Edgar Filing: HEALTH CARE REIT INC /DE/

10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2009


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

For the transition period from to

Commission File number 1-8923

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter)


Delaware		34-1096634

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

One SeaGate, Suite 1500, Toledo, Ohio		43604

(Address of principal executive office)		(Zip Code)

(419) 247-2800

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes þ No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

As of April 30, 2009, the registrant had 111,129,026 shares of common stock outstanding.

TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets — March 31, 2009 and December 31, 2008		3

Consolidated Statements of Income — Three months ended March 31, 2009 and 2008		4

Consolidated Statements of Stockholders’ Equity — Three months ended March 31, 2009 and 2008		5

Consolidated Statements of Cash Flows — Three months ended March 31, 2009 and 2008		6

Notes to Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		43

PART II. OTHER INFORMATION

Item 1A. Risk Factors		43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 6. Exhibits		44

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES


	March 31,			December 31,
	2009			2008
	(Unaudited)			(Note)
	(In thousands)
Assets
Real estate investments:
Real property owned:
Land and land improvements	$	504,145		$	504,907
Buildings and improvements		4,652,920			4,653,871
Acquired lease intangibles		133,457			133,324
Real property held for sale, net of accumulated depreciation		35,520			48,054
Construction in progress		763,982			639,419

Gross real property owned		6,090,024			5,979,575
Less accumulated depreciation and amortization		(627,898	)		(600,781	)

Net real property owned		5,462,126			5,378,794
Real estate loans receivable:
Real estate loans receivable		480,719			482,885
Less allowance for losses on loans receivable		(7,640	)		(7,500	)

Net real estate loans receivable		473,079			475,385

Net real estate investments		5,935,205			5,854,179
Other assets:
Equity investments		836			1,030
Deferred loan expenses		25,097			23,579
Cash and cash equivalents		19,180			23,370
Restricted cash		16,358			154,070
Receivables and other assets		146,405			136,890

Total other assets		207,876			338,939

Total assets	$	6,143,081		$	6,193,118


Liabilities and equity
Liabilities:
Borrowings under unsecured lines of credit arrangements	$	335,000		$	570,000
Senior unsecured notes		1,810,537			1,831,151
Secured debt		444,336			446,525
Accrued expenses and other liabilities		102,601			107,157

Total liabilities		2,692,474			2,954,833
Equity:
Preferred stock, $1.00 par value:		288,728			289,929
Authorized — 50,000,000 shares
Issued and outstanding — 11,475,702 shares at March 31, 2009 and 11,516,302 shares at December 31, 2008
Common stock, $1.00 par value:		110,945			104,635
Authorized — 225,000,000 shares
Issued — 111,209,971 shares at March 31, 2009 and 104,835,626 shares at December 31, 2008
Outstanding — 111,013,261 shares at March 31, 2009 and 104,703,702 shares at December 31, 2008
Capital in excess of par value		3,428,472			3,204,690
Treasury stock		(7,577	)		(5,145	)
Cumulative net income		1,421,043			1,354,400
Cumulative dividends		(1,805,329	)		(1,723,819	)
Accumulated other comprehensive income		(1,348	)		(1,113	)
Other equity		5,187			4,105

Total Health Care REIT, Inc. stockholders’ equity		3,440,121			3,227,682
Noncontrolling interests		10,486			10,603

Total equity		3,450,607			3,238,285

Total liabilities and equity	$	6,143,081		$	6,193,118


NOTE:		The consolidated balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See notes to unaudited consolidated financial statements

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


	Three Months Ended
	March 31,
	2009			2008
	(In thousands, except per share data)
Revenues:
Rental income	$	132,891		$	115,825
Interest income		9,953			9,092
Other income		1,484			1,716

Total revenues		144,328			126,633

Expenses:
Interest expense		27,695			35,102
Property operating expenses		11,419			10,712
Depreciation and amortization		40,811			36,346
General and administrative		17,361			12,328
Gain on extinguishment of debt		(1,678	)		(1,326	)
Provision for loan losses		140			0

Total expenses		95,748			93,162


Income from continuing operations before income taxes		48,580			33,471
Income tax (expense) benefit		(50	)		(1,279	)


Income from continuing operations		48,530			32,192

Discontinued operations:
Net gain on sales of properties		17,036			26
Income from discontinued operations, net		1,079			3,240

Discontinued operations, net		18,115			3,266


Net income		66,645			35,458

Less: Preferred stock dividends		5,524			6,147
Net income attributable to noncontrolling interests		2			62


Net income attributable to common stockholders	$	61,119		$	29,249


Average number of common shares outstanding:
Basic		108,214			86,100
Diluted		108,624			86,610

Earnings per share:
Basic:
Income from continuing operations attributable to common stockholders	$	0.40		$	0.30
Discontinued operations, net		0.17			0.04

Net income attributable to common stockholders*	$	0.56		$	0.34


Diluted:
Income from continuing operations attributable to common stockholders	$	0.40		$	0.30
Discontinued operations, net		0.17			0.04

Net income attributable to common stockholders*	$	0.56		$	0.34


Dividends declared and paid per common share	$	0.68		$	0.66


*		Amounts may not sum due to rounding

See notes to unaudited consolidated financial statements

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


	Three Months Ended March 31, 2009
																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 beginning of period	$	289,929		$	104,635	$	3,204,690	$	(5,145	)	$	1,354,400	$	(1,723,819	)	$	(1,113	)	$	4,105	$	10,603		$	3,238,285
Comprehensive income:
Net income												66,643										2			66,645
Other comprehensive income:
Unrealized gain (loss) on equity investments																	(195	)							(195	)
Cash flow hedge activity																	(40	)							(40	)

Total comprehensive income																									66,410

Contributions by noncontrolling interests																						857			857
Distributions to noncontrolling interests																						(976	)		(976	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					464		17,516		(2,432	)															15,548
Net proceeds from sale of common stock					5,817		205,094																		210,911
Conversion of preferred stock		(1,201	)		29		1,172																		0
Option compensation expense																				1,082					1,082
Cash dividends paid:
Common stock-$0.68 per share														(75,986	)										(75,986	)
Preferred stock, Series D-$0.4922 per share														(1,969	)										(1,969	)
Preferred stock, Series E-$0.3750 per share														(28	)										(28	)
Preferred stock, Series F-$0.4766 per share														(3,336	)										(3,336	)
Preferred stock, Series G-$0.4688 per share														(191	)										(191	)

Balances at end of period	$	288,728		$	110,945	$	3,428,472	$	(7,577	)	$	1,421,043	$	(1,805,329	)	$	(1,348	)	$	5,187	$	10,486		$	3,450,607


	Three Months Ended March 31, 2008
																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 beginning of period	$	330,243		$	85,412	$	2,394,099	$	(3,952	)	$	1,071,101	$	(1,446,959	)	$	(7,381	)	$	2,701		$	9,687		$	2,434,951
Comprehensive income:
Net income												35,396											62			35,458
Other comprehensive income:
Unrealized gain (loss) on equity investments																	(240	)								(240	)
Cash flow hedge activity																	(10,853	)								(10,853	)

Total comprehensive income																										24,365

Contributions by noncontrolling interests																							92			92
Distributions to noncontrolling interests																							(144	)		(144	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					523		22,379		(34	)										(38	)					22,830
Proceeds from issuance of common shares					3,000		115,555																			118,555
Conversion of preferred stock		(2,346	)		57		2,289																			0
Option compensation expense																				697						697
Cash dividends paid:
Common stock-$0.66 per share														(57,190	)											(57,190	)
Preferred stock, Series D-$0.4922 per share														(1,969	)											(1,969	)
Preferred stock, Series E-$0.3750 per share														(28	)											(28	)
Preferred stock, Series F-$0.4766 per share														(3,336	)											(3,336	)
Preferred stock, Series G-$0.4688 per share														(814	)											(814	)

Balances at end of period	$	327,897		$	88,992	$	2,534,322	$	(3,986	)	$	1,106,497	$	(1,510,296	)	$	(18,474	)	$	3,360		$	9,697		$	2,538,009

See notes to unaudited consolidated financial statements

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


	Three Months Ended
	March 31,
	2009			2008
	(In thousands)
Operating activities
Net income	$	66,645		$	35,458
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization		41,326			39,574
Other amortization expenses		3,578			3,526
Capitalized interest		(9,865	)		(5,167	)
Provision for loan losses		140			0
Stock-based compensation expense		6,579			3,848
Loss (gain) on extinguishment of debt, net		(1,678	)		(1,326	)
Rental income less than (in excess of) cash received		2,859			(2,361	)
Amortization related to above (below) market leases, net		(356	)		(263	)
(Gain) loss on sales of properties		(17,036	)		(26	)
Increase (decrease) in accrued expenses and other liabilities		(3,564	)		4,452
Decrease (increase) in receivables and other assets		(4,071	)		(2,043	)

Net cash provided from (used in) operating activities		84,557			75,672

Investing activities
Investment in real property		(159,696	)		(168,414	)
Investment in real estate loans receivable		(6,234	)		(7,751	)
Other investments, net of payments		121			(26,819	)
Principal collected on real estate loans receivable		8,402			2,081
Decrease (increase) in restricted cash		137,712			1,779
Proceeds from sales of real property		61,304			99
Other		(11,664	)		(4,872	)

Net cash provided from (used in) investing activities		29,945			(203,897	)

Financing activities
Net increase (decrease) under unsecured lines of credit arrangements		(235,000	)		125,500
Principal payments on senior unsecured notes		(19,796	)		(42,330	)
Principal payments on secured debt		(2,206	)		(27,776	)
Net proceeds from the issuance of common stock		223,393			138,254
Decrease (increase) in deferred loan expenses		(3,454	)		(21	)
Contributions by noncontrolling interests		857			92
Distributions to noncontrolling interests		(976	)		(144	)
Cash distributions to stockholders		(81,510	)		(63,337	)

Net cash provided from (used in) financing activities		(118,692	)		130,238

Increase (decrease) in cash and cash equivalents		(4,190	)		2,013
Cash and cash equivalents at beginning of period		23,370			30,269

Cash and cash equivalents at end of period	$	19,180		$	32,282

See notes to unaudited consolidated financial statements

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity real estate investment trust (“REIT”) that invests in senior housing and health care real estate. Our full service platform also offers property management and development services to our customers. As of March 31, 2009, our broadly diversified portfolio consisted of 632 properties in 39 states. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities. More information is available on the Internet at www.hcreit.com.

2. Accounting Policies and Related Matters

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2009 are not necessarily an indication of the results that may be expected for the year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.

New Accounting Standards

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”) and Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 141(R) changed how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 changed the accounting and reporting for minority interests, which re-characterized them as non-controlling interests and classified them as a component of equity. The provisions of SFAS 141(R) and SFAS 160 were effective on January 1, 2009 and are to be applied prospectively; however, the disclosure provisions of SFAS 160 were applied retrospectively. In accordance with SFAS 141(R), we elected to expense all development costs for projects in progress when it was determined they would not be completed prior to the adoption of SFAS 141(R). See Note 19 for additional information regarding the application of SFAS 160.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 expands quarterly disclosure requirements in SFAS 133 concerning an entity’s derivative instruments and hedging activities. The provisions of SFAS 161 were effective on January 1, 2009. The adoption of SFAS 161 did not have a material impact on us as there were no derivatives instruments outstanding at March 31, 2009.

