling interests
(357)
4,894
2,415
(393,902)
(795,213)
(1,030,098)
Net income (loss) attributable to common stockholders
$
106,882
$
157,108
$
221,884
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Year Ended December 31,
Same Store Cash NOI Reconciliation:
Net operating income from continuing operations:
Seniors housing triple-net
$
323,067
$
587,639
$
719,599
Seniors housing operating
18,385
141,943
232,024
Medical facilities
156,458
222,049
299,447
Total
497,910
951,631
1,251,070
Adjustments:
Seniors housing triple-net:
Non-cash NOI on same store properties
(7,591)
(6,254)
(4,688)
NOI attributable to non same store properties
(98,246)
(356,888)
(488,430)
Subtotal
(105,837)
(363,142)
(493,118)
Seniors housing operating:
Non-cash NOI on same store properties
-
-
-
NOI attributable to non same store properties
(18,385)
(141,943)
(232,024)
Subtotal
(18,385)
(141,943)
(232,024)
Medical facilities:
Non-cash NOI on same store properties
(5,862)
(4,426)
(2,909)
NOI attributable to non same store properties
(45,135)
(110,121)
(188,942)
Subtotal
(50,997)
(114,547)
(191,851)
Total
(244,601)
(876,122)
(1,340,868)
Same store cash net operating income:
Seniors housing triple-net
217,230
224,497
226,481
Seniors housing operating
-
-
-
Medical facilities
105,461
107,502
107,596
Total
$
322,691
$
331,999
$
334,077
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
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 $3.3 trillion in 2015 or 18.2% of gross domestic product (“GDP”). The average annual growth in national health expenditures for 2011 through 2021 is expected to be 5.9%.
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 private-pay senior living and medical office buildings. 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 18.6% through 2030. The elderly population aged 65 and over is projected to increase by 78.3% 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 seniors housing community. Therefore, we believe there will be continued demand for companies, such as ours, with expertise in health care real estate.
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.
Health Reform Laws
On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010 (the “PPACA”) and the Health Care and Education Reconciliation Act of 2010, which amends the PPACA (collectively, the “Health Reform Laws”). The Health Reform Laws contain various provisions that may directly impact us or the operators and tenants of our properties. Some provisions of the Health Reform Laws may have a positive impact on our operators’ or tenants’ revenues, by, for example, increasing coverage of uninsured individuals, while others may have a negative impact on the reimbursement of our operators or tenants by, for example, altering the market basket adjustments for certain types of health care facilities. The Health Reform Laws also enhance certain fraud and abuse penalty provisions that could apply to our operators and tenants, in the event of one or more violations of the federal health care regulatory laws. In addition, there are provisions that impact the health coverage that we and our operators and tenants provide to our respective employees. We cannot predict whether the existing Health Reform Laws, or future health care reform legislation or regulatory changes, will have a material impact on our operators’ or tenants’ property or business. If the operations, cash flows or financial condition of our operators and tenants are materially adversely impacted by the Health Reform Laws or future legislation, our revenue and operations may be adversely affected as well. On June 28, 2012, The United States Supreme Court upheld the individual mandate of the Health Reform Laws but partially invalidated the expansion of Medicaid. The ruling on Medicaid expansion will allow States not to participate in the expansion - and to forego funding for the Medicaid expansion - without losing their existing Medicaid funding. Given that the federal government substantially funds the Medicaid expansion, it is unclear whether any state will pursue this option, although at least some appear to be considering this option at this time.
Impact to Reimbursement of the Operators and Tenants of Our Properties. The Health Reform Laws provide for various changes to the reimbursement that our operators and tenants may receive. One such change is a reduction to the market basket adjustments for inpatient acute hospitals, long−term care hospitals, inpatient rehabilitation facilities, home health agencies, psychiatric hospitals, hospice care and outpatient hospitals. Since 2010, the otherwise applicable percentage increase to the market basket for inpatient acute hospitals has decreased. Since 2012, inpatient acute hospitals have also faced a downward adjustment of the annual percentage increase to the market basket rate by a “productivity adjustment.” The productivity adjustment may cause the annual percentage increase to be less than zero, which would mean that inpatient acute hospitals could face payment rates for a fiscal year that are less than the payment rates for the preceding year.
A similar productivity adjustment has applied to skilled nursing facilities since 2012, which means that the payment rates for skilled nursing facilities may decrease from one year to the next. Long−term care hospitals have faced a specified percentage decrease
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
in their annual update for discharges since 2010. Additionally, since 2012, long−term care hospitals have been subject to the productivity adjustments, which may decrease the federal payment rates for long−term care hospitals. Similar productivity adjustments and other adjustments to payment rates have applied to inpatient rehabilitation facilities, psychiatric hospitals and outpatient hospitals since 2010.
The Health Reform Laws revise other reimbursement provisions that may affect our business. For example, the Health Reform Laws reduce states’ Medicaid disproportionate share hospital (“DSH”) allotments, starting in 2014 through 2020. These allotments would have provided additional funding for DSH hospitals that are operators or tenants of our properties, and thus, any reduction might negatively impact these operators or tenants.
Additionally, under the Health Reform Laws, beginning in fiscal year 2015, Medicare payments will decrease to hospitals for treatment associated with hospital acquired conditions. This decreased payment rate may negatively impact our operators or tenants. To account for excess readmissions, the Health Reform Laws also call for a reduction of 1% in payments for those hospitals with higher−than−average risk−adjusted readmission rates beginning October 1, 2012, 2% beginning in fiscal year 2014, and 3% from fiscal year 2015 onward. These reductions in payments to our operators or tenants may affect their ability to make payments to us.
The Health Reform Laws additionally call for the creation of the Independent Payment Advisory Board (the “Board”), which will be responsible for establishing payment policies, including recommendations in the event that Medicare costs exceed a certain threshold. Proposals for recommendations submitted by the Board prior to December 31, 2018 may not include recommendations that would reduce payments for hospitals, skilled nursing facilities, and physicians, among other providers, prior to December 31, 2019. On March 22, 2012, the House of Representatives approved legislation that would repeal the Board. While this legislation was not passed by the Senate, if such a repeal were signed into law in the future, reimbursement to our tenants and operators may be impacted.
The Health Reform Laws also create other mechanisms that could permit significant changes to payment. For example, the Health Reform Laws establish the Center for Medicare and Medicaid Innovation to test innovative payment and service delivery models to reduce program expenditures through the use of demonstration programs that can waive existing reimbursement methodologies. As another example, on November 2, 2011, CMS published the final rule implementing section 3022 of the Health Reform Laws, which contains provisions relating to Medicare payment to providers and suppliers participating in Accountable Care Organizations (“ACOs”) under the Medicare Shared Servings Program. Under the program, Medicare will share a percentage of savings with ACOs that meet certain quality and saving requirements, thereby allowing providers to receive incentive payments in addition to their traditional fee−for−service payments. Under the program, more experienced providers may assume the risk of losses in exchange for greater potential rewards: ACOs may share up to 50% of the savings under the one−sided model and up to 60% of the savings under the two−sided model, depending on their quality and performance. The amount of shared losses for which an ACO is liable in the two−sided model may not exceed the following percentages of its updated benchmark: 5% in the first performance year, 7.5% in the second year, and 10% in the third year. These shared losses could affect the ability of ACO operators or tenants to meet their financial obligations to us. The Health Reform Laws also provide additional Medicaid funding to allow states to carry out the expansion of Medicaid coverage to certain financially−eligible individuals beginning in 2014, and also permit states to expand their Medicaid coverage to these individuals since April 1, 2010, if certain conditions are met. The Health Reform Laws also extend certain payment rules related to long−term acute care hospitals found in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (“MMSEA”).
Additionally, although the Health Reform Laws delayed implementation of the Resource Utilization Group, Version Four (“RUG−IV”), which revises the payment classification system for skilled nursing facilities, the Medicare and Medicaid Extenders Act of 2010 repealed this delay retroactively to October 1, 2010. The implementation of the RUG-IV classification may impact our tenants and operators by revising the classifications of certain patients. The federal reimbursement for certain facilities, such as skilled nursing facilities, incorporates adjustments to account for facility case-mix. The Health Reform Laws also extend certain payment rules related to long−term acute care hospitals found in the MMSEA. The MMSEA delayed the implementation of a policy referred to as the “25% threshold rule” that would limit the proportion of patients who can be admitted from a co-located or host hospital during a cost reporting period and be paid under the long-term care hospital prospective payment system. The Health Reform Laws further extended the delay, which expired at various points in calendar year 2012, depending on the start of the provider’s cost reporting period.
Finally, many other changes resulting from the Health Reform Laws, or implementing regulations or guidance may negatively impact our operators and tenants. We will continue to monitor and evaluate the Health Reform Laws and implementing regulations and guidance to determine other potential effects of the reform.
Impact of Fraud and Abuse Provisions. The Health Reform Laws revise health care fraud and abuse provisions that will affect our operators and tenants. Specifically, the Health Reform Laws allow for up to treble damages under the Federal False Claims Act for violations related to state−based health insurance exchanges authorized by the Health Reform Laws, which will be implemented
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
beginning in 2014. The Health Reform Laws also impose new civil monetary penalties for false statements or actions that lead to delayed inspections, with penalties of up to $15,000 per day for failure to grant timely access and up to $50,000 for a knowing violation. Additionally, the Health Reform Laws require certain entities - including providers, suppliers, Medicaid managed care organizations, Medicare Advantage organizations, and prescription drug program sponsors - to report and return overpayments to the appropriate payer by the later of (a) sixty (60) days after the date the overpayment was “identified,” or (b) the date that the “corresponding cost report” is due. The entity also must notify the payer in writing of the reason for the overpayment. A violation of these requirements may result in criminal liability, civil liability under the FCA, and/or exclusion from the federal health care programs. On February 14, 2012, CMS published a proposed rule implementing the Health Reform Laws requirement that health care providers and suppliers report and return self−identified overpayments by the later of 60 days after the date the overpayment was identified, or the date any corresponding cost report is due, if applicable. The Health Reform Laws also amend the Federal Anti−Kickback Statute (“AKS”) to state that any items or services “resulting from” a violation of the AKS constitutes a “false or fraudulent claim” under the Federal False Claims Act. The Health Reform Laws also provide for additional funding to investigate and prosecute health care fraud and abuse. Accordingly, the increased penalties under the Health Reform Laws for fraud and abuse violations may have a negative impact on our operators and tenants in the event that the government brings an enforcement action or subjects them to penalties.
Further, CMS published final rulemaking to implement the enhanced provider and supplier screening provisions called for in the Health Reform Laws. Under the final rule, beginning March 25, 2011, all enrolling and participating providers and suppliers are assessed an annual administrative fee and are placed in one of three risk levels (limited, moderate, and high) based on an assessment of the individual’s or entity’s overall risk of fraud, waste and abuse. This rule also allows for the temporary suspension of Medicare payments to providers or suppliers in the event CMS receives credible information that an overpayment, fraud, or willful misrepresentation has occurred. The Health Reform Laws granted the Secretary of the Department of Health and Human Services significant discretionary authority to suspend, exclude, or impose fines on providers and suppliers based on the agency’s determination that such a provider or supplier is “high−risk,” and, as a result, this final rulemaking has the potential to materially adversely affect our operators and tenants who may be evaluated under the enhanced screening process.
On November 2, 2011, CMS and OIG jointly published the final rule establishing waivers of certain fraud and abuse laws to ACOs. These waivers include automatic AKS, Stark, and Civil Monetary Penalty Law waivers that may be applied in certain situations and that will apply uniformly to each ACO, ACO participant, and ACO provider/supplier. Notably, the final rule states that CMS and OIG intend to closely monitor ACOs through June 2013 to ensure that these waivers are not causing “undesirable effects” and need to be narrowed to prevent fraud and abuse.
Additionally, provisions of Title VI of the Health Care Reform Laws are designed to increase transparency and program integrity by skilled nursing facilities, other nursing facilities and similar providers. Specifically, skilled nursing facilities and other providers and suppliers will be required to institute compliance and ethics programs. Additionally, the Health Reform Laws make it easier for consumers to file complaints against nursing homes by mandating that states establish complaint websites. The provisions calling for enhanced transparency will increase the administrative burden and costs on these providers.
Impact to the Health Care Plans Offered to Our Employees. The Health Reform Laws affect employers that provide health plans to their employees. The new laws change the tax treatment of the Medicare Part D retiree drug subsidy and extend dependent coverage for dependents up to age 26, among other changes. We continue to evaluate our health care plans for these changes as new reform laws are enacted. These changes may affect our operators and tenants as well.
Item 7. 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 accounting estimates or assumptions 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 and the Audit Committee has reviewed the disclosure presented below relating to them. Management believes the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 1 of our audited consolidated financial statements for further information on significant accounting policies that impact us. There were no material changes to these policies in 2012.
The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:
Nature of Critical
Accounting Estimate
Assumptions/Approach
Used
Principles of Consolidation
The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint venture entities in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. In addition, we consolidate those entities deemed to be variable interest entities in which we are determined to be the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation.
We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We make judgments with respect to our level of influence or control of an entity and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity's economic performance, our form of ownership interest, our representation on the entity's governing body, the size and seniority of our investment, our ability and the rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the variable interest entity, our assumptions may be different and may result in the identification of a different primary beneficiary.
Income Taxes
As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements.
Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by federal and state tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in-gain recognized related to prior-tax-free acquisitions of C corporations, and (iv) changes in tax laws. Adjustments required in any given period are included in income.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Nature of Critical
Accounting Estimate
Assumptions/Approach
Used
Business Combinations
Real property developed by us is recorded at cost, including the capitalization of construction period interest. The cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their respective fair values. Tangible assets primarily consist of land, buildings and improvements. The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value of in-place leases. The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant.
We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the relative fair value of each component. The most significant components of our allocations are typically the allocation of fair value to the buildings as-if-vacant, land and in-place leases. In the case of the fair value of buildings and the allocation of value to land and other intangibles, our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases.
We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Amortization periods for intangibles are based on the estimated remaining useful lives of the underlying agreements.
Allowance for Loan Losses
We maintain an allowance for loan losses in accordance with U.S. GAAP. The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status.
The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments and principal. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Nature of Critical
Accounting Estimate
Assumptions/Approach
Used
Revenue Recognition
Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. If the collectability of revenue is determined incorrectly, the amount and timing of our reported revenue could be significantly affected. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain fixed and/or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. We recognize resident fees and services, other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.
We evaluate the collectability of our revenues and related receivables on an on-going basis. We evaluate collectability based on assumptions and other considerations including, but not limited to, the certainty of payment, payment history, the financial strength of the investment’s underlying operations as measured by cash flows and payment coverages, the value of the underlying collateral and guaranties and current economic conditions.
If our evaluation indicates that collectability is not reasonably assured, we may place an investment on non-accrual or reserve against all or a portion of current income as an offset to revenue.
Impairment of Long-Lived Assets
We review our long-lived assets for potential impairment in accordance with U.S. GAAP. An impairment charge must be recognized when the carrying value of a long-lived asset is not recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.
The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful life and changes in the market that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely use of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held.
Fair Value of Derivative Instruments
The valuation of derivative instruments is accounted for in accordance with U.S. GAAP, which requires companies to record derivatives at fair market value on the balance sheet as assets or liabilities.
The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values for our derivatives are estimated by utilizing pricing models that consider forward yield curves and discount rates. Such amounts and their recognition are subject to significant estimates which may change in the future.
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
Impact of Inflation
During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, our earnings are primarily long-term investments with predictable rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes and borrowings under our primary unsecured line of credit arrangement. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. 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 primary unsecured line of credit arrangement to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our unsecured line of credit arrangements.
A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands):
December 31, 2012
December 31, 2011
Principal
Change in
Principal
Change in
balance
fair value
balance
fair value
Senior unsecured notes(1)
$
6,145,457
$
(451,478)
$
4,464,927
$
(342,460)
Secured debt
2,024,454
(96,290)
1,693,283
(82,583)
Totals
$
8,169,911
$
(547,768)
$
6,158,210
$
(425,043)
(1) 2012 amounts include the Canadian denominated unsecured term loan.
Our variable rate debt, including our unsecured line of credit arrangements, is reflected at fair value. At December 31, 2012, we had no amounts outstanding related to our variable rate lines of credit and $276,006,000 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 $2,760,000. At December 31, 2011, we had $610,000,000 outstanding related to our variable rate line of credit and $415,101,000 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 $10,251,000.
See Note 11 of our consolidated financial statements for information on our derivative instruments.
We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.
For additional information regarding fair values of financial instruments, see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” and Note 16 to our audited consolidated financial statements.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health Care REIT, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
February 26, 2013
CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
December 31,
December 31,
Assets
(In thousands)
Real estate investments:
Real property owned:
Land and land improvements
$
1,365,391
$
1,116,756
Buildings and improvements
15,635,127
13,073,747
Acquired lease intangibles
673,684
428,199
Real property held for sale, net of accumulated depreciation
245,213
36,115
Construction in progress
162,984
189,502
Gross real property owned
18,082,399
14,844,319
Less accumulated depreciation and amortization
(1,555,055)
(1,194,476)
Net real property owned
16,527,344
13,649,843
Real estate loans receivable
895,665
292,507
Net real estate investments
17,423,009
13,942,350
Other assets:
Investments in unconsolidated entities
438,936
241,722
Goodwill
68,321
68,321
Deferred loan expenses
66,327
58,584
Cash and cash equivalents
1,033,764
163,482
Restricted cash
107,657
69,620
Receivables and other assets
411,095
380,527
Total other assets
2,126,100
982,256
Total assets
$
19,549,109
$
14,924,606
Liabilities and equity
Liabilities:
Borrowings under unsecured line of credit arrangements
$
-
$
610,000
Senior unsecured notes
6,114,151
4,434,107
Secured debt
2,336,196
2,112,649
Capital lease obligations
81,552
83,996
Accrued expenses and other liabilities
462,099
371,557
Total liabilities
8,993,998
7,612,309
Redeemable noncontrolling interests
34,592
33,650
Equity:
Preferred stock
1,022,917
1,010,417
Common stock
260,396
192,299
Capital in excess of par value
10,543,690
7,019,714
Treasury stock
(17,875)
(13,535)
Cumulative net income
2,184,819
1,893,806
Cumulative dividends
(3,694,579)
(2,972,129)
Accumulated other comprehensive income (loss)
(11,028)
(11,928)
Other equity
6,461
6,120
Total Health Care REIT, Inc. stockholders’ equity
10,294,801
7,124,764
Noncontrolling interests
225,718
153,883
Total equity
10,520,519
7,278,647
Total liabilities and equity
$
19,549,109
$
14,924,606
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Year Ended December 31,
Revenues:
Rental income
$
1,080,269
$
821,610
$
479,465
Resident fees and services
697,494
456,085
51,006
Interest income
39,065
41,070
40,855
Other income
5,271
11,295
7,245
Total revenues
1,822,099
1,330,060
578,571
Expenses:
Interest expense
367,083
297,373
133,978
Property operating expenses
570,117
377,739
77,787
Depreciation and amortization
515,888
393,882
165,165
General and administrative
97,341
77,201
54,626
Transaction costs
61,609
70,224
46,660
Loss (gain) on derivatives, net
(1,825)
-
-
Loss (gain) on extinguishment of debt, net
(775)
(979)
34,171
Provision for loan losses
27,008
2,010
29,684
Total expenses
1,636,446
1,217,450
542,071
Income from continuing operations before income taxes
and income from unconsolidated entities
185,653
112,610
36,500
Income tax (expense) benefit
(7,612)
(1,388)
(364)
Income from unconsolidated entities
2,482
5,772
6,673
Income from continuing operations
180,523
116,994
42,809
Discontinued operations:
Gain (loss) on sales of properties, net
100,549
61,160
36,115
Impairment of assets
(29,287)
(12,194)
(947)
Income (loss) from discontinued operations, net
43,055
46,756
50,907
Discontinued operations, net
114,317
95,722
86,075
Net income
294,840
212,716
128,884
Less: Preferred stock dividends
69,129
60,502
21,645
Less: Preferred stock redemption charge
6,242
-
-
Less: Net income (loss) attributable to noncontrolling interests(1)
(2,415)
(4,894)
Net income attributable to common stockholders
$
221,884
$
157,108
$
106,882
Average number of common shares outstanding:
Basic
224,343
173,741
127,656
Diluted
225,953
174,401
128,208
Earnings per share:
Basic:
Income from continuing operations
attributable to common stockholders
$
0.48
$
0.35
$
0.16
Discontinued operations, net
0.51
0.55
0.67
Net income attributable to common stockholders*
$
0.99
$
0.90
$
0.84
Diluted:
Income from continuing operations
attributable to common stockholders
$
0.48
$
0.35
$
0.16
Discontinued operations, net
0.51
0.55
0.67
Net income attributable to common stockholders*
$
0.98
$
0.90
$
0.83
* Amounts may not sum due to rounding
(1) Includes amounts attributable to redeemable noncontrolling interests
See accompanying notes
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Year Ended December 31,
Net income
$
294,840
$
212,716
$
128,884
Other comprehensive income (loss):
Unrecognized gain/(loss) on equity investments
(122)
Change in net unrealized gains (losses) on cash flow hedges:
Unrealized gain/(loss)
3,200
3,189
(10,307)
Reclassification adjustment realized in net income
(1,596)
(1,781)
2,244
Unrecognized actuarial gain/(loss)
(226)
(2,115)
(199)
Foreign currency translation gain/(loss)
(881)
-
-
Total other comprehensive income (loss)
(829)
(8,208)
Total comprehensive income
295,740
211,887
120,676
Total comprehensive income attributable to noncontrolling interests(1)
(2,415)
(4,894)
Total comprehensive income attributable to stockholders
$
293,325
$
206,993
$
121,033
(1) Includes amounts attributable to redeemable noncontrolling interests.
