Welltower (WELL) 10-K 2006 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2006

Commission FileNo. 1-8923

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	34-1096634 (I.R.S. Employer Identification Number)
One SeaGate, Suite 1500, Toledo, Ohio (Address of principal executive office)	43604 (Zip Code)

(419) 247-2800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $1.00 par value	New York Stock Exchange
7.875% Series D Cumulative Redeemable Preferred Stock, $1.00 par value	New York Stock Exchange
7.625% Series F Cumulative Redeemable Preferred Stock, $1.00 par value	New York Stock Exchange
7.5% Series G Cumulative Convertible Preferred Stock, $1.00 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ

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; and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment of thisForm 10-K.  þ

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

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

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

The aggregate market value of the shares of voting common stock held by non-affiliates of the registrant, computed by reference to the closing sales price of such shares on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter was $2,185,114,647.

As of February 16, 2007, there were 73,535,305 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the annual stockholders’ meeting to be held May 3, 2007, are incorporated by reference into Part III.

HEALTH CARE REIT, INC.
2006FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		26
	Item 1B.	Unresolved Staff Comments		32
	Item 2.	Properties		32
	Item 3.	Legal Proceedings		34
	Item 4.	Submission of Matters to a Vote of Security Holders		34
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		35
	Item 6.	Selected Financial Data		37
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		61
	Item 8.	Financial Statements and Supplementary Data		62
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		91
	Item 9A.	Controls and Procedures		91
	Item 9B.	Other Information		94
PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		94
	Item 11.	Executive Compensation		94
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		94
	Item 13.	Certain Relationships and Related Transactions and Director Independence		94
	Item 14.	Principal Accountant Fees and Services		94
PART IV
	Item 15.	Exhibits and Financial Statement Schedules		95
EX-10.39
EX-21
EX-23
EX-24.1
EX-24.2
EX-24.3
EX-24.4
EX-24.5
EX-24.6
EX-24.7
EX-24.8
EX-24.9
EX-24.10
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I

Item 1.   Business

General

Health Care REIT, Inc., a Delaware corporation, is a self-administered, equity real estate investment trust that invests across the full spectrum of senior housing and health care real estate, including independent living/continuing care retirement communities, assisted living facilities, skilled nursing facilities, hospitals, long-term acute care hospitals and medical office buildings. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care properties. Through the Windrose Medical Properties Division, we have property management capabilities and expertise in the medical office and hospital sector. Through our HADC subsidiary, we offer project management, facility planning and property development services. As of December 31, 2006, we had $4,132,749,000 of net real estate investments, inclusive of credit enhancements, in 578 properties located in 37 states. At that date, the portfolio included 204 assisted living facilities, 221 skilled nursing facilities, 47 independent living/continuing care retirement communities, 89 medical office buildings and 17 specialty care facilities.

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

Depending on the availability and cost of external capital, we anticipate investing in additional properties and providing loans to qualified obligors. Capital for future investments may be provided by borrowing under our unsecured lines of credit arrangements, public or private offerings of debt or equity securities, or the incurrence or assumption of secured indebtedness.

References herein to “we,” “us,” “our” or the “Company” refer to Health Care REIT, Inc. and its subsidiaries unless specifically noted otherwise.

Windrose Medical Properties Trust Merger

On December 20, 2006, we completed our merger with Windrose Medical Properties Trust, a self-managed real estate investment trust based in Indianapolis, Indiana. The aggregate purchase price was approximately $1,018,345,000, including direct acquisition costs of approximately $29,918,000. The Windrose merger diversified our portfolio of investments throughout the health care delivery system. Windrose shareholders received approximately 9,679,000 shares of our common stock (valued at $41.00 per share) and Windrose preferred shareholders received 2,100,000 shares of our 7.5% Series G Cumulative Convertible Preferred Stock (valued at $29.58 per share). Additionally, our investment in Windrose includes $183,139,000 of cash provided to Windrose to extinguish secured debt, the assumption of $301,641,000 of debt and the assumption of other liabilities and minority interests totaling $44,683,000. The results of operations for Windrose have been included in our consolidated results of operations from the date of acquisition.

3

Portfolio of Properties

The following table summarizes our portfolio as of December 31, 2006:

	Investments(1)		Percentage of			Revenues(2)		Percentage of			Number of		# Beds/Units		Investment per		Operators/
Type of Property	(In thousands)		Investments			(In thousands)		Revenues(2)			Properties		or Sq. Ft.		metric (3)		Tenants		States
Independent living/CCRCs	$	533,950		13	%	$	39,475		12	%		47		5,887 units	$	123,073 unit		18		19
Assisted living facilities		1,024,219		25	%		107,165		33	%		204		12,538 units		90,697 unit		25		33
Skilled nursing facilities		1,414,115		34	%		157,945		48	%		221		30,218 beds		47,279 bed		22		28
Medical office buildings		900,132		22	%		3,247		1	%		89		3,297,370 sq. ft.		273 sq. ft.		642		12
Specialty care facilities		260,333		6	%		16,632		5	%		17		1,351 beds		210,969 bed		9		9
Other income							3,924		1	%
Totals	$	4,132,749		100	%	$	328,388		100	%		578

(1)	Investments include real estate investments and credit enhancements which amounted to $4,130,299,000 and $2,450,000, respectively.
(2)	Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2006.
(3)	Investment per metric was computed by using the total investment amount of $4,475,503,000 which includes real estate investments, credit enhancements and unfunded construction commitments for which initial funding has commenced which amounted to $4,130,299,000, $2,450,000 and $342,754,000, respectively.

Property Types

Our primary property types include investment properties and operating properties. Investment properties are those in which we do not participate in the management of the property and include skilled nursing facilities, assisted living facilities, independent living/continuing care retirement communities and specialty care facilities. Our operating properties are those in which we are responsible for the management of the property and are primarily medical office buildings. Our properties include stand-alone facilities that provide one level of service, combination facilities that provide multiple levels of service, and communities or campuses that provide a wide range of services. The following is a summary of our various property types.

Assisted Living Facilities

Assisted living facilities are state regulated rental properties that provide the same services as independent living facilities, but also provide supportive care from trained employees to residents who require assistance with activities of daily living, including management of medications, bathing, dressing, toileting, ambulating and eating.

Alzheimer’s/Dementia Care Facilities  Certain assisted living facilities may include state licensed settings that specialize in caring for those afflicted with Alzheimer’s diseaseand/or similar forms of dementia.

Skilled Nursing Facilities

Skilled nursing facilities are licensed daily rate or rental properties where the majority of individuals require24-hour nursingand/or medical care. Generally, these properties are licensed for Medicaidand/or Medicare reimbursement.

Independent Living/Continuing Care Retirement Communities

These communities may include one or more of the following property types.

Continuing Care Retirement Communities   Continuing care retirement communities include a combination of detached homes, an independent living facility, an assisted living facilityand/or a skilled nursing facility on one campus. These communities are appealing to residents because there is no need for relocating when health and medical needs change. Resident payment plans vary, but can include entrance fees, condominium fees and rental fees.

4

Active Adult Communities  Active adult communities contain primarily for-sale single-family homes, townhomes, cluster homes, mobile homesand/or condominiums with no specialized services. These communities are typically restricted or targeted to adults at least 55 years of age or older. Residents generally lead an independent lifestyle. Communities may include amenities such as a clubhouse, golf course and recreational spaces.