In May 2008, the FASB issued FASB Staff Position APB 14-1 (“FSP 14-1”), which provides guidance on accounting for debt that may be settled in cash upon conversion. FSP 14-1 requires bifurcation of the convertible debt instrument into a debt component and an equity component. The value of the debt component is based upon the estimated fair value of a similar debt instrument without the conversion feature. The difference between the contractual principal on the debt and the value allocated to the debt is recorded as an equity component and represents the conversion feature of the instrument. The excess of the contractual principal amount of the debt over its estimated fair value is amortized to interest expense using the effective interest method over the period used to estimate the fair value. FSP 14-1 was effective on January 1, 2009. Retrospective application was required for all periods presented in the financial statements for instruments that were outstanding during any periods presented in the financial statements. See Note 19 for additional information.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1”). FSP 107-1 amends SFAS No. 107 to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies in addition to the annual financial statements. FSP 107-1 also amends APB No. 28 to require those disclosures in summarized financial information at interim reporting periods. FSP 107-1 is effective for interim periods ending after June 15, 2009. Prior period presentation is not required for comparative purposes at initial adoption. We do not expect the adoption of FSP 107-1 to have a material impact on our consolidated balance sheet or consolidated statement of income although additional disclosures will be necessary.

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

3. Real Property Acquisitions and Development

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


	Three Months Ended
	March 31, 2009									March 31, 2008
	Investment			Medical Office						Investment			Medical Office
	Properties			Buildings			Totals			Properties			Buildings			Totals
Real property acquisitions:
Independent living/CCRCs	$	0					$	0		$	11,800					$	11,800
Assisted living facilities								0			4,600						4,600
Specialty care facilities								0			35,200						35,200
Medical office buildings				$	0			0					$	41,628			41,628

Total acquisitions		0			0			0			51,600			41,628			93,228
Less: Assumed debt								0						0			0
Assumed other assets (liabilities), net								0						(887	)		(887	)

Cash disbursed for acquisitions		0			0			0			51,600			40,741			92,341
Construction in progress additions:
Independent living/CCRCs		52,311						52,311			48,895						48,895
Assisted living facilities		51,853						51,853			16,190						16,190
Skilled nursing facilities		9,313						9,313			3,682						3,682
Specialty care facilities		22,210						22,210			4,587						4,587
Medical office buildings					26,305			26,305						3,954			3,954

Total construction in progress additions		135,687			26,305			161,992			73,354			3,954			77,308
Less: Capitalized interest		(8,378	)		(1,487	)		(9,865	)		(5,025	)		(142	)		(5,167	)

Cash disbursed for construction in progress		127,309			24,818			152,127			68,329			3,812			72,141
Capital improvements to existing properties		5,538			2,031			7,569			2,998			934			3,932

Total cash invested in real property	$	132,847		$	26,849		$	159,696		$	122,927		$	45,487		$	168,414

The following is a summary of the development projects that were placed into service and began generating revenues during the periods presented:


	Three Months Ended
	March 31, 2009						March 31, 2008
	Investment		Medical Office				Investment		Medical Office
	Properties		Buildings		Totals		Properties		Buildings		Totals
Construction in progress conversions:
Development projects:
Independent living/CCRCs					$	0	$	19,889			$	19,889
Assisted living facilities	$	37,072				37,072						0
Medical office buildings			$	0		0			$	0		0

Total development projects		37,072		0		37,072		19,889		0		19,889
Expansion projects		357				357		1,546				1,546

Total construction in progress conversions	$	37,429	$	0	$	37,429	$	21,435	$	0	$	21,435

4. Real Estate Intangibles

The following is a summary of our real estate intangibles as of the dates indicated (dollars in thousands):

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued


	March 31, 2009			December 31, 2008
Assets:
In place lease intangibles	$	81,500		$	81,500
Above market tenant leases		9,658			9,658
Below market ground leases		39,806			39,806
Lease commissions		2,493			2,360

Gross historical cost		133,457			133,324
Accumulated amortization		(34,580	)		(31,452	)

Net book value	$	98,877		$	101,872


Weighted-average amortization period in years		29.3			28.9

Liabilities:
Below market tenant leases	$	25,265		$	25,265
Above market ground leases		3,419			3,419

Gross historical cost		28,684			28,684
Accumulated amortization		(9,676	)		(8,671	)

Net book value	$	19,008		$	20,013


Weighted-average amortization period in years		9.1			8.9

5. Dispositions, Assets Held for Sale and Discontinued Operations

At March 31, 2009, we had five assisted living facilities and 14 medical office buildings that satisfied the requirements of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, for held for sale treatment. We did not recognize any impairment loss on these properties in 2009 as the fair value less estimated costs to sell exceeded our carrying values. During the year ended December 31, 2008, an impairment charge of $32,648,000 was recorded to reduce the carrying value of the 14 medical office buildings to their estimated fair value less costs to sell. In determining the fair value of the medical office buildings, we used a combination of third party appraisals based on market comparable transactions, other market listings and asset quality as well as management calculations based on projected operating income and published capitalization rates. The following is a summary of our real property disposition activity for the periods presented (in thousands):


	Three Months Ended
	March 31, 2009						March 31, 2008
	Investment		Medical Office				Investment		Medical Office
	Properties		Buildings		Totals		Properties		Buildings		Totals
Real property dispositions:
Assisted living facilities	$	3,427			$	3,427					$	0
Medical office buildings			$	0		0			$	0		0
Specialty care facilities		40,841				40,841						0
Land parcels						0	$	73				73

Total dispositions		44,268		0		44,268		73		0		73
Less: Gain/(loss) on sales of real property		17,036				17,036		26				26

Proceeds from real property sales	$	61,304	$	0	$	61,304	$	99	$	0	$	99

In accordance with Statement No. 144, we have reclassified the income and expenses attributable to all properties sold and attributable to properties held for sale at March 31, 2009 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 of Statement No. 144 as a result of classifying properties as discontinued operations for the periods presented (in thousands):


	Three Months Ended
	March 31,
	2009		2008
Rental income	$	2,474	$	9,341

Expenses:
Interest expense		316		2,218
Property operating expenses		564		655
Provision for depreciation		515		3,228

Income (loss) from discontinued operations, net	$	1,079	$	3,240

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

6. Real Estate Loans Receivable

All real estate loans receivable are in our investment property segment. The following is a summary of our real estate loan activity for the periods presented (in thousands):


	Three Months Ended
	March 31, 2009			March 31, 2008
Advances on real estate loans receivable:
Investments in new loans	$	296		$	391
Draws on existing loans		5,938			7,360

Total gross investments in real estate loans		6,234			7,751

Receipts on real estate loans receivable:
Loan payoffs		0			0
Principal payments on loans		8,402			2,081

Total principal receipts on real estate loans		8,402			2,081


Net cash advances (receipts) on real estate loans receivable	$	(2,168	)	$	5,670

7. Customer Concentration

At March 31, 2009, we had 67 investment property operators and over 800 medical office building tenants. The following table summarizes certain information about our customer concentration as of March 31, 2009 (dollars in thousands):


	Number of		Total		Percent of
	Properties		Investment		Investment (2)
Concentration by investment (1):
Senior Living Communities, LLC		10	$	367,092		6	%
Signature Healthcare LLC		34		314,049		5	%
Brookdale Senior Living, Inc		86		302,626		5	%
Life Care Centers of America, Inc		25		264,865		5	%
Emeritus Corporation		21		244,253		4	%
Remaining portfolio		456		4,449,960		75	%

Totals		632	$	5,942,845		100	%


	Number of		Total		Percent of
	Properties		Revenue (3)		Revenue (4)
Concentration by revenue (1):
Signature Healthcare LLC		34	$	10,058		7	%
Brookdale Senior Living, Inc		86		9,899		7	%
Life Care Centers of America, Inc		25		8,133		6	%
Emeritus Corporation		21		7,710		5	%
Senior Living Communities, LLC		10		5,511		4	%
Remaining portfolio		456		104,007		70	%
Other income		n/a		1,484		1	%

Totals		632	$	146,802		100	%


(1)		All of our top five customers are in our investment properties segment.

(2)		Investments with our top five customers comprised 25% of total investments at December 31, 2008.

(3)		Revenues include gross revenues and revenues from discontinued operations for the three months ended March 31, 2009.

(4)		Revenues from our top five customers were 31% of total revenues for the three months ended March 31, 2008.

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

8. Borrowings Under Line of Credit Arrangement and Related Items

At March 31, 2009, we had an unsecured line of credit arrangement with a consortium of sixteen banks in the amount of $1,150,000,000, which is scheduled to expire on August 5, 2011 (with the ability to extend for one year at our discretion if we are in compliance with all covenants). 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 (1.12% at March 31, 2009). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.6% at March 31, 2009. In addition, we pay a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at March 31, 2009. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement.

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


	Three Months Ended March 31,
	2009			2008
Balance outstanding at quarter end	$	335,000		$	432,500
Maximum amount outstanding at any month end	$	559,000		$	491,500
Average amount outstanding (total of daily principal balances divided by days in period)	$	417,000		$	406,687
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		1.62	%		4.75	%

9. Senior Unsecured Notes and Secured Debt

We have $1,810,537,000 of senior unsecured notes with annual interest rates ranging from 4.75% to 8.00%. The carrying amounts of the senior unsecured notes represent the par value of $1,823,277,000 adjusted for any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative instruments. See Note 10 for further discussion regarding derivative instruments. During the three months ended March 31, 2009, we extinguished $21,723,000 of senior unsecured notes principal for $19,796,000 and recognized debt extinguishment gains of $1,678,000.

We have secured debt totaling $444,336,000, collateralized by owned properties, with annual interest rates ranging from 4.89% to 8.08%. The carrying amounts of the secured debt represent the par value of $446,172,000 adjusted for any unamortized fair value adjustments. The carrying values of the properties securing the debt totaled $767,076,000 at March 31, 2009.

At March 31, 2009, the annual principal payments due on these debt obligations are as follows (in thousands):


	Senior		Secured
	Unsecured Notes (1)		Debt (1)		Totals
2009	$	0	$	37,451	$	37,451
2010		0		15,120		15,120
2011		0		52,314		52,314
2012		238,277		13,710		251,987
2013		300,000		62,198		362,198
Thereafter		1,285,000		265,379		1,550,379

Totals	$	1,823,277	$	446,172	$	2,269,449


(1)		Amounts above represent principal amounts due and do not include unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

10. 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 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. Derivatives are recorded at fair market value on the balance sheet as assets or liabilities.

On May 6, 2004, we entered into two interest rate swap agreements (the “2004 Swaps”) for a total notional amount of $100,000,000 to hedge changes in fair value attributable to changes in the LIBOR swap rate of $100,000,000 of fixed rate debt with a maturity date of November 15, 2013. The 2004 Swaps were treated as fair-value hedges for accounting purposes and we utilized the short-cut method to assess effectiveness. The 2004 Swaps were with highly rated counterparties in which we received a fixed rate of 6.0% and paid a variable rate based on six-month LIBOR plus a spread. On September 12, 2007, we terminated the 2004 Swaps and we received a $2,125,000 cash settlement. The unamortized amount of this settlement at March 31, 2009 was $1,549,000 ($1,634,000 at December 31, 2008) and is recorded as an adjustment to the hedged item. This amount will be amortized to interest expense over the life of the hedged debt using the effective interest method. For the three months ended March 31, 2009 and 2008, $85,000 and $85,000 of amortization was recognized as a reduction to senior unsecured notes interest expense.

On July 2, 2007, we entered into two forward-starting interest rate swaps (the “July 2007 Swaps”), with an aggregate notional amount of $200,000,000 that were designated as cash flow hedges of the variability in forecasted interest payments attributable to changes in the LIBOR swap rate, on long-term fixed rate debt forecasted to be issued in 2007. The July 2007 Swaps had the economic effect of fixing $200,000,000 of our debt at 4.913% for five years. The July 2007 Swaps were settled on July 17, 2007, which was the date that the forecasted debt was priced. The cash settlement value of these contracts at July 17, 2007 was $733,000. This amount represented the effective portion of the hedges as there was no hedge ineffectiveness. Therefore, the $733,000 settlement value was deferred in accumulated other comprehensive income (“AOCI”) and will be amortized to interest expense using the effective interest method. The unamortized amount of AOCI related to these contracts at March 31, 2009 is $484,000 ($521,000 at December 31, 2008). For the three months ended March 31, 2009 and 2008, we reclassified $37,000 and $37,000, respectively, out of AOCI as a reduction of interest expense.