See accompanying notes
CONSOLIDATED STATEMENTS OF EQUITY
HEALTH CARE REIT, INC. AND SUBSIDIARIES
(in thousands)
Accumulated
Capital in
Other
Preferred
Common
Excess of
Treasury
Cumulative
Cumulative
Comprehensive
Other
Noncontrolling
Stock
Stock
Par Value
Stock
Net Income
Dividends
Income
Equity
Interests
Total
Balances at December 31, 2009
$
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
128,527
128,884
Other comprehensive income:
(8,208)
(8,208)
Total comprehensive income
120,676
Contributions by noncontrolling interests
43,640
122,781
166,421
Distributions to noncontrolling interests
(3,301)
(3,301)
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures
2,300
97,696
(3,733)
(741)
95,522
Net proceeds from sale of common stock
21,131
884,255
905,386
Equity component of convertible debt
(9,689)
(9,689)
Equity consideration in business combinations
16,667
2,721
19,388
Redemption of preferred stock
(165)
(165)
Conversion of preferred stock
(13,518)
13,179
-
Option compensation expense
1,634
1,634
Cash dividends paid:
Common stock cash dividends
(348,578)
(348,578)
Preferred stock cash dividends
(21,645)
(21,645)
Balances at December 31, 2010
291,667
147,155
4,932,468
(11,352)
1,676,196
(2,427,881)
(11,099)
5,697
130,249
4,733,100
Comprehensive income:
Net income
217,610
(3,591)
214,019
Other comprehensive income:
(829)
(829)
Total comprehensive income
213,190
Contributions by noncontrolling interests
6,468
65,361
71,829
Distributions to noncontrolling interests
(38,136)
(38,136)
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures
2,895
138,989
(2,183)
(1,494)
138,207
Net proceeds from sale of common stock
42,249
1,964,102
2,006,351
Proceeds from issuance of preferred shares
718,750
(22,313)
696,437
Option compensation expense
1,917
1,917
Cash dividends paid:
Common stock cash dividends
(483,746)
(483,746)
Preferred stock cash dividends
(60,502)
(60,502)
Balances at December 31, 2011
1,010,417
192,299
7,019,714
(13,535)
1,893,806
(2,972,129)
(11,928)
6,120
153,883
7,278,647
Comprehensive income:
Net income
297,255
(1,480)
295,775
Other comprehensive income:
Total comprehensive income
296,675
Contributions by noncontrolling interests
89,934
90,156
Distributions to noncontrolling interests
(7,358)
(16,619)
(23,977)
Amounts related to issuance of common stock
from dividend reinvestment and stock
incentive plans, net of forfeitures
2,658
149,955
(4,340)
(2,534)
145,739
Net proceeds from sale of common stock
64,400
3,382,532
3,446,932
Net proceeds from sale of preferred stock
287,500
(9,813)
277,687
Equity component of convertible debt
1,039
2,236
3,275
Redemption of preferred stock
(275,000)
6,202
(6,242)
(275,040)
Option compensation expense
2,875
2,875
Cash dividends paid:
Common stock cash dividends
(653,321)
(653,321)
Preferred stock cash dividends
(69,129)
(69,129)
Balances at December 31, 2012
$
1,022,917
$
260,396
$
10,543,690
$
(17,875)
$
2,184,819
$
(3,694,579)
$
(11,028)
$
6,461
$
225,718
$
10,520,519
See accompanying notes
CONSOLIDATED STATEMENTS OF CASH FLOWS
HEALTH CARE REIT, INC. AND SUBSIDIARIES
Year Ended December 31,
(In thousands)
Operating activities
Net income
$
294,840
$
212,716
$
128,884
Adjustments to reconcile net income to
net cash provided from (used in) operating activities:
Depreciation and amortization
533,585
423,605
202,543
Other amortization expenses
15,185
16,851
17,169
Provision for loan losses
27,008
2,010
29,684
Impairment of assets
29,287
12,194
Stock-based compensation expense
18,521
10,786
11,823
Loss (gain) on derivatives, net
(1,825)
-
-
Loss (gain) on extinguishment of debt, net
(775)
(979)
34,171
Income from unconsolidated entities
(2,482)
(5,772)
(6,673)
Rental income in excess of cash received
(32,362)
(31,578)
(6,594)
Amortization related to above (below) market leases, net
(2,507)
(2,856)
Loss (gain) on sales of properties, net
(100,549)
(61,160)
(36,115)
Distributions by unconsolidated entities
17,607
6,149
-
Increase (decrease) in accrued expenses and other liabilities
38,213
10,653
12,293
Decrease (increase) in receivables and other assets
(18,285)
(4,744)
(20,535)
Net cash provided from (used in) operating activities
818,133
588,224
364,741
Investing activities
Investment in real property, net of cash acquired
(3,345,111)
(4,905,122)
(2,074,176)
Capitalized interest
(9,777)
(13,164)
(20,792)
Investment in real estate loans receivable
(665,094)
(51,477)
(97,265)
Other investments, net of payments
25,425
(22,986)
(133,894)
Principal collected on real estate loans receivable
35,020
188,811
43,495
Contributions to unconsolidated entities
(227,735)
(2,784)
(196,413)
Distributions by unconsolidated entities
13,136
9,135
Proceeds from (payments on) derivatives
6,652
-
-
Decrease (increase) in restricted cash
(35,766)
30,248
(52,124)
Proceeds from sales of real property
610,271
247,210
219,027
Net cash provided from (used in) investing activities
(3,592,979)
(4,520,129)
(2,312,039)
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements
(610,000)
310,000
160,000
Proceeds from issuance of senior unsecured notes
2,025,708
1,381,086
1,821,683
Payments to extinguish senior unsecured notes
(370,524)
(3)
(495,542)
Net proceeds from the issuance of secured debt
157,418
119,030
154,306
Payments on secured debt
(406,210)
(83,998)
(217,711)
Net proceeds from the issuance of common stock
3,581,292
2,137,594
995,438
Net proceeds from the issuance of preferred stock
277,687
696,437
-
Redemption of preferred stock
(275,000)
-
-
Decrease (increase) in deferred loan expenses
(7,152)
(28,867)
(3,869)
Contributions by noncontrolling interests(1)
24,115
8,604
2,611
Distributions to noncontrolling interests(1)
(29,353)
(30,705)
(3,301)
Cash distributions to stockholders
(722,450)
(544,248)
(370,223)
Other financing activities
(403)
(1,113)
-
Net cash provided from (used in) financing activities
3,645,128
3,963,817
2,043,392
Increase (decrease) in cash and cash equivalents
870,282
31,912
96,094
Cash and cash equivalents at beginning of period
163,482
131,570
35,476
Cash and cash equivalents at end of period
$
1,033,764
$
163,482
$
131,570
Supplemental cash flow information:
Interest paid
$
369,511
$
285,884
$
156,207
Income taxes paid
3,071
(1) Includes amounts attributable to redeemable noncontrolling interests.
See accompanying notes.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity real estate investment trust (“REIT”) that invests in seniors housing and health care real estate. Our full service platform offers property management and development services to our customers. As of December 31, 2012, our diversified portfolio consisted of 1,025 properties in 46 states, the United Kingdom, and Canada. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities.
2. Accounting Policies and Related Matters
Principles of Consolidation
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation.
At inception of joint venture transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. Accounting Standards Codification Topic 810, Consolidations (“ASC 810”), requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance.
For investments in joint ventures, we evaluate the type of rights held by the limited partner(s), which may preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership. The assessment of limited partners’ rights and their impact on the presumption of control over a limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership in the limited partnership, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights of managing members of limited liability companies.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain 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. Leases in our medical office building portfolio typically include some form of operating expense reimbursement by the tenant. Certain payments made to operators are treated as lease incentives and amortized as a reduction of revenue over the lease term. We recognize resident fees and services, other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.
Restricted Cash
Restricted cash primarily consists of amounts held by lenders to provide future payments for real estate taxes, insurance, tenant and capital improvements and amounts held in escrow relating to acquisitions we are entitled to receive over a period of time as outlined in the escrow agreement.
Deferred Loan Expenses
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments of debt arrangements. We amortize these costs over the term of the debt using the straight-line method, which approximates the effective interest method.
Investments in Unconsolidated Entities
Investments in less than majority owned entities where our interests represent a general partnership interest but substantive participating or kick-out rights have been granted to the limited partners, or where our interests do not represent the general partnership interest and we do not control the major operating and financial policies of the entity, are reported under the equity method of accounting. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our consolidated results of operations. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. Other equity investments include an investment in available-for-sale securities. These equity investments represented a minimal ownership interest in these companies. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded.
Redeemable Noncontrolling Interests
Certain noncontrolling interests are redeemable at fair value. Accordingly, we record the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income or loss and dividends or (ii) the redemption value. In accordance with ASC 810, the redeemable noncontrolling interests were classified outside of permanent equity, as a mezzanine item, in the balance sheet.
Real Property Owned
Real property developed by us is recorded at cost, including the capitalization of construction period interest. Expenditures for repairs and maintenance are expensed as incurred. Property acquisitions are accounted for as business combinations where we measure the assets acquired, liabilities (including assumed debt and contingencies) and any noncontrolling interests at their fair values on the acquisition date. The cost of real property acquired, which represents substantially all of the purchase price, is allocated to net tangible and identifiable intangible assets based on their respective fair values. These properties are depreciated on a straight-line basis over their estimated useful lives which range from 15 to 40 years for buildings and 5 to 15 years for improvements. Tangible assets primarily consist of land, buildings and improvements, including those related to capital leases. We consider costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and, accordingly, such costs are reflected as investment activities in our statement of cash flows.
The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value associated with the presence of in-place tenants or residents. The value allocable to the above or below market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in acquired lease intangibles and below market leases are included in other liabilities in the balance sheet and are amortized to rental income over the remaining terms of the respective leases.
The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values for in-place tenants based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The total amount of other intangible assets acquired is further allocated to in-place lease values for in-place residents with such value representing (i) value associated with lost revenue related to tenant reimbursable operating costs that would be incurred in an assumed re-leasing period, and (ii) value associated with lost rental revenue from existing leases during an assumed re-leasing period. This intangible asset will be amortized over the assumed re-leasing period.
The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset and the existence of a master lease which may link the cash flows of an individual asset to a larger portfolio of assets leased to the same tenant. If these factors and the projected undiscounted cash flows of the asset over the remaining
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
depreciation period indicate that the asset will not be recoverable, the carrying value is reduced to the estimated fair market value. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us.
Capitalization of Construction Period Interest
We capitalize interest costs associated with funds used for the construction of properties owned directly by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our cost of financing. We capitalize interest costs related to construction of real property owned by us. Our interest expense reflected in the consolidated statements of comprehensive income has been reduced by the amounts capitalized.
Gain on Sale of Assets
We recognize sales of assets only upon the closing of the transaction with the purchaser. Payments received from purchasers prior to closing are recorded as deposits and classified as other assets on our consolidated balance sheets. Gains on assets sold are recognized using the full accrual method upon closing when (i) the collectability of the sales price is reasonably assured, (ii) we are not obligated to perform significant activities after the sale to earn the profit, (iii) we have received adequate initial investment from the purchaser and (iv) other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain recognition on sales of real estate.
Real Estate Loans Receivable
Real estate loans receivable consist of mortgage loans and other real estate loans. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks. The loans are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guaranties and/or personal guaranties.
Allowance for Losses on Loans Receivable
The allowance for losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying collateral. If such factors indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.
Goodwill
We account for goodwill in accordance with U.S. GAAP. Goodwill is tested annually for impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. We have not had any goodwill impairments.
Fair Value of Derivative Instruments
Derivatives are recorded at fair value on the balance sheet as assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of our forward exchange contracts are estimated by pricing models that consider foreign currency spot rates, forward trade rates and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. See Note 11 for additional information.
Federal Income Tax
We have elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year, and made no provision for federal income tax purposes prior to our acquisition of our “taxable REIT subsidiaries.” As a result of these as well as subsequent acquisitions, we now record income tax expense or benefit with respect to certain of our entities that are taxed as taxable REIT subsidiaries under provisions similar to those applicable to regular corporations and not under the REIT provisions.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur. See Note 18 for additional information.
Foreign Currency
Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. We translate the results of operations of our foreign subsidiaries into U.S. dollars using average rates of exchange in effect during the period, and we translate balance sheet accounts using exchange rates in effect at the end of the period. We record resulting currency translation adjustments in accumulated other comprehensive income, a component of stockholders’ equity, on our consolidated balance sheets. We record transaction gains and losses in our consolidated statements of comprehensive income.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding for the period adjusted for non-vested shares of restricted stock. The computation of diluted earnings per share is similar to basic earnings per share, except that the number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
New Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”), which requires incremental fair value disclosures in the notes to the financial statements. We have adopted ASU 2011-04 effective January 1, 2012. The adoption of this guidance did not have a material impact on our consolidated financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation 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. We have adopted ASU 2011-05 effective January 1, 2012 and presented total comprehensive income on the consolidated statements of comprehensive income. Further disclosures including reconciliation from net income to total comprehensive income will be required on an annual basis. The provisions of ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05” delayed the requirement to present certain reclassifications on the face of the financial statements.
Reclassifications
Certain amounts in prior years have been reclassified to conform to current year presentation.
3. Real Property Acquisitions and Development
The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their respective fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. During the year ended December 31, 2012, we finalized our purchase price allocation of certain previously reported acquisitions and there were no material changes from those previously disclosed.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seniors Housing Triple-net Activity
The following is our purchase price allocations and other seniors housing triple-net real property investment activity for the periods presented (in thousands):
Year Ended December 31,
2012 (1)
Land and land improvements
$
87,242
$
212,156
$
61,290
Buildings and improvements
984,077
3,108,508
967,239
Receivables and other assets
9,101
-
Total assets acquired(2)
1,071,438
3,329,765
1,028,529
Secured debt
(89,881)
(93,431)
(84,086)
Accrued expenses and other liabilities
(3,542)
(91,290)
(26,345)
Total liabilities assumed
(93,423)
(184,721)
(110,431)
Capital in excess of par
-
-
Noncontrolling interests
(17,215)
-
-
Non-cash acquisition related activity
(616)
(2,532)
(9,922)
Cash disbursed for acquisitions
961,105
3,142,512
908,176
Construction in progress additions
179,684
182,626
85,993
Less: Capitalized interest
(6,041)
(5,752)
(6,396)
Cash disbursed for construction in progress
173,643
176,874
79,597
Capital improvements to existing properties
67,026
-
21,833
Total cash invested in real property, net of cash acquired
$
1,201,774
$
3,319,386
$
1,009,606
(1) Includes acquisitions with an aggregate purchase price of $37,772,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
(2) Excludes $2,031,000 of cash acquired during the year ended December 31, 2012.
Seniors Housing Operating Activity
Acquisitions of seniors housing operating properties are structured under RIDEA, which is described in Note 18. This structure results in the inclusion of all resident revenues and related property operating expenses from the operation of these qualified health care properties in our consolidated statements of comprehensive income. Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 for information regarding our foreign currency policies.
The following is a summary of our seniors housing operating real property investment activity for the periods presented (in thousands):
Year Ended December 31,
2012 (1)
Land and land improvements
$
146,332
$
112,350
$
75,620
Buildings and improvements
1,341,560
1,512,764
676,623
Acquired lease intangibles
118,077
122,371
63,757
Restricted cash
1,296
20,699
-
Receivables and other assets
10,125
16,459
Total assets acquired(2)
1,617,390
1,769,085
832,459
Secured debt
(124,190)
(796,272)
(305,167)
Accrued expenses and other liabilities
(17,347)
(44,483)
(6,849)
Total liabilities assumed
(141,537)
(840,755)
(312,016)
Capital in excess of par
-
(6,017)
(43,641)
Noncontrolling interests
(56,884)
(69,984)
(101,091)
Cash disbursed for acquisitions
1,418,969
852,329
375,711
Capital improvements to existing properties
21,751
15,880
1,735
Total cash invested in real property, net of cash acquired
$
1,440,720
$
868,209
$
377,446
(1) Includes acquisitions with an aggregate purchase price of $1,370,128,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
(2) Excludes $20,691,000, $38,952,000 and $8,532,000 of cash acquired during the years ended December 31, 2012, 2011 and 2010, respectively.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Medical Facilities Activity
Accrued contingent consideration related to certain medical facility acquisitions was $34,692,000 and $39,827,000 as of December 31, 2012 and 2011, respectively. Of the amount recognized, $12,500,000 is required to be settled in the Company’s common stock upon the achievement of certain performance thresholds. The following is a summary of our medical facilities real property investment activity for the periods presented (in thousands):
Year Ended December 31,
2012 (1)
Land and land improvements
$
68,619
$
48,342
$
49,632
Buildings and improvements
648,409
520,976
513,152
Acquired lease intangibles
115,233
60,609
67,929
Restricted cash
-
Goodwill(2)
-
-
68,321
Receivables and other assets
4,469
3,053
-
Total assets acquired(3)
837,705
633,080
699,034
Secured debt
(267,527)
(72,225)
(170,255)
Accrued expenses and other liabilities
(25,928)
(34,214)
(75,010)
Total liabilities assumed
(293,455)
(106,439)
(245,265)
Capital in excess of par
-
-
(2,721)
Noncontrolling interests
(193)
(7,211)
(10,848)
Preferred stock
-
-
(16,667)
Non-cash acquisition related activity
(880)
-
-
Cash disbursed for acquisitions
543,177
519,430
423,533
Construction in progress additions
134,830
165,593
252,595
Less: Capitalized interest
(3,736)
(7,412)
(13,924)
Accruals
(18,327)
(33,451)
(11,435)
Cash disbursed for construction in progress
112,767
124,730
227,236
Capital improvements to existing properties
46,673
24,031
36,354
Total cash invested in real property, net of cash acquired
$
702,617
$
668,191
$
687,123
(1) Includes acquisitions with an aggregate purchase price of $190,799,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
(2) Goodwill represents the estimated fair value of the future development pipeline expected to be generated. Cash flows from this future pipeline are expected to come from development activities and the ability to perform the management functions at the assets after the properties are developed.
(3) Excludes $2,154,000 of cash acquired during the year ended December 31, 2011.