Independent Living Facilities  Independent living facilities are age-restricted multifamily properties with central dining facilities that provide residents access to meals and other services such as housekeeping, linen service, transportation and social and recreational activities.

Specialty Care Facilities

Our specialty care facilities include acute care hospitals, long-term acute care hospitals and other specialty care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services, including, but not limited to, surgery, rehabilitation, therapy and clinical laboratories. Long-term acute care hospitals provide inpatient services for patients with complex medical conditions that require more intensive care, monitoring or emergency support than that available in most skilled nursing facilities. Other specialty care hospitals provide specialized inpatient and outpatient care for specific illnesses or diseases, including, among others, orthopedic, neurosurgical and behavioral care.

Medical Office Buildings

Medical office buildings are office and clinic facilities, often located near hospitals or on hospital campuses, specifically constructed and designed for the use of physicians and other health care personnel to provide services to their patients. They may also include ambulatory surgery centers that are used for general or specialty surgical procedures not requiring an overnight stay in a hospital. Medical office buildings typically contain sole and group physician practices and may provide laboratory and other patient services.

Investments

We invest across the full spectrum of senior housing and health care real estate. We diversify our investment portfolio by property type, operator/tenant and geographic location. In determining whether to invest in a property, we focus on the following: (1) the experience of the tenant’s or borrower’s management team; (2) the historical and projected financial and operational performance of the property; (3) the credit of the tenant or borrower; (4) the security for the lease or loan; and (5) the capital committed to the property by the tenant or borrower. We conduct market research and analysis for all potential investments. In addition, we review the value of all properties, the interest rates and covenant requirements of any debt to be assumed and the anticipated sources of repayment of any existing debt that is not to be assumed.

We monitor our investments through a variety of methods determined by the type of property and operator/tenant. Our asset management process generally includes review of monthly financial statements and other operating data for each property, periodic review of obligor creditworthiness, periodic property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends and risks.

Through asset management and research, we evaluate the operating environment in each property’s market to determine whether payment risk is likely to increase. When we identify unacceptable levels of payment risk, we seek to mitigate, eliminate or transfer the risk. We categorize the risk as obligor, property or market risk. For obligor risk, we typically find a substitute operator/tenant to run the property. For property risk, we usually work with the operator/tenant to institute property-level management changes to address the risk. Finally, for market risk, we often encourage an obligor to change its capital structure, including refinancing the property or raising additional equity. Through these asset management and research efforts, we are generally able to intervene at an early stage to address payment risk, and in so doing, support both the collectibility of revenue and the value of our investment.

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders.

5

Investment Properties

Our investment properties are those in which we do not participate in the management of the property and are primarily land, building, improvements and related rights that are leased to operators under long-term operating leases. The net value of our investment properties aggregated approximately $2,823,331,000 at December 31, 2006. The leases generally have a fixed contractual term of 12 to 15 years and contain one or more five to15-year renewal options. Most of our rents are received undertriple-net leases requiring the operator to pay rent and all additional charges incurred in the operation of the leased property. The tenants are required to repair, rebuild and maintain the leased properties. Substantially all of these operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a 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.

At December 31, 2006, 86% of our investment properties were subject to master leases. A master lease is a lease of multiple properties to one tenant entity under a single lease agreement. From time to time, we may acquire additional properties that are then leased to the tenant under the master lease. The tenant is required to make one monthly payment that represents rent on all the properties that are subject to the master lease. Typically, the master lease tenant can exercise its right to purchase the properties or to renew the master lease only with respect to all leased properties at the same time. This bundling feature benefits us because the tenant cannot limit the purchase or renewal to the better performing properties and terminate the leasing arrangement with respect to the poorer performing properties. This spreads our risk among the entire group of properties within the master lease. The bundling feature may provide a similar advantage if the master lease tenant is in bankruptcy. Subject to certain restrictions, a debtor in bankruptcy has the right to assume or reject each of its leases. It is our intent that a tenant in bankruptcy would be required to assume or reject the master lease as a whole, rather than deciding on a property by property basis.

We currently provide for the construction of properties for tenants as part of long-term operating leases. We capitalize certain interest costs associated with funds used to pay for the construction of properties owned by us. The amount capitalized is based upon the amount advanced during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. We also typically charge a transaction fee at the commencement of construction. The construction period commences upon funding and terminates upon the earlier of the completion of the applicable property or the end of a specified period. During the construction period, we advance funds to the tenants in accordance with agreed upon terms and conditions which require, among other things, site visits by a Company representative prior to advancement of funds. During the construction period, we generally require an additional credit enhancement in the form of payment and performance bondsand/or completion guaranties. At December 31, 2006, we had outstanding construction investments of $138,222,000 and were committed to providing additional funds of approximately $342,754,000 to complete construction.

Hospital Affiliates Development Corporation (“HADC”) is a taxable REIT subsidiary of the Company that was incorporated in 1989 in Indiana. The primary objective of HADC is to develop quality specialty medical properties for the Company, but HADC also provides a select amount of these services for third-parties, especially those that are expected to be a source of long-term relationships and potential property acquisitions. HADC develops and constructs new“build-to-suit” and multi-tenant facilities. HADC earns fees from third-parties by providing services such as property development, facility planning, medical equipment planning and implementation services, leasing services and property management. As a taxable REIT subsidiary, HADC pays income taxes at regular corporate rates on its taxable income.

Operating Properties

Our operating properties are those in which we are responsible for the property and are typically multi-tenant medical office buildings that are leased to multiple health care providers (typically hospitals and physician practices) under a gross, modified gross ortriple-net lease structure. Under a gross or modified gross lease, all or a portion of our operating expenses are not reimbursed by tenants. Accordingly, we incur certain property operating expenses, such as real estate taxes, repairs and maintenance, property management fees, utilities and insurance. At

6

December 31, 2006, 39% of our owned medical office buildings are managed by a third party property management company. At December 31, 2006, 36% of our operating property leases are leased to multiple tenants under gross or modified gross leases pursuant to which we are responsible for certain operating expenses. Substantially all of our leases at operating properties include annual base rent escalation clauses that are either predetermined fixed increases or are a function of an inflation index, and typically have an initial term ranging from one to 20 years, with a weighted average remaining term of approximately five years as of December 31, 2006. Operating property leases are normally credit enhanced by guarantiesand/or letters of credit. The net value of our operating properties aggregated approximately $974,298,000 at December 31, 2006.

Mortgage Loans

Our investments in mortgage loans are typically structured to provide us with interest income, principal amortization and transaction fees and are generally secured by a first or second mortgage lien or leasehold mortgage. At December 31, 2006, we had outstanding mortgage loans of $177,615,000. The interest yield (excluding any loans on non-accrual) averaged approximately 9.0% per annum on our outstanding mortgage loan balances. Our yield on mortgage loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan and any interest rate adjustments. The mortgage loans outstanding at December 31, 2006 are generally subject to three to20-year terms with principal amortization schedulesand/or balloon payments of the outstanding principal balances at the end of the term. Typically, mortgage loans are cross-defaulted and cross-collateralized with other mortgage loans, operating leases or agreements between us and the obligor and its affiliates.