On September 12, 2007, we entered into two forward-starting interest rate swaps (the “September 2007 Swaps”) for a total notional amount of $250,000,000 to hedge 10 years of interest payments associated with a long-term borrowing that was expected to occur in 2008. The September 2007 Swaps each had an effective date of September 12, 2008 and a maturity date of September 12, 2018. We expected to settle the 2007 Swaps when the debt was to be priced. The September 2007 Swaps were to have the economic effect of fixing $250,000,000 of our future debt at 4.469% plus a credit spread for 10 years. The September 2007 Swaps had been designated as cash flow hedges and we originally expected the 2007 Swaps to be highly effective at offsetting changes in cash flows of interest payments on $250,000,000 of our future debt due to changes in the LIBOR swap rate. Therefore, effective changes in the fair value of the September 2007 Swaps were recorded in AOCI and were to be reclassified to interest expense when the hedged forecasted transactions affected earnings (as interest payments would have been made on the expected debt issuance). The ineffective portion of the changes in fair value was to be recorded directly in earnings. However, during the year ended December 31, 2008, as a result of the severe dislocation in the credit markets, we terminated plans to issue debt and also terminated the September 2007 Swaps for $23,393,000. Amounts previously recorded in AOCI were reclassified to realized loss on derivatives resulting in $23,393,000 of expense as the forecasted transaction was no longer probable to occur.

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 a third party consultant, which utilizes pricing models that consider forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future.

11. Commitments and Contingencies

We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide workers’ compensation insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2009. At March 31, 2009, our obligation under the letter of credit was $2,450,000.

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide liability and property insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2013. At March 31, 2009, our obligation under the letter of credit was $1,000,000.

We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in 2010. At March 31, 2009, our obligation under the letter of credit was $679,320.

We have an outstanding letter of credit issued for the benefit of a municipality in Pennsylvania in connection with the completion and installation of certain property improvements by one of our subsidiaries. The improvements are expected to be completed in 2009. At March 31, 2009, our obligation under the letter of credit was $485,810.

We have an outstanding letter of credit issued for the benefit of a lender as additional credit support for a secured loan of a medical office building. Our obligation to provide the letter of credit terminates when the building’s occupancy thresholds are met with qualified leases. At March 31, 2009, our obligation under the letter of credit was $475,000.

At March 31, 2009, we had outstanding construction financings of $763,982,000 for leased properties and were committed to providing additional financing of approximately $592,515,000 to complete construction. At March 31, 2009, we had contingent purchase obligations totaling $6,051,000. These contingent purchase obligations primarily relate to deferred acquisition fundings and capital improvements. Deferred acquisition fundings are contingent upon an operator satisfying certain conditions such as payment coverage and value tests. Rents due from the tenant are increased to reflect the additional investment in the property.

At March 31, 2009, we had operating lease obligations of $163,014,000 relating to certain ground leases and company office space. We incurred rental expense relating to our company office space of $297,000 and $277,000 for the three months ended March 31, 2009 and 2008, respectively. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At March 31, 2009, aggregate future minimum rentals to be received under these noncancelable subleases totaled $30,713,000.

At March 31, 2009, future minimum lease payments due under operating leases are as follows (in thousands):


2009	$	3,163
2010		4,129
2011		4,235
2012		3,916
2013		3,927
Thereafter		143,644

Totals	$	163,014

12. Stockholders’ Equity

Preferred Stock. During the three months ended March 31, 2009, certain holders of our Series G Cumulative Convertible Preferred Stock converted 40,600 shares into 29,056 shares of our common stock, leaving 400,713 of such shares outstanding at March 31, 2009.

Common Stock. The following is a summary of our common stock issuances during the three months ended March 31, 2009 and 2008 (dollars in thousands, except per share amounts):


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
March 2008 public issuance		3,000,000	$	41.44	$	124,320	$	118,555
2008 Dividend reinvestment plan issuances		452,440		40.88		18,496		18,496
2008 Option exercises		48,722		24.69		1,203		1,203

2008 Totals		3,501,162			$	144,019	$	138,254


February 2009 public issuance		5,816,870	$	36.85	$	214,352	$	210,911
2009 Dividend reinvestment plan issuances		375,813		33.21		12,482		12,482

2008 Totals		6,192,683			$	226,834	$	223,393

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

On February 20, 2009, we paid a dividend of $0.68 per share to stockholders of record on January 31, 2009. These dividends related to the period from October 1, 2008 through December 31, 2008.

Comprehensive Income

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


	March 31, 2009			December 31, 2008
Fair value of cash flow hedges	$	595		$	635
Unrecognized gains (losses) on equity investments		(1,233	)		(1,038	)
Unrecognized actuarial gains (losses)		(710	)		(710	)

Totals	$	(1,348	)	$	(1,113	)

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


	Three Months Ended
	March 31,
	2009			2008
Cash flow hedge activity	$	(40	)	$	(10,853	)
Unrecognized losses on equity investments		(195	)		(240	)
Unrecognized actuarial gains/(losses)		0			0

Total other comprehensive income		(235	)		(11,093	)
Net income attributable to controlling interests		66,643			35,396

Comprehensive income attributable to controlling interests		66,408			24,303
Net and comprehensive income attributable to noncontrolling interests		2			62

Total comprehensive income	$	66,410		$	24,365

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 subsequent to January 1, 2003. Expense, which is recognized as the options vest based on the market value at the date of the award, totaled $1,082,000 and $697,000 for the three months ended March 31, 2009 and 2008, respectively.

13. Stock Incentive Plans

Our 2005 Long-Term Incentive Plan authorizes up to 2,200,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. The 2005 Plan replaced the 1995 Stock Incentive Plan and the Stock Plan for Non-Employee Directors. The options granted to officers and key employees under the 1995 Plan continue to vest through 2010 and expire ten years from the date of grant. Our non-employee directors, officers and key employees are eligible to participate in the 2005 Plan. The 2005 Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three years for non-employee directors to five years for officers and key employees. Options expire ten years from the date of grant.

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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued


	Three Months Ended			Three Months Ended
	March 31, 2009			March 31, 2008
Dividend yield (1)		7.35	%		6.47	%
Expected volatility		29.36	%		20.52	%
Risk-free interest rate		2.33	%		3.42	%
Expected life (in years)		7.0			6.5
Weighted-average fair value (1)	$	4.38		$	6.25


(1)		Certain options granted to employees in 2008 include dividend equivalent rights (“DERs”). The fair value of options with DERs also includes the net present value of projected future dividend payments over the expected life of the option discounted at the dividend yield rate.

The dividend yield represented the dividend yield of our common stock on the dates of grant. Our computation of expected volatility was based on historical volatility. The risk-free interest rates used were the 7-year U.S. Treasury Notes yield on the date of grant. The expected life was based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations regarding future employee behavior.

Option Award Activity

The following table summarizes information about stock option activity for the three months ended March 31, 2009:


	Number
	of			Weighted		Weighted Average		Aggregate
	Shares			Average		Remaining		Intrinsic
Stock Options	(000’s)			Exercise Price		Contract Life (years)		Value ($000’s)
Options at beginning of year		817		$	38.29		8.2
Options granted		366			37.00
Options terminated		(4	)		40.83

Options at end of period		1,179		$	37.88		7.2	$	442


Options exercisable at end of period		503		$	36.68		6.5	$	442
Weighted average fair value of options granted during the period				$	4.38

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 March 31, 2009. There were no option exercises during the three months ended March 31, 2009. During the three months ended March 31, 2008, the aggregate intrinsic value of options exercised under our stock incentive plans was $838,000 (determined as of the date of option exercise). Cash received from option exercises under our stock incentive plans for the three months ended March 31, 2008 was $1,203,000.

As of March 31, 2009, there was approximately $2,425,000 of total unrecognized compensation cost related to unvested stock options granted under our stock incentive plans. That cost is expected to be recognized over a weighted average period of four years. As of March 31, 2009, there was approximately $9,173,000 of total unrecognized compensation cost related to unvested restricted stock granted under our stock incentive plans. That cost is expected to be recognized over a weighted average period of three years.

The following table summarizes information about non-vested stock incentive awards as of March 31, 2009 and changes for the three months ended March 31, 2009:


	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, 2008		534		$	6.98		443		$	41.95
Vested		(220	)		7.41		(191	)		41.47
Granted		366			4.38		160			37.07
Terminated		(4	)		1.56		(2	)		40.83

Non-vested at March 31, 2009		676		$	5.47		410		$	40.29

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

14. Earnings Per Share

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


	Three Months Ended
	March 31,
	2009		2008
Numerator for basic and diluted earnings per share — net income attributable to common stockholders	$	61,119	$	29,249


Denominator for basic earnings per share — weighted average shares		108,214		86,100
Effect of dilutive securities:
Employee stock options		0		54
Non-vested restricted shares		410		456

Dilutive potential common shares		410		510

Denominator for diluted earnings per share — adjusted weighted average shares		108,624		86,610


Basic earnings per share	$	0.56	$	0.34

Diluted earnings per share	$	0.56	$	0.34

The diluted earnings per share calculation excludes the dilutive effect of 1,098,000 stock options for the three months ended March 31, 2009 because the exercise prices were greater than the average market price. The diluted earnings per share calculation excludes the dilutive effect of 123,000 stock options for the three months ended March 31, 2008 because the exercise prices were greater than the average market price. The Series E Cumulative Convertible and Redeemable Preferred Stock, the Series G Cumulative Convertible Preferred Stock, the $340,000,000 senior unsecured convertible notes due December 2026 and the $395,000,000 senior unsecured convertible notes due July 2027 were not included in these calculations as the effect of the conversions into common stock was anti-dilutive for the relevant periods presented.

We adopted FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“EITF 03-6-1”), effective January 1, 2009, which required retrospective application. EITF 03-6-1 clarifies that instruments granted in share-based payment transactions that are considered to be participating securities prior to vesting should be included in the earnings allocation under the two-class method of calculating earnings per share. We determined that our restricted shares granted under our long-term incentive plans are participating securities because the restricted shares participate in non-forfeitable dividends prior to vesting. Applying EITF 03-6-1 did not have an impact on previously reported amounts on either period presented.

15. Fair Value Disclosure

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. SFAS 157 for financial assets and liabilities is effective for fiscal years beginning after November 15, 2007, and was adopted as the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant. SFAS 157 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. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate swap agreements are valued using models that assume a hypothetical transaction to sell the asset or transfer the liability in the principal market for the asset or liability based on market data derived

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

from interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment timing, loss severities, credit risks and default rates.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The market approach is utilized to measure fair value for our financial assets and liabilities. 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 March 31, 2009
	Total		Level 1		Level 2		Level 3
Equity investments (1)	$	367	$	367	$	0	$	0

Totals	$	367	$	367	$	0	$	0


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

16. Segment Reporting

We invest in senior housing and health care real estate. We evaluate our business and make resource allocations on our two business segments — investment properties and medical office buildings. Under the investment property segment, we invest in senior housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our primary investment property types include skilled nursing facilities, assisted living facilities, independent living/continuing care retirement communities and specialty care facilities. Under the medical office building segment, our properties are typically leased to multiple tenants and generally require a certain level of property management. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1 to our Annual Report on Form 10-K for the year ended December 31, 2008). There are no intersegment sales or transfers. We evaluate performance based upon net operating income of the combined properties in each segment. Non-segment revenue consists mainly of interest income on non-real estate investments and other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate office equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining net operating income. Summary information for the reportable segments during the three months ended March 31, 2009 and 2008 is as follows (in thousands):


									Property		Net		Real Estate
	Rental		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income (1)		Income		Income		Revenues (1)		Expenses (1)		Income (2)		Amortization (1)		Expense (1)		Assets
Three months ended March 31, 2009:
Investment Properties	$	102,112	$	9,953	$	895	$	112,960			$	112,960	$	29,284	$	1,644	$	4,645,875
Medical Office Buildings		33,253				213		33,466	$	11,983		21,483		12,042		5,213		1,427,243
Non-segment/Corporate						376		376				376				21,154		69,963

	$	135,365	$	9,953	$	1,484	$	146,802	$	11,983	$	134,819	$	41,326	$	28,011	$	6,143,081


Three months ended March 31, 2008:
Investment Properties	$	91,933	$	9,092	$	1,296	$	102,321			$	102,321	$	26,410	$	1,973	$	3,993,615
Medical Office Buildings		33,233				210		33,443	$	11,367		22,076		13,164		5,662		1,309,109
Non-segment/Corporate						210		210				210				29,685		84,732

	$	125,166	$	9,092	$	1,716	$	135,974	$	11,367	$	124,607	$	39,574	$	37,320	$	5,387,456


(1)		Includes amounts from discontinued operations.