Construction Activity
The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented:
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Development projects:
Seniors housing triple-net
$
146,913
$
114,161
$
273,034
Medical facilities
189,135
355,935
162,376
Total development projects
336,048
470,096
435,410
Expansion projects
4,983
45,414
3,216
Total construction in progress conversions
$
341,031
$
515,510
$
438,626
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2012, future minimum lease payments receivable under operating leases (excluding properties in our seniors housing operating partnerships and excluding any operating expense reimbursements) are as follows (in thousands):
$
1,039,427
980,258
952,029
950,079
929,224
Thereafter
7,579,800
Totals
$
12,430,817
4. Real Estate Intangibles
The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the dates indicated (dollars in thousands):
December 31, 2012
December 31, 2011
Assets:
In place lease intangibles
$
541,729
$
332,645
Above market tenant leases
56,086
35,973
Below market ground leases
61,450
51,316
Lease commissions
14,419
8,265
Gross historical cost
673,684
428,199
Accumulated amortization
(257,242)
(148,380)
Net book value
$
416,442
$
279,819
Weighted-average amortization period in years
16.4
17.0
Liabilities:
Below market tenant leases
$
77,036
$
67,284
Above market ground leases
9,490
5,020
Gross historical cost
86,526
72,304
Accumulated amortization
(27,753)
(21,387)
Net book value
$
58,773
$
50,917
Weighted-average amortization period in years
14.3
12.3
The following is a summary of real estate intangible amortization for the periods presented (in thousands):
Year Ended December 31,
Rental income related to above/below market tenant leases, net
$
1,120
$
3,340
$
3,829
Property operating expenses related to above/below market ground leases, net
(1,285)
(1,161)
(1,049)
Depreciation and amortization related to in place lease intangibles and lease commissions
(103,044)
(98,856)
(18,298)
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):
Assets
Liabilities
$
112,730
$
7,200
62,787
6,616
29,220
5,645
23,201
5,233
23,453
4,920
Thereafter
165,051
29,159
Totals
$
416,442
$
58,773
5. Dispositions, Assets Held for Sale and Discontinued Operations
Impairment of assets as reflected in our consolidated statements of comprehensive income relate to properties designated as held for sale and represent the charges necessary 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):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Real property dispositions:
Seniors housing triple-net
$
372,378
$
150,755
$
170,290
Medical facilities
149,344
35,295
14,092
Total dispositions
521,722
186,050
184,382
Add: Gain (loss) on sales of real property, net
100,549
61,160
36,115
Seller financing on sales of real property
(12,000)
-
(1,470)
Proceeds from real property sales
$
610,271
$
247,210
$
219,027
At December 31, 2012, $46,201,000 of sales proceeds is on deposit in an Internal Revenue Code Section 1031 exchange account escrow account with a qualified intermediary. We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at December 31, 2012 to discontinued operations. Expenses include an allocation of interest expense based on property carrying values and our weighted-average cost of debt. The following illustrates the reclassification impact as a result of classifying properties as discontinued operations for the periods presented (in thousands):
Year Ended December 31,
Revenues:
Rental income
$
79,323
$
107,236
$
123,945
Expenses:
Interest expense
16,217
24,626
26,982
Property operating expenses
2,354
6,131
8,678
Provision for depreciation
17,697
29,723
37,378
Income (loss) from discontinued operations, net
$
43,055
$
46,756
$
50,907
6. Real Estate Loans Receivable
The following is a summary of our real estate loans receivable (in thousands):
December 31,
Mortgage loans
$
87,955
$
63,934
Other real estate loans
807,710
228,573
Totals
$
895,665
$
292,507
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of our real estate loan activity for the periods presented (in thousands):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Seniors
Seniors
Seniors
Seniors
Housing
Housing
Medical
Housing
Medical
Housing
Medical
Triple-net
Operating(1)
Facilities
Totals
Triple-net
Facilities
Totals
Triple-net
Facilities
Totals
Advances:
Investments in new loans
$
2,220
$
580,834
$
38,336
$
621,390
$
18,541
$
-
$
18,541
$
9,742
$
41,644
$
51,386
Draws on existing loans
41,754
-
1,950
43,704
29,752
3,184
32,936
46,113
1,236
47,349
Sub-total
43,974
580,834
40,286
665,094
48,293
3,184
51,477
55,855
42,880
98,735
Less: Seller financing on property sales
-
-
-
-
-
-
-
-
(1,470)
(1,470)
Net cash advances on real estate loans
43,974
580,834
40,286
665,094
48,293
3,184
51,477
55,855
41,410
97,265
Receipts:
Loan payoffs
10,387
-
2,168
12,555
162,705
2,943
165,648
5,619
6,233
11,852
Principal payments on loans
19,786
-
2,679
22,465
17,856
5,307
23,163
24,203
7,440
31,643
Total receipts on real estate loans
30,173
-
4,847
35,020
180,561
8,250
188,811
29,822
13,673
43,495
Net advances (receipts) on real estate loans
$
13,801
$
580,834
$
35,439
$
630,074
$
(132,268)
$
(5,066)
$
(137,334)
$
26,033
$
27,737
$
53,770
(1) Represents loan to Sunrise Senior Living, Inc. that was acquired upon merger consummation on January 9, 2013 as discussed in Note 21.
The following is a summary of the allowance for losses on loans receivable for the periods presented (in thousands):
Year Ended December 31,
2012 (1)
2011 (2)
2010 (3)
Balance at beginning of year
$
-
$
1,276
$
5,183
Provision for loan losses
27,008
2,010
29,684
Charge-offs
(27,008)
(3,286)
(33,591)
Balance at end of year
$
-
$
-
$
1,276
(1) Provision and charge-off amounts relate to one entrance fee community in our seniors housing triple-net segment.
(2) Provision and charge-off amounts relate to one hospital in our medical facilities segment.
(3) Provision and charge-off amounts relate to certain early stage seniors housing and CCRC development projects in our seniors housing triple-net segment.
The following is a summary of our loan impairments (in thousands):
Year Ended December 31,
Balance of impaired loans at end of year
$
4,230
$
6,244
$
9,691
Allowance for loan losses
-
-
1,276
Balance of impaired loans not reserved
$
4,230
$
6,244
$
8,415
Average impaired loans for the year
$
5,237
$
7,968
$
38,409
Interest recognized on impaired loans(1)
-
(1) Represents interest recognized prior to placement on non-accrual status.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Investments in Unconsolidated Entities
During the year ended December 31, 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 at University Park in Cambridge, Massachusetts, which is immediately adjacent to the campus of the Massachusetts Institute of Technology. At December 31, 2012, our investment of $174,692,000 is recorded as an investment in unconsolidated entities on the balance sheet. The aggregate remaining unamortized basis difference of our investment in this joint venture of $448,000 at December 31, 2012 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 entities.
On December 31, 2010, we formed a strategic partnership with a national medical office building company whereby the partnership invested in 17 medical office properties. We own a controlling interest in 11 properties and consolidate them. Consolidation is based on a combination of ownership interest and control of operational decision-making authority. We do not own a controlling interest in six properties and account for them under the equity method. Our investment in the strategic partnership provides us access to health systems and includes development and property management resources.
During the three months ended June 30, 2012, we entered into a joint venture with Chartwell Retirement Residences (TSX:CSH.UN). The portfolio contains 42 properties in Canada, 39 of which are owned 50% by us and Chartwell, and three of which we wholly own. All properties are managed by Chartwell. In connection with the 39 properties, we invested $223,134,000 of cash which was recorded as an investment in unconsolidated entities on the balance sheet. The 39 properties are accounted for under the equity method of accounting and do not qualify as VIEs (variable interest entities). The joint venture is structured under RIDEA. The aggregate remaining unamortized basis difference of our investment in this joint venture of $8,656,000 at December 31, 2012 is primarily attributable to transaction costs that will be amortized over the weighted-average useful life of the related properties and included in the reported amount of income from unconsolidated entities.
The results of operations for these properties have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our statements of comprehensive income as income or loss from unconsolidated entities. The following is a summary of our income from and investments in unconsolidated entities (dollars in thousands):
Year Ended December 31,
December 31,
Percentage Ownership
Properties
Income (loss)
Income (loss)
Income (loss)
Assets
Assets
Seniors housing triple-net(1)
10% to 49%
$
(33)
$
(9)
$
-
$
34,618
$
30,975
Seniors housing operating
33% to 50%
(6,364)
(1,531)
-
217,701
15,429
Medical facilities
36% to 49%
8,879
7,312
6,673
186,617
195,318
Total
$
2,482
$
5,772
$
6,673
$
438,936
$
241,722
(1) Asset amounts include an available-for-sale equity investment. See Note 16 for additional information.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Customer Concentration
The following table summarizes certain information about our customer concentration as of December 31, 2012 (dollars in thousands):
Number of
Total
Percent of
Concentration by investment:(1)
Properties
Investment(2)
Investment(3)
Genesis HealthCare
$
2,682,822
15%
Sunrise Senior Living
1,087,357
6%
Merrill Gardens
1,084,536
6%
Belmont Village
896,692
5%
Benchmark Senior Living
842,760
5%
Remaining portfolio
10,828,842
63%
Totals
$
17,423,009
100%
_____________________
(1) Genesis is in our seniors housing triple-net segment whereas the other top five customers are in our seniors housing operating segment.
(2) Excludes our share of investments in unconsolidated entities. Please see Note 7 for additional information.
(3) Investments with our top five customers comprised 41% of total investments at December 31, 2011.
9. Borrowings Under Line of Credit Arrangement and Related Items
Please see Note 21 regarding line of credit activity that occurred subsequent to December 31, 2012. At December 31, 2012, we had a $2,000,000,000 unsecured line of credit arrangement with a consortium of 31 banks with an option to upsize the facility by up to an additional $500,000,000 through an accordion feature, allowing for an aggregate commitment of up to $2,500,000,000. The revolving credit facility was scheduled to expire July 27, 2015. 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 (1.56% at December 31, 2012). The applicable margin is based on certain of our debt ratings and was 1.35% at December 31, 2012. 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 0.25% at December 31, 2012. Principal is due upon expiration of the agreement. In addition, at December 31, 2012, we had a $5,000,000 unsecured revolving demand note undrawn and bearing interest at 1-month LIBOR plus 110 basis points.
The following information relates to aggregate borrowings under our unsecured lines of credit arrangements for the periods presented (dollars in thousands):
Year Ended December 31,
Balance outstanding at year end
$
-
$
610,000
$
300,000
Maximum amount outstanding at any month end
$
897,000
$
710,000
$
560,000
Average amount outstanding (total of daily
principal balances divided by days in period)
$
191,378
$
240,104
$
268,762
Weighted-average interest rate (actual interest
expense divided by average borrowings outstanding)
1.80%
1.51%
1.48%
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Senior Unsecured Notes and Secured Debt
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. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At December 31, 2012, the annual principal payments due on these debt obligations were as follows (in thousands):
Senior
Secured
Unsecured Notes(1,2)
Debt (1,3)
Totals
$
300,000
$
110,034
$
410,034
-
204,783
204,783
2015 (4)
501,054
224,486
725,540
700,000
328,730
1,028,730
450,000
320,943
770,943
Thereafter
4,194,403
1,122,610
5,317,013
Totals
$
6,145,457
$
2,311,586
$
8,457,043
(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts or other fair value adjustments as reflected on the consolidated balance sheet.
(2) Annual interest rates range from 2.25% to 6.5%, excluding the Canadian denominated unsecured term loan.
(3) Annual interest rates range from 1.0% to 10.0%. Carrying value of the properties securing the debt totaled $3,953,516,000 at December 31, 2012.
(4) On July 30, 2012, we completed funding on a $250,000,000 Canadian denominated unsecured term loan (approximately $251,054,000 USD at exchange rates on December 31, 2012). The loan matures on July 27, 2015 (with an option to extend for an additional year at our discretion) and bears interest at the Canadian Dealer Offered Rate plus 145 basis points (2.67% at December 31, 2012).
During the twelve months ended December 31, 2010, we issued $494,403,000 of 3.00% senior unsecured convertible notes due December 2029, generating net proceeds of $486,084,000. The notes are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at an initial conversion rate of 19.5064 shares per $1,000 principal amount of notes, which represents an initial conversion price of $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. The notes are bifurcated into a debt component and an equity component since they may be settled in cash upon conversion. The value of the debt component is based upon the estimated fair value of a similar debt instrument without the conversion feature at the time of issuance. The difference between the contractual principal on the debt and the value allocated to the debt of $29,925,000 was recorded as an equity component and represents the conversion feature of the instrument. The excess of the contractual principal amount of the debt over its estimated fair value is amortized to interest expense using the effective interest method over the period used to estimate the fair value.
The following is a summary of our senior unsecured note principal activity, excluding the Canadian denominated unsecured term loan, during the periods presented (dollars in thousands):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
4,464,927
5.133%
$
3,064,930
5.129%
$
1,661,853
5.557%
Debt issued
1,800,000
3.691%
1,400,000
5.143%
1,844,403
4.653%
Debt extinguished
(76,853)
8.000%
(3)
4.750%
(441,326)
4.750%
Debt redeemed
(293,671)
4.750%
-
0.000%
-
0.000%
Ending balance
$
5,894,403
4.675%
$
4,464,927
5.133%
$
3,064,930
5.129%
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Weighted Avg.
Weighted Avg.
Weighted Avg.
Amount
Interest Rate
Amount
Interest Rate
Amount
Interest Rate
Beginning balance
$
2,108,384
5.285%
$
1,133,715
5.972%
$
623,045
5.842%
Debt issued
157,418
4.212%
116,903
5.697%
157,156
5.454%
Debt assumed
444,744
5.681%
940,854
4.444%
564,656
6.089%
Debt extinguished
(360,403)
4.672%
(55,317)
5.949%
(194,493)
6.073%
Foreign currency
5.637%
-
0.000%
-
0.000%
Principal payments
(38,744)
5.456%
(27,771)
5.845%
(16,649)
5.792%
Ending balance
$
2,311,586
5.140%
$
2,108,384
5.285%
$
1,133,715
5.972%
Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2012, we were in compliance with all of the covenants under our debt agreements.
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. In addition, non-U.S. investments expose us to the potential losses associated with adverse changes in foreign currency to U.S. Dollar exchange rates. We elected to manage this risk through the use of a forward exchange contract and issuing debt in the foreign currency.
Interest Rate Swap Contracts Designated as 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. As of December 31, 2012, we had one interest rate swap for a total aggregate notional amount of $11,905,000. The swap hedges interest payments associated with long-term LIBOR based borrowings and matures on December 31, 2013. Approximately $1,973,000 of losses, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.
Foreign Currency Hedges
For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. The balance of the cumulative translation adjustment will be reclassified to earnings when the hedged investment is sold or substantially liquidated. On February 15, 2012, we entered into a forward exchange contract to purchase $250,000,000 Canadian Dollars at a fixed rate in the future. The forward contract was used to limit exposure to fluctuations in the Canadian Dollar to U.S. Dollar exchange rate associated with our initial cash investment funded for the Chartwell transaction. On May 3, 2012, this forward exchange contract was settled for a gain of $2,772,000, which was reflected on the consolidated statement of comprehensive income, and the proceeds were used to fund our investment. On May 3, 2012, we also entered into a forward contract to sell $250,000,000 Canadian dollars at a fixed rate on July 31, 2012 to hedge our net investment. We settled the forward contract on July 31, 2012 with the net loss reflected in OCI. Upon settlement of the forward contract we entered into a $250,000,000 Canadian Dollar term loan which has been designated as a net investment hedge of our Chartwell investment and changes in fair value are reported in OCI as no ineffectiveness is anticipated.
On August 30, 2012, we entered into two cross currency swaps to purchase £125,000,000. The swaps were used to limit exposure to fluctuations in the Pound Sterling to U.S. Dollar exchange rate associated with our initial cash investment funded for the Sunrise transaction discussed in Note 21. The cross currency swaps have been designated as a net investment hedge, and changes in fair value are reported in OCI as no ineffectiveness is anticipated.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 17, 2012, we entered into two forward exchange contracts to purchase $14,000,000 Canadian Dollars and £23,000,000 at a fixed rate in the future. The forward contracts were used to limit exposure to fluctuations in foreign currency associated with future international transactions.
The following presents the impact of derivative instruments on the statement of comprehensive income and OCI for the periods presented (dollars in thousands):
Year Ended
Location
December 31, 2012
December 31, 2011
December 31, 2010
Gain (loss) on interest rate swap recognized in OCI (effective portion)
OCI
$
3,200
$
3,189
$
(10,307)
Gain (loss) on interest rate swaps reclassified from AOCI into income (effective portion)
Interest expense
(1,596)
1,781
(2,244)
Gain (loss) on forward exchange contracts recognized in income
Realized gain
1,921
-
-
Gain (loss) on interest rate swaps recognized in income
Realized loss
(96)
-
-
Gain (loss) on forward exchange contracts designated as net investment hedge recognized in OCI
OCI
(5,134)
-
-
12. Commitments and Contingencies
At December 31, 2012, we had nine outstanding letter of credit obligations totaling $7,172,000 and expiring between 2013 and 2014. At December 31, 2012, we had outstanding construction in process of $162,984,000 for leased properties and were committed to providing additional funds of approximately $213,255,000 to complete construction. At December 31, 2012, we had contingent purchase obligations totaling $79,963,000, excluding our Sunrise-related commitment described in Note 21. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. 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 December 31, 2012, we had operating lease obligations of $699,990,000 relating to certain ground leases and Company office space. We incurred rental expense relating to company office space of $1,534,000, $1,901,000 and $1,280,000 for the years ended December 31, 2012, 2011 and 2010, respectively. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At December 31, 2012, aggregate future minimum rentals to be received under these noncancelable subleases totaled $47,632,000.
At December 31, 2012, future minimum lease payments due under operating and capital leases are as follows (in thousands):
Operating Leases
Capital Leases(1)
$
11,046
$
73,562
11,267
1,219
11,072
8,984
11,168
11,180
Thereafter
644,257
Totals
$
699,990
$
85,853
(1) Amounts above represent principal and interest obligations under capital lease arrangements. Related assets with a gross value of $186,343,000 and accumulated depreciation of $8,639,000 are recorded in real property.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Stockholders’ Equity
The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:
December 31, 2012
December 31, 2011
Preferred Stock, $1.00 par value:
Authorized shares
50,000,000
50,000,000
Issued shares
26,224,854
25,724,854
Outstanding shares
26,224,854
25,724,854
Common Stock, $1.00 par value:
Authorized shares
400,000,000
400,000,000
Issued shares
260,780,109
192,604,918
Outstanding shares
260,373,754
192,275,248
Preferred Stock. The following is a summary of our preferred stock activity during the periods presented (dollars in thousands, except per share amounts):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Weighted Avg.
Weighted Avg.
Weighted Avg.
Shares
Dividend Rate
Shares
Dividend Rate
Shares
Dividend Rate
Beginning balance
25,724,854
7.013%
11,349,854
7.663%
11,474,093
7.697%
Shares issued
11,500,000
6.500%
14,375,000
6.500%
349,854
6.000%
Shares redeemed
(11,000,000)
7.716%
-
0.000%
(5,513)
7.500%
Shares converted
-
0.000%
-
0.000%
(468,580)
7.262%
Ending balance
26,224,854
6.493%
25,724,854
7.013%
11,349,854
7.663%
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the three months ended December 31, 2010, we issued 349,854 shares of 6.00% Series H Cumulative Convertible and Redeemable Preferred Stock in connection with a business combination. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after December 31, 2015.
During the three months ended March 31, 2011, we issued 14,375,000 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 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).
During the three months ended March 31, 2012, we issued 11,500,000 of 6.50% Series J Cumulative Redeemable Preferred Stock. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after March 7, 2017.
Common Stock. The following is a summary of our common stock issuances during the periods indicated (dollars in thousands, except per share amounts):
Shares Issued
Average Price
Gross Proceeds
Net Proceeds
September 2010 public issuance
9,200,000
$
45.75
$
420,900
$
403,921
December 2010 public issuance
11,500,000
43.75
503,125
482,448
2010 Dividend reinvestment plan issuances
1,957,364
43.95
86,034
86,034
2010 Equity shelf program issuances
431,082
44.94
19,371
19,013
2010 Option exercises
129,054
31.17
4,022
4,022
2010 Totals
23,217,500
$
1,033,452
$
995,438
March 2011 public issuance
28,750,000
$
49.25
$
1,415,938
$
1,358,543
November 2011 public issuance
12,650,000
50.00
632,500
606,595
2011 Dividend reinvestment plan issuances
2,534,707
48.44
122,794
121,846
2011 Equity shelf program issuances
848,620
50.53
42,888
41,982
2011 Option exercises
232,081
37.17
8,628
8,628
2011 Totals
45,015,408
$
2,222,748
$
2,137,594
February 2012 public issuance
20,700,000
$
53.50
$
1,107,450
$
1,062,256
August 2012 public issuance
13,800,000
58.75
810,750
778,011
September 2012 public issuance
29,900,000
56.00
1,674,400
1,606,665
2012 Dividend reinvestment plan issuances
2,136,140
56.37
120,411
120,411
2012 Option exercises
341,371
40.86
13,949
13,949
2012 Senior note conversions
1,039,721
-
-
2012 Totals
67,917,232
$
3,726,960
$
3,581,292
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends. The increase in dividends is primarily attributable to increases in our common and preferred shares outstanding as described above. Please refer to Notes 2 and 18 for information related to federal income tax of dividends. The following is a summary of our dividend payments (in thousands, except per share amounts):
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Per Share
Amount
Per Share
Amount
Per Share
Amount
Common Stock
$
2.96000
$
653,321
$
2.83500
$
483,746
$
2.74000
$
348,578
Series D Preferred Stock
0.50301
2,012
1.96875
7,875
1.96875
7,875
Series E Preferred Stock
-
-
-
-
1.12500
Series F Preferred Stock
0.48715
3,410
1.90625
13,344
1.90625
13,344
Series G Preferred Stock
-
-
-
-
1.40640
Series H Preferred Stock
2.85840
1,000
2.85840
1,000
-
-
Series I Preferred Stock
3.25000
46,719
1.33159
38,283
-
-
Series J Preferred Stock
1.39038
15,988
-
-
-
-
Totals
$
722,450
$
544,248
$
370,223
Accumulated Other Comprehensive Income. The following is a summary of accumulated other comprehensive income/(loss) as of the dates indicated (in thousands):
December 31, 2012
December 31, 2011
Unrecognized gains (losses) on cash flow hedges
$
(6,957)
$
(8,561)
Unrecognized gains (losses) on equity investments
(216)
(619)
Unrecognized gains (losses) on foreign currency translation
(881)
-
Unrecognized actuarial gains (losses)
(2,974)
(2,748)
Totals
$
(11,028)
$
(11,928)
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 $2,875,000, $1,917,000 and $1,634,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
14. Stock Incentive Plans
Our Amended and Restated 2005 Long-Term Incentive Plan authorizes up to 6,200,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. The 2005 Plan replaced the 1995 Stock Incentive Plan and the Stock Plan for Non-Employee Directors. The options granted to officers and key employees under the 1995 Plan vested through 2010 and expire ten years from the date of grant. Our non-employee directors, officers and key employees are eligible to participate in the 2005 Plan. The 2005 Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three years for non-employee directors to five years for officers and key employees. Options expire ten years from the date of grant.