Working Capital Loans

Working capital loans are generally either unsecured or secured by the obligor’s leasehold rights, corporate guarantiesand/or personal guaranties. These loans have terms generally ranging from three months to ten years. At December 31, 2006, we had outstanding working capital loans of $16,833,000. The average interest yield (excluding any loans on non-accrual) was approximately 8.7% per annum on our outstanding working capital loan balances. At December 31, 2006, we had provided working capital loans to nine obligors.

Equity Investments

Equity investments consist primarily of investments in private companies where we do not have the ability to exercise influence. Under the cost method of accounting, investments in private companies are carried at cost and are adjusted only forother-than-temporary declines in fair value, distributions of earnings and additional investments. For investments in public companies, if any, that have readily determinable fair market values, we classify our equity investments asavailable-for-sale and, accordingly, record these investments at their fair market values with unrealized gains and losses included in accumulated other comprehensive income, a separate component of stockholders’ equity. These investments represent a minimal ownership interest in these companies. In connection with the Windrose merger, we assumed a $1,000,000 investment in an unconsolidated subsidiary that holds trust preferred securities and is accounted for under the cost method.

Segment Reporting

Our business consists of two business segments — investment properties and operating properties. For additional information regarding business segments, see Note 18 to our audited consolidated financial statements.

Borrowing Policies

We utilize a combination of debt and equity to fund the purchase of new properties and to provide loan financing. Our debt and equity levels are determined by management to maintain a conservative credit profile. Generally, we intend to issue unsecured, fixed rate public debt with long-term maturities to approximate the maturities on our leases and loans. For short-term purposes, we may borrow on our unsecured lines of credit arrangements. We replace these borrowings with long-term capital such as senior unsecured notes, common stock or preferred stock. When terms are deemed favorable, we may invest in properties subject to existing mortgage indebtedness. In addition, we may obtain secured financing for unleveraged properties in which we have invested or

7

may refinance properties acquired on a leveraged basis. It is our intent to limit secured indebtedness. In our agreements with our lenders, we are subject to restrictions with respect to secured and unsecured indebtedness.

Customer Concentrations

The following table summarizes certain information about our customer concentrations as of December 31, 2006 (dollars in thousands):

	Number of		Total		Percent of
	Properties		Investment(1)		Investment(2)
Concentration by investment:
Emeritus Corporation		50	$	353,641		9	%
Brookdale Senior Living Inc.		87		284,161		7	%
Home Quality Management, Inc.		37		244,449		6	%
Life Care Centers of America, Inc.		26		238,610		6	%
Merrill Gardens L.L.C.		13		183,841		4	%
Remaining portfolio		365		2,828,047		68	%
Totals		578	$	4,132,749		100	%

	Number of		Total		Percent of
	Properties		Revenue(3)		Revenue
Concentration by revenue(4):
Emeritus Corporation		50	$	36,878		11	%
Brookdale Senior Living Inc.		87		33,581		10	%
Home Quality Management, Inc.		37		27,318		8	%
Life Care Centers of America, Inc.		26		23,261		7	%
Delta Health Group, Inc.		25		22,861		7	%
Remaining portfolio		353		180,565		56	%
Other income		n/a		3,924		1	%
Totals		578	$	328,388		100	%

(1)	Investments include real estate investments and credit enhancements which amounted to $4,130,299,000 and $2,450,000, respectively.
(2)	Investments with our top five customers comprised 41% of total investments at December 31, 2005.
(3)	Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2006.
(4)	Revenues from our top five customers were 43% and 46% for the years ended December 31, 2005 and 2004, respectively. All of our top five customers are in our investment properties segment.

Competition

We compete with other real estate investment trusts, real estate partnerships, banks, insurance companies, finance companies, government-sponsored agencies, taxable and tax-exempt bond funds and other investors in the acquisition, development, leasing and financing of health care and senior housing properties. We compete for investments based on a number of factors including rates, financings offered, underwriting criteria and reputation. The operators/tenants of our properties compete on a local and regional basis with operators/tenants of properties that provide comparable services. Operators/tenants compete for patients and residents based on a number of factors including quality of care, reputation, physical appearance of properties, services offered, family preferences, physicians, staff and price. We also face competition from other health care facilities for tenants, such as physicians and other health care providers, that provide comparable facilities and services.

Employees

As of December 31, 2006, we employed 113 full-time employees.

8

Certain Government Regulations

Health Law Matters — Generally

We invest in assisted living, skilled nursing, independent living facilities/continuing care retirement communities, medical office buildings and specialty care facilities, which represented approximately 25%, 34%, 13%, 22% and 6%, respectively, of our investments at December 31, 2006.

Typically, operators of assisted living and independent living facilities do not receive significant funding from governmental programs and are regulated by the states, not the federal government. Operators of skilled nursing and specialty care facilities are subject to federal and state laws that regulate the type and quality of the medicaland/or nursing care provided, ancillary services (e.g., respiratory, occupational, physical and infusion therapies), qualifications of the administrative personnel and nursing staff, the adequacy of the physical plant and equipment, distribution of pharmaceuticals, reimbursement and rate, setting and operating policies. In addition, as described below, some of our property operators are subject to extensive laws and regulations pertaining to health care fraud and abuse, including kickbacks, physician self-referrals and false claims. Hospitals, physician group practice clinics, and other health care facilities in our portfolio are subject to extensive federal, state and local licensure, certification, and inspection laws and regulations. Our tenants’ failure to comply with any of these laws could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state health care programs, loss of license or closure of the facility.

Licensing and Certification

The primary regulations that affect assisted living facilities are the states’ licensing laws. In granting and renewing these licenses, the regulatory authorities consider numerous factors relating to a property’s physical plant and operations including, but not limited to, admission and discharge standards and staffing and training. A decision to grant or renew a license is also affected by a property’s record with respect to consumer rights and medication guidelines and rules.

Generally, our skilled nursing and specialty care facilities are required to be licensed on an annual or bi-annual basis and to be certified for participation in the Medicare and Medicaid programs. The failure of our operators to maintain or renew any required license or regulatory approval or the failure to correct serious survey deficiencies could prevent them from continuing operations at a property. In addition, if a property is found out of compliance with the conditions of participation in Medicare, Medicaid or other health care programs, the property may be barred from participation in government reimbursement programs. Any of these occurrences may impair the ability of our operators to meet their obligations to us. If we have to replace a property operator, our ability to replace the operator may be affected by federal and state rules and policies governing changes in control. This may result in payment delays, an inability to find a replacement operator, a significant working capital commitment from us to a new operator or other difficulties.

Reimbursement

Assisted Living Facilities.  Approximately 33% of our revenues for the year ended December 31, 2006, were attributable to assisted living facilities. The majority of the revenues received by the operators of our assisted living facilities are from private pay sources. The remaining revenue source is primarily Medicaid waiver programs. As a part of the Omnibus Budget Reconciliation Act (“OBRA”) of 1981, Congress established a waiver program enabling some states to offer Medicaid reimbursement to assisted living facilities as an alternative to institutional long-term care services. The provisions of OBRA and the subsequent OBRA Acts of 1987 and 1990 permit states to seek a waiver from typical Medicaid requirements to develop cost-effective alternatives to long-term care, including Medicaid payments for assisted living and home health. At December 31, 2006, seven of our 25 assisted living operators received Medicaid reimbursement pursuant to Medicaid waivers programs. For the twelve months ended September 30, 2006, approximately 13% of the revenues at our assisted living facilities were from Medicaid reimbursement.