(2)		Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

17. Supplemental Cash Flow Information


	March 31,
	2009		2008
	(In thousands)
Supplemental cash flow information:
Interest paid	$	28,152	$	23,781
Income taxes paid		211		1,549

Supplemental schedule of non-cash activites:
Assets and liabilities assumed from real property acquisitions:
Secured debt	$	0	$	0
Other liabilities		0		887
Other assets		0		0

18. Subsequent Events

Secured Debt. On April 7, 2009, we closed a $133,000,000 first mortgage loan secured by 12 senior housing properties with multiple levels of service. The 10-year debt has a fixed interest rate of 6.10%. KeyBank Capital Markets, Inc. originated the loan and intends to sell it to Freddie Mac.

19. Retrospective Application of New Accounting Standards

We adopted FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”) and FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP 14-1”), effective January 1, 2009, each of which required retrospective application. SFAS 160 changed the accounting and reporting for minority interests, which have been re-characterized as non-controlling interests and classified as a component of equity. FSP 14-1 provides guidance on accounting for convertible debt that may be settled in cash upon conversion. It requires bifurcation of the convertible debt instrument into a debt component and an equity component. The value of the debt component is based upon the estimated fair value of a similar debt instrument without the conversion feature. The difference between the contractual principal on the debt and the value allocated to the debt is recorded as an equity component and represents the conversion feature of the instrument. The excess of the contractual principal amount of the debt over its estimated fair value is amortized to interest expense using the effective interest method over the period used to estimate the fair value. The following tables illustrate the retrospective restatement of our previously reported consolidated balance sheet amounts to reflect the application of SFAS 160 and FSP 14-1 for the periods indicated (in thousands):


	As of December 31, 2008
	As Previously			FSP 14-1			SFAS 160			As
	Reported			Adjustment			Adjustment			Adjusted
Liabilities:
Borrowings under unsecured lines of credit arrangements	$	570,000								$	570,000
Senior unsecured notes		1,847,247		$	(16,096	)					1,831,151
Secured debt		446,525									446,525
Accrued expenses and other liabilities		107,157									107,157

Total liabilities		2,970,929			(16,096	)	$	0			2,954,833
Minority interests		10,603						(10,603	)		0
Equity:
Preferred stock, $1.00 par value		289,929									289,929
Common stock, $1.00 par value		104,635									104,635
Capital in excess of par value		3,180,628			24,062						3,204,690
Treasury stock		(5,145	)								(5,145	)
Cumulative net income		1,362,366			(7,966	)					1,354,400
Cumulative dividends		(1,723,819	)								(1,723,819	)
Accumulated other comprehensive income		(1,113	)								(1,113	)
Other equity		4,105									4,105

Total Health Care REIT, Inc. stockholders’ equity		3,211,586			16,096			0			3,227,682
Noncontrolling interests		0						10,603			10,603

Total equity		3,211,586			16,096			10,603			3,238,285

Total liabilities and equity	$	6,193,118		$	0		$	0		$	6,193,118

HEALTH CARE REIT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — Continued

The following tables illustrate the retrospective restatement of our previously reported consolidated statements of income amounts to reflect the application of SFAS 160 and FSP 14-1 as well as the SFAS 144 discontinued operation reclassifications for the periods indicated (amounts in thousands, except per share amounts):


	Three Months Ended March 31, 2008
	As Previously			FSP 14-1			SFAS 160		SFAS 144			As
	Reported			Adjustment			Adjustment		Adjustment			Adjusted
Revenues:
Rental income	$	125,044		$	0		$	0	$	(9,219	)	$	115,825
Interest income		9,092											9,092
Other income		1,716											1,716

		135,852			0			0		(9,219	)		126,633

Expenses:
Interest and loan expenses		36,101			1,203					(2,202	)		35,102
Property operating expenses		11,367								(655	)		10,712
Depreciation and amortization		39,555								(3,209	)		36,346
General and administrative		12,328											12,328
Loss (gain) on extinguishment of debt		(1,326	)										(1,326	)

		98,025			1,203			0		(6,066	)		93,162

Income from continuing operations before income taxes and minority interests		37,827			(1,203	)		0		(3,153	)		33,471
Income tax (expense) benefit		(1,279	)										(1,279	)

Income before minority interests		36,548			(1,203	)		0		(3,153	)		32,192
Minority interests		(62	)					62					0

Income from continuing operations		36,486			(1,203	)		62		(3,153	)		32,192
Discontinued operations:
Gain (loss) on sales of properties		26											26
Income from discontinued operations, net		87								3,153			3,240

		113			0			0		3,153			3,266

Net income		36,599			(1,203	)		62		0			35,458
Less: Preferred stock dividends		6,147											6,147
Net income attributable to noncontrolling interests		0						62					62

Net income attributable to common stockholders	$	30,452		$	(1,203	)	$	0	$	0		$	29,249


Average number of common shares outstanding:
Basic		86,100			86,100			86,100		86,100			86,100
Diluted		86,610			86,610			86,610		86,610			86,610

Earnings per share:
Basic:
Income from continuing operations attributable to common stockholders	$	0.35		$	(0.01	)	$	0.00	$	(0.04	)	$	0.30
Discontinued operations, net		0.00			0.00			0.00		0.04			0.04

Net income attributable to common stockholders	$	0.35		$	(0.01	)	$	0.00	$	0.00		$	0.34


Diluted:
Income from continuing operations attributable to common stockholders	$	0.35		$	(0.01	)	$	0.00	$	(0.04	)	$	0.30
Discontinued operations, net		0.00			0.00			0.00		0.04			0.04

Net income attributable to common stockholders	$	0.35		$	(0.01	)	$	0.00	$	0.00		$	0.34

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

The following discussion and analysis is based primarily on the consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2008, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Executive Summary

Company Overview

Health Care REIT, Inc. is an equity real estate investment trust (“REIT”) that invests in senior housing and health care real estate. Founded in 1970, we were the first REIT to invest exclusively in health care facilities. The following table summarizes our portfolio as of March 31, 2009:


	Investments		Percentage of			Number of		# Beds/Units			Investment per
Type of Property	(in thousands)		Investments			Properties		or Sq. Ft.			metric (1)			States
Independent living/CCRCs	$	1,143,074		19.3	%		62		7,410	units	$	172,012	per unit		20
Assisted living facilities		1,225,632		20.6	%		187		11,466	units		115,765	per unit		30
Skilled nursing facilities		1,595,342		26.8	%		226		30,702	beds		52,460	per bed		27
Specialty care facilities		583,616		9.8	%		28		1,629	beds		507,430	per bed		13
Medical office buildings		1,395,181		23.5	%		129		5,667,516	sq. ft.		264	per sq. ft.		23

Totals	$	5,942,845		100.0	%		632


(1)		Investment per metric was computed by using the total committed investment amount of $6,535,360,000, which includes net real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $5,942,845,000 and $592,515,000, respectively.

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 projects that national health expenditures will rise to $3.8 trillion in 2015 or 18.8% of gross domestic product (“GDP”). This is up from $2 trillion or 15.9% of GDP in 2005. Health expenditures per capita are projected to rise 5.8% per year from 2005 to 2015. 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 is less susceptible to fluctuations and economic downturns relative to other property sectors. Investor interest in the market remains strong, especially in specific sectors such as medical office buildings, regardless of the current stringent lending environment. As a REIT, we believe we are situated to benefit from any turbulence in the capital markets due to our access to capital.

The total U.S. population is projected to increase by 19% 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. The elderly population aged 65 and over is projected to increase by 81% through 2030. Most health care services are provided within a health care facility such as a hospital, a physician’s office or a senior housing facility. Therefore, we believe there will be continued demand for companies such as ours with expertise in health care real estate.

The following chart illustrates the projected increase in the elderly population aged 65 and over:

Source: U.S. Census Bureau

Health care real estate investment opportunities tend to increase as demand for health care services increases. We recognize the need for health care real estate as it correlates to health care service demand. Health care providers require real estate to house their businesses and expand their services. We believe that investment opportunities in health care real estate will continue to be present due to the:

	•		Specialized nature of the industry which enhances the credibility and experience of our company;

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

	•		On-going merger and acquisition activity.

Economic Outlook

Beginning in late 2007 and throughout 2008, the U.S. and global economy entered a serious recession. The current economic environment is characterized by a severe residential housing slump, depressed commercial real estate valuations, weakened consumer confidence, rising unemployment and concerns regarding inflation, deflation and stagflation. Numerous financial systems around the globe have become illiquid and banks have become less willing to lend to other banks and borrowers. Further, capital markets have become and remain volatile as risk is repriced and investments are revalued. Uncertainty remains in terms of the depth and duration of these adverse economic conditions.

The conditions described above have created an environment of limited capital availability and increasing capital costs. This was most evident in the credit markets, where lending institutions cut back on loans, tightened credit standards and significantly increased interest rate spreads. The equity markets were characterized by sporadic accessibility until late 2008, when share prices in most sectors declined significantly. Continued volatility in the capital markets could limit our ability to access debt or equity funds which, in turn, could impact our ability to finance future investments and react to changing economic and business conditions. This difficult operating environment also may make it more difficult for some of our operators/tenants to meet their obligations to us.

During 2008, our focus gradually shifted from investment to capital preservation. To that end, our efforts in 2009 will be directed towards: liquidity, portfolio management and investment rationalization.

	•		Liquidity. Liquidity has become increasingly important and we have concentrated our efforts on further strengthening our balance sheet. We raised over $1 billion in funds during 2008 from a combination of three common stock offerings, our dividend reinvestment plan, our new equity shelf program, property sales and loan payoffs. We generated an additional $284.7 million from these sources during the three months ended March 31, 2009. As always, we will continue to closely monitor the credit and capital markets for opportunities to raise reasonably priced capital.

	•		Portfolio Management. Our investment approach has produced a portfolio that is very diverse with strong property level payment coverages. Yet, today’s adverse economic conditions can negatively impact even the strongest portfolio. Our portfolio management program is designed to maintain our portfolio’s strength through a combination of extensive industry research, stringent origination and underwriting protocols and a rigorous asset management process.

	•		Investment Strategy. For the short-term, we expect to fund our ongoing development projects and will evaluate new investments selectively and only when funding sources are clearly identified. However, we will continue to strengthen our existing customer relationships and begin to cultivate new relationships. As we begin 2009, we remain focused on preserving liquidity, but we intend to take advantage of what we believe will be increasingly attractive investment opportunities over time.

Business Strategy

Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in rental and interest income and portfolio growth. To meet these objectives, we invest across a broad spectrum of senior housing and health care real estate and diversify our investment portfolio by property type, operator/tenant and geographic location.