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:
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Dividend yield
5.16%
5.74%
6.28%
Expected volatility
35.15%
34.80%
34.08%
Risk-free interest rate
1.48%
2.87%
3.23%
Expected life (in years)
7.0
7.0
7.0
Weighted-average fair value
$11.11
$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 periods presented:
Year Ended
December 31, 2012
December 31, 2011
December 31, 2010
Number of
Weighted
Number of
Weighted
Number of
Weighted
Shares
Average
Shares
Average
Shares
Average
Stock Options
(000's)
Exercise Price
(000's)
Exercise Price
(000's)
Exercise Price
Options at beginning of year
1,252
$
42.12
1,207
$
39.45
1,062
$
37.71
Options granted
57.33
49.17
43.29
Options exercised
(341)
40.11
(232)
36.92
(129)
33.58
Options terminated
(81)
51.81
(12)
43.09
(6)
37.82
Options at end of period
1,162
$
46.40
1,252
$
42.12
1,207
$
39.45
Options exercisable at end of period
$
40.82
$
39.45
$
37.76
Weighted average fair value of
options granted during the period
$
11.11
$
9.60
$
7.82
The following table summarizes information about stock options outstanding at December 31, 2012:
Options Outstanding
Options Exercisable
Number
Weighted
Weighted Average
Number
Weighted
Weighted Average
Outstanding
Average
Remaining
Exercisable
Average
Remaining
Range of Per Share Exercise Prices
(thousands)
Exercise Price
Contract Life
(thousands)
Exercise Price
Contract Life
$30-$40
$
36.80
6.3
$
36.58
5.5
$40-$50
45.31
7.7
43.90
6.3
$50+
57.33
10.0
-
-
-
Totals
1,162
$
$46.40
6.9
$
40.82
6.0
Aggregate intrinsic value
$
17,095,000
$
6,341,000
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock for the options that were in-the-money at December 31, 2012. During the years ended December 31, 2012, 2011 and 2010, the aggregate intrinsic value of options exercised under our stock incentive plans was $6,186,000, $3,390,000 and $1,798,000, respectively (determined as of the date of option exercise). Cash received from option exercises under our stock incentive plans was $13,949,000, $8,628,000 and $4,022,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
As of December 31, 2012, there was approximately $5,104,000 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 4 years. As of
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012, there was approximately $24,796,000 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 3 years.
The following table summarizes information about non-vested stock incentive awards as of December 31, 2012 and changes for the year ended December 31, 2012:
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, 2011
$
7.40
$
44.91
Vested
(211)
6.96
(228)
47.38
Granted
11.11
57.31
Terminated
(97)
7.29
(83)
42.75
Non-vested at December 31, 2012
$
8.97
$
52.60
We use the Black-Scholes-Merton option pricing model to estimate the value of stock option grants and expect to continue to use this acceptable option valuation model. We recognize compensation cost for share-based grants on a straight-line basis through the date the awards become fully vested or to the retirement eligible date, if sooner. Compensation cost totaled $18,521,000, $10,786,000 and $11,823,000 for the years ended December 31, 2012, 2011 and 2010, respectively.
15. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Year Ended December 31,
Numerator for basic and diluted earnings
per share - net income attributable to
common stockholders
$
221,884
$
157,108
$
106,882
Denominator for basic earnings per
share: weighted-average shares
224,343
173,741
127,656
Effect of dilutive securities:
Employee stock options
Non-vested restricted shares
Convertible senior unsecured notes
1,067
Dilutive potential common shares
1,610
Denominator for diluted earnings per
share: adjusted-weighted average shares
225,953
174,401
128,208
Basic earnings per share
$
0.99
$
0.90
$
0.84
Diluted earnings per share
$
0.98
$
0.90
$
0.83
The diluted earnings per share calculations exclude the dilutive effect of 182,000, 0 and 280,000 stock options for the years ended December 31, 2012, 2011 and 2010, respectively, because the exercise prices were more than the average market price. The Series H Cumulative Convertible and Redeemable Preferred Stock issued in 2010 was excluded from the calculations for 2010 and 2011 as the effect of the conversions was anti-dilutive. The Series I Cumulative Convertible Perpetual Preferred Stock issued in 2011 was excluded from the calculations for 2011 and 2012 as the effect of the conversions was anti-dilutive.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 using level two and level three inputs such as 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 level one publicly available trading prices.
Borrowings Under Unsecured Line of Credit Arrangements - The carrying amount of the unsecured line of credit arrangements approximates fair value because the borrowings are interest rate adjustable.
Senior Unsecured Notes - The fair value of the senior unsecured notes payable was estimated based on level one publicly available trading prices.
Secured Debt - The fair value of fixed rate secured debt is estimated using level two inputs 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 using level two inputs by utilizing pricing models that consider forward yield curves and discount rates.
Foreign Currency Forward Contracts - Foreign currency forward contracts are recorded as assets or liabilities on the balance sheet at fair market value. Fair market value is determined using level two inputs by estimating the future value of the currency pair based on existing exchange rates, comprised of current spot and traded forward points, and calculating a present value of the net amount using a discount factor based on observable traded interest rates.
The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):
December 31, 2012
December 31, 2011
Carrying
Fair
Carrying
Fair
Amount
Value
Amount
Value
Financial Assets:
Mortgage loans receivable
$
87,955
$
88,975
$
63,934
$
64,194
Other real estate loans receivable
807,710
820,195
228,573
231,308
Available-for-sale equity investments
1,384
1,384
Cash and cash equivalents
1,033,764
1,033,764
163,482
163,482
Financial Liabilities:
Borrowings under unsecured lines of credit arrangements
$
-
$
-
$
610,000
$
610,000
Senior unsecured notes
6,114,151
6,793,424
4,434,107
4,709,736
Secured debt
2,336,196
2,515,145
2,112,649
2,297,278
Interest rate swap agreements
2,854
2,854
Foreign currency forward contracts
7,247
7,247
-
-
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
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Please see Note 2 for additional information.
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.
Fair Value Measurements as of December 31, 2012
Total
Level 1
Level 2
Level 3
Available-for-sale equity investments(1)
$
1,384
$
1,384
$
-
$
-
Interest rate swap agreements(2)
(264)
-
(264)
-
Foreign currency forward contract(2)
(7,247)
-
(7,247)
-
Totals
$
(6,127)
$
1,384
$
(7,511)
$
-
(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 in our balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired/assumed in business combinations (see Note 3) and asset impairments (see Note 5 for impairments of real property and Note 6 for impairments of loans receivable). We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally reside within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and 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. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of secured debt assumed in business combinations using current interest rates at which similar borrowings could be obtained on the transaction date.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Segment Reporting
We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our five operating segments: seniors housing triple-net, seniors housing operating, medical office buildings, hospitals and life science. Our seniors housing triple-net properties include skilled nursing/post-acute facilities, assisted living facilities, independent living/continuing care retirement communities and combinations thereof. Under the seniors housing triple-net segment, we invest in seniors 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 seniors housing operating properties include seniors housing communities that are owned and/or operated through RIDEA structures (see Note 3).
Our medical facility properties include medical office buildings, hospitals and life science buildings which are aggregated into our medical facilities reportable segment. Our medical office buildings are typically leased to multiple tenants and generally require a certain level of property management. Our hospital investments are leased and we are not involved in the management of the property. Our life science investment represents an investment in an unconsolidated entity (see Note 7).
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. There are no intersegment sales or transfers.
We evaluate performance based upon net operating income from continuing operations (“NOI”) of each segment. We define NOI as total revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, transaction costs, provision for loan losses 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.
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 NOI.
Summary information for the reportable segments (which excludes unconsolidated entities) during the years ended December 31, 2012, 2011 and 2010 is as follows (in thousands):
Year Ended December 31, 2012:
Seniors Housing Triple-net
Seniors Housing Operating
Medical Facilities
Non-segment / Corporate
Total
Rental income
$
692,807
$
-
$
387,462
$
-
$
1,080,269
Resident fees and services
-
697,494
-
-
697,494
Interest income
24,380
6,208
8,477
-
39,065
Other income
2,412
-
1,947
5,271
Total revenues
719,599
703,702
397,886
1,822,099
Property operating expenses
-
(471,678)
(98,439)
-
(570,117)
Net operating income from continuing operations
719,599
232,024
299,447
1,251,982
Reconciling items:
Interest expense
(4,601)
(67,524)
(31,540)
(263,418)
(367,083)
(Loss) gain on derivatives, net
(96)
1,921
-
-
1,825
Depreciation and amortization
(203,987)
(165,798)
(146,103)
-
(515,888)
General and administrative
-
-
-
(97,341)
(97,341)
Transaction costs
(35,705)
(12,756)
(13,148)
-
(61,609)
(Loss) gain on extinguishment of debt, net
(2,405)
2,697
-
Provision for loan losses
(27,008)
-
-
-
(27,008)
Income (loss) from continuing operations before income taxes and income from unconsolidated entities
$
445,797
$
(9,436)
$
109,139
$
(359,847)
$
185,653
Total assets
$
8,447,698
$
5,323,777
$
4,706,159
$
1,071,475
$
19,549,109
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2011:
Seniors Housing Triple-net
Seniors Housing Operating
Medical Facilities
Non-segment / Corporate
Total
Rental income
$
546,951
$
-
$
274,659
$
-
$
821,610
Resident fees and services
-
456,085
-
-
456,085
Interest income
34,068
-
7,002
-
41,070
Other income
6,620
-
3,985
11,295
Total revenues
587,639
456,085
285,646
1,330,060
Property operating expenses
-
(314,142)
(63,597)
-
(377,739)
Net operating income from continuing operations
587,639
141,943
222,049
952,321
Reconciling items:
Interest expense
(238)
(46,342)
(21,909)
(228,884)
(297,373)
Depreciation and amortization
(158,882)
(138,192)
(96,808)
-
(393,882)
General and administrative
-
-
-
(77,201)
(77,201)
Transaction costs
(27,993)
(36,328)
(5,903)
-
(70,224)
(Loss) gain on extinguishment of debt, net
-
-
-
Provision for loan losses
-
-
(2,010)
-
(2,010)
Income (loss) from continuing operations before income taxes and income from unconsolidated entities
$
400,526
$
(77,940)
$
95,419
$
(305,395)
$
112,610
Total assets
$
7,823,953
$
3,041,238
$
3,795,940
$
263,475
$
14,924,606
Year Ended December 31, 2010:
Seniors Housing Triple-net
Seniors Housing Operating
Medical Facilities
Non-segment / Corporate
Total
Rental income
$
283,505
$
-
$
195,960
$
-
$
479,465
Resident fees and services
-
51,006
-
-
51,006
Interest income
36,176
-
4,679
-
40,855
Other income
3,386
-
2,874
7,245
Total revenues
323,067
51,006
201,624
2,874
578,571
Property operating expenses
-
(32,621)
(45,166)
-
(77,787)
Net operating income from continuing operations
323,067
18,385
156,458
2,874
500,784
Reconciling items:
Interest expense
4,524
(7,794)
(17,579)
(113,129)
(133,978)
Depreciation and amortization
(81,718)
(15,504)
(67,943)
-
(165,165)
General and administrative
-
-
-
(54,626)
(54,626)
Transaction costs
(20,612)
(20,936)
(5,112)
-
(46,660)
Loss (gain) on extinguishment of debt, net
(7,791)
-
(1,308)
(25,072)
(34,171)
Provision for loan losses
(29,684)
-
-
-
(29,684)
Income (loss) from continuing operations before income taxes and income from unconsolidated entities
$
187,786
$
(25,849)
$
64,516
$
(189,953)
$
36,500
Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. For the year ended December 31, 2012, $25,321,000 (or 1.4% of our revenues) and $856,895,000 (or 4.4% of our assets) were located outside the United States. There were no revenues or assets located outside the United States for the years ended December 31, 2011 and 2010.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Income Taxes and Distributions
We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.
Cash distributions paid to common stockholders, for federal income tax purposes, are as follows for the periods presented:
Year Ended December 31,
Per Share:
Ordinary income
$
1.5000
$
1.1472
$
0.7774
Return of capital
1.3376
1.4227
1.7408
Long-term capital gains
0.1176
0.1059
0.0190
Unrecaptured section 1250 gains
0.0048
0.1592
0.2028
Totals
$
2.9600
$
2.8350
$
2.7400
Our consolidated provision for income taxes is as follows for the periods presented (dollars in thousands):
Year Ended December 31,
Current
$
4,785
$
$
Deferred
2,827
Totals
$
7,612
$
1,388
$
REITs generally are not subject to U.S. federal income taxes on that portion of REIT taxable income or capital gain that is distributed to stockholders. For the tax year ended December 31, 2012, as a result of acquisitions located in Canada and the United Kingdom, we were subject to foreign income taxes under the respective tax laws of these jurisdictions. The provision for income taxes for the year ended December 31, 2012 primarily relates to state taxes, foreign taxes, requirements of ASC 740-10, and taxes on TRS income.
For the tax year ended December 31, 2012, the Canadian and United Kingdom tax expense amount included in the consolidated provision for income taxes was $596,000. We did not hold an interest in any entity located in a foreign jurisdiction for the years ended December 31, 2011 and 2010.
A reconciliation of income tax expense, which is computed by applying the federal corporate tax rate for the years ended December 31, 2012, 2011 and 2010, to the income tax provision/(benefit) is as follows for the periods presented (dollars in thousands):
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes
$
64,979
$
54,750
$
26,111
Increase in valuation allowance
9,234
(4,732)
Tax at statutory rate on earnings not subject to federal income taxes
(72,640)
(48,630)
(26,064)
Other differences
6,039
-
-
Totals
$
7,612
$
1,388
$
Each TRS and foreign entity subject to income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of taxable and deductible temporary differences, as well as tax attributes, are summarized as follows for the periods presented (dollars in thousands):
Year Ended December 31,
Property, primarily differences in depreciation and amortization, the tax basis of land assets and the treatment of interests and certain costs
$
(2,144)
$
(1,577)
$
(29)
Operating loss and interest deduction carryforwards
8,552
1,488
7,080
Expense accruals and other
4,372
5,749
1,980
Valuation allowance
(12,199)
(2,965)
(7,697)
Totals
$
(1,419)
$
2,695
$
1,334
At December 31, 2012, we recorded a valuation allowance related to the deferred tax assets of our U.S. taxable REIT subsidiaries and Canadian entities. These tax attributes are carried forward in order to offset taxable income in future years. The valuation allowances have been established for these assets based upon our assessment of whether it is more likely than not that such assets may not be realized. During the year ended December 31, 2012, the valuation allowance increased primarily due to additional deferred tax assets recorded for Canadian net operating losses. At December 31, 2012, we had a net operating loss (“NOL”) carryforward related to Canadian entities of $32,061,000. These Canadian losses have a 20-year carryforward period. The valuation allowance rollforward is summarized as follows for the periods presented (dollars in thousands):
Year Ended December 31,
Beginning balance
$
2,965
$
7,697
$
7,380
Additions
9,234
-
Deductions
-
(4,732)
-
Ending balance
$
12,199
$
2,965
$
7,697
As a result of certain acquisitions, we are subject to corporate level taxes for any related asset dispositions that may occur during the ten-year period immediately after such assets were owned by a C corporation (“built-in gains tax”). The amount of income potentially subject to this special corporate level tax is generally equal to the lesser of (a) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (b) the actual amount of gain. Some but not all gains recognized during this period of time could be offset by available net operating losses and capital loss carryforwards. As of December 31, 2012, we have acquired an additional 40 assets with built-in gains as of the date of acquisition that could be subject to the built-in gains tax if disposed of prior to the expiration of the applicable ten-year period. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such properties and available tax planning strategies.
Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-length basis to a TRS if the property is operated on behalf of such subsidiary by a person who qualifies as an “eligible independent contractor.” Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property.” A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Resident level rents and related operating expenses for these facilities are reported in the consolidated financial statements and are subject to federal taxes as the operations of such facilities are included in a TRS. Certain net operating loss carryforwards could be utilized to offset taxable income in future years.
Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service (“IRS”) for the year ended December 31, 2008 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2007 and subsequent years. In the future, we will be subject to audit by the Canada Revenue Agency (“CRA”) and provincial authorities generally for periods subsequent to our REIT acquisition in May 2012 related to entities acquired or formed in connection with the acquisition, and by HM Revenue & Customs for periods subsequent to our REIT acquisition in August 2012 related to entities acquired or formed in connection with the acquisition.
At December 31, 2012, we had a net operating loss (“NOL”) carryforward related to the REIT of $96,253,000. Due to our uncertainty regarding the realization of certain deferred tax assets, we have not recorded a deferred tax asset related to NOLs generated by the REIT. These amounts can be used to offset future taxable income (and/or taxable income for prior years if an audit determines that tax is owed), if any. The REIT will be entitled to utilize NOLs and tax credit carryforwards only to the extent that REIT taxable income exceeds our deduction for dividends paid. The NOL carryforwards will expire through 2032.
We apply the rules under ASC 740-10 “Accounting for Uncertainty in Income Taxes” for uncertain tax positions using a “more likely than not” recognition threshold for tax positions. Pursuant to these rules, we will initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. The following table summarizes the activity related to our unrecognized tax benefits for the periods presented (dollars in thousands):
Year Ended December 31,
Gross unrecognized tax benefits at beginning of year
$
6,098
$
-
Increases (decreases) in unrecognized tax benefits related to a prior year
(248)
-
Increases (decreases) in unrecognized tax benefits related to the current year
6,098
Lapse in statute of limitations for assessment
(146)
-
Gross unrecognized tax benefits at end of year
$
6,098
$
6,098
Of the total $6,098,000 of total liability for gross unrecognized tax benefits at December 31, 2012, $5,916,000 (exclusive of accrued interest and penalties) relates to the April 1, 2011 Genesis HealthCare Corporation transaction (“Genesis Acquisition”) and is included in accrued expenses and other liabilities on the consolidated balance sheet. As a part of the Genesis Acquisition, we received a full indemnification from FC-GEN Operations Investment, LLC covering income taxes or other taxes as well as interest and penalties relating to tax positions taken by FC-GEN Operations Investment, LLC prior to the acquisition. Accordingly, an offsetting indemnification asset is recorded in receivables and other assets on the consolidated balance sheet. Such indemnification asset is reviewed for collectability periodically.
There is no amount of unrecognized tax benefits, currently accrued for, that would have a material impact on the effective tax rate to the extent that would be recognized. There were insignificant uncertain tax positions as of December 31, 2012 for which it is reasonably possible that the amount of unrecognized tax benefits would decrease during 2013. Interest and penalties totaled $299,000 and $815,000, respectively, for the year ended December 31, 2012 and are included in income tax expense. Of these amounts, $221,000 and $638,000 of interest and penalties, respectively, relate to the Genesis Acquisition and are offset by the indemnification asset.
19. Retirement Arrangements
Under the retirement plan and trust (the “401(k) Plan”), eligible employees may make contributions, and we may make matching contributions and a profit sharing contribution. Our contributions to the 401(k) Plan totaled $2,140,000, $1,558,000 and $1,341,000 in 2012, 2011 and 2010, respectively.
We have a Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined benefit pension plan, which provides one executive officer with supplemental deferred retirement benefits. The SERP provides an opportunity for the participant to receive
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Benefit payments are expected to total $4,043,000 during the next five fiscal years and $2,479,000 thereafter. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $6,665,000 at December 31, 2012 ($5,623,000 at December 31, 2011).
20. Quarterly Results of Operations (Unaudited)
The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2012 and 2011 (in thousands, except per share data). The sum of individual quarterly amounts may not agree to the annual amounts included in the consolidated statements of income due to rounding.
Year Ended December 31, 2012
1st Quarter
2nd Quarter
3rd Quarter(2)
4th Quarter
Revenues - as reported
$
435,359
$
453,082
$
474,139
$
500,663
Discontinued operations
(17,230)
(13,194)
(10,720)
-
Revenues - as adjusted(1)
$
418,129
$
439,888
$
463,419
$
500,663
Net income (loss) attributable to common stockholders
$
39,307
$
54,735
$
37,269
$
90,576
Net income (loss) attributable to common stockholders per share:
Basic
$
0.20
$
0.26
$
0.17
$
0.35
Diluted
0.19
0.25
0.16
0.35
Year Ended December 31, 2011
1st Quarter
2nd Quarter
3rd Quarter(3)
4th Quarter(4)
Revenues - as reported
$
255,477
$
381,059
$
384,786
$
407,391
Discontinued operations
(26,859)
(24,361)
(24,607)
(22,826)
Revenues - as adjusted(1)
$
228,618
$
356,698
$
360,179
$
384,565
Net income attributable to common stockholders
$
23,372
$
69,847
$
36,607
$
27,282
Net income attributable to common stockholders per share:
Basic
$
0.15
$
0.40
$
0.21
$
0.15
Diluted
0.15
0.39
0.21
0.15
(1) We have reclassified the income attributable to the properties sold prior to or held for sale at December 31, 2012 to discontinued operations. See Note 5.