Rates paid by self-pay residents are set by the facilities and are largely determined by local market conditions and operating costs. Generally, facilities receive a higher payment per day for a private pay resident than for a Medicaid beneficiary who requires a comparable level of care. The level of Medicaid reimbursement varies from

9

state to state. Thus, the revenues generated by operators of our assisted living facilities may be adversely affected by payor mix, acuity level, and changes in Medicaid eligibility and reimbursement levels. In addition, a state could lose its Medicaid waiver and no longer be permitted to utilize Medicaid dollars to reimburse for assisted living services. Changes in revenues could in turn have a material adverse effect on an operator’s ability to meet its obligations to us.

Skilled Nursing Facilities and Specialty Care Facilities.  Skilled nursing and specialty care facilities typically receive most of their revenues from Medicare and Medicaid, with the balance representing private pay, including private insurance. Consequently, changes in federal or state reimbursement policies may also adversely affect an operator’s ability to cover its expenses, including our rent or debt service. Skilled nursing and specialty care facilities are subject to periodic pre- and post-payment reviews and other audits by federal and state authorities. A review or audit of claims of a property operator could result in recoupments, denials or delays of payments in the future, which could have a material adverse effect on the operator’s ability to meet its obligations to us. Due to the significant judgments and estimates inherent in payor settlement accounting, no assurance can be given as to the adequacy of any reserves maintained by our property operators for potential adjustments to reimbursements for payor settlements. Due to budgetary constraints, governmental payors may limit or reduce payments to skilled nursing and specialty care facilities. As a result of government reimbursement programs being subject to such budgetary pressures and legislative and administrative actions, an operator’s ability to meet its obligations to us may be significantly impaired.

Medicare Reimbursement and Skilled Nursing Facilities.  For the twelve months ended September 30, 2006, approximately 29% of the revenues at our skilled nursing facilities (which comprised 48% of our revenues for the year ended December 31, 2006) were from Medicare reimbursement. In an effort to reduce federal spending on health care, the Balanced Budget Act of 1997 (“BBA”) fundamentally altered Medicare payment methodologies for skilled nursing facilities by mandating the institution of the skilled nursing property prospective payment system. The prospective payment system caused Medicare per diem reimbursement for skilled nursing property services to decrease. The reductions in Medicare payments resulted in immediate financial difficulties for skilled nursing facilities and caused a number of operators to seek bankruptcy protection. The federal government subsequently passed legislation to lessen the negative financial impact from the prospective payment system. These payment increases have since expired.

Skilled nursing facilities received a 3.1% inflationary market basket increase in Medicare payments for federal fiscal year 2007, which represents $560 million of additional Medicare spending. However, Section 5004 of the Deficit Reduction Act of 2005 (“DRA”) reduced Medicare reimbursement to skilled nursing facilities for bad debt costs. Section 5008 of the DRA directs the Secretary (as defined in that statute) to conduct a demonstration program beginning January 1, 2008 assessing the costs and outcomes of patients discharged from hospitals in a variety of post-acute care settings, including skilled nursing facilties, home care and other settings. The outcome of that demonstration program could lead to significant changes in Medicare coverage and reimbursement for post-acute care. It is not known how either the deomonstration program, or as yet unannounced changes in Medicare reimbursement, might impact tenants of the Company’s properties.

The moratorium on the therapy caps for Part B outpatient rehabilitation services, which had applied through December 31, 2005, expired. The therapy caps were mandated by the BBA. The annual payment cap of $1,780 per patient applies to occupational therapy and a separate $1,780 cap applies to speech and physical therapy. Patients exceeding the cap will be able to obtain additional Medicare coverage through a waiver program if the therapy is deemed medically necessary; however, the program is set to expire in December 2007. Otherwise, the patient would need to use private funds to pay for the cost of therapy above the caps.

Medicare Reimbursement and Specialty Care Facilities.  For the twelve months ended September 30, 2006, approximately 59% of the revenues at our specialty care facilities (which comprised 5% of our revenues for the year ended December 31, 2006) were from Medicare. Specialty care facilities generally are reimbursed by Medicare under either the diagnosis related group prospective payment system reimbursement methodology for inpatient hospitals, or the long-term acute care hospital prospective payment system for long-term acute care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services including, but not limited to, surgery, rehabilitation, therapy and clinical laboratories. Long-term acute care hospitals provide inpatient services for

10

patients with complex medical conditions that require more intensive care, monitoring or emergency support than that available in most skilled nursing facilities.

With respect to Medicare’s diagnosis related group/outpatient prospective payment system methodology for regular hospitals, reimbursement for inpatient services is on the basis of a fixed, prospective rate based on the principal diagnosis of the patient. Diagnoses are grouped into more than 500 diagnosis related groups. In some cases, a hospital might be able to qualify for an outlier payment if the hospital’s losses exceed a threshold.

Medicaid Reimbursement.  Medicaid is a major payor source for residents in our skilled nursing and specialty care facilities. For the twelve months ended September 30, 2006, approximately 53% of the revenues of our skilled nursing facilities and 25% of the revenues of our specialty care facilities were attributable to Medicaid payments. The federal government and the states share responsibility for financing Medicaid. The federal matching rate, known as the Federal Medical Assistance Percentage, varies by state based on relative per capita income. On average, Medicaid is the largest component of total state spending, representing approximately 22.2% of total state spending. The percentage of Medicaid dollars used for long-term care varies from state to state due in part to different ratios of elderly population and eligibility requirements. With certain federal guidelines, states have a wide range of discretion to determine eligibility and reimbursement methodology. Many states reimburse long-term care facilities using fixed daily rates, which are applied prospectively based on patient acuity and the historical costs incurred in providing patient care. Reasonable costs typically include allowances for staffing, administrative and general, and property and equipment (e.g., real estate taxes, depreciation and fair rental).

In most states, Medicaid does not fully reimburse the cost of providing skilled nursing services. Certain states are attempting to slow the rate of growth in Medicaid expenditures by freezing rates or restricting eligibility and benefits. States in which we have skilled nursing property investments increased their per diem Medicaid rates roughly 3.5% on average for fiscal year 2007. Four of our states effectively froze rates in fiscal year 2007, which impacts profitability to the extent that expenses continue to rise. In addition, Medicaid rates may decline if revenues in a particular state are not sufficient to fund budgeted expenditures.

The Medicare Part D drug benefit became effective January 1, 2006. The direct impact on nursing facilities is that residents dually eligible for Medicare (and enrolled in one of the new Part D Plans) and Medicaid now receive reimbursement for drugs through Medicare Part D rather than through Medicaid. Participants began enrolling in the new Part D prescription drug plans on November 15, 2005. Part D will result in increased administrative responsibilities for nursing home operators because residents have the choice of multiple prescription drug plans. Operators may also experience increased expenses to the extent that patients’ drugs are not covered by their prescription drug plan formulary.

The reimbursement methodologies applied to health care facilities continue to evolve. Federal and state authorities have considered and may seek to implement new or modified reimbursement methodologies that may negatively impact health care property operations. The impact of any such change, if implemented, may result in a material adverse effect on our skilled nursing and specialty care property operations. No assurance can be given that current revenue sources or levels will be maintained. Accordingly, there can be no assurance that payments under a government reimbursement program are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses. As a result, an operator’s ability to meet its obligations to us could be adversely impacted.