Substantially all of our revenues and sources of cash flows from operations are derived from operating lease rentals and interest earned on outstanding loans receivable. These items represent our primary source of liquidity to fund distributions and are dependent upon our obligors’ continued ability to make contractual rent and interest payments to us. To the extent that our obligors experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property and operator/tenant. Our asset management process includes review of monthly financial statements, periodic review of obligor credit, periodic property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends and risks. Through these asset management and research efforts, we are typically able to intervene at an early stage to address payment risk, and in so doing, support both the collectibility of revenue and the value of our investment.

With respect to our investment properties, we also structure our investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the obligor and its affiliates.

For the three months ended March 31, 2009, rental income and interest income represented 92% and 7%, respectively, of total gross revenues (including revenues from discontinued operations). Substantially all of our operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

Depending upon the availability and cost of external capital, we anticipate investing in additional properties. New investments are generally funded from temporary borrowings under our unsecured line of credit arrangement, internally generated cash and the proceeds from sales of real property. Our investments generate internal cash from rent and interest receipts and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under the unsecured line of credit arrangement, is expected to be provided through a combination of public and private offerings of debt and equity securities and the incurrence or assumption of secured debt. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions and finance future 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. During the three months ended March 31, 2009, we completed $173,764,000 of gross investments and $44,268,000 of investment payoffs, resulting in $129,496,000 of net new investments. We expect to complete gross new investments of approximately $600,000,000 during 2009, comprised of funded new development. We anticipate the sale of real property and the repayment of loans receivable totaling approximately $200,000,000 to $300,000,000 resulting in net new investments of approximately $300,000,000 to $400,000,000 during 2009. It is possible that additional loan repayments or sales of real property may occur in the future. To the extent that loan repayments and real property sales exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any loan repayments and real property sales in new investments. To the extent that new investment requirements exceed our available cash on hand, we expect to borrow under our unsecured line of credit arrangement. At March 31, 2009, we had $19,180,000 of cash and cash equivalents, $16,358,000 of restricted cash and $815,000,000 of available borrowing capacity under our unsecured line of credit arrangement.

Key Transactions in 2009

We have completed the following key transactions to date in 2009:

	•		our Board of Directors approved a quarterly cash dividend of $0.68 per share, which is consistent with the quarterly dividend paid for 2008. The dividend declared for the quarter ended March 31, 2009 represents the 152^nd consecutive quarterly dividend payment;

	•		we completed $173,764,000 of gross investments and had $44,268,000 of investment payoffs during the three months ended March 31, 2009;

	•		we were added to the S&P 500 Index in January 2009;

	•		we closed a public offering of 5,816,870 shares of common stock with net proceeds of approximately $210,911,000 in February 2009; and

	•		we completed a $133,000,000 first mortgage loan secured by 12 senior housing properties with multiple levels of service in April 2009. The 10-year debt has a fixed interest rate of 6.10%. KeyBank Capital Markets, Inc. originated the loan and intends to sell it to Freddie Mac.

Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to operating performance, concentration risk and credit strength. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results, in making operating decisions and for budget planning purposes.

Operating Performance. We believe that net income attributable to common stockholders (“NICS”) is the most appropriate earnings measure. Other useful supplemental measures of our operating performance include funds from operations (“FFO”) and net operating income (“NOI”); however, these supplemental measures are not defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations of FFO and NOI. These earnings measures and their relative per share amounts are widely used by investors and analysts in the valuation, comparison and investment recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands, except per share data):


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2008		2008		2008		2008		2009

Net income attributable to common stockholders	$	29,249	$	155,410	$	53,589	$	21,850	$	61,119
Funds from operations		68,710		76,785		82,573		30,799		85,322
Net operating income		124,607		129,495		135,126		136,907		134,819

Per share data (fully diluted):
Net income attributable to common stockholders	$	0.34	$	1.73	$	0.55	$	0.21	$	0.56
Funds from operations		0.79		0.85		0.85		0.30		0.79

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to book capitalization and debt to market capitalization. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain investment grade ratings with Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings. The coverage ratios are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
	2008			2008			2008			2008			2009

Debt to book capitalization ratio		52	%		53	%		45	%		47	%		43	%
Debt to undepreciated book capitalization ratio		47	%		49	%		41	%		43	%		39	%
Debt to market capitalization ratio		39	%		41	%		31	%		38	%		41	%

Interest coverage ratio		2.86	x		6.17	x		3.50	x		2.70	x		3.88	x
Fixed charge coverage ratio		2.37	x		5.15	x		2.91	x		2.24	x		3.18	x

Concentration Risk. We evaluate our concentration risk in terms of asset mix, investment mix, customer mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property. In order to qualify as an equity REIT, at least 75% of our real estate investments must be real property whereby each property, which includes the land, buildings, improvements, intangibles and related rights, is owned by us and leased to a tenant pursuant to a long-term operating lease. Investment mix measures the portion of our investments that relate to our various property types. Customer mix measures the portion of our investments that relate to our top five customers. Geographic mix measures the portion of our investments that relate to our top five states. The following table reflects our recent historical trends of concentration risk for the periods presented:


	March 31,			June 30,			September 30,			December 31,			March 31,
	2008			2008			2008			2008			2009

Asset mix:
Real property		92	%		91	%		91	%		92	%		92	%
Real estate loans receivable		8	%		9	%		9	%		8	%		8	%

Investment mix:
Independent living/CCRCs		16	%		17	%		18	%		19	%		19	%
Assisted living facilities		21	%		21	%		20	%		20	%		21	%
Skilled nursing facilities		31	%		29	%		28	%		27	%		27	%
Specialty care facilities		7	%		10	%		10	%		11	%		10	%
Medical office buildings		25	%		23	%		24	%		23	%		23	%

Customer mix:
Senior Living Communities, LLC		4	%		5	%		6	%		6	%		6	%
Signature Healthcare LLC		6	%		6	%		6	%		5	%		5	%
Brookdale Senior Living Inc		5	%		5	%		5	%		5	%		5	%
Life Care Centers of America, Inc.		5	%		5	%		5	%		5	%		5	%
Emeritus Corporation		7	%		5	%		5	%		4	%		4	%
Remaining customers		73	%		74	%		73	%		75	%		75	%

Geographic mix:
Florida		15	%		14	%		14	%		14	%		14	%
Texas		13	%		12	%		12	%		11	%		11	%
California		7	%		8	%		8	%		8	%		8	%
Massachusetts		7	%		7	%		7	%		7	%		7	%
Tennessee		6	%		6	%		6	%		6	%		5	%
Remaining states		52	%		53	%		53	%		54	%		55	%

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Forward-Looking Statements and Risk Factors” and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2008, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

Portfolio Update

Net operating income. The primary performance measure for our properties is net operating income (“NOI”) as discussed below in “Non-GAAP Financial Measures.” The following table summarizes our net operating income for the periods indicated (in thousands):


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2008		2008		2008		2008		2009

Net operating income:
Investment properties	$	102,321	$	107,515	$	112,200	$	114,773	$	112,960
Medical office buildings		22,076		21,865		22,351		21,341		21,483
Non-segment/corporate		210		115		575		793		376

Net operating income	$	124,607	$	129,495	$	135,126	$	136,907	$	134,819

Payment coverage. Payment coverage of the operators in our investment property portfolio continues to remain strong. Our overall payment coverage is at 1.97 times. The table below reflects our recent historical trends of portfolio coverage. Coverage data reflects the 12 months ended for the periods presented. CBMF represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. CAMF represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization and rent (but after imputed management fees) to contractual rent or interest due us.

December 31, 2006

December 31, 2007

December 31, 2008

CBMF

CAMF

CBMF

CAMF

CBMF

CAMF

Independent living/CCRCs

1.39x

1.19x

1.45x

1.23x

1.29x

1.09x

Assisted living facilities

1.56x

1.35x

1.59x

1.37x

1.56x

1.33x

Skilled nursing facilities

2.19x

1.57x

2.26x

1.66x

2.25x

1.64x

Specialty care facilities

2.77x

2.21x

2.64x

2.07x

2.36x

1.95x

Weighted averages

1.94x

1.51x

1.99x

1.55x

1.97x

1.53x

Corporate Governance

Maintaining investor confidence and trust has become increasingly important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on our website at www.hcreit.com and from us upon written request sent to the Senior Vice President – Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, borrowings under the unsecured line of credit arrangement, public and private offerings of debt and equity securities, proceeds from the sales of real property and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including construction advances), loan advances 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):


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			$			%
Cash and cash equivalents at beginning of period	$	23,370		$	30,269		$	(6,899	)		-23	%
Cash provided from (used in) operating activities		84,557			75,672			8,885			12	%
Cash provided from (used in) investing activities		29,945			(203,897	)		233,842			n/a
Cash provided from (used in) financing activities		(118,692	)		130,238			(248,930	)		n/a

Cash and cash equivalents at end of period	$	19,180		$	32,282		$	(13,102	)		-41	%

Operating Activities. The change in net cash provided from operating activities is primarily attributable to an increase in net income, excluding gains on sales of properties and depreciation and amortization. The increase in net income is discussed below in “Results of Operations.”

The following is a summary of our straight-line rent and above/below market lease amortization (dollars in thousands):


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			$			%
Gross straight-line rental income	$	5,030		$	5,336		$	(306	)		-6	%
Cash receipts due to real property sales		(1,705	)		0			(1,705	)		n/a
Prepaid rent receipts		(6,184	)		(2,975	)		(3,209	)		108	%
Amortization related to above (below) market leases, net		356			263			93			35	%

	$	(2,503	)	$	2,624		$	(5,127	)		n/a

Gross straight-line rental income represents the non-cash difference between contractual cash rent due and the average rent recognized pursuant to Statement of Financial Accounting Standards No. 13, Accounting for Leases (“SFAS 13”), for leases with fixed rental escalators, net of collectibility reserves. This amount is positive in the first half of a lease term (but declining every year due to annual increases in cash rent due) and is negative in the second half of a lease term. The fluctuation in cash receipts due to real property sales is attributable to the lack of straight-line rent receivable balances on properties sold during the three months ended March 31, 2008. The fluctuation in prepaid rent receipts is primarily due to an increase in prepaid rent received from certain of our construction projects.

Investing Activities. The changes in net cash used in investing activities are primarily attributable to net changes in real property and real estate loans receivable. The following is a summary of our investment and disposition activities (dollars in thousands):


	Three Months Ended
	Mar. 31, 2009						Mar. 31, 2008
	Properties			Amount			Properties		Amount
Real property acquisitions:
Independent living/CCRCs				$	0			1	$	11,800
Assisted living facilities					0			1		4,600
Specialty care facilities					0			1		35,200
Medical office buildings					0			3		41,628

Total acquisitions		0			0			6		93,228
Less: Assumed debt					0					0
Assumed other assets (liabilities), net					0					(887	)

Cash disbursed for acquisitions					0					92,341
Construction in progress additions					152,127					72,141
Capital improvements to existing properties					7,569					3,932

Total cash invested in real property					159,696					168,414

Real property dispositions:
Assisted living facilities		1			3,427					0
Specialty care facilities		2			40,841					0
Land parcels					0					73

Total dispositions		3			44,268			0		73
Less: Gain/(loss) on sales of real property					17,036					26

Proceeds from real property sales					61,304					99


Net cash investments in real property		(3	)	$	98,392			6	$	168,315


Advances on real estate loans receivable:
Investments in new loans				$	296				$	391
Draws on existing loans					5,938					7,360

Total gross investments in real estate loans					6,234					7,751
Less: Seller financing on sales of real property					0					0

Net cash advances on real estate loans receivable					6,234					7,751
Receipts on real estate loans receivable:
Loan payoffs					0					0
Principal payments on loans					8,402					2,081

Total principal receipts on real estate loans					8,402					2,081

Net cash advances (receipts) on real estate loans receivable				$	(2,168	)			$	5,670

Financing Activities. The changes in net cash provided from or used in financing activities are primarily attributable to changes related to our long-term debt arrangements, proceeds from the issuance of common stock and dividend payments.