(2) The decreases in net income and amounts per share are primarily attributable to gains on sales of real estate totaling $32,450,000 for the second quarter as compared to $12,827,000 for the third quarter.
(3) The decreases in net income and amounts per share are primarily attributable to gains on sales of real estate totaling $30,224,000 for the second quarter as compared to $185,000 for the third quarter.
(4) The decreases in net income and amounts per share are primarily attributable to impairment charges of $11,992,000.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. Subsequent Events
Line of Credit Modification
On January 8, 2013, we closed a $2,750,000,000 unsecured line of credit arrangement consisting of a $2,250,000,000 revolver and a $500,000,000 term loan. The facility replaced our existing $2,000,000,000 unsecured line of credit arrangement described in Note 9. The revolver matures on March 31, 2017, but can be extended for an additional year at our option. The term loan matures on March 31, 2016, but can be extended up to two years at our option. The revolver bears interest at LIBOR plus 117.5 basis points and has an annual facility fee of 22.5 basis points. The term loan bears interest at LIBOR plus 135 basis points. We have an option to upsize the facility by up to an additional $1,000,000,000 through an accordion feature, allowing for aggregate commitments of up to $3,750,000,000. The facility also allows us to borrow up to $500,000,000 in alternate currencies.
Sunrise Merger
In August 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sunrise Senior Living, Inc. (“Sunrise”), pursuant to which we agreed to acquire Sunrise in an all-cash merger (the “Merger”) in which Sunrise stockholders would receive $14.50 in cash for each share of Sunrise common stock. Subsequent to December 31, 2012, we completed our acquisition of the Sunrise property portfolio. The total estimated purchase price of approximately $3,281,300,000 (which includes certain seniors housing operating investments that occurred during the year ended December 31, 2012 and are included in Notes 3 and 6) is comprised of approximately $3,084,400,000 cash consideration and $133,900,000 of assumed debt (excluding our pro rata share of debt at unconsolidated entities) and excludes fair value and other purchase price accounting adjustments. As of December 31, 2012, we were committed to fund an additional $2,021,400,000 in cash which was sourced from cash on-hand and our new unsecured line of credit arrangement described above.
In connection with the Merger Agreement, Sunrise agreed to sell its management business and certain additional assets and liabilities to Red Fox Management, LP (the “Management Business Buyer”). Immediately prior to our acquisition of the Sunrise property portfolio on January 9, 2013, the Management Business Buyer acquired the Sunrise management company for $130,000,000, with the Company investing $26,000,000 for a 20% ownership interest. The Management Business Buyer will provide management services to the communities under an incentive-based management contract.
Initial accounting for the entire acquisition is incomplete as of February 26, 2013 due to the complexity of the transaction. No measurement period adjustments were recognized for the year ending December 31, 2012 as the transaction closed after year-end. Pro forma financial information has not been provided herein due to a lack of sufficient information at the time of the filing.
HEALTH
CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

ITEM 9A - CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in a report entitled Internal Control - Integrated Framework. Based on this assessment, using the criteria above, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2012.
The independent registered public accounting firm of Ernst & Young LLP, as auditors of the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended) occurred during the fourth quarter of the one-year period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
The Board of Directors and Shareholders of Health Care REIT, Inc.
We have audited Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Health Care REIT, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Health Care REIT, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012 and our report dated February 26, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Toledo, Ohio
February 26, 2013

ITEM 9B - OTHER INFORMATION
Item 9B. Other Information
None.
PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference to the information under the headings “Election of Directors,” “Executive Officers,” “Board and Committees,” “Communications with the Board” and “Security Ownership of Directors and Management and Certain Beneficial Owners - Section 16(a) Compliance” in our definitive proxy statement, which will be filed with the Securities and Exchange Commission (the “Commission”) prior to April 30, 2013.
We have adopted a Code of Business Conduct & Ethics that applies to our directors, officers and employees. The code is posted on the Internet at www.hcreit.com. Any amendment to, or waivers from, the code that relate to any officer or director of the Company will be promptly disclosed on the Internet at www.hcreit.com.
In addition, the Board has adopted charters for the Audit, Compensation and Nominating/Corporate Governance Committees. These charters are posted on the Internet at www.hcreit.com.

ITEM 11 - EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information under the headings “Executive Compensation,” “Compensation Committee Report” and “Director Compensation” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2013.

ITEM 12 - SECURITY OWNERSHIP
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the information under the headings “Security Ownership of Directors and Management and Certain Beneficial Owners” and “Equity Compensation Plan Information” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2013.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is incorporated herein by reference to the information under the headings “Board and Committees - Independence and Meetings” and “Certain Relationships and Related Transactions” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2013.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the information under the headings “Ratification of the Appointment of the Independent Registered Public Accounting Firm” and “Pre-Approval Policies and Procedures” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2013.
PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Our Consolidated Financial Statements are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2012 and 2011
Consolidated Statements of Comprehensive Income - Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Equity - Years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows - Years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
2. The following Financial Statement Schedules are included in Item 15(c):
III - Real Estate and Accumulated Depreciation
IV - Mortgage Loans on Real Estate
3. Exhibit Index:
The information required by this item is set forth on the Exhibit Index that follows the Financial Statement Schedules to this Annual Report on Form 10-K.
(b) Exhibits:
The exhibits listed on the Exhibit Index are either filed with this Form 10-K or incorporated by reference in accordance with Rule 12b-32 of the Securities Exchange Act of 1934.
(c) Financial Statement Schedules:
Financial statement schedules are included beginning on page 110.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HEALTH CARE REIT, INC.
By: /s/ George L. Chapman
Chairman, Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 26, 2013, by the following person on behalf of the Company and in the capacities indicated.
/s/ William C. Ballard, Jr.**
/s/ Jeffrey R. Otten**
William C. Ballard, Jr., Director
Jeffrey R. Otten, Director
/s/ Thomas J. Derosa**
/s/ Judith C. Pelham**
Thomas J. DeRosa, Director
Judith C. Pelham, Director
/s/ Jeffrey H. Donahue**
/s/ R. Scott Trumbull**
Jeffrey H. Donahue, Director
R. Scott Trumbull, Director
/s/ Peter J. Grua**
/s/ George L. Chapman
Peter J. Grua, Director
George L. Chapman, Chairman, Chief Executive
Officer, President and Director
(Principal Executive Officer)
/s/ Fred S. Klipsch**
/s/ Scott A. Estes**
Fred S. Klipsch, Director
Scott A. Estes, Executive Vice President and Chief
Financial Officer (Principal Financial Officer)
/s/ Sharon M. Oster**
/s/ Paul D. Nungester, Jr.**
Sharon M. Oster, Director
Paul D. Nungester, Jr., Senior Vice President and
Controller (Principal Accounting Officer)
**By: /s/ George L. Chapman
George L. Chapman, Attorney-in-Fact
Health Care REIT, Inc.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2012
(Dollars in thousands)
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Building & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Building & Improvements
Accumulated Depreciation(1)
Year Acquired
Year Built
Seniors housing triple-net:
Aboite Twp, IN
$
-
$
1,770
$
19,930
$
1,601
$
1,770
$
21,531
$
1,222
Agawam, MA
-
16,112
2,134
18,246
5,213
Agawam, MA
-
1,230
13,618
1,230
13,906
Agawam, MA
-
15,304
15,533
Agawam, MA
-
10,661
10,697
Agawam, MA
-
10,562
10,607
Akron, OH
-
8,219
8,710
1,821
Akron, OH
-
7,535
7,764
1,414
Alliance, OH
-
7,723
7,830
1,539
Amelia Island, FL
-
3,290
24,310
20,122
3,288
44,434
6,432
Ames, IA
-
8,870
-
8,870
Anderson, SC
-
6,290
6,709
1,955
Andover, MA
-
1,310
12,647
1,310
12,674
Annapolis, MD
-
1,010
24,825
1,010
24,876
1,185
Ansted, WV
-
14,113
14,156
Asheboro, NC
-
5,032
5,197
1,340
Asheville, NC
-
3,489
-
3,489
1,375
Asheville, NC
-
1,955
2,306
Aspen Hill, MD
-
-
9,008
-
9,465
Aurora, OH
-
1,760
14,148
1,760
14,189
Aurora, CO
-
2,600
5,906
7,915
2,600
13,821
2,915
Aurora, CO
-
2,440
28,172
-
2,440
28,172
4,425
Austin, TX
9,934
18,970
-
18,970
2,931
Aventura, FL
-
4,540
33,986
-
4,540
33,986
Avon, IN
-
1,830
14,470
-
1,830
14,470
1,089
Avon Lake, OH
-
10,421
10,452
Ayer, MA
-
-
22,074
-
22,077
1,056
Baltic, OH
-
8,709
8,898
1,716
Baltimore, MD
-
1,350
14,884
1,350
15,204
Baltimore, MD
-
5,039
5,129
Bartlesville, OK
-
1,380
-
1,380
Baytown, TX
9,317
6,150
-
6,150
1,883
Baytown, TX
-
11,110
-
11,110
1,009
Beachwood, OH
-
1,260
23,478
-
1,260
23,478
7,182
Beattyville, KY
-
6,900
7,560
1,489
Bedford, NH
-
2,250
28,831
2,250
28,836
1,371
Bellevue, WI
-
1,740
18,260
1,740
18,831
3,207
Benbrook, TX
-
1,550
13,553
-
1,550
13,553
Bethel Park, PA
-
1,700
16,007
-
1,700
16,007
1,650
Bluefield, VA
-
12,463
12,495
Boca Raton, FL
-
1,440
31,048
-
1,440
31,048
Boonville, IN
-
5,510
-
5,510
1,654
Bradenton, FL
-
3,298
-
3,298
1,531
Bradenton, FL
3,031
9,953
-
9,953
Braintree, MA
-
7,157
1,290
8,447
7,669
Brandon, MS
-
1,220
10,241
-
1,220
10,241
Bremerton, WA
-
2,210
2,354
Bremerton, WA
-
10,420
10,570
Brick, NJ
-
1,290
25,247
1,290
25,349
Brick, NJ
-
1,170
17,372
1,179
17,586
Brick, NJ
-
17,125
17,176
Bridgewater, NJ
-
1,850
3,050
-
1,850
3,050
Bridgewater, NJ
-
1,730
48,201
1,739
48,452
2,479
Bridgewater, NJ
-
1,800
31,810
1,800
31,850
1,124
Broadview Heights, OH
-
12,400
2,393
14,793
3,945
Brookline, MA
-
2,760
9,217
2,540
2,760
11,757
Brooklyn Park, MD
-
1,290
16,329
1,290
16,358
Burleson, TX
-
13,985
-
13,985
Burlington, NC
-
4,297
5,004
1,270
Burlington, NC
-
5,467
-
5,467
1,428
Burlington, NJ
-
1,700
12,554
1,700
12,936
Burlington, NJ
-
1,170
19,205
1,170
19,372
Byrdstown, TN
-
-
2,414
-
2,683
1,414
Cambridge, MD
-
15,843
16,050
Canton, MA
-
8,201
8,464
3,125
Canton, OH
-
2,098
-
2,098
Cape Coral, FL
-
3,281
-
3,281
Cape Coral, FL
9,387
18,868
-
18,868
Carmel, IN
-
2,370
57,175
2,370
57,596
6,749
Cary, NC
-
1,500
4,350
1,500
5,336
1,926
Catonsville, MD
-
1,330
15,003
1,330
15,552
Cedar Grove, NJ
-
1,830
10,939
1,830
10,949
Cedar Grove, NJ
-
2,850
27,737
2,850
27,757
1,352
Centreville, MD(2)
-
14,602
-
14,602
Chapel Hill, NC
-
2,646
3,429
Charles Town, WV
-
22,834
22,863
1,057
Charleston, WV
-
17,575
17,622
Charleston, WV
-
5,430
5,444
Chelmsford, MA
-
1,040
10,951
1,499
1,040
12,450
2,734
Chicago, IL
-
1,800
19,256
-
1,800
19,256
Chicago, IL
-
2,900
17,016
-
2,900
17,016
Chickasha, OK
-
1,395
-
1,395
Cinnaminson, NJ
-
6,663
6,812
Claremore, OK
-
1,427
1,428
Clark Summit, PA
-
11,179
11,194
Clark Summit, PA
-
6,529
6,583
Clarksville, TN
-
2,292
-
2,292
Cleburne, TX
-
5,369
-
5,369
Cleveland, TN
-
5,000
5,122
1,684
Clinton, MD
-
2,330
20,876
-
2,330
20,876
Cloquet, MN
-
4,660
-
4,660
Colchester, CT
-
4,860
5,355
Colts Neck, NJ
-
14,733
14,940
Columbia, TN
-
2,295
-
2,295
Columbia, TN
-
3,787
-
3,787
1,303
Columbia, SC
-
2,120
4,860
5,709
2,120
10,569
2,527
Columbia Heights, MN
-
14,175
-
14,175
Columbus, IN
-
3,190
-
3,190
Columbus, IN
-
6,710
-
6,710
1,863
Columbus, OH
-
5,170
8,255
1,070
12,885
2,533
Columbus, OH
-
1,010
5,022
-
1,010
5,022
1,084
Columbus, OH
-
1,010
4,931
13,620
1,860
17,701
3,412
Concord, NC
-
3,921
3,976
1,151
Concord, NH
-
18,423
18,801
Concord, NH
-
1,760
43,179
1,760
43,724
2,021
Concord, NH
-
3,041
3,245
Conroe, TX
-
7,771
-
7,771
Conyers, GA
-
2,740
19,302
-
2,740
19,302
Corpus Christi, TX
-
1,916
-
1,916
Cortland, NY
-
18,041
-
18,041
Daniels, WV
-
17,320
17,370
Danville, VA
-
3,954
4,676
1,238
Daphne, AL
-
2,880
8,670
-
2,880
8,670
Dedham, MA
-
1,360
9,830
-
1,360
9,830
3,168
DeForest, WI
-
5,350
5,704
Defuniak Springs, FL
-
1,350
10,250
-
1,350
10,250
1,867
Denton, TX
-
1,760
8,305
-
1,760
8,305
Denver, CO
-
2,530
9,514
-
2,530
9,514
1,965
Denver, CO
-
3,650
14,906
1,605
3,650
16,511
2,565
Denver, CO
-
2,076
13,594
-
2,076
13,594
1,146
Dover, DE
-
7,717
7,755
Dover, DE
-
22,266
22,356
1,063
Drescher, PA
-
2,060
40,236
2,067
40,388
2,063
Dundalk, MD(2)
-
1,770
32,047
-
1,770
32,047
1,532
Durham, NC
-
1,476
10,659
2,196
1,476
12,855
8,207
East Brunswick, NJ
-
1,380
34,229
1,380
34,315
1,198
East Norriston, PA
-
1,200
28,129
1,210
28,404
1,474
Easton, MD
-
24,539
-
24,539
1,205
Easton, PA
-
6,315
-
6,315
3,579
Eatontown, NJ
-
1,190
23,358
1,190
23,426
1,138
Eden, NC
-
4,877
-
4,877
1,294
Edmond, OK
-
8,388
-
8,388
Elizabeth City, NC
-
2,760
2,011
4,771
1,592
Elizabethton, TN
-
4,604
4,940
1,658
Englewood, NJ
-
4,514
4,531
Englishtown, NJ
-
12,520
12,890
Erin, TN
-
8,060
8,194
2,581
Everett, WA
-
1,400
5,476
-
1,400
5,476
2,037
Fair Lawn, NJ
-
2,420
24,504
2,420
24,663
1,190
Fairfield, CA
-
1,460
14,040
1,548
1,460
15,588
4,337
Fairhope, AL
-
9,119
-
9,119
Fall River, MA
-
5,829
4,856
10,685
3,953
Fall River, MA
-
34,715
34,923
1,655
Fanwood, NJ
-
2,850
55,175
2,850
55,296
1,904
Fayetteville, GA
-
12,665
-
12,665
Fayetteville, NY
-
3,962
4,462
1,316
Findlay, OH
-
1,800
-
1,800
Fishers, IN
-
1,500
14,500
-
1,500
14,500
1,090
Florence, NJ
-
2,978
-
2,978
Flourtown, PA
-
1,800
14,830
1,800
14,938
Flower Mound, TX
-
1,800
8,414
-
1,800
8,414
-
-
Follansbee, WV
-
27,670
27,714
1,305
Forest City, NC
-
4,497
-
4,497
1,205
Fort Ashby, WV
-
19,566
19,689
Franconia, NH
-
11,320
11,390
Franklin, NH
-
15,210
15,255
Fredericksburg, VA
-
1,000
20,000
1,200
1,000
21,200
4,133
Fredericksburg, VA
-
28,611
28,646
1,339
Fredericksburg, VA
-
3,700
22,016
-
3,700
22,016
Gardner, MA
-
10,210
10,237
Gastonia, NC
-
6,129
-
6,129
1,591
Gastonia, NC
-
3,096
3,118
Gastonia, NC
-
5,029
5,149
1,346
Georgetown, TX
-
2,100
-
2,100
Gettysburg, PA
-
8,913
8,938
Glastonbury, CT
-
1,950
9,532
2,360
9,717
Glen Mills, PA
-
9,110
9,275
Glenside, PA
-
1,940
16,867
1,940
16,891
Goshen, IN
-
6,120
-
6,120
1,255
Graceville, FL
-
13,000
-
13,000
2,302
Grafton, WV
-
18,824
18,861
Granbury, TX
-
2,040
30,670
-
2,040
30,670
1,365
Granbury, TX
-
2,550
2,940
-
2,550
2,940
Grand Blanc, MI
-
7,843
-
7,843
-
-
Grand Ledge, MI
8,178
1,150
16,286
-
1,150
16,286
Granger, IN
-
1,670
21,280
1,751
1,670
23,031
1,313
Greendale, WI
-
2,060
35,383
-
2,060
35,383
Greeneville, TN
-
8,290
8,797
2,122
Greenfield, WI
-
6,626
6,954
Greensboro, NC
-
2,970
3,524
Greensboro, NC
-
5,507
1,013
6,520
1,755
Greenville, SC
-
4,750
-
4,750
1,153
Greenville, SC
-
5,400
100,523
1,997
5,400
102,520
8,077
Greenville, NC
-
4,393
4,561
1,177
Greenwood, IN
-
1,550
22,770
1,550
22,851
1,344
Groton, CT
-
2,430
19,941
2,430
20,680
1,053
Haddonfield, NJ