Other Related Laws

Skilled nursing and specialty care facilities (and assisted living facilities that receive Medicaid payments) are subject to federal, state and local laws and regulations that govern the operations and financial and other arrangements that may be entered into by health care providers. Certain of these laws prohibit direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for medical products or services reimbursable by governmental programs. Other laws require providers to furnish only medically necessary services and submit to the government valid and accurate statements for each service. Still other laws require providers to comply with a variety of safety, health and other requirements relating to the condition of the licensed property and the quality of care provided. Sanctions for violation of these laws and regulations may include, but are not limited to, criminaland/or civil penalties and fines and a loss of licensure and immediate termination of

11

governmental payments. In certain circumstances, violation of these rules (such as those prohibiting abusive and fraudulent behavior) with respect to one property may subject other facilities under common control or ownership to sanctions, including disqualification from participation in the Medicare and Medicaid programs. In the ordinary course of its business, a property operator is regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations.

Each skilled nursing and specialty care property (and any assisted living property that receives Medicaid payments) is subject to the federal anti-kickback statute that generally prohibits persons from offering, providing, soliciting or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service for which payment may be made under a federal health care program such as the Medicare and Medicaid programs. Skilled nursing and specialty care facilities are also subject to the federal Ethics in Patient Referral Act of 1989, commonly referred to as the Stark Law. The Stark Law generally prohibits the submission of claims to Medicare for payment if the claim results from a physician referral for certain designated services and the physician has a financial relationship with the health service provider that does not qualify under one of the exceptions for a financial relationship under the Stark Law. Similar prohibitions on physician self-referrals and submission of claims apply to state Medicaid programs. Further, skilled nursing and specialty care facilities (and assisted living facilities that receive Medicaid payments) are subject to substantial financial penalties under the Civil Monetary Penalties Act and the False Claims Act and, in particular, actions under the False Claims Act’s “whistleblower” provisions. Private enforcement of health care fraud has increased due in large part to amendments to the False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits by private individuals, known as qui tam actions, may be filed by almost anyone, including present and former patients, nurses and other employees. Recent action under the federal False Claims Act have asserted claims for treble damages and up to $11,000 per claim on the basis of the alleged failure of a property to meet applicable regulations relating to the operation of the property. Prosecutions, investigations or qui tam actions could have a material adverse effect on a property operator’s liquidity, financial condition and results of operations which could adversely affect the ability of the operator to meet its obligations to us. Finally, various state false claim and anti-kickback laws also may apply to each property operator. Violation of any of the foregoing statutes can result in criminaland/or civil penalties that could have a material adverse effect on the ability of an operator to meet its obligations to us.

The Health Insurance Portability and Accountability Act of 1996, which became effective January 1, 1997, greatly expanded the definition of health care fraud and related offenses and broadened its scope to include private health care plans in addition to government payors. It also greatly increased funding for the Department of Justice, Federal Bureau of Investigation and the Office of the Inspector General of the Department of Health and Human Services to audit, investigate and prosecute suspected health care fraud.

Additionally, the administrative simplification provisions of this law provide for communication of health information through standard electronic transaction formats and for the privacy and security of health information. In order to comply with the regulations, health care providers must undergo significant operational and technical changes.

Finally, government investigation and enforcement of health care laws has increased dramatically over the past several years and is expected to continue. Some of these enforcement actions represent novel legal theories and expansions in the application of false claims laws. The costs for an operator of a health care property associated with both defending such enforcement actions and the undertakings in settlement agreements can be substantial and could have a material adverse effect on the ability of an operator to meet its obligations to us.

Environmental Laws

A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect health care facility operations or special medical properties. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender (such as the Company) may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability

12

therefor could exceed the value of the property,and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, would reduce our revenue.

Taxation

Federal Income Tax Considerations

The following summary of the taxation of the Company and the material federal tax consequences to the holders of our debt and equity securities is for general information only and is not tax advice. This summary does not address all aspects of taxation that may be relevant to certain types of holders of stock or securities (including, but not limited to, insurance companies, tax-exempt entities, financial institutions or broker-dealers, persons holding shares of common stock as part of a hedging, integrated conversion, or constructive sale transaction or a straddle, traders in securities that use amark-to-market method of accounting for their securities, investors in pass-through entities and foreign corporations and persons who are not citizens or residents of the United States).

This summary does not discuss all of the aspects of U.S. federal income taxation that may be relevant to you in light of your particular investment or other circumstances. In addition, this summary does not discuss any state or local income taxation or foreign income taxation or other tax consequences. This summary is based on current U.S. federal income tax law. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of purchasing, owning and disposing of our securities as set forth in this summary. Before you purchase our securities, you should consult your own tax advisor regarding the particular U.S. federal, state, local, foreign and other tax consequences of acquiring, owning and selling our securities.

General

We elected to be taxed as a real estate investment trust (or “REIT”) commencing with our first taxable year. We intend to continue to operate in such a manner as to qualify as a REIT, but there is no guarantee that we will qualify or remain qualified as a REIT for subsequent years. Qualification and taxation as a REIT depends upon our ability to meet a variety of qualification tests imposed under federal income tax law with respect to income, assets, distribution level and diversity of share ownership as discussed below under “— Qualification as a REIT.” There can be no assurance that we will be owned and organized and will operate in a manner so as to qualify or remain qualified.

In any year in which we qualify as a REIT, in general, we will not be subject to federal income tax on that portion of our REIT taxable income or capital gain that is distributed to stockholders. We may, however, be subject to tax at normal corporate rates on any taxable income or capital gain not distributed. If we elect to retain and pay income tax on our net long-term capital gain, stockholders are required to include their proportionate share of our undistributed long-term capital gain in income, but they will receive a refundable credit for their share of any taxes paid by us on such gain.

Despite the REIT election, we may be subject to federal income and excise tax as follows:

•  To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates;

•  We may be subject to the “alternative minimum tax” on certain items of tax preference to the extent that this tax exceeds our regular tax;

•  If we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we will be subject to tax at the highest corporate rate on this income;

13

•  Any net income from prohibited transactions (which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than dispositions of foreclosure property and dispositions of property due to an involuntary conversion) will be subject to a 100% tax;

•  If we fail to satisfy either the 75% or 95% gross income tests (as discussed below), but nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a 100% tax on an amount equal to (1) the gross income attributable to the greater of (i) 75% of our gross income over the amount of qualifying gross income for purposes of the 75% gross income test (discussed below) or (ii) 95% of our gross income (90% of our gross income for taxable years beginning on or before October 22, 2004) over the amount of qualifying gross income for purposes of the 95% gross income test (discussed below) multiplied by (2) a fraction intended to reflect our profitability;

•  If we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for such year (other than capital gain that we elect to retain and pay tax on) and (3) any undistributed taxable income from preceding periods, we will be subject to a 4% excise tax on the excess of such required distribution over amounts actually distributed; and

•  We will also be subject to a tax of 100% on the amount of any rents from real property, deductions or excess interest paid to us by any of our “taxable REIT subsidiaries” that would be reduced through reallocation under certain federal income tax principles in order to more clearly reflect income of the taxable REIT subsidiary. See “— Qualification as a REIT — Investments in Taxable REIT Subsidiaries.”