For the three months ended March 31, 2009, we had a net decrease of $235,000,000 on our unsecured line of credit arrangement as compared to a net increase of $125,500,000 for the same period in 2008. The changes in our senior unsecured notes are due to the extinguishment of $21,723,000 of various senior unsecured notes in March 2009 and the extinguishment of $42,330,000 of our 7.625% senior unsecured notes in March 2008. During the three months ended March 31, 2008, we extinguished four secured debt loans totaling $25,683,000 with a weighted-average interest rate of 7.214% and recognized extinguishment gains of $1,326,000.

The following is a summary of our common stock issuances (dollars in thousands, except per share amounts):


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
March 2008 public issuance		3,000,000	$	41.44	$	124,320	$	118,555
2008 Dividend reinvestment plan issuances		452,440		40.88		18,496		18,496
2008 Option exercises		48,722		24.69		1,203		1,203

2008 Totals		3,501,162			$	144,019	$	138,254


February 2009 public issuance		5,816,870	$	36.85	$	214,352	$	210,911
2009 Dividend reinvestment plan issuances		375,813		33.21		12,482		12,482

2008 Totals		6,192,683			$	226,834	$	223,393

In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income (including 100% of capital gains) to our stockholders. The increase in dividends is primarily attributable to an increase in our common stock.

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


	Three Months Ended
	Mar. 31, 2009				Mar. 31, 2008
	Per Share		Amount		Per Share		Amount
Common Stock	$	0.6800	$	75,986	$	0.6600	$	57,190
Series D Preferred Stock		0.4922		1,969		0.4922		1,969
Series E Preferred Stock		0.3750		28		0.3750		28
Series F Preferred Stock		0.4766		3,336		0.4766		3,336
Series G Preferred Stock		0.4688		191		0.4688		814

Totals			$	81,510			$	63,337

Off-Balance Sheet Arrangements

At March 31, 2009, we had five outstanding letter of credit obligations totaling $5,090,000 and expiring between 2009 and 2013. Please see Note 11 to our unaudited consolidated financial statements for additional information.

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on the general trend in interest rates at the applicable dates, our perception of the future volatility of interest rates and our relative levels of variable rate debt and variable rate investments. Please see Note 10 to our unaudited consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of March 31, 2009 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2009		2010-2011		2012-2013		Thereafter
Unsecured line of credit arrangement	$	335,000	$	0	$	335,000	$	0	$	0
Senior unsecured notes (1)		1,823,277		0		0		538,277		1,285,000
Secured debt (1)		446,172		37,451		67,434		75,908		265,379
Contractual interest obligations		1,175,182		111,294		267,577		228,407		567,904
Capital lease obligations		0		0		0		0		0
Operating lease obligations		163,014		3,163		8,364		7,843		143,644
Purchase obligations		598,566		130,537		465,004		3,025		0
Other long-term liabilities		4,753		262		488		4,003		0

Total contractual obligations	$	4,545,964	$	282,707	$	1,143,867	$	857,463	$	2,261,927


(1)		Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.

At March 31, 2009, we had an unsecured line of credit arrangement with a consortium of sixteen banks in the amount of $1.15 billion, which is scheduled to expire on August 5, 2011. 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 (1.12% at March 31, 2009). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.6% at March 31, 2009. In addition, we pay a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at March 31, 2009. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. At March 31, 2009, we had $335,000,000 outstanding under the unsecured line of credit arrangement and estimated total contractual interest obligations of $16,103,000. Contractual interest obligations are estimated based on the assumption that the balance of $335,000,000 at March 31, 2009 is constant until maturity at interest rates in effect at March 31, 2009.

We have $1,823,277,000 of senior unsecured notes principal outstanding with fixed annual interest rates ranging from 4.75% to 8%, payable semi-annually. Total contractual interest obligations on senior unsecured notes totaled $1,029,498,000 at March 31, 2009. Additionally, we have secured debt with total outstanding principal of $446,172,000, collateralized by owned properties, with fixed annual interest rates ranging from 4.89% to 8.08%, payable monthly. The carrying values of the properties securing the debt totaled $767,076,000 at March 31, 2009. Total contractual interest obligations on secured debt totaled $129,581,000 at March 31, 2009.

At March 31, 2009, we had operating lease obligations of $163,014,000 relating primarily to ground leases at certain of our properties and office space leases.

Purchase obligations are comprised of unfunded construction commitments and contingent purchase obligations. At March 31, 2009, we had outstanding construction financings of $763,982,000 for leased properties and were committed to providing additional financing of approximately $592,515,000 to complete construction. At March 31, 2009, we had contingent purchase obligations totaling $6,051,000. These contingent purchase obligations primarily relate to deferred acquisition fundings and capital improvements. Deferred acquisition fundings are contingent upon a tenant satisfying certain conditions in the lease. Upon funding, amounts due from the tenant are increased to reflect the additional investment in the property.

Other long-term liabilities relate to our Supplemental Executive Retirement Plan (“SERP”) and certain non-compete agreements. We have a SERP, a non-qualified defined benefit pension plan, which provides certain executive officers with supplemental deferred retirement benefits. The SERP provides an opportunity for participants to receive retirement benefits that cannot be paid under our tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and length of service and the SERP is unfunded. No contributions by the company are anticipated for the 2009 fiscal year. Benefit payments are expected to total $4,003,000 during the next five fiscal years and no benefit payments are expected to occur during the succeeding five fiscal years. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $3,289,000 and $3,109,000 at March 31, 2009 and December 31, 2008, respectively.

In connection with the Windrose merger, we entered into consulting agreements with Fred S. Klipsch and Frederick L. Farrar, which expired in December 2008. We entered into a new consulting agreement with Mr. Farrar in December 2008, which expires in December 2009 and may be terminated at any time by Mr. Farrar. Each consultant has agreed not to compete with us for a period of two years following termination or expiration of the agreement. In exchange for complying with the covenant not to compete, Messers. Klipsch and Farrar will receive eight quarterly payments of $75,000 and $37,500, respectively, with the first payment to be made on the date of termination or expiration of the agreement. The first payment to Mr. Klipsch was made in December 2008.

Capital Structure

As of March 31, 2009, we had stockholders’ equity of $3,450,607,000 and a total outstanding debt balance of $2,589,873,000, which represents a debt to total book capitalization ratio of 43%. Our ratio of debt to market capitalization was 41% at March 31, 2009. For the three months ended March 31, 2009, our interest coverage ratio was 3.88 to 1.00. For the three months ended March 31, 2009, our fixed charge coverage ratio was 3.18 to 1.00. Also, at March 31, 2009, we had $19,180,000 of cash and cash equivalents, $16,358,000 of restricted cash and $815,000,000 of available borrowing capacity under our unsecured line of credit arrangement. During the three months ended March 31, 2009, we completed one public offering of 5,816,870 shares of common stock with net proceeds of approximately $210,911,000.

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. As of March 31, 2009, 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 with Moody’s Investors Service and Standard & Poor’s Ratings Services. However, under our unsecured line of credit arrangement, these ratings on our senior unsecured notes are used to determine the fees and interest charged.

As of April 30, 2009, our senior unsecured notes were rated Baa2 (stable), BBB- (stable) and BBB (stable) by Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings, respectively. We plan to manage the company to maintain investment grade status with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the noted rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

On May 12, 2006, 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 April 30, 2009, we had an effective registration statement on file in connection with our enhanced dividend reinvestment plan under which we may issue up to 10,760,247 shares of common stock. As of April 30, 2009, 7,534,550 shares of common stock remained available for issuance under this registration statement. In November 2008, we entered into an Equity Distribution Agreement with UBS Securities LLC relating to the offer and sale from time to time of up to $250,000,000 aggregate amount of our common stock (“Equity Shelf Program”). We did not issue any shares of common stock under the Equity Shelf Program during the three months ended March 31, 2009. As of April 30, 2009, we had $218,804,000 of remaining capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured line of credit arrangement.

Results of Operations

Our primary sources of revenue include rent and interest. Our primary expenses include interest expense, depreciation and amortization, property operating expenses and general and administrative expenses. These revenues and expenses are reflected in our Consolidated Statements of Income and are discussed in further detail below. The following is a summary of our results of operations (dollars in thousands except per share amounts):


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			Amount			%
Net income attributable to common stockholders	$	61,119		$	29,249		$	31,870			109	%
Funds from operations		85,322			68,710			16,612			24	%
EBITDA		136,032			113,631			22,401			20	%
Net operating income		134,819			124,607			10,212			8	%

Per share data (fully diluted):
Net income attributable to common stockholders	$	0.56		$	0.34		$	0.22			65	%
Funds from operations		0.79			0.79			0.00			0	%

Interest coverage ratio		3.88	x		2.86	x		1.02	x		36	%
Fixed charge coverage ratio		3.18	x		2.37	x		0.81	x		34	%

We evaluate our business and make resource allocations on our two business segments — investment properties and medical office buildings. Under the investment property segment, properties are primarily leased under triple-net leases and we are not involved in the management of the property. Under the medical office building segment, our properties are typically leased under gross leases, modified gross leases or triple-net leases, to multiple tenants, and generally require a certain level of property management. There are no

intersegment sales or transfers. Non-segment revenue consists mainly of interest income on non-real estate investments and other income. Non-property specific revenues and expenses are not allocated to individual segments in determining net operating income. Please see Note 16 to our unaudited consolidated financial statements for additional information.

Investment Properties

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


	Three Months Ended					Change
	Mar. 31, 2009		Mar. 31, 2008			$			%
	(In thousands, except per share data)
Revenues:
Rental income	$	100,293	$	84,130		$	16,163			19	%
Interest income		9,953		9,092			861			9	%
Other income		895		1,296			(401	)		-31	%

		111,141		94,518			16,623			18	%

Expenses:
Interest expense		1,460		176			1,284			730	%
Depreciation and amortization		28,769		24,118			4,651			19	%
Gain on extinguishment of debt		0		(40	)		40			-100	%
Provision for loan losses		140		0			140			n/a

		30,369		24,254			6,115			25	%

Income from continuing operations before income taxes		80,772		70,264			10,508			15	%
Income tax expense		0		(1,350	)		1,350			-100	%

Income from continuing operations		80,772		68,914			11,858			17	%
Discontinued operations:
Gain (loss) on sales of properties		17,036		26			17,010			65423	%
Income (loss) from discontinued operations, net		1,120		3,714			(2,594	)		-70	%

Discontinued operations, net		18,156		3,740			14,416			385	%

Net income	$	98,928	$	72,654		$	26,274			36	%

The increase in rental income is primarily attributable to the acquisitions of new investment properties subsequent to March 31, 2008 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. Interest income increased from 2008 primarily due to an increase in the balance of outstanding loans.

Interest expense for the three months ended March 31, 2009 represents $1,644,000 of secured debt interest expense offset by interest allocated to discontinued operations. Interest expense for the three months ended March 31, 2008 represents $1,973,000 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. During the three months ended March 31, 2008, we extinguished two investment property secured debt loans and recognized extinguishment gains of $40,000. The following is a summary of our investment property secured debt principal activity (dollars in thousands):


	Three Months Ended						Three Months Ended
	March 31, 2009						March 31, 2008
				Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	94,234			6.996	%	$	114,543			7.000	%
Debt extinguished		0			0.000	%		(4,750	)		7.125	%
Principal payments		(677	)		6.982	%		(700	)		6.974	%

Ending balance	$	93,557			6.996	%	$	109,093			6.994	%


Monthly averages	$	93,902			6.996	%	$	111,817			6.997	%

Depreciation and amortization increased primarily as a result of the acquisitions of new investment properties subsequent to March 31, 2008. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

At March 31, 2009, we had five assisted living facilities that satisfied the requirements of Statement No. 144 for held for sale treatment. We did not recognize any impairment losses on these assets as the fair value less estimated costs to sell exceeded our carrying values. During the three months ended March 31, 2009, we sold two assisted living facilities and one specialty care facility with carrying values of $44,268,000 for net gains of $17,036,000. The following illustrates the reclassification impact as a result of classifying investment properties sold subsequent to January 1, 2008 or held for sale at March 31, 2009 as discontinued operations for the periods presented. Please refer to Note 5 to our unaudited consolidated financial statements for further discussion.