-
2,320
2,480
1,668
Hamburg, PA
-
10,543
10,685
Hamilton, NJ
-
4,469
-
4,469
1,330
Hanover, IN
-
4,430
-
4,430
1,108
Harleysville, PA
-
11,355
-
11,355
1,089
Harriman, TN
-
8,060
8,218
2,757
Hatboro, PA
-
-
28,112
-
29,002
1,329
Hattiesburg, MS
-
15,518
15,553
Haverford, PA
-
1,880
33,993
1,882
34,378
1,750
Hemet, CA
-
3,405
-
3,405
Hermitage, TN
-
1,500
9,856
1,500
9,863
Hickory, NC
-
1,219
High Point, NC
-
4,443
5,236
1,393
High Point, NC
-
2,185
2,595
High Point, NC
-
3,395
3,423
High Point, NC
-
4,143
-
4,143
1,101
Highland Park, IL
-
2,820
15,832
-
2,820
15,832
Highlands Ranch, CO
-
3,721
-
3,721
1,132
Hilltop, WV
-
25,355
25,370
1,198
Hollywood, FL
-
1,240
13,806
-
1,240
13,806
Homestead, FL
-
2,750
11,750
-
2,750
11,750
2,129
Houston, TX
9,931
18,715
-
18,715
2,642
Houston, TX
-
5,090
9,471
-
5,090
9,471
1,014
Houston, TX
10,288
5,970
6,720
1,989
Howell, NJ
10,299
1,050
21,703
1,064
21,839
1,140
Huntington, WV
-
32,261
32,387
1,530
Huron, OH
-
6,088
1,452
7,540
1,389
Hurricane, WV
-
21,454
22,258
1,041
Hutchinson, KS
-
10,590
10,784
2,317
Indianapolis, IN
-
6,287
22,565
28,852
5,663
Indianapolis, IN
-
2,473
12,123
14,596
2,697
Jackson, NJ
-
6,500
26,405
-
6,500
26,405
Jacksonville Beach, FL
-
1,210
26,207
-
1,210
26,207
Jamestown, TN
-
-
6,707
-
6,752
3,912
Jefferson, OH
-
9,120
-
9,120
1,858
Jupiter, FL
-
3,100
47,453
-
3,100
47,453
Kalida, OH
-
8,173
-
8,173
1,285
Keene, NH
-
9,639
9,923
Kenner, LA
-
1,100
10,036
1,100
10,364
6,550
Kennesaw, GA
-
10,848
-
10,848
Kennett Square, PA
-
1,050
22,946
1,060
22,985
1,186
Kenosha, WI
-
1,500
9,139
-
1,500
9,139
Kent, WA
-
20,318
10,470
30,788
3,651
Kirkland, WA
-
1,880
4,315
1,880
4,998
1,143
Laconia, NH
-
14,434
14,916
Lake Barrington, IL
-
3,400
66,179
-
3,400
66,179
Lake Zurich, IL
-
1,470
9,830
-
1,470
9,830
Lakewood Ranch, FL
-
6,714
-
6,714
Lakewood Ranch, FL
7,569
1,000
22,388
-
1,000
22,388
Lancaster, PA
-
7,623
7,702
Lancaster, NH
-
15,804
15,964
Lancaster, NH
-
Langhorne, PA
-
1,350
24,881
1,350
24,998
1,221
Lapeer, MI
-
7,625
-
7,625
LaPlata, MD(2)
-
19,068
-
19,068
Lawrence, KS
3,797
8,716
-
8,716
Lebanon, NH
-
20,138
20,202
Lecanto, FL
-
6,900
-
6,900
1,607
Lee, MA
-
18,135
19,061
5,582
Leicester, England
-
6,897
30,240
-
6,897
30,240
-
-
Lenoir, NC
-
3,748
4,389
1,161
Leominster, MA
-
6,201
6,226
Lewisburg, WV
-
3,699
3,769
Lexington, NC
-
3,900
1,015
4,915
1,389
Lexington, KY
-
1,850
11,977
-
1,850
11,977
-
-
Libertyville, IL
-
6,500
40,024
-
6,500
40,024
1,848
Lincoln, NE
5,131
13,807
-
13,807
Linwood, NJ
-
21,984
22,413
1,178
Litchfield, CT
-
1,240
17,908
1,250
18,000
Little Neck, NY
-
3,350
38,461
3,355
38,882
2,008
Loganville, GA
-
1,430
22,912
-
1,430
22,912
Longview, TX
-
5,520
-
5,520
Longwood, FL
-
1,260
6,445
-
1,260
6,445
Louisville, KY
-
10,010
-
10,010
2,650
Louisville, KY
-
7,135
7,298
2,443
Louisville, KY
-
4,675
4,784
1,637
Lowell, MA
-
1,070
13,481
1,070
13,573
Lowell, MA
-
3,378
3,408
Lutherville, MD
-
1,100
19,786
1,579
1,100
21,365
Macungie, PA
-
29,033
29,049
1,364
Mahwah, NJ
-
-
-
-
-
Manahawkin, NJ
-
1,020
20,361
1,020
20,483
Manalapan, NJ
-
22,624
22,680
Manassas, VA
-
7,446
7,976
1,875
Mansfield, TX
-
5,251
-
5,251
Marianna, FL
-
8,910
-
8,910
1,573
Marietta, GA
-
1,270
10,519
-
1,270
10,519
Marlinton, WV
-
8,430
-
8,430
Marmet, WV
-
26,483
-
26,483
1,225
Martinsburg, WV
-
17,180
17,211
Martinsville, VA
-
-
-
-
-
Matawan, NJ
-
1,830
20,618
-
1,830
20,618
Matthews, NC
-
4,738
-
4,738
1,295
McConnelsville, OH
-
7,060
-
7,060
McHenry, IL
-
1,576
-
-
1,576
-
-
McHenry, IL
-
3,550
15,300
6,718
3,550
22,018
3,105
McKinney, TX
-
1,570
7,389
-
1,570
7,389
McMurray, PA
-
1,440
15,805
1,894
1,440
17,699
Melbourne, FL
-
7,070
48,257
12,990
7,070
61,247
4,901
Melbourne, FL
-
2,540
21,319
-
2,540
21,319
Melville, NY
-
4,280
73,283
4,282
74,003
3,762
Memphis, TN
-
5,963
-
5,963
1,733
Memphis, TN
-
9,660
1,600
11,260
Mendham, NJ
-
1,240
27,169
1,240
27,544
1,281
Menomonee Falls, WI
-
1,020
6,984
-
1,020
6,984
Mercerville, NJ
-
9,929
10,039
Meriden, CT
-
1,300
1,472
1,300
1,477
Merrillville, IN
-
7,084
3,526
10,610
6,112
Merrillville, IN
-
1,080
3,413
-
1,080
3,413
Middleburg Heights, OH
-
7,780
-
7,780
1,735
Middleton, WI
-
4,006
4,606
1,229
Middletown, RI
-
1,480
19,703
-
1,480
19,703
Midland, MI
-
11,025
11,064
Milford, DE
-
7,816
7,855
Milford, DE
-
19,216
19,273
Millersville, MD
-
1,020
1,045
Millville, NJ
-
29,944
30,030
1,433
Missoula, MT
-
7,490
7,867
1,503
Monmouth Junction, NJ
-
6,209
6,266
Monroe, NC
-
3,681
4,329
1,175
Monroe, NC
-
4,799
5,656
1,446
Monroe, NC
-
4,021
4,135
1,119
Monroe Twp, NJ
-
1,160
13,193
1,160
13,268
Monteagle, TN
-
3,318
-
3,318
1,061
Monterey, TN
-
-
4,195
-
4,605
2,454
Montville, NJ
-
3,500
31,002
3,500
31,137
1,112
Moorestown, NJ
-
2,060
51,628
2,063
51,892
2,668
Morehead City, NC
-
3,104
1,648
4,752
1,593
Morgantown, KY
-
3,705
4,320
1,128
Morgantown, WV
-
15,633
-
15,633
Morton Grove, IL
-
1,900
19,374
-
1,900
19,374
Mount Airy, NC
-
6,430
6,720
1,199
Mountain City, TN
-
5,896
6,556
3,568
Mt. Vernon, WA
-
2,200
2,356
Myrtle Beach, SC
-
6,890
41,526
11,498
6,890
53,024
4,281
Nacogdoches, TX
-
5,754
-
5,754
Naperville, IL
-
3,470
29,547
-
3,470
29,547
1,390
Naples, FL
-
5,450
-
5,450
1,361
Nashville, TN
-
4,910
29,590
-
4,910
29,590
3,567
Naugatuck, CT
-
1,200
15,826
1,200
15,924
Needham, MA
-
1,610
13,715
1,610
14,081
4,576
Neenah, WI
-
15,120
-
15,120
1,032
New Braunfels, TX
-
1,200
19,800
-
1,200
19,800
New Haven, IN
-
3,524
-
3,524
1,046
Newark, DE
-
21,220
1,488
22,708
4,595
Newport, VT
-
3,867
-
3,867
Norman, OK
-
1,484
-
1,484
Norman, OK
11,524
1,480
33,330
-
1,480
33,330
Norristown, PA
-
1,200
19,488
1,135
1,200
20,623
North Andover, MA
-
21,817
21,870
1,047
North Andover, MA
-
1,070
17,341
1,293
1,070
18,634
North Augusta, SC
-
2,558
-
2,558
North Cape May, NJ
-
22,266
22,302
1,062
Oak Hill, WV
-
24,506
-
24,506
1,132
Oak Hill, WV
-
-
Ocala, FL
-
1,340
10,564
-
1,340
10,564
Ogden, UT
-
6,700
7,399
1,534
Oklahoma City, OK
-
7,513
-
7,513
Oklahoma City, OK
-
7,017
-
7,017
Omaha, NE
-
10,230
-
10,230
Omaha, NE
4,419
8,864
-
8,864
Oneonta, NY
-
5,020
-
5,020
Ormond Beach, FL
-
-
2,739
-
2,812
1,495
Orwigsburg, PA
-
20,632
20,766
Oshkosh, WI
-
3,800
3,687
7,487
1,272
Oshkosh, WI
-
23,237
-
23,237
2,424
Overland Park, KS
-
1,120
8,360
-
1,120
8,360
1,763
Overland Park, KS
-
3,730
27,076
3,730
27,416
2,317
Overland Park, KS
-
4,500
29,105
7,295
4,500
36,400
2,007
Owasso, OK
-
1,380
-
1,380
Owensboro, KY
-
6,760
6,797
1,528
Owensboro, KY
-
13,275
-
13,275
2,912
Owenton, KY
-
2,400
-
2,400
Oxford, MI
11,710
1,430
15,791
-
1,430
15,791
Palestine, TX
-
4,320
1,300
5,620
Palm Coast, FL
-
10,957
-
10,957
Panama City Beach, FL
-
7,717
7,726
Paris, TX
-
5,452
-
5,452
2,240
Parkersburg, WV
-
21,288
21,931
1,012
Parkville, MD
-
1,350
16,071
1,350
16,284
Parkville, MD
-
11,186
-
11,186
Parkville, MD
-
1,100
11,768
-
1,100
11,768
Pasadena, TX
9,955
24,080
-
24,080
3,664
Paso Robles, CA
-
1,770
8,630
1,770
9,323
2,656
Pawleys Island, SC
-
2,020
32,590
6,022
2,020
38,612
6,600
Pella, IA
-
6,716
-
6,716
Pennington, NJ
-
1,380
27,620
1,420
28,006
Pennsauken, NJ
-
10,780
10,959
Petoskey, MI
6,293
14,452
-
14,452
Philadelphia, PA
-
2,700
25,709
2,700
26,041
1,259
Philadelphia, PA
-
2,930
10,433
2,642
2,930
13,075
Philadelphia, PA
-
11,239
11,302
Philadelphia, PA
-
1,810
16,898
1,810
16,931
Phillipsburg, NJ
-
21,175
21,368
1,044
Phillipsburg, NJ
-
8,114
8,151
Pigeon Forge, TN
-
4,180
4,297
1,510
Pinehurst, NC
-
2,690
3,174
Piqua, OH
-
1,885
-
1,885
Pittsburgh, PA
-
1,750
8,572
1,750
8,687
1,899
Plainview, NY
-
3,990
11,969
3,990
12,064
Plattsmouth, NE
-
5,650
-
5,650
Plymouth, MI
-
1,490
19,990
1,490
20,104
1,093
Port St. Joe, FL
-
2,055
-
2,055
Port St. Lucie, FL
-
8,700
47,230
4,761
8,700
51,991
3,550
Post Falls, ID
-
2,700
14,217
2,181
2,700
16,398
1,845
Pottsville, PA
-
26,964
27,166
1,319
Princeton, NJ
-
1,730
30,888
1,772
31,663
Quakertown, PA
-
1,040
25,389
1,040
25,461
1,213
Raleigh, NC
-
10,000
-
-
10,000
-
-
Raleigh, NC
26,506
3,530
59,589
-
3,530
59,589
Raleigh, NC
-
2,580
16,837
-
2,580
16,837
Reading, PA
-
19,906
20,008
Red Bank, NJ
-
1,050
21,275
1,050
21,372
Rehoboth Beach, DE
-
24,248
24,443
1,269
Reidsville, NC
-
3,830
4,687
1,341
Reno, NV
-
1,060
11,440
1,060
12,045
2,569
Ridgeland, MS
-
7,675
8,102
1,926
Ridgely, TN
-
5,700
5,797
1,872
Ridgewood, NJ
-
1,350
16,170
1,350
16,649
Rockledge, FL
-
4,117
-
4,117
1,677
Rockville, MD
-
-
16,398
-
-
16,398
Rockville, CT
-
1,500
4,835
1,500
4,911
Rockville Centre, NY
-
4,290
20,310
4,290
20,452
Rockwood, TN
-
7,116
7,857
2,521
Rocky Hill, CT
-
1,090
6,710
1,500
1,090
8,210
1,842
Rogersville, TN
-
3,278
-
3,278
1,052
Romeoville, IL
-
1,895
-
-
1,895
-
-
Rutland, VT
-
1,190
23,655
1,190
23,743
1,151
Saint Simons Island, GA
-
6,440
50,060
1,270
6,440
51,330
5,809
Salem, OR
-
5,171
-
5,172
1,977
Salisbury, NC
-
5,697
5,865
1,517
San Angelo, TX
-
8,800
9,225
1,927
San Antonio, TX
-
6,120
28,169
1,587
6,120
29,756
San Antonio, TX
10,754
7,315
-
7,315
2,258
San Antonio, TX
9,912
13,360
-
13,360
2,124
Sanatoga, PA
-
30,695
30,733
1,439
Sand Springs, OK
6,792
19,654
-
19,654
Sarasota, FL
-
3,175
-
3,175
1,474
Sarasota, FL
-
3,400
-
3,400
Sarasota, FL
-
1,120
12,489
-
1,120
12,489
Sarasota, FL
-
8,825
-
8,825
Sarasota, FL
-
9,854
-
9,854
Scituate, MA
-
1,740
10,640
-
1,740
10,640
2,077
Scott Depot, WV
-
6,876
6,934
Seaford, DE
-
14,029
14,082
Seaford, DE
-
7,995
-
7,995
Selbyville, DE
-
25,912
26,058
1,361
Seven Fields, PA
-
4,663
4,722
1,813
Severna Park, MD(2)
-
2,120
31,273
-
2,120
31,273
1,472
Shawnee, OK
-
1,400
-
1,400
Sheboygan, WI
-
5,320
3,774
9,094
1,143
Shelbyville, KY
-
3,870
-
3,870
Shelton, WA
-
17,049
-
17,049
Shepherdstown, WV
-
13,806
13,819
Sherman, TX
-
5,221
-
5,221
Shillington, PA
-
1,020
19,569
1,020
19,687
Shrewsbury, NJ
-
2,120
38,116
2,120
38,386
1,984
Silver Spring, MD
-
1,250
7,278
-
1,250
7,278
Silver Spring, MD
-
1,150
9,252
-
1,150
9,252
Silvis, IL
-
16,420
-
16,420
1,029
Sissonville, WV
-
23,948
24,003
1,136
Sisterville, WV
-
5,400
5,642
Smithfield, NC
-
5,680
-
5,680
1,487
Somerset, MA
-
1,010
29,577
1,010
29,671
1,394
South Boston, MA
-
2,002
5,218
7,220
2,823
South Pittsburg, TN
-
5,628
-
5,628
1,547
Southbury, CT
-
1,860
23,613
1,860
24,571
1,102
Sparks, NV
-
3,700
46,526
-
3,700
46,526
4,326
Spartanburg, SC
-
3,350
15,750
12,669
3,350
28,419
3,816
Spencer, WV
-
8,810
8,838
Spring City, TN
-
6,085
3,210
9,295
2,663
Spring House, PA
-
10,780
10,936
St. Charles, MD
-
15,555
15,636
St. Louis, MO
-
1,890
12,165
-
1,890
12,165
Statesville, NC
-
1,447
1,713
Statesville, NC
-
6,183
6,191
1,566
Statesville, NC
-
3,627
-
3,627
Stillwater, OK
-
1,400
-
1,400
Summit, NJ
-
3,080
14,152
-
3,080
14,152
Superior, WI
-
1,020
13,735
-
1,020
13,735
-
-
Swanton, OH
-
6,370
-
6,370
1,504
Takoma Park, MD
-
1,300
10,136
-
1,300
10,136
Texarkana, TX
-
1,403
-
1,403
Thomasville, GA
-
13,899
14,308
Tomball, TX
-
1,050
13,300
-
1,050
13,300
Toms River, NJ
-
1,610
34,627
1,650
34,933
1,819
Topeka, KS
-
12,712
-
12,712
Towson, MD(2)
-
1,180
13,280
-
1,180
13,280
Troy, OH
-
2,000
4,254
6,254
1,168
Troy, OH
-
16,730
-
16,730
3,803
Trumbull, CT
-
4,440
43,384
-
4,440
43,384
1,930
Tucson, AZ
-
13,399
-
13,399
2,692
Tulsa, OK
-
1,390
7,110
1,390
7,329
Tulsa, OK
-
1,320
10,087
-
1,320
10,087
Tyler, TX
-
5,268
-
5,268
Uhrichsville, OH
-
6,716
-
6,716
1,308
Uniontown, PA
-
6,817
6,901
Valley Falls, RI
-
1,080
7,433
1,080
7,443
Valparaiso, IN
-
2,558
-
2,558
Valparaiso, IN
-
2,962
-
2,962
Venice, FL
-
6,000
-
6,000
1,472
Venice, FL
-
1,150
10,674
-
1,150
10,674
Vero Beach, FL
-
3,187
-
3,187
1,007
Vero Beach, FL
-
3,263
-
3,263
1,041
Vero Beach, FL
-
2,930
40,070
14,729
2,930
54,799
6,268
Voorhees, NJ
-
1,800
37,299
1,800
37,858
1,809
Voorhees, NJ(2)
-
1,900
26,040
-
1,900
26,040
1,278
Waconia, MN
-
14,726
4,334
19,060
Wake Forest, NC
-
3,003
1,742
4,745
1,640
Walkersville, MD
-
1,650
15,103
-
1,650
15,103
Wall, NJ
-
1,650
25,350
1,690
25,665
Wallingford, CT
-
1,210
1,256
Wareham, MA
-
10,313
1,701
12,014
3,650
Warren, NJ
-
2,000
30,810
2,000
30,896
1,072
Warwick, RI
-
1,530
18,564
1,530
18,612
Watchung, NJ
-
1,920
24,880
1,960
25,186
Waukee, IA
-
1,870
31,878
-
1,870
31,878
Waukesha, WI
-
1,100
14,910
-
1,100
14,910
1,206
Waxahachie, TX
-
5,763
-
5,763
Weatherford, TX
-
5,261
-
5,261
Webster, TX
9,473
5,940
-
5,940
1,826
Webster, NY
-
8,968
-
8,968
Webster, NY
-
1,300
21,127
-
1,300
21,127
Webster Groves, MO
-
1,790
15,469
-
1,790
15,469
West Bend, WI
-
17,790
-
17,790
West Chester, PA
-
1,350
29,237
1,350
29,332
1,411
West Chester, PA
-
3,290
42,258
-
3,290
42,258
West Chester, PA
-
11,894
-
11,894
West Orange, NJ
-
2,280
10,687
2,280
10,855
West Worthington, OH
-
5,090
-
5,090
1,031
Westerville, OH
-
8,287
3,105
11,392
6,416
Westfield, NJ(2)
-
2,270
16,589
-
2,270
16,589
Westford, MA
-
13,829
14,032
Westlake, OH
-
1,330
17,926
-
1,330
17,926
5,570
Westmoreland, TN
-
1,822
2,635
4,457
1,492
White Lake, MI
10,713
2,920
20,179
2,920
20,234
1,126
Wichita, KS
-
1,400
11,000
-
1,400
11,000
2,178
Wichita, KS
-
1,760
19,007
-
1,760
19,007
Wichita, KS
13,828
19,747
-
19,747
Wilkes-Barre, PA
-
13,842
13,937
Wilkes-Barre, PA
-
2,301
2,345
Willard, OH
-
6,447
-
6,447
Williamsport, PA
-
4,946
5,226
Williamsport, PA
-
8,487
8,914
Williamstown, KY
-
6,430
-
6,430
1,424
Willow Grove, PA
-
1,300
14,736
1,300
14,845
Wilmington, DE
-
9,494
9,551
Wilmington, NC
-
2,991
-
2,991
1,137
Windsor, CT
-
2,250
8,539
1,700
2,250
10,239
Windsor, CT
-
1,800
1,800
1,544
Winston-Salem, NC
-
2,514
2,973
Winston-Salem, NC
-
5,700
13,550
12,239
5,700
25,789
4,108
Worcester, MA
-
3,500
54,099
-
3,500
54,099
4,345
Worcester, MA
-
2,300
9,060
-
2,300
9,060
1,087
Wyncote, PA
-
2,700
22,244
2,700
22,389
1,106
Wyncote, PA
-
1,610
21,256
1,610
21,438
1,009
Wyncote, PA
-
7,811
7,829
Zionsville, IN
-
1,610
22,400
1,691
1,610
24,091
1,378
Seniors housing triple-net total
$
218,741
$
623,120
$
7,462,660
$
341,850
$
625,388
$
7,802,238
$
707,213
Health Care REIT, Inc.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2012
(Dollars in thousands)
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Building & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Building & Improvements
Accumulated Depreciation(1)
Year Acquired
Year Built
Seniors housing operating:
Agawam, MA
$
6,805
$
$
10,044
$
$
$
10,127
$
1,119
Albertville, AL
2,066
6,203
6,361
Albuquerque, NM
5,657
1,270
20,837
1,272
21,399
2,569
Alhambra, CA
3,012
6,305
6,357
Altrincham, England
-
5,578
32,373
-
5,578
32,373
Apple Valley, CA
10,979
16,639
16,746
2,083
Arlington, TX
22,542
1,660
37,395
-
1,660
37,395
Atlanta, GA
7,791
2,058
14,914
2,059
15,672
9,456
Austin, TX
19,309
9,520
10,066
3,817
Avon, CT
20,033
1,550
30,571
1,550
30,731
4,460
Azusa, CA
-
3,141
6,049
9,190
1,549
Bagshot, England
-
6,537
38,668
-
6,537
38,668
Banstead, England
-
8,781
54,836
-
8,781
54,836
-
Bellingham, WA
8,860
1,500
19,861
1,500
19,971
2,350
Belmont, CA
-
3,000
23,526
3,000
23,771
2,651
Borehamwood, England
-
7,074
41,060
-
7,074
41,060
-
Brighton, MA
10,899
2,100
14,616
2,100
14,711
1,736
Brookfield, CT
20,414
2,250
30,180
2,250
30,352
3,650
Buffalo Grove, IL
-
2,850
49,129
-
2,850
49,129
Burbank, CA
-
4,940
43,466
-
4,940
43,466
Cardiff by the Sea, CA
41,836
5,880
64,711
5,880
64,777
4,842
Carol Stream, IL
-
1,730
55,048
-
1,730
55,048
Centerville, MA
-
1,300
27,357
1,300
27,546
2,403
Cincinnati, OH
-
2,060
109,388
2,602
2,060
111,990
7,006
Citrus Heights, CA
15,189
2,300
31,876
2,300
32,304
3,897
Concord, NH
14,055
21,164
21,302
1,732
Costa Mesa, CA
-
2,050
19,969
2,050
20,014
2,257
Dallas, TX
-
1,080
9,655
1,080
9,771
Danvers, MA
9,857
1,120
14,557
1,120
14,677
1,410
Davenport, IA
-
1,403
35,893
2,063
1,403
37,956
3,250
Denver, CO
-
2,910
35,838
-
2,910
35,838
Denver, CO
13,161
1,450
19,389
-
1,450
19,389
Dublin, OH
18,884
1,680
43,423
1,680
44,364
4,501
East Haven, CT
23,721
2,660
35,533
2,660
35,959
5,310
Encinitas, CA
-
1,460
7,721
1,460
8,074
2,882
Encino, CA
-
5,040
46,255
-
5,040
46,255
Escondido, CA
13,182
1,520
24,024
1,520
24,131
2,677
Florence, AL
7,267
13,049
13,217
1,512
Fort Worth, TX
-
2,080
27,888
-
2,080
27,888
Fremont, CA
19,780
3,400
25,300
1,649
3,400
26,949
5,010
Gardnerville, NV
12,783
1,143
10,831
1,144
11,524