If we acquire any assets from a corporation which is or has been a “C” corporation in a carryover basis transaction, we could be liable for specified liabilities that are inherited from the “C” corporation. A “C” corporation is generally defined as a corporation that is required to pay full corporate level federal income tax. If we recognize gain on the disposition of the assets during the ten-year period beginning on the date on which the assets were acquired by us, then to the extent of the assets’ “built-in gain” (i.e., the excess of the fair market value of the asset over the adjusted tax basis in the asset, in each case determined as of the beginning of the ten-year period), we will be subject to tax on the gain at the highest regular corporate rate applicable. The results described in this paragraph with respect to the recognition of built-in gain assume that the built-in gain assets, at the time the built-in gain assets were subject to a conversion transaction (either where a “C” corporation elected REIT status or a REIT acquired the assets from a “C” corporation), were not treated as sold to an unrelated party and gain recognized.

Qualification as a REIT

A REIT is defined as a corporation, trust or association:

(1)	which is managed by one or more trustees or directors;
(2)	the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
(3)	which would be taxable as a domestic corporation but for the federal income tax law relating to REITs;

(4) which is neither a financial institution nor an insurance company;

(5)	the beneficial ownership of which is held by 100 or more persons in each taxable year of the REIT except for its first taxable year;
(6)	not more than 50% in value of the outstanding stock of which is owned during the last half of each taxable year, excluding its first taxable year, directly or indirectly, by or for five or fewer individuals (which includes certain entities) (the “Five or Fewer Requirement”); and
(7)	which meets certain income and asset tests described below.

Conditions (1) to (4), inclusive, must be met during the entire taxable year and condition (5) must be met during at least 335 days of a taxable year of 12 months or during a proportionate part of a taxable year of less than 12 months. For purposes of conditions (5) and (6), pension funds and certain other tax-exempt entities are treated as individuals, subject to a “look-through” exception in the case of condition (6).

14

Based on publicly available information, we believe we have satisfied the share ownership requirements set forth in (5) and (6) above. In addition, Article VI of our Amended and Restated By-Laws provides for restrictions regarding ownership and transfer of shares. These restrictions are intended to assist us in continuing to satisfy the share ownership requirements described in (5) and (6) above. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in (5) and (6) above.

We have complied with, and will continue to comply with, regulatory rules to send annual letters to certain of our stockholders requesting information regarding the actual ownership of our stock. If despite sending the annual letters, we do not know, or after exercising reasonable diligence would not have known, whether we failed to meet the Five or Fewer Requirement, we will be treated as having met the Five or Fewer Requirement. If we fail to comply with these regulatory rules, we will be subject to a monetary penalty. If our failure to comply was due to intentional disregard of the requirement, the penalty would be increased. However, if our failure to comply were due to reasonable cause and not willful neglect, no penalty would be imposed.

We may own a number of properties through wholly owned subsidiaries. A corporation will qualify as a “qualified REIT subsidiary” if 100% of its stock is owned by a REIT and the REIT does not elect to treat the subsidiary as a taxable REIT subsidiary. A “qualified REIT subsidiary” will not be treated as a separate corporation, and all assets, liabilities and items of income, deductions and credits of a “qualified REIT subsidiary” will be treated as assets, liabilities and items (as the case may be) of the REIT. A “qualified REIT subsidiary” is not subject to federal income tax, and our ownership of the voting stock of a qualified REIT subsidiary will not violate the restrictions against ownership of securities of any one issuer which constitute more than 10% of the value or total voting power of such issuer or more than 5% of the value of our total assets, as described below under “— Asset Tests.”

If we invest in a partnership, a limited liability company or a trust taxed as a partnership or as a disregarded entity, we will be deemed to own a proportionate share of the partnership’s, limited liability company’s or trust’s assets. Likewise, we will be treated as receiving our share of the income and loss of the partnership, limited liability company or trust, and the gross income will retain the same character in our hands as it has in the hands of the partnership, limited liability company or trust. These “look-through” rules apply for purposes of the income tests and assets tests described below.

Income Tests.  There are two separate percentage tests relating to our sources of gross income that we must satisfy for each taxable year.

•  At least 75% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from “rents from real property,” other income from investments relating to real property or mortgages on real property or certain income from qualified temporary investments.

•  At least 95% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from any of the sources qualifying for the 75% gross income test and from dividends (including dividends from taxable REIT subsidiaries) and interest.

For taxable years beginning on or before October 22, 2004, (1) payments to us under an interest rate swap or cap agreement, option, futures contract, forward rate agreement or any similar financial instrument entered into by us to reduce interest rate risk on indebtedness incurred or to be incurred and (2) gain from the sale or other disposition of any such investment are treated as income qualifying under the 95% gross income test. As to transactions entered into in taxable years beginning after October 22, 2004, any of our income from a “clearly identified” hedging transaction that is entered into by us in the normal course of business, directly or indirectly, to manage the risk of interest rate movements, price changes or currency fluctuations with respect to borrowings or obligations incurred or to be incurred by us, or such other risks that are prescribed by the Internal Revenue Service, is excluded from the 95% gross income test. In general, a hedging transaction is “clearly identified” if (1) the transaction is identified as a hedging transaction before the end of the day on which it is entered into and (2) the items or risks being hedged are identified “substantially contemporaneously” with the hedging transaction. An identification is not substantially contemporaneous if it is made more than 35 days after entering into the hedging transaction.

15

Rents received by us will qualify as “rents from real property” for purposes of satisfying the gross income tests for a REIT only if several conditions are met:

	•	The amount of rent must not be based in whole or in part on the income or profits of any person, although rents generally will not be excluded merely because they are based on a fixed percentage or percentages of receipts or sales.
��	•	Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our taxable REIT subsidiary and certain other requirements are met with respect to the real property being rented.
	•	If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as “rents from real property.”
	•	For rents to qualify as rents from real property, we generally must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, except that we may directly provide services that are “usually or customarily rendered” in the geographic area in which the property is located in connection with the rental of real property for occupancy only, or are not otherwise considered “rendered to the occupant for his convenience.”

For taxable years beginning after August 5, 1997, a REIT has been permitted to render a de minimis amount of impermissible services to tenants and still treat amounts received with respect to that property as rent from real property. The amount received or accrued by the REIT during the taxable year for the impermissible services with respect to a property may not exceed 1% of all amounts received or accrued by the REIT directly or indirectly from the property. The amount received for any service or management operation for this purpose shall be deemed to be not less than 150% of the direct cost of the REIT in furnishing or rendering the service or providing the management or operation. Furthermore, impermissible services may be furnished to tenants by a taxable REIT subsidiary subject to certain conditions, and we may still treat rents received with respect to the property as rent from real property.

The term “interest” generally does not include any amount if the determination of the amount depends in whole or in part on the income or profits of any person, although an amount generally will not be excluded from the term “interest” solely by reason of being based on a fixed percentage of receipts or sales.

If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for such year if we are eligible for relief. For taxable years beginning on or before October 22, 2004, these relief provisions generally will be available if (1) our failure to meet such tests was due to reasonable cause and not due to willful neglect; (2) we attach a schedule of the sources of our income to our return; and (3) any incorrect information on the schedule was not due to fraud with intent to evade tax. For taxable years beginning after October 22, 2004, these relief provisions generally will be available if (1) following our identification of the failure, we file a schedule for such taxable year describing each item of our gross income and (2) the failure to meet such tests was due to reasonable cause and not due to willful neglect.