	Three Months Ended
	March 31,
	2009		2008
Rental income	$	1,819	$	7,803

Expenses:
Interest expense		184		1,797
Provision for depreciation		515		2,292


Income (loss) from discontinued operations, net	$	1,120	$	3,714

As a result of our quarterly evaluations, we recorded a $140,000 addition to the allowance for loan losses during the three months ended March 31, 2009. 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.”

During the three months ended December 31, 2007, we recognized $3,900,000 of additional other income related to the payoff of a warrant equity investment. During the three months ended March 31, 2008, we determined that $1,325,000 of income taxes were due in connection with that investment gain.

Medical Office Buildings

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


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			$			%
	(In thousands, except per share data)
Revenues:
Rental income	$	32,598		$	31,695		$	903			3	%
Other income		213			210			3			1	%

		32,811			31,905			906			3	%

Expenses:
Interest expense		5,081			5,241			(160	)		-3	%
Property operating expenses		11,419			10,712			707			7	%
Depreciation and amortization		12,042			12,228			(186	)		-2	%
Gain on extinguishment of debt		0			(1,286	)		1,286			-100	%

		28,542			26,895			1,647			6	%

Income from continuing operations before income taxes		4,269			5,010			(741	)		-15	%
Income tax (expense) benefit		(144	)		(32	)		(112	)		350	%

Income from continuing operations		4,125			4,978			(853	)		-17	%
Discontinued operations:
Net gain on sales of properties		0			0			0			n/a
Income (loss) from discontinued operations, net		(41	)		(474	)		433			-91	%

Discontinued operations, net		(41	)		(474	)		433			-91	%

Net income		4,084			4,504			(420	)		-9	%
Less: Net income attributable to noncontrolling interests		2			62			(60	)		-97	%

Net income attributable to common stockholders	$	4,082		$	4,442		$	(360	)		-8	%

The increase in rental income is primarily attributable to the acquisitions of medical office buildings subsequent to March 31, 2008 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. Other income is attributable to third party management fee income.

Interest expense for the three months ended March 31, 2009 represents $5,213,000 of secured debt interest expense offset by interest allocated to discontinued operations. Interest expense for the three months ended March 31, 2008 represents $5,662,000 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. During the three months ended March 31, 2008, we extinguished three medical office building secured debt loans and recognized extinguishment gains of $1,286,000. The following is a summary of our medical office building secured debt principal activity (dollars in thousands):


	Three Months Ended						Three Months Ended
	March 31, 2009						March 31, 2008
				Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	354,145			5.799	%	$	392,430			5.854	%
Debt extinguished		0			0.000	%		(20,933	)		7.234	%
Principal payments		(1,529	)		5.760	%		(1,393	)		5.727	%

Ending balance	$	352,616			5.799	%	$	370,104			5.777	%


Monthly averages	$	353,412			5.799	%	$	381,272			5.817	%

The increase in property operating expenses is primarily attributable to the acquisition of new medical office buildings for which we incur certain property operating expenses offset by property operating expenses associated with discontinued operations.

Income tax expense is related to third party management fee income.

Net income attributable to noncontrolling interests primarily relates to certain joint venture properties that are consolidated in our operating results. The decrease is due to our buyout of a noncontrolling interest subsequent to March 31, 2008.

At March 31, 2009, we had 14 medical office buildings that satisfied the requirements of Statement No. 144 for held for sale treatment. We did not recognize any impairment loss on these properties in 2009 as the fair value less estimated costs to sell exceeded our carrying values. During the year ended December 31, 2008, an impairment charge of $32,648,000 was recorded to reduce the carrying value of the 14 medical office buildings to their estimated fair value less costs to sell. In determining the fair value of the medical office buildings, we used a combination of third party appraisals based on market comparable transactions, other market listings and asset quality as well as management calculations based on projected operating income and published capitalization rates. Please see Note 4 of our Annual Report on Form 10-K for the year ended December 31, 2008 for additional information. The following illustrates the reclassification impact as a result of classifying medical office buildings sold subsequent to January 1, 2008 or held for sale at March 31, 2009 as discontinued operations for the periods presented. Please refer to Note 5 to our unaudited consolidated financial statements for further discussion.


	Three Months Ended
	March 31,
	2009			2008
Rental income	$	655		$	1,538

Expenses:
Interest expense		132			421
Property operating expenses		564			655
Provision for depreciation		0			936


Income (loss) from discontinued operations, net	$	(41	)	$	(474	)

Non-Segment/Corporate

The following is a summary of our results of operations for the non-segment/corporate activities (dollars in thousands):


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			$			%
	(In thousands, except per share data)
Revenues:
Other income	$	376		$	210		$	166			79	%
Expenses:
Interest expense		21,154			29,685			(8,531	)		-29	%
General and administrative		17,361			12,328			5,033			41	%
Gain on extinguishments of debt		(1,678	)		0			(1,678	)		n/a

		36,837			42,013			(5,176	)		-12	%

Net loss from continuing operations before income taxes		(36,461	)		(41,803	)		5,342			-13	%
Income tax (expense) benefit		94			103			(9	)		-9	%

Net loss		(36,367	)		(41,700	)		5,333			-13	%
Preferred stock dividends		5,524			6,147			(623	)		-10	%

Net loss attributable to common stockholders	$	(41,891	)	$	(47,847	)	$	5,956			-12	%

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

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


	Three Months Ended						Change
	Mar. 31, 2009			Mar. 31, 2008			$			%
Senior unsecured notes	$	27,705		$	28,391		$	(686	)		-2	%
Unsecured lines of credit		1,684			4,826			(3,142	)		-65	%
Capitalized interest		(9,865	)		(5,167	)		(4,698	)		91	%
SWAP losses (savings)		(40	)		(40	)		0			0	%
Loan expense		1,670			1,675			(5	)		0	%

Totals	$	21,154		$	29,685		$	(8,531	)		-29	%

The change in interest expense on senior unsecured notes is due to the effect of extinguishments. The following is a summary of our senior unsecured note principal activity (dollars in thousands):


	Three Months Ended						Three Months Ended
	March 31, 2009						March 31, 2008
	Face			Weighted Avg.			Face			Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	1,845,000			5.782	%	$	1,887,330			5.823	%
Principal payments		(21,723	)		6.504	%		(42,330	)		7.625	%

Ending balance	$	1,823,277			5.773	%	$	1,845,000			5.782	%


Monthly averages	$	1,839,569			5.780	%	$	1,876,748			5.813	%

The change in interest expense on the unsecured line of credit arrangement is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. The following is a summary of our unsecured line of credit arrangement (dollars in thousands):


	Three Months Ended March 31,
	2009			2008
Balance outstanding at quarter end	$	335,000		$	432,500
Maximum amount outstanding at any month end	$	559,000		$	491,500
Average amount outstanding (total of daily principal balances divided by days in period)	$	417,000		$	406,687
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		1.62	%		4.75	%

We capitalize certain interest costs associated with funds used to finance the construction of properties owned directly by us. The amount capitalized is based upon the balances outstanding during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized.

Please see Note 10 to our unaudited consolidated financial statements for a discussion of our interest rate swap agreements and their impact on interest expense.

Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. Loan expense for the three months ended March 31, 2009 is consistent with the prior year.

General and administrative expenses as a percentage of consolidated revenues (including revenues from discontinued operations) for the three months ended March 31, 2009 were 11.83% as compared with 9.07% for the same period in 2008. The increase from 2008 is primarily related to $3,909,000 of non-recurring expenses recognized during the three months ended March 31, 2009 in connection with the departure of Raymond W. Braun who formerly served as President of the company.

The change in preferred dividends is primarily attributable to preferred stock conversions into common stock. The following is a summary of our preferred stock activity (dollars in thousands):


	Three Months Ended						Three Months Ended
	March 31, 2009						March 31, 2008
				Weighted Avg.						Weighted Avg.
	Shares			Dividend Rate			Shares			Dividend Rate
Beginning balance		11,516,302			7.696	%		12,879,189			7.676	%
Shares converted		(40,600	)		7.500	%		(79,300	)		7.500	%

Ending balance		11,475,702			7.697	%		12,799,889			7.677	%


Monthly averages		11,500,602			7.697	%		12,825,564			7.676	%

Non-GAAP Financial Measures

We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measurement. However, we consider FFO to be a useful supplemental measure of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (“NAREIT”) created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means net income, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments and interest expense. We believe NOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. We believe that EBITDA, along with net income and cash flow provided from operating activities, is an important supplemental measure because it provides additional information to assess and evaluate the performance of our operations. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends.

A covenant in our line of credit arrangement contains a financial ratio based on a definition of EBITDA that is specific to that agreement. Failure to satisfy this covenant could result in an event of default that could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of this debt agreement and the financial covenant, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above and adjusted for stock-based compensation expense, provision for loan losses and gain/loss on extinguishment of debt. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge ratio of at least 1.75 times.

Other than Adjusted EBITDA, our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. Adjusted EBITDA is used solely to determine our compliance with a financial covenant of our line of credit arrangement and is not being presented for use by investors for any other purpose. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies. Multi-period amounts may not equal the sum of the individual quarterly amounts due to rounding.

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. Amounts are in thousands except for per share data.


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
	2008			2008			2008			2008			2009

FFO Reconciliation:
Net income attributable to common stockholders	$	29,249		$	155,410		$	53,589		$	21,850		$	61,119
Depreciation and amortization		39,574			39,630			41,690			42,150			41,326
Loss (gain) on sales of properties		(26	)		(118,168	)		(12,619	)		(33,120	)		(17,036	)
Noncontrolling interests		(87	)		(87	)		(87	)		(81	)		(87	)

Funds from operations	$	68,710		$	76,785		$	82,573		$	30,799		$	85,322

Average common shares outstanding:
Basic		86,100			89,294			96,040			103,329			108,214
Diluted		86,610			89,853			96,849			103,840			108,624

Per share data:
Net income attributable to common stockholders
Basic	$	0.34		$	1.74		$	0.56		$	0.21		$	0.56
Diluted		0.34			1.73			0.55			0.21			0.56

Funds from operations
Basic	$	0.80		$	0.86		$	0.86		$	0.30		$	0.79
Diluted		0.79			0.85			0.85			0.30			0.79

The table below reflects the reconciliation of NOI for the periods presented. All amounts include amounts from discontinued operations, if applicable. Amounts are in thousands.