7,408
Gig Harbor, WA
5,789
1,560
15,947
1,560
16,018
1,843
Gilroy, CA
-
13,880
23,935
1,520
37,055
5,004
Glenview, IL
-
2,090
69,288
-
2,090
69,288
Hamden, CT
15,963
1,460
24,093
1,460
24,296
3,001
Hemet, CA
13,550
1,890
28,606
1,890
29,055
4,961
Hemet, CA
-
9,630
10,346
Henderson, NV
-
29,809
29,816
1,722
Houston, TX
-
3,830
55,674
-
3,830
55,674
3,560
Houston, TX
8,149
27,598
27,742
2,609
Houston, TX
18,509
1,040
31,965
-
1,040
31,965
Irving, TX
-
1,030
6,823
1,030
7,461
Kanata, ON
-
2,278
41,881
-
2,278
41,881
1,369
Kansas City, MO
5,745
1,820
34,898
1,473
1,836
36,355
4,077
Kansas City, MO
7,030
1,930
39,997
1,943
40,493
5,402
Kennewick, WA
14,866
1,820
27,991
1,820
28,226
4,318
Kingwood, TX
3,258
9,777
9,856
Kirkland, WA
24,600
3,450
38,709
3,450
38,723
2,570
Lancaster, CA
10,240
15,295
15,401
2,075
Leawood, KS
16,383
2,490
32,493
-
2,490
32,493
Los Angeles, CA
-
-
11,430
-
11,924
Los Angeles, CA
67,816
-
114,438
-
114,591
8,162
Los Angeles, CA
-
3,540
19,007
-
3,540
19,007
Louisville, KY
-
2,420
20,816
-
2,420
20,816
Mansfield, MA
29,381
3,320
57,011
3,320
57,490
6,447
Manteca, CA
6,279
1,300
12,125
1,423
1,300
13,548
2,608
Marysville, WA
4,652
4,780
5,082
1,242
Memphis, TN
-
1,800
17,744
-
1,800
17,744
1,544
Meriden, CT
9,730
1,500
14,874
1,500
15,110
2,667
Mesa, AZ
6,201
9,087
9,663
3,228
Middletown, CT
16,026
1,430
24,242
1,430
24,432
3,227
Middletown, RI
17,044
2,480
24,628
2,480
24,953
3,143
Milford, CT
11,956
3,210
17,364
3,210
17,617
2,361
Mill Creek, WA
29,622
10,150
60,274
10,150
60,693
9,422
Minnetonka, MN
14,935
2,080
24,360
-
2,080
24,360
Monroe, WA
13,791
2,560
34,460
2,560
34,703
4,098
Mystic, CT
11,956
1,400
18,274
1,400
18,487
1,928
Naples, FL
-
1,716
17,306
1,647
1,716
18,953
14,963
Nashville, TN
-
3,900
35,788
-
3,900
35,788
2,595
Newton, MA
29,000
2,250
43,614
2,250
43,730
4,354
Newton, MA
16,745
2,500
30,681
1,058
2,500
31,739
3,633
Newton, MA
-
3,360
25,099
3,360
25,294
3,272
Niantic, CT
-
1,320
25,986
1,320
26,227
2,319
North Andover, MA
23,530
1,960
34,976
1,960
35,185
3,882
North Chelmsford, MA
12,401
18,478
18,677
1,617
Oak Park, IL
-
1,250
40,383
-
1,250
40,383
Oceanside, CA
13,173
2,160
18,352
2,160
18,458
1,777
Olympia, WA
7,026
16,689
16,884
1,976
Overland Park, KS
3,648
1,540
16,269
-
1,540
16,269
Pembroke, ON
-
2,603
13,630
-
2,603
13,630
Plano, TX
4,286
8,538
8,691
Providence, RI
-
2,600
27,546
2,600
28,031
4,658
Purley, England
-
9,676
35,251
-
9,676
35,251
-
Puyallup, WA
11,586
1,150
20,776
1,150
21,017
2,616
Quincy, MA
8,585
1,350
12,584
1,350
12,746
1,480
Rancho Palos Verdes, CA
-
5,450
60,034
-
5,450
60,034
Redondo Beach, CA
7,873
-
9,557
-
9,558
1,531
Renton, WA
22,620
3,080
51,824
3,080
51,858
3,327
Rocky Hill, CT
10,811
16,351
16,498
1,638
Rohnert Park, CA
13,912
6,500
18,700
1,519
6,500
20,219
3,798
Romeoville, IL
-
12,646
58,559
6,114
65,945
5,084
Roswell, GA
8,000
1,107
9,627
1,107
10,125
6,606
Roswell, GA
-
2,080
6,486
-
2,080
6,486
Sacramento, CA
10,456
14,781
14,893
1,842
Salem, NH
21,686
32,721
32,880
2,942
Salt Lake City, UT
-
1,360
19,691
1,360
19,805
3,288
San Diego, CA
-
4,200
30,707
4,200
30,711
San Diego, CA
-
5,810
63,078
-
5,810
63,078
4,168
San Jose, CA
-
2,850
35,098
2,850
35,119
2,598
San Jose, CA
-
3,280
46,823
-
3,280
46,823
San Juan Capistrano, CA
-
1,390
6,942
1,390
7,078
2,276
San Ramon, CA
9,371
2,430
17,488
2,430
17,556
2,060
Sandy Springs, GA
-
2,214
8,360
-
2,214
8,360
Santa Maria, CA
-
6,050
50,658
6,050
50,875
3,681
Scottsdale, AZ
-
2,500
3,890
2,500
4,743
Seatlle, WA
48,543
6,790
85,369
6,790
85,631
5,152
Seattle, WA
7,758
5,190
9,350
5,190
9,724
2,134
Seattle, WA
7,575
3,420
15,555
3,420
15,619
2,161
Seattle, WA
9,263
2,630
10,257
2,630
10,298
1,515
Seattle, WA
28,965
10,670
37,291
10,670
37,434
6,455
Sevenoaks, England
-
8,131
51,963
-
8,131
51,963
1,104
Shelburne, VT
20,605
31,041
31,187
2,534
Sidcup, England
-
9,773
56,163
-
9,773
56,163
-
Solihull, England
-
6,667
55,336
-
6,667
55,336
Sonoma, CA
15,082
1,100
18,400
1,318
1,100
19,718
3,657
South Windsor, CT
-
3,000
29,295
3,000
29,690
4,022
Stanwood, WA
9,922
2,260
28,474
2,260
28,738
3,681
Stockton, CA
3,009
2,280
5,983
2,280
6,132
Sugar Land, TX
5,775
31,423
1,002
32,425
3,340
Sun City West, AZ
12,886
1,250
21,778
-
1,250
21,778
Sunnyvale, CA
-
5,420
41,682
-
5,420
41,682
Suwanee, GA
-
1,560
11,538
-
1,560
11,538
1,106
Tacoma, WA
19,180
2,400
35,053
2,400
35,111
2,251
The Woodlands, TX
2,619
12,379
12,472
1,170
Toledo, OH
16,352
2,040
47,129
2,040
47,557
6,818
Trumbull, CT
25,566
2,850
37,685
2,850
37,814
4,901
Tucson, AZ
4,852
6,179
-
6,179
Tulsa, OK
6,367
1,330
21,285
1,330
21,578
2,709
Tulsa, OK
8,321
1,500
20,861
1,500
21,116
2,959
Tustin, CA
7,014
15,299
15,321
1,289
Vacaville, CA
14,306
17,100
1,335
18,435
3,481
Vallejo, CA
14,322
4,000
18,000
1,786
4,000
19,786
3,674
Vallejo, CA
7,550
2,330
15,407
2,330
15,502
2,153
Vancouver, WA
12,011
1,820
19,042
1,820
19,149
2,425
Victoria, BC
8,168
3,716
18,977
-
3,716
18,977
Virginia Water, England
-
7,106
29,937
-
7,106
29,937
-
Warwick, RI
16,535
2,400
24,635
2,400
24,978
4,046
Waterbury, CT
25,629
2,460
39,547
2,460
39,915
6,036
Whittier, CA
11,605
4,470
22,151
4,470
22,428
4,200
Wilbraham, MA
11,574
17,639
17,784
1,769
Winchester, England
-
7,887
37,873
-
7,887
37,873
Woodbridge, CT
9,349
1,370
14,219
1,370
14,385
2,775
Worcester, MA
14,500
1,140
21,664
1,140
21,899
2,145
Yarmouth, ME
18,061
27,711
27,911
2,477
Seniors housing operating total
$
1,369,526
$
388,015
$
4,239,499
$
131,030
$
394,065
$
4,364,478
$
390,907
Health Care REIT, Inc.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2012
(Dollars in thousands)
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Building & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Building & Improvements
Accumulated Depreciation(1)
Year Acquired
Year Built
Medical facilities:
Akron, OH
$
-
$
$
12,079
$
-
$
$
12,079
$
Akron, OH
-
20,200
-
20,200
1,585
Allen, TX
12,080
14,520
-
14,520
1,275
Alpharetta, GA
-
18,205
18,428
1,037
Alpharetta, GA
-
32,729
2,654
1,769
34,111
3,088
Alpharetta, GA
-
14,406
14,375
1,208
Alpharetta, GA
-
1,700
-
1,862
-
-
Alpharetta, GA
-
16,063
1,114
17,250
1,157
Arcadia, CA
9,750
5,408
23,219
1,933
5,618
24,942
5,175
Atlanta, GA
-
4,931
18,720
2,937
5,301
21,287
5,415
Atlanta, GA
17,993
1,945
23,437
-
1,945
23,437
Atlanta, GA
26,745
-
42,468
-
-
42,468
1,799
Bartlett, TN
8,215
15,015
1,252
16,267
3,417
Bellaire, TX
-
4,551
46,105
-
4,551
46,105
7,883
Bellaire, TX
-
2,972
33,445
1,966
2,972
35,412
6,876
Bellevue, NE
-
-
15,833
-
16,701
1,525
Bellevue, NE
-
4,500
109,719
-
4,500
109,719
7,106
Bellingham, MA
-
9,270
-
-
9,270
-
-
Birmingham, AL
-
9,950
10,151
2,196
Birmingham, AL
-
12,238
12,379
2,593
Birmingham, AL
-
18,994
19,190
3,744
Boardman, OH
-
11,787
12,130
1,214
Boardman, OH
-
1,200
12,800
-
1,200
12,800
1,723
Boca Raton, FL
13,259
34,002
2,096
35,993
7,475
Boca Raton, FL
-
11,659
-
11,659
-
Boerne, TX
-
13,317
-
13,317
Bowling Green, KY
-
3,800
26,700
3,800
26,849
3,066
Boynton Beach, FL
4,420
2,048
7,692
2,048
8,067
2,140
Boynton Beach, FL
3,965
2,048
7,403
2,048
8,367
1,855
Boynton Beach, FL
5,921
5,611
7,218
12,927
2,524
Bridgeton, MO
-
-
30,221
-
30,499
Bridgeton, MO
11,359
21,221
21,242
2,190
Burleson, TX
-
11,619
11,838
Carmel, IN
-
2,280
18,820
2,280
18,952
1,810
Carmel, IN
-
2,152
18,591
2,837
2,026
21,554
2,171
Cedar Grove, WI
-
-
Claremore, OK
8,131
12,829
13,131
2,881
Clarkson Valley, MO
-
-
35,592
-
-
35,592
3,782
Columbia, MD
-
2,258
18,861
-
2,258
18,861
-
Columbus, OH
-
6,764
-
6,764
Coral Springs, FL
-
1,598
10,627
1,080
1,636
11,668
3,068
Dade City, FL
-
1,211
5,511
-
1,211
5,511
Dallas, TX
14,926
28,690
1,067
29,757
6,340
Dallas, TX
28,450
53,963
-
53,963
1,883
Dayton, OH
-
6,515
6,660
Deerfield Beach, FL
-
2,408
7,482
2,408
7,668
Delray Beach, FL
-
1,882
34,767
4,857
1,943
39,563
9,440
Denton, TX
11,994
-
19,407
-
20,035
3,560
Edina, MN
-
15,132
-
15,132
1,321
El Paso, TX
10,005
17,075
1,471
18,546
4,344
El Paso, TX
-
6,700
-
6,700
El Paso, TX
-
2,400
32,800
2,400
33,224
7,570
Everett, WA
-
4,842
26,010
-
4,842
26,010
1,828
Fayetteville, GA
3,202
7,540
8,234
1,873
Fort Wayne, IN
16,822
1,105
22,836
-
1,105
22,836
Fort Wayne, IN
-
8,232
-
8,232
1,204
Fort Worth, TX
-
13,615
-
13,615
Franklin, TN
-
2,338
12,138
1,468
2,338
13,606
2,740
Franklin, WI
5,383
6,872
7,550
-
6,872
7,550
Fresno, CA
-
2,500
35,800
2,500
35,918
4,109
Frisco, TX
8,881
-
18,635
-
18,881
3,859
Frisco, TX
-
-
15,309
1,566
-
16,875
3,692
Frisco, TX
-
16,445
-
16,445
Gallatin, TN
-
19,432
19,910
2,761
Germantown, TN
-
3,049
12,456
3,049
13,053
2,721
Glendale, CA
7,960
18,398
18,596
3,743
Grand Prairie, TX
-
6,086
-
6,086
Greeley, CO
-
6,706
6,831
1,700
Green Bay, WI
9,017
-
14,891
-
-
14,891
1,429
Green Bay, WI
-
-
20,098
-
-
20,098
1,892
Green Bay, WI
-
-
11,696
-
-
11,696
1,529
Greeneville, TN
-
10,032
10,040
Greenwood, IN
-
8,316
26,384
-
8,316
26,384
Harker Heights, TX
-
1,907
3,754
-
1,907
3,754
High Point, NC
-
2,595
29,013
-
2,595
29,013
Houston, TX
-
10,395
-
10,388
-
Houston, TX
-
5,837
32,986
-
5,837
32,986
1,284
Houston, TX
-
3,688
13,302
-
3,688
13,302
Houston, TX
-
12,815
44,717
-
12,815
44,717
Houston, TX
14,000
31,020
-
31,020
1,310
Houston, TX
-
11,136
-
11,136
Hudson, OH
-
2,473
13,622
-
2,473
13,622
-
Jupiter, FL
6,972
2,252
11,415
2,252
11,544
2,537
Jupiter, FL
4,336
2,825
5,858
2,825
5,901
1,492
Katy, TX
-
1,099
1,604
-
1,099
1,604
Kenosha, WI
9,934
-
18,058
-
-
18,058
1,696
Killeen, TX
-
22,667
-
22,667
1,973
Lafayette, LA
-
1,928
10,483
1,928
10,509
2,438
Lake St Louis, MO
-
11,937
1,947
13,884
1,352
Lakeway, TX
-
2,801
-
-
2,801
-
-
Lakewood, CA
-
14,885
1,146
16,031
3,110
Lakewood, WA
7,609
15,958
-
15,958
-
Las Vegas, NV
-
2,319
4,612
2,319
5,527
1,207
Las Vegas, NV
2,961
6,921
7,123
1,570
Las Vegas, NV
-
6,127
-
-
6,127
-
-
Las Vegas, NV
-
23,420
-
23,420
Las Vegas , NV
5,803
15,287
15,706
3,637
Lenexa, KS
11,905
16,013
2,347
18,360
1,459
Lincoln, NE
-
1,420
29,692
1,420
29,701
3,671
Los Alamitos, CA
8,085
18,635
19,047
3,858
Los Gatos, CA
-
22,386
1,289
23,675
5,499
Loxahatchee, FL
-
1,637
5,048
1,652
5,875
1,269
Loxahatchee, FL
-
1,340
6,509
1,345
6,561
1,511
Loxahatchee, FL
2,600
1,553
4,694
1,567
5,264
1,129
Marinette, WI
7,548
-
13,538
-
-
13,538
1,529
Marlton, NJ
-
-
38,300
-
38,710
4,400
Mechanicsburg, PA
-
1,350
16,650
-
1,350
16,650
Merced, CA
-
-
13,772
-
14,699
1,525
Meridian, ID
-
3,600
20,802
3,600
21,053
5,365
Merriam, KS
-
7,189
7,409
1,290
Merriam, KS
-
3,122
3,553
Merriam, KS
-
12,972
-
12,972
1,658
Merriam, KS
15,356
7,393
7,486
Merrillville, IN
-
-
22,134
-
22,344
2,979
Merrillville, IN
-
11,699
11,853
1,484
Mesa, AZ
-
1,558
9,561
1,558
9,939
2,503
Mesquite, TX
-
3,834
-
3,834
Middletown, NY
-
1,756
20,364
1,188
1,756
21,552
6,070
Milwaukee, WI
4,429
8,457
-
8,457
Milwaukee, WI
9,762
1,425
11,519
-
1,425
11,520
1,526
Milwaukee, WI
2,442
2,185
-
2,185
Milwaukee, WI
22,383
-
44,535
-
-
44,535
4,091
Monticello, MN
9,522
18,489
-
18,489
-
Moorestown, NJ
-
-
52,645
-
-
52,645
Morrow, GA
-
8,064
8,261
2,025
Mount Juliet, TN
4,456
1,566
11,697
1,038
1,566
12,735
2,741
Mount Vernon, IL
-
-
25,163
-
-
25,163
Murrieta, CA
-
-
46,520
-
47,004
4,058
Murrieta, CA
-
8,800
202,412
-
8,800
202,412
8,393
Muskego, WI
1,174
2,158
-
2,159
Nashville, TN
-
4,300
-
7,172
11,472
-
-
Nashville , TN
-
1,806
7,165
1,322
1,806
8,487
2,234
New Berlin, WI
4,527
3,739
8,290
-
3,739
8,290
Niagara Falls, NY
-
1,145
10,574
1,153
10,794
2,797
Niagara Falls, NY
-
7,870
7,909
1,517
Orange Village, OH
-
7,419
7,715
1,898
Oro Valley, AZ
10,011
18,339
18,902
3,770
Oshkosh, WI
-
-
18,339
-
-
18,339
1,709
Oshkosh, WI
9,338
-
15,881
-
-
15,881
1,464
Palm Springs, FL
2,666
4,066
4,137
1,047
Palm Springs, FL
-
1,182
7,765
1,182
7,961
1,951
Palm Springs , CA
-
12,396
1,366
13,762
2,988
Palmer, AK
19,237
29,705
30,450
5,671
Pearland, TX
-
5,517
5,648
1,322
Pearland, TX
1,005
4,556
4,671
1,084
Pewaukee, WI
-
4,700
20,669
-
4,700
20,669
3,825
Phoenix, AZ
27,902
1,149
48,018
10,952
1,149
58,971
11,468
Pineville, NC
-
6,974
2,107
1,077
8,965
1,928
Plano, TX
-
5,423
20,752
5,423
20,807
5,855
Plano, TX
54,620
82,722
-
82,722
3,573
Plantation, FL
9,428
8,563
10,666
2,378
8,575
13,033
3,839
Plantation, FL
8,765
8,848
9,262
8,896
9,462
4,775
Plymouth, WI
1,370
1,250
1,870
-
1,250
1,870
Portland, ME
15,697
25,500
25,912
1,395
Raleigh, NC
-
1,486
11,200
1,762
1,486
12,962
1,064
Redmond, WA
-
5,015
26,697
-
5,015
26,697
2,049
Reno, NV
-
1,117
21,972
1,117
22,648
4,960
Richmond, VA
-
2,838
26,305
-
2,838
26,305
-
Rockwall, TX
-
17,056
-
17,056
Rogers, AR
-
1,062
28,680
-
1,062
28,680
1,504
Rolla, MO
-
1,931
47,640
-
1,931
47,639
1,984
Roswell, NM
1,806
5,851
-
5,851
Roswell, NM
5,078
15,984
-
15,984
Roswell, NM
-
17,171
-
17,171
Ruston, LA
-
9,790
-
9,790
Sacramento, CA
-
12,756
13,668
2,764
San Antonio, TX
-
2,050
16,251
2,307
2,050
18,559
5,471
San Antonio, TX
18,400
4,518
29,905
-
4,518
29,905
1,754
San Antonio, TX
-
-
17,303
-
-
17,303
3,735
San Bernardino, CA
-
3,700
14,300
3,700
14,987
1,617
San Diego, CA
-
-
22,003
1,845
-
23,848
2,491
Sarasota, FL
-
3,360
19,140
-
3,360
19,140
Sarasota, FL
-
46,348
-
46,348
Seattle, WA
-
4,410
35,787
2,055
4,410
37,843
3,140
Sewell, NJ
-
-
53,360
4,355
-
57,715
8,221
Shakopee, MN
6,932
11,360
11,368
1,112
Shakopee, MN
11,743
18,089
-
18,089
1,252
Sheboygan, WI
1,892
1,012
2,216
-
1,012
2,216
Somerville, NJ
-
3,400
22,244
3,400
22,246
2,457
Southlake, TX
11,680
17,905
-
17,905
Southlake, TX
18,518
30,524
-
30,524
St. Louis, MO
7,281
17,247
18,186
3,851
St. Paul, MN
26,105
2,681
39,507
-
2,681
39,507
2,594
Stafford, VA
-
-
11,260
-
11,573
1,323
Suffern, NY
-
35,220
1,985
37,204
1,558
Suffolk, VA
-
1,530
10,979
1,538
11,511
1,748
Sugar Land, TX
8,905
3,513
15,527
-
3,513
15,527
-
Summit, WI
-
2,899
87,666
-
2,899
87,666
11,954
Tallahassee, FL
-
-
14,719
2,730
-
17,449
1,295
Tampa, FL
-
1,210
19,572
-
1,210
19,572
Tampa, FL
-
2,208
6,464
-
2,208
6,464
Tampa, FL
-
4,319
12,234
-
4,319
12,234
Temple, TX
-
2,900
9,851
-
2,900
9,851
Tomball, TX
-
1,404
5,071
1,404
5,951
1,721
Tucson, AZ
-
1,302
4,925
1,302
5,587
1,377
Tulsa, OK
-
3,003
6,025
3,003
6,045
1,955
Van Nuys, CA
-
-
36,187
-
-
36,187
3,281
Virginia Beach, VA
-
18,289
18,458
1,647
Voorhees, NJ
-
6,404
24,251
1,313
6,422
25,546
4,899
Voorhees, NJ
-
-
96,006
-
-
96,006
2,689
Webster, TX
-
5,940
8,178
2,418
12,060
3,056
Wellington, FL
6,768
16,933
17,314
3,181
Wellington , FL
6,071
13,697
13,841
2,668
West Allis, WI
3,475
1,106
3,309
-
1,106
3,309
West Palm Beach, FL
6,602
14,740
14,861
3,332
West Palm Beach, FL
6,092
14,618
14,734
3,908
West Seneca, NY
12,051
22,435
1,759
1,628
23,482
4,871
Westerville, OH
-
2,122
5,403
-
2,122
5,403
Zephyrhills, FL
-
3,875
23,907
3,331
3,875
27,237
1,273
Medical facilities total:
$
713,720
$
333,112
$
4,027,512
$
127,413
$
345,938
$
4,142,095
$
456,935
Health Care REIT, Inc.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2012
(Dollars in thousands)
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Description
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Year Acquired
Year Built
Assets held for sale:
Brighton, MA
$
-
$
$
3,859
$
-
$
-
$
2,449
$
-
Durham, NC
-
5,350
9,320
-
-
2,539
-
Fairhaven, MA
-
6,230
-
-
5,552
-
Hamden, CT
-
1,470
4,530
-
-
4,370
-
Hopedale, MA
-
8,170
-
-
6,581
-
Lakeway, TX
-
5,484
24,886
-
-
23,716
-
Malabar, FL
-
5,000
12,000
-
-
16,425
-
Melbourne, FL
-
7,000
69,000
-
-
72,694
-
Melbourne, FL
-
1,400
24,400
-
-
24,631
-
Melbourne, FL
-
9,400
-
-
9,550
-
Melbourne, FL
-
-
-
-
Midwest City, OK
-
5,673
-
-
2,625
-
New Haven, CT
-
4,778
-
-
2,520
-
Newburyport, MA
-
8,290
-
-
6,784
-
Norwalk, CT
-
2,640
-
-
1,764
-
Oklahoma City, OK
-
10,694
-
-
9,079
-
Prospect, CT
-
1,441
-
-
1,022
-
Quincy, MA
-
2,690
15,410
-
-
14,852
-
Rocky Hill, CT
-
1,460
7,040
-
-
6,205
-
Torrington, CT
-
1,261
-
-
1,091
-
Viera, FL
-
1,600
10,600
-
-
11,692
-
Waterbury, CT
-
2,166
-
-
-
Waterford, CT
-
1,360
12,540
-
-
10,141
-
West Hartford, CT
-
2,650
5,980
-
-
7,144
-
West Haven, CT
-
1,620
-
-
-
Assets held for sale total
$
-
$
42,211
$
262,386
$
-
$
-
$
245,213
-
(1) Please see Note 2 to our consolidated financial statements for information regarding lives used for depreciation and amortization.