It is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions. If these relief provisions apply, a 100% tax is imposed on an amount equal to (a) the gross income attributable to (1) 75% of our gross income over the amount of qualifying gross income for purposes of the 75% income test and (2) 95% of our gross income (90% of our gross income for taxable years beginning on or before October 22, 2004) over the amount of qualifying gross income for purposes of the 95% income test, multiplied by (b) a fraction intended to reflect our profitability.

Asset Tests.  Within 30 days after the close of each quarter of our taxable year, we must also satisfy several tests relating to the nature and diversification of our assets determined in accordance with generally accepted accounting principles. At least 75% of the value of our total assets must be represented by real estate assets, cash, cash items (including receivables arising in the ordinary course of our operation), government securities and qualified temporary investments. Although the remaining 25% of our assets generally may be invested without restriction, we are prohibited from owning securities representing more than 10% of either the vote (the “10% vote

16

test”) or value (the “10% value test”) of the outstanding securities of any issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary. Further, no more than 20% of the total assets may be represented by securities of one or more taxable REIT subsidiaries (the “20% asset test”) and no more than 5% of the value of our total assets may be represented by securities of any non-governmental issuer other than a qualified REIT subsidiary (the “5% asset test”), another REIT or a taxable REIT subsidiary. Each of the 10% vote test, the 10% value test and the 20% and 5% asset tests must be satisfied at the end of each quarter. There are special rules which provide relief if the value related tests are not satisfied due to changes in the value of the assets of a REIT.

For taxable years beginning after December 31, 2000, certain items are excluded from the 10% value test, including (1) straight debt securities of an issuer (including straight debt that provides certain contingent payments); (2) any loan to an individual or an estate; (3) any rental agreement described in Section 467 of the Internal Revenue Code, other than with a “related person”; (4) any obligation to pay rents from real property; (5) certain securities issued by a state or any subdivision thereof, the District of Columbia, a foreign government, or any political subdivision thereof, or the Commonwealth of Puerto Rico; (6) any security issued by a REIT; and (7) any other arrangement that, as determined by the Secretary of the Treasury, is excepted from the definition of security (“excluded securities”). Special rules apply to straight debt securities issued by corporations and entities taxable as partnerships for federal income tax purposes. If a REIT, or its taxable REIT subsidiary, holds (1) straight debt securities of a corporate or partnership issuer and (2) securities of such issuer that are not excluded securities and have an aggregate value greater than 1% of such issuer’s outstanding securities, the straight debt securities will be included in the 10% value test.

For taxable years beginning after December 31, 2000, a REIT’s interest as a partner in a partnership is not treated as a security for purposes of applying the 10% value test to securities issued by the partnership. Further, any debt instrument issued by a partnership will not be a security for purposes of applying the 10% value test (1) to the extent of the REIT’s interest as a partner in the partnership and (2) if at least 75% of the partnership’s gross income (excluding gross income from prohibited transactions) would qualify for the 75% gross income test. For taxable years beginning after October 22, 2004, for purposes of the 10% value test, a REIT’s interest in a partnership’s assets is the REIT’s proportionate interest in any securities issued by the partnership (other than the excluded securities described in the preceding paragraph).

With respect to corrections of failures for which the requirements for corrections are satisfied after October 22, 2004, regardless of whether such failures occurred in taxable years beginning on, before or after such date, as to violations of the 10% vote test, the 10% value test or the 5% asset test, a REIT may avoid disqualification as a REIT by disposing of sufficient assets to cure a violation that does not exceed the lesser of 1% of the REIT’s assets at the end of the relevant quarter or $10,000,000, provided that the disposition occurs within six months following the last day of the quarter in which the REIT first identified the assets. For violations of any of the REIT asset tests due to reasonable cause and not willful neglect that exceed the thresholds described in the preceding sentence, a REIT can avoid disqualification as a REIT after the close of a taxable quarter by taking certain steps, including disposition of sufficient assets within the six month period described above to meet the applicable asset test, paying a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the non-qualifying assets during the period of time that the assets were held as non-qualifying assets and filing a schedule with the Internal Revenue Service that describes the non-qualifying assets.

Investments in Taxable REIT Subsidiaries.  For taxable years beginning after December 31, 2000, REITs may own more than 10% of the voting power and value of securities in taxable REIT subsidiaries. We and any taxable corporate entity in which we own an interest are allowed to jointly elect to treat such entity as a “taxable REIT subsidiary.”

Several of our subsidiaries have elected to be treated as a taxable REIT subsidiary. Taxable REIT subsidiaries are subject to full corporate level federal taxation on their earnings but are permitted to engage in certain types of activities that cannot be performed directly by REITs without jeopardizing their REIT status. Our taxable REIT subsidiaries will attempt to minimize the amount of these taxes, but there can be no assurance whether or the extent to which measures taken to minimize taxes will be successful. To the extent our taxable REIT subsidiaries are required to pay federal, state or local taxes, the cash available for distribution as dividends to us from our taxable REIT subsidiaries will be reduced.

17

The amount of interest on related-party debt that a taxable REIT subsidiary may deduct is limited. Further, a 100% tax applies to any interest payments by a taxable REIT subsidiary to its affiliated REIT to the extent the interest rate is not commercially reasonable. A taxable REIT subsidiary is permitted to deduct interest payments to unrelated parties without any of these restrictions.

The Internal Revenue Service may reallocate costs between a REIT and its taxable REIT subsidiary where there is a lack of arm’s-length dealing between the parties. Any deductible expenses allocated away from a taxable REIT subsidiary would increase its tax liability. Further, any amount by which a REIT understates its deductions and overstates those of its taxable REIT subsidiary will, subject to certain exceptions, be subject to a 100% tax. Additional taxable REIT subsidiary elections may be made in the future for additional entities in which we own an interest.

Annual Distribution Requirements.  In order to avoid being taxed as a regular corporation, we are required to make distributions (other than capital gain distributions) to our stockholders which qualify for the dividends paid deduction in an amount at least equal to (1) the sum of (i) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and our net capital gain) and (ii) 90% of the after-tax net income, if any, from foreclosure property, minus (2) a portion of certain items of non-cash income. These distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for that year and if paid on or before the first regular distribution payment after such declaration. The amount distributed must not be preferential. This means that every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated otherwise than in accordance with its dividend rights as a class. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates. Finally, as discussed above, we may be subject to an excise tax if we fail to meet certain other distribution requirements. We intend to make timely distributions sufficient to satisfy these annual distribution requirements.

It is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, or to distribute such greater amount as may be necessary to avoid income and excise taxation, due to, among other things, (1) timing differences between (i) the actual receipt of income and actual payment of deductible expenses and (ii) the inclusion of income and deduction of expenses in arriving at our taxable income, or (2) the payment of severance benefits that may not be deductible to us. In the event that timing differences occur, we may find it necessary to arrange for borrowings or, if possible, pay dividends in the form of taxable stock dividends in order to meet the distribution requirement.

Under certain circumstances, in the event of a deficiency determined by the Internal Revenue Service, we may be able to rectify a resulting failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in our deduction for distributions paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency distributions; however, we will be required to pay applicable penalties and interest based upon the amount of any deduction taken for deficiency distributions.

Failure to Qualify as a REIT

If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible nor will any particular amount of distributions be required to be made in any year. All distributions to stockholders will be taxable as ordinary income to the extent of current and accumulated earnings and profits allocable to these distributions and, subject to certain limitations, will be eligible for the dividends received deduction for corporate stockholders. Unless entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances we would be entitled to statutory relief. Failure to qualify for even one year could result in our need to incur indebtedness or liquidate investments in order to pay potentially significant resulting tax liabilities.