	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2008		2008		2008		2008		2009

NOI Reconciliation:
Total revenues:
Investment properties:
Rental income:
Independent living/CCRCs	$	13,414	$	14,881	$	18,545	$	19,562	$	19,996
Assisted living facilities		30,228		31,071		28,189		27,521		27,708
Skilled nursing facilities		40,100		40,260		40,687		40,595		41,731
Specialty care facilities		8,191		10,595		12,650		12,359		12,677

Investment property rental income		91,933		96,807		100,071		100,037		102,112
Interest income		9,092		9,175		10,910		10,886		9,953
Other income		1,296		1,533		1,219		3,850		895

Total investment property revenues		102,321		107,515		112,200		114,773		112,960
Medical office buildings:
Rental income		33,233		33,003		33,958		33,138		33,253
Other income		210		237		261		222		213

Total medical office building revenues		33,443		33,240		34,219		33,360		33,466
Corporate other income		210		115		575		793		376

Total revenues		135,974		140,870		146,994		148,926		146,802
Property operating expenses:
Investment properties		0		0		0		0		0
Medical office buildings		11,367		11,375		11,868		12,019		11,983
Non-segment/corporate		0		0		0		0		0

Total property operating expenses		11,367		11,375		11,868		12,019		11,983
Net operating income:
Investment properties		102,321		107,515		112,200		114,773		112,960
Medical office buildings		22,076		21,865		22,351		21,341		21,483
Non-segment/corporate		210		115		575		793		376

Net operating income	$	124,607	$	129,495	$	135,126	$	136,907	$	134,819

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


	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
	2008			2008			2008			2008			2009

EBITDA Reconciliation:
Net income	$	35,458		$	161,259		$	59,320		$	27,389		$	66,645
Interest expense		37,320			36,155			35,354			32,230			28,011
Income tax expense (benefit)		1,279			44			(153	)		136			50
Depreciation and amortization		39,574			39,630			41,690			42,150			41,326

EBITDA	$	113,631		$	237,088		$	136,211		$	101,905		$	136,032

Interest Coverage Ratio:
Interest expense	$	37,320		$	36,155		$	35,354		$	32,230		$	28,011
Non-cash interest expense		(2,790	)		(2,769	)		(2,773	)		(2,899	)		(2,772	)
Capitalized interest		5,167			5,063			6,364			8,435			9,865

Total interest		39,697			38,449			38,945			37,766			35,104
EBITDA	$	113,631		$	237,088		$	136,211		$	101,905		$	136,032

Interest coverage ratio		2.86	x		6.17	x		3.50	x		2.70	x		3.88	x

Fixed Charge Coverage Ratio:
Total interest	$	39,697		$	38,449		$	38,945		$	37,766		$	35,104
Secured debt principal payments		2,093			1,817			2,080			2,129			2,206
Preferred dividends		6,147			5,784			5,730			5,541			5,524

Total fixed charges		47,937			46,050			46,755			45,436			42,834
EBITDA	$	113,631		$	237,088		$	136,211		$	101,905		$	136,032

Fixed charge coverage ratio		2.37	x		5.15	x		2.91	x		2.24	x		3.18	x

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


	Twelve Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
	2008			2008			2008			2008			2009

Adjusted EBITDA Reconciliation:
Net income	$	144,565		$	274,047		$	303,603		$	283,425		$	314,613
Interest expense		149,056			150,031			147,596			141,059			131,750
Income tax expense (benefit)		1,456			1,569			1,439			1,306			77
Depreciation and amortization		155,339			159,422			160,975			163,045			164,797
Stock-based compensation expense		7,723			7,853			8,024			8,530			11,360
Provision for loan losses		0			0			0			94			234
Loss (gain) on extinguishment of debt		(2,407	)		(2,407	)		(3,175	)		(2,094	)		(2,446	)

Adjusted EBITDA	$	455,732		$	590,515		$	618,462		$	595,365		$	620,385

Adjusted Fixed Charge Coverage Ratio:
Interest expense	$	149,056		$	150,031		$	147,596		$	141,059		$	131,750
Capitalized interest		15,367			17,860			21,062			25,029			29,727
Non-cash interest expense		(9,752	)		(11,047	)		(11,325	)		(11,231	)		(11,214	)
Secured debt principal payments		8,149			8,066			8,137			8,119			8,232
Preferred dividends		24,960			24,427			23,840			23,201			22,579

Total fixed charges		187,780			189,337			189,310			186,177			181,074
Adjusted EBITDA	$	455,732		$	590,515		$	618,462		$	595,365		$	620,385

Adjusted fixed charge coverage ratio		2.43	x		3.12	x		3.27	x		3.20	x		3.43	x

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions. Management considers an accounting estimate or assumption critical if:

	•		the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

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

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors 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 our Annual Report on Form 10-K for the year ended December 31, 2008 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2009. See Note 2 to our consolidated financial statements for the impact of new accounting pronouncements.

The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:


Nature of Critical		Assumptions/Approach
Accounting Estimate		Used

Allowance for Loan Losses

We maintain an allowance for loan losses in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended, and SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. 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 collectibility 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 collectibility of loan payments and principal. We evaluate the collectibility of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property. As a result of our quarterly evaluations, we recorded a $140,000 addition to the allowance for loan losses during the three months ended March 31, 2009 , resulting in an allowance for loan losses of $7,640,000 relating to loans with outstanding balances of $121,363,000. Also at March 31, 2009, we had loans with outstanding balances of $72,721,000 on non-accrual status.


Nature of Critical		Assumptions/Approach
Accounting Estimate		Used

Business Combinations

Substantially all of the properties owned by us are leased under operating leases and are recorded at cost. The cost of our real property is allocated to land, buildings, improvements and intangibles in accordance with Statement of Financial Accounting Standards No. 141(R), Business Combinations adopted for business combinations subsequent to January 1, 2009.		We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Lives for intangibles are based on the remaining term of the underlying leases. For the three months ended March 31, 2009, we recorded $30,645,000, $8,201,000 and $2,480,000 as provisions for depreciation and amortization relating to buildings, improvements and intangibles, respectively, including amounts reclassified as discontinued operations. The average useful life of our buildings, improvements and intangibles was 35.5 years, 10.9 years and 8.5 years, respectively, for the three months ended March 31, 2009.

Impairment of Long-Lived Assets

We review our long-lived assets for potential impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. 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. We did not record any impairment charges for the three months ended March 31, 2009.

Fair Value of Derivative Instruments

The valuation of derivative instruments is accounted for in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS133”), as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS133, as amended, 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 the recognition of such amounts are subject to significant estimates which may change in the future. We were not party to any derivative instruments at March 31, 2009.


Nature of Critical		Assumptions/Approach
Accounting Estimate		Used

Revenue Recognition

Revenue is recorded in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as amended (“SAB104”). SAB104 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 collectibility. If the collectibility 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 collectibility 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 collectibility 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 evaluate the collectibility of our revenues and related receivables on an on-going basis. We evaluate collectibility 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 collectibility 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. For the three months ended March 31, 2009, we recognized $9,953,000 of interest income and $135,365,000 of rental income, including discontinued operations. Cash receipts on leases with deferred revenue provisions were $7,889,000 as compared to gross straight-line rental income recognized of $5,030,000 for the three months ended March 31, 2009. At March 31, 2009, our straight-line receivable balance was $42,104,000, net of reserves totaling $251,000. Also at March 31, 2009, we had loans with outstanding balances of $72,721,000 on non-accrual status.

Forward-Looking Statements and Risk Factors

This Quarterly Report on Form 10-Q may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern and are based upon, among other things, the possible expansion of the company’s portfolio; the sale of properties; the performance of its operators and properties; its occupancy rates; its ability to acquire or develop properties; its ability to manage properties; its ability to enter into agreements with viable new tenants for vacant space or for properties that the company takes back from financially troubled tenants, if any; its ability to make distributions; its policies and plans regarding investments, financings and other matters; its tax status as a real estate investment trust; its ability to appropriately balance the use of debt and equity; its ability to access capital markets or other sources of funds; its critical accounting policies; and its ability to meet its earnings guidance. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company’s expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies; operators’/tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and senior housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the company’s ability to transition or sell facilities with profitable results; the failure to make new investments as and when anticipated; the failure of closings to occur as and when anticipated; acts of God affecting the company’s properties; the company’s ability to re-lease space at similar rates as vacancies occur; the company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant bankruptcies or insolvencies; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions; environmental laws affecting the company’s properties; changes in rules or practices governing the company’s financial reporting; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Other important factors are identified in the company’s Annual Report on Form 10-K for the year ended December 31, 2008, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates.

We historically borrow on our unsecured line of credit arrangement to acquire, construct or make loans relating to health care and senior housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under the unsecured line of credit arrangement.

A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands):


	March 31, 2009					December 31, 2008
	Principal		Change in			Principal		Change in
	balance		fair value			balance		fair value
Senior unsecured notes	$	1,823,277	$	(100,361	)	$	1,845,000	$	(112,438	)

Secured debt		446,172		(17,943	)		448,378		(17,966	)


Totals	$	2,269,449	$	(118,304	)	$	2,293,378	$	(130,404	)

On September 12, 2007, we entered into two forward-starting interest rate swaps (the “September 2007 Swaps”) for a total notional amount of $250,000,000 to hedge 10 years of interest payments associated with a long-term borrowing that was expected to occur in 2008. The September 2007 Swaps each had an effective date of September 12, 2008 and a maturity date of September 12, 2018. We expected to settle the 2007 Swaps when the debt was to be priced. The September 2007 Swaps were to have the economic effect of fixing $250,000,000 of our future debt at 4.469% plus a credit spread for 10 years. The September 2007 Swaps had been designated as cash flow hedges and we expected the 2007 Swaps to be highly effective at offsetting changes in cash flows of interest payments on $250,000,000 of our future debt due to changes in the LIBOR swap rate. Therefore, effective changes in the fair value of the September 2007 Swaps were recorded in AOCI and were to be reclassified to interest expense when the hedged forecasted transactions affected earnings (as interest payments are made on the expected debt issuance). The ineffective portion of the changes in fair value was to be recorded directly in earnings. During the year ended December 31, 2008, as a result of the severe dislocation in the credit markets, we terminated plans to issue debt and also terminated the September 2007 Swaps for $23,393,000. Amounts previously recorded in AOCI were reclassified to realized loss on derivatives resulting in $23,393,000 of expense as the forecasted transaction was no longer probable to occur.

Our variable rate debt, including our unsecured line of credit arrangement, is reflected at fair value. At March 31, 2009, we had $335,000,000 outstanding related to our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $3,350,000. At December 31, 2008, we had $570,000,000 outstanding related to our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $5,700,000.

We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.

Item 4. Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1A. Risk Factors

Except as provided in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward Looking Statements and Risk Factors,” there have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008.

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

ISSUER PURCHASES OF EQUITY SECURITIES (1)

Total Number

Maximum Number

of Shares Purchased

of Shares that May

Total Number

as Part of Publicly

Yet Be Purchased

of Shares

Average Price

Announced

Under the Plans or

Period

Purchased (2)

Paid Per Share

Plans or Programs (3)

Programs

January 1, 2009 through January 31, 2009

64,103

37.60

February 1, 2009 through February 28, 2009

March 1, 2009 through March 31, 2009

683

32.89

Totals

64,786

37.55


(1)		In March 2009, the company purchased $5,000,000 of senior unsecured convertible notes due December 2026 and $5,000,000 of senior unsecured convertible notes due July 2027, which would have been convertible into cash in the future, and under certain circumstances, shares of our common stock.

(2)		During the three months ended March 31, 2009, the company acquired shares of common stock held by employees who tendered owned shares to satisfy the tax withholding on the lapse of certain restrictions on restricted stock.

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

Item 6. Exhibits

	10.1		Employment Agreement, dated January 19, 2009, between Health Care REIT, Inc. and John T. Thomas (filed with the SEC as Exhibit 10.10 to Health Care REIT, Inc.’s Form 10-K filed March 2, 2009, and incorporated herein by reference thereto).

	10.2		Consulting Agreement, dated February 1, 2009, between Health Care REIT, Inc. and Raymond W. Braun (filed with the SEC as Exhibit 10.15(a) to Health Care REIT, Inc.’s Form 10-K filed March 2, 2009, and incorporated herein by reference thereto).

	31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

	31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

	32.1		Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.

	32.2		Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	HEALTH CARE REIT, INC.

Date: May 7, 2009	By:	/s/ George L. Chapman

	George L. Chapman,
	Chairman, Chief Executive Officer and President
	(Principal Executive Officer)

Date: May 7, 2009	By:	/s/ Scott A. Estes

	Scott A. Estes,
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

Date: May 7, 2009	By:	/s/ Paul D. Nungester, Jr.

	Paul D. Nungester, Jr.,
	Vice President and Controller
	(Principal Accounting Officer)