(2) Represents real property asset associated with a capital lease.
Initial Cost to Company
Gross Amount at Which Carried at Close of Period
Segment
Encumbrances
Land
Buildings & Improvements
Cost Capitalized Subsequent to Acquisition
Land
Buildings & Improvements
Accumulated Depreciation
Seniors housing triple-net
$
218,741
$
623,120
$
7,462,660
$
341,850
$
625,388
$
7,802,238
$
707,213
Seniors housing operating
1,369,526
388,015
4,239,499
131,030
394,065
4,364,478
390,907
Medical facilities
713,720
333,112
4,027,512
127,413
345,938
4,142,095
456,935
Construction in progress
-
-
162,984
-
-
162,984
-
Total continuing operating properties
2,301,987
1,344,247
15,892,655
600,293
1,365,391
16,471,795
1,555,055
Assets held for sale
-
42,210
262,386
-
-
245,213
-
Total investments in real property owned
$
2,301,987
$
1,386,457
$
16,155,041
$
600,293
$
1,365,391
$
16,717,008
$
1,555,055
Year Ended December 31,
Reconciliation of real property:
(in thousands)
Investment in real estate:
Balance at beginning of year
$
14,844,319
$
8,992,495
$
6,336,291
Additions:
Acquisitions
2,923,251
4,525,737
1,707,421
Improvements
449,964
426,000
398,510
Conversions from loans receivable
-
-
10,070
Assumed other items, net
108,404
210,411
208,314
Assumed debt
481,598
961,928
559,508
Foreign currency translation
6,082
-
-
Total additions
3,969,299
6,124,076
2,883,823
Deductions:
Cost of real estate sold
(581,696)
(250,047)
(216,300)
Reclassification of accumulated depreciation and amortization for assets held for sale
(120,236)
(10,011)
(10,372)
Impairment of assets
(29,287)
(12,194)
(947)
Total deductions
(731,219)
(272,252)
(227,619)
Balance at end of year(3)
$
18,082,399
$
14,844,319
$
8,992,495
Accumulated depreciation:
Balance at beginning of year
$
1,194,476
$
836,966
$
677,851
Additions:
Depreciation and amortization expenses
533,585
423,605
202,543
Amortization of above market leases
7,204
6,409
2,524
Total additions
540,789
430,014
205,067
Deductions:
Sale of properties
(59,974)
(63,997)
(31,919)
Reclassification of accumulated depreciation and amortization for assets held for sale
(120,236)
(8,507)
(14,033)
Total deductions
(180,210)
(72,504)
(45,952)
Balance at end of year
$
1,555,055
$
1,194,476
$
836,966
(3) The aggregate cost for tax purposes for real property equals $14,788,080,000, $13,604,448,000 and $8,802,656,000 at December 31, 2012, 2011 and 2010, respectively.
Health Care REIT, Inc.
Schedule IV - Mortgage Loans on Real Estate
December 31, 2012
(in thousands)
Description
Interest Rate
Final Maturity Date
Monthly Payment Terms
Prior Liens
Face Amount of Mortgages
Carrying Amount of Mortgages
Principal Amount of Loans Subject to Delinquent Principal or Interest
First mortgage relating to one medical office building in Texas
6.18%
12/31/17
$114,643
$
-
$
22,244
$
22,244
$
-
First mortgage relating to one hospital in California
8.72%
12/01/17
$127,158
-
17,500
17,500
-
First mortgage relating to one medical office building in Texas
6.18%
12/31/17
$82,941
-
16,093
16,093
-
First mortgage relating to one hospital in California
10.14%
06/01/20
$160,435
-
21,050
15,187
-
First mortgage relating to one medical office building in Georgia
6.50%
10/01/14
$38,556
-
6,100
6,014
-
Second mortgage relating to one senior housing facility in New Hampshire
8.11%
10/01/16
$21,056
17,670
3,235
3,056
-
First mortgage relating to one senior housing facility in Arizona
3.55%
01/01/14
$12,275
-
4,500
2,650
2,650
First mortgage relating to one senior housing facility in Texas
10.25%
03/01/13
$56,307
-
2,635
2,498
-
Second mortgage relating to one hospital in California
9.83%
10/31/13
$138,308
15,187
13,000
1,323
-
First mortgage relating to one hospital in California
10.13%
01/14/14
$131,481
-
8,045
1,215
-
First mortgage relating to one medical office building in Georgia
8.11%
10/01/14
$1,206
-
-
Totals
$
32,857
$
115,202
$
87,955
$
2,650
Year Ended December 31,
Reconciliation of mortgage loans:
(in thousands)
Balance at beginning of year
$
63,934
$
109,283
$
74,517
Additions:
New mortgage loans
40,641
11,286
73,439
Total additions
40,641
11,286
73,439
Deductions:
Collections of principal
(11,819)
(50,579)
(10,540)
Conversions to real property
(3,300)
(4,000)
(10,070)
Charge-offs
(1,501)
-
(18,063)
Reclass to other real estate loans
-
(2,056)
-
Total deductions
(16,620)
(56,635)
(38,673)
Balance at end of year
$
87,955
$
63,934
$
109,283
EXHIBIT INDEX
1.1(a) Form of Equity Distribution Agreement, dated as of November 12, 2010, entered into by and between the Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s Form 8-K filed November 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
1.1(b) Form of Amendment No. 1, dated September 1, 2011, to the Equity Distribution Agreements entered into by and between the Company and each of UBS Securities LLC, RBS Securities Inc., KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. (filed with the Commission as Exhibit 1.1 to the Company’s Form 8-K filed September 8, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
2.1 Agreement and Plan of Merger, dated as of August 21, 2012, by and among Sunrise Senior Living, Inc., Brewer Holdco, Inc., Brewer Holdco Sub, Inc., the Company and Red Fox, Inc. (the exhibits and schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (filed with the Commission as Exhibit 2.1 to the Company’s Form 8-K filed August 22, 2012 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(a) Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(b) Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(c) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-K filed March 20, 2000 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(d) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed June 13, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(e) Certificate of Designation of 7 7/8% Series D Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A/A filed July 8, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(f) Certificate of Designation of 7 5/8% Series F Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’s Form 8-A filed September 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(g) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.9 to the Company’s Form 10-Q filed August 9, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(h) Certificate of Change of Location of Registered Office and of Registered Agent of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed August 6, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(i) Certificate of Designation of 6% Series H Cumulative Convertible and Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 10-Q filed May 10, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(j) Certificate of Designation of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed March 7, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(k) Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed May 10, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
3.1(l) Certificate of Designation of 6.50% Series J Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed March 8, 2012 (File No. 001-08923), and incorporated herein by reference thereto).
3.2 Fourth Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’s Form 8-K filed November 1, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(a) Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(b) Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 9, 2002 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(c) Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 14, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(d) Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(e) Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’s Form 8-K filed September 24, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(f) Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed October 30, 2003 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(g) Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed September 13, 2004 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(h) Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed April 28, 2005 (File No. 001-08923), and incorporated herein by reference thereto).
4.1(i) Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 30, 2005 (File No. 001-08923), and incorporated herein by reference thereto).
4.2(a) Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
4.2(b) Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 20, 2006 (File No. 001-08923), and incorporated herein by reference thereto).
4.2(c) Supplemental Indenture No. 2, dated as of July 20, 2007, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed July 20, 2007 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(a) Indenture, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(b) Supplemental Indenture No. 1, dated as of March 15, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed March 15, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(c) Amendment No. 1 to Supplemental Indenture No. 1, dated as of June 18, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 18, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(d) Supplemental Indenture No. 2, dated as of April 7, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed April 7, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(e) Amendment No. 1 to Supplemental Indenture No. 2, dated as of June 8, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.3 to the Company’s Form 8-K filed June 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(f) Supplemental Indenture No. 3, dated as of September 10, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed September 13, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(g) Supplemental Indenture No. 4, dated as of November 16, 2010, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed November 16, 2010 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(h) Supplemental Indenture No. 5, dated as of March 14, 2011, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed March 14, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(i) Supplemental Indenture No. 6, dated as of April 3, 2012, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed April 4, 2012 (File No. 001-08923), and incorporated herein by reference thereto).
4.3(j) Supplemental Indenture No. 7, dated as of December 6, 2012, between the Company and The Bank of New York Mellon Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’s Form 8-K filed December 11, 2012 (File No. 001-08923), and incorporated herein by reference thereto).
4.4 Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).
4.5 Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to the Company’s Form S-3 (File No. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).
10.1 Fifth Amended and Restated Loan Agreement, dated as of July 27, 2011, by and among the Company, the banks signatory thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, KeyBanc Capital Markets Inc., as a joint lead arranger, Deutsche Bank Securities Inc., as a joint lead arranger and documentation agent, KeyBank National Association, as administrative agent, and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as co-syndication agents (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed August 2, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
10.2 Credit Agreement dated as of January 7, 2013, by and among the Company, the lenders listed therein, KeyBank National Association, as administrative agent, LC issuer and a swingline lender, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as co-syndication agents, Deutsche Bank Securities, Inc., as documentation agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc. and Deutsche Bank Securities Inc., as joint lead arrangers, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as joint book managers (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed January 11, 2013 (File No. 001-08923), and incorporated herein by reference thereto).
10.3 Term Loan Agreement, dated as of May 24, 2012, by and among the Company, the banks signatory thereto, KeyBank National Association, as administrative agent, JPMorgan Chase Bank, N.A., Bank of America, N.A. and Royal Bank of Canada, as co-syndication agents, Citibank, N.A., Compass Bank, Fifth Third Bank, PNC Bank, National Association, The Bank of New York Mellon and Wells Fargo Bank, National Association, as co-documentation agents, and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and RBC Capital Markets, as joint lead arrangers and joint bookrunners (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed May 30, 2012 (File No. No. 001-08923), and incorporated herein by reference thereto).
10.4 Equity Purchase Agreement, dated as of February 28, 2011, by and among the Company, FC-GEN Investment, LLC and FC-GEN Operations Investment, LLC (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed February 28, 2011 (File No. 001-08923), and incorporated herein by reference thereto).
10.5(a) The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995 (File No. 001-08923), and incorporated herein by reference thereto).*
10.5(b) First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.2 to the Company’s Form S-8 (File No. 333-40771) filed November 21, 1997, and incorporated herein by reference thereto).*
10.5(c) Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.3 to the Company’s Form S-8 (File No. 333-73916) filed November 21, 2001, and incorporated herein by reference thereto).*
10.5(d) Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.15 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).*
10.5(e) Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.17 to the Company’s Form 10-K filed March 16, 2005 (File No. 001-08923), and incorporated herein by reference thereto).*
10.6(a) Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).*
10.6(b) First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2004 (File No. 001-08923), and incorporated herein by reference thereto).*
10.6(c) Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q/A filed October 27, 2004 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(a) Amended and Restated Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the Commission as Appendix A to the Company’s Proxy Statement for the 2009 Annual Meeting of Stockholders, filed March 25, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(b) Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(c) Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.6 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(d) Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.8 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(e) Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(f) Form of Amendment to Stock Option Agreements (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.7 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(g) Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.9 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(h) Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(i) Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(j) Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(k) Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(l) Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(m) Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.23 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(n) Form of Restricted Stock Agreement for the Chief Executive Officer under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.3 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(o) Form of Restricted Stock Agreement for Executive Officers under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.4 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(p) Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’s Form 10-K filed March 10, 2006 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(q) Form of Amendment to Deferred Stock Unit Grant Agreements for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.10 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(r) Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.11 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.7(s) Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the Amended and Restated 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.5 to the Company’s Form 10-Q filed May 10, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.8(a) Fifth Amended and Restated Employment Agreement, dated December 2, 2010, by and between the Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed December 8, 2010 (File No. 001-08923), and incorporated herein by reference thereto).*
10.8(b) Letter Agreement, dated February 4, 2013, by and between the Company and George L. Chapman.*
10.9 Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Scott A. Estes (filed with the Commission as Exhibit 10.4 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.10 Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.3 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.11 Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Jeffrey H. Miller (filed with the Commission as Exhibit 10.8 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.12(a) Employment Agreement, dated January 19, 2009, between the Company and John T. Thomas (filed with the Commission as Exhibit 10.10 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.12(b) Separation Agreement and General Release, dated July 25, 2012, between the Company and John T. Thomas (filed with the Commission as Exhibit 10.2 to the Company’s Form 10-Q filed August 6, 2012 (File No. 001-08923), and incorporated herein by reference thereto).*
10.13 Third Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Erin C. Ibele (filed with the Commission as Exhibit 10.11 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.14 Second Amended and Restated Employment Agreement, dated December 29, 2008, between the Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.12 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.15 Amended and Restated Consulting Agreement, dated December 29, 2008, between the Company and Frederick L. Farrar (filed with the Commission as Exhibit 10.14 to the Company’s Form 10-K filed March 2, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.16 Amended and Restated Health Care REIT, Inc. Supplemental Executive Retirement Plan, dated December 29, 2008 (filed with the Commission as Exhibit 10.12 to the Company’s Form 8-K filed January 5, 2009 (File No. 001-08923), and incorporated herein by reference thereto).*
10.17 Form of Indemnification Agreement between the Company and each director, executive officer and officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’s Form 8-K filed February 18, 2005 (File No. 001-08923), and incorporated herein by reference thereto).*
10.18 Summary of Director Compensation (filed with the Commission as Exhibit 10.1 to the Company’s Form 10-Q filed November 7, 2012 (File No. 001-08923), and incorporated herein by reference thereto).*
12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Unaudited).
14 Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’s Form 10-K filed March 12, 2004 (File No. 001-08923), and incorporated herein by reference thereto).
Subsidiaries of the Company.
Consent of Ernst & Young LLP, independent registered public accounting firm.
24.1 Power of Attorney executed by William C. Ballard, Jr. (Director).
24.2 Power of Attorney executed by Judith C. Pelham (Director).
24.3 Power of Attorney executed by R. Scott Trumbull (Director).
24.4 Power of Attorney executed by Thomas J. DeRosa (Director).
24.5 Power of Attorney executed by Jeffrey H. Donahue (Director).
24.6 Power of Attorney executed by Peter J. Grua (Director).
24.7 Power of Attorney executed by Fred S. Klipsch (Director).
24.8 Power of Attorney executed by Sharon M. Oster (Director).
24.9 Power of Attorney executed by Jeffrey R. Otten (Director).
24.10 Power of Attorney executed by George L. Chapman (Director, Chairman of the Board, Chief Executive Officer and President and Principal Executive Officer).
24.11 Power of Attorney executed by Scott A. Estes (Executive Vice President and Chief Financial Officer and Principal Financial Officer).
24.12 Power of Attorney executed by Paul D. Nungester, Jr. (Senior Vice President and Controller and Principal Accounting Officer).
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**
*
Management Contract or Compensatory Plan or Arrangement.
**
Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at December 31, 2012 and 2011, (ii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010, (iii) the Consolidated Statements of Equity for the years ended December 31, 2012, 2011 and 2010, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010, (v) the Notes to Consolidated Financial Statements, (vi) Schedule III - Real Estate and Accumulated Depreciation and (vii) Schedule IV - Mortgage Loans on Real Estate.

Market Capitalization: 16440467.776618958
1-Year Return: 0.001899078139103949
252-Day Return: $252_day_return