18

In addition to the relief described above under “— Income Tests” and ‘‘— Asset Tests,” relief is available in the event that we violate a provision of the Internal Revenue Code that would result in our failure to qualify as a REIT if (1) the violation is due to reasonable cause and not due to willful neglect, (2) we pay a penalty of $50,000 for each failure to satisfy the provision, and (3) the violation does not include a violation described under “— Income Tests” or “— Asset Tests” above. It is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions.

Federal Income Taxation of Holders of Our Stock

Treatment of Taxable U.S. Stockholders.  The following summary applies to you only if you are a “U.S. stockholder.” A “U.S. stockholder” is a stockholder of shares of stock who, for United States federal income tax purposes, is:

•  a citizen or resident of the United States;

•  a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state;

•  an estate, the income of which is subject to United States federal income taxation regardless of its source; or

•  a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions.

So long as we qualify for taxation as a REIT, distributions on shares of our stock made out of the current or accumulated earnings and profits allocable to these distributions (and not designated as capital gain dividends) will be includable as ordinary income for federal income tax purposes. None of these distributions will be eligible for the dividends received deduction for U.S. corporate stockholders.

Generally, for taxable years ending after May 6, 2003 through December 31, 2008, the maximum marginal rate of tax payable by individuals on dividends received from corporations that are subject to a corporate level of tax is 15%. Except in limited circumstances, this tax rate will not apply to dividends paid to you by us on our shares, because generally we are not subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our stockholders. The reduced maximum federal income tax rate will apply to that portion, if any, of dividends received by you with respect to our shares that are attributable to: (1) dividends received by us from non-REIT corporations or other taxable REIT subsidiaries; (2) income from the prior year with respect to which we were required to pay federal corporate income tax during the prior year (if, for example, we did not distribute 100% of our REIT taxable income for the prior year); or (3) the amount of any earnings and profits that were distributed by us and accumulated in a non-REIT year.

Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year), without regard to the period for which you held our stock. However, if you are a corporation, you may be required to treat a portion of some capital gain dividends as ordinary income.

If we elect to retain and pay income tax on any net long-term capital gain, you would include in income, as long-term capital gain, your proportionate share of this net long-term capital gain. You would also receive a refundable tax credit for your proportionate share of the tax paid by us on such retained capital gains and you would have an increase in the basis of your shares of our stock in an amount equal to your includable capital gains less your share of the tax deemed paid.

You may not include in your federal income tax return any of our net operating losses or capital losses. Federal income tax rules may also require that certain minimum tax adjustments and preferences be apportioned to you. In addition, any distribution declared by us in October, November or December of any year on a specified date in any such month shall be treated as both paid by us and received by you on December 31 of that year, provided that the distribution is actually paid by us no later than January 31 of the following year.

19

We will be treated as having sufficient earnings and profits to treat as a dividend any distribution up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed under “— General” and “— Qualification as a REIT — Annual Distribution Requirements” above. As a result, you may be required to treat as taxable dividends certain distributions that would otherwise result in a tax-free return of capital. Moreover, any “deficiency dividend” will be treated as a dividend (an ordinary dividend or a capital gain dividend, as the case may be), regardless of our earnings and profits. Any other distributions in excess of current or accumulated earnings and profits will not be taxable to you to the extent these distributions do not exceed the adjusted tax basis of your shares of our stock. You will be required to reduce the tax basis of your shares of our stock by the amount of these distributions until the basis has been reduced to zero, after which these distributions will be taxable as capital gain, if the shares of our stock are held as a capital asset. The tax basis as so reduced will be used in computing the capital gain or loss, if any, realized upon sale of the shares of our stock. Any loss upon a sale or exchange of shares of our stock which were held for six months or less (after application of certain holding period rules) will generally be treated as a long-term capital loss to the extent you previously received capital gain distributions with respect to these shares of our stock.

Upon the sale or exchange of any shares of our stock to or with a person other than us or a sale or exchange of all shares of our stock (whether actually or constructively owned) with us, you will generally recognize capital gain or loss equal to the difference between the amount realized on the sale or exchange and your adjusted tax basis in these shares of our stock. This gain will be capital gain if you held these shares of our stock as a capital asset.

If we redeem any of your shares in us, the treatment can only be determined on the basis of particular facts at the time of redemption. In general, you will recognize gain or loss (as opposed to dividend income) equal to the difference between the amount received by you in the redemption and your adjusted tax basis in your shares redeemed if such redemption results in a “complete termination” of your interest in all classes of our equity securities, is a “substantially disproportionate redemption” or is “not essentially equivalent to a dividend” with respect to you. In applying these tests, there must be taken into account your ownership of all classes of our equity securities (e.g., common stock, preferred stock, depositary shares and warrants). You also must take into account any equity securities that are considered to be constructively owned by you.

If, as a result of a redemption by us of your shares, you no longer own (either actually or constructively) any of our equity securities or only own (actually and constructively) an insubstantial percentage of our equity securities, then it is probable that the redemption of your shares would be considered “not essentially equivalent to a dividend” and, thus, would result in gain or loss to you. However, whether a distribution is “not essentially equivalent to a dividend” depends on all of the facts and circumstances, and if you rely on any of these tests at the time of redemption, you should consult your tax advisor to determine their application to the particular situation.

Generally, if the redemption does not meet the tests described above, then the proceeds received by you from the redemption of your shares will be treated as a distribution taxable as a dividend to the extent of the allocable portion of current or accumulated earnings and profits. If the redemption is taxed as a dividend, your adjusted tax basis in the redeemed shares will be transferred to any other shareholdings in us that you own. If you own no other shareholdings in us, under certain circumstances, such basis may be transferred to a related person, or it may be lost entirely.

Gain from the sale or exchange of our shares held for more than one year is taxed at a maximum long-term capital gain rate, which is currently 15%. Pursuant to Internal Revenue Service guidance, we may classify portions of our capital gain dividends as gains eligible for the long-term capital gains rate or as gain taxable to individual stockholders at a maximum rate of 25%.

Treatment of Tax-Exempt U.S. Stockholders.  Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts (“Exempt Organizations”), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). The Internal Revenue Service has issued a published revenue ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Based on this ruling, amounts distributed by us to Exempt Organizations generally should not constitute UBTI. However, if an Exempt Organization finances its acquisition of the shares of our stock with debt, a portion of its income from us will constitute UBTI pursuant to the

20

“debt financed property” rules. Likewise, a portion of the Exempt Organization’s income from us would constitute UBTI if we held a residual interest in a real estate mortgage investment conduit.

In addition, in certain circumstances, a pension trust that owns more than 10% of our stock is required to treat a percentage of our dividends as UBTI. This rule applies to a pension trust holding more than 10% of our stock only if (1) the percentage of our income that is UBTI (determined as if we were a pension trust) is at least 5%, (2) we qualify as a REIT by reason of the modification of the Five or Fewer Requirement that allows beneficiaries of the pension trust to be treated as holding shares in proportion to their actuarial interests in the pension trust, and (3) either (i) one pension trust owns more than 25% of the value of our stock or (ii) a group of pension trusts individually holding more than 10% of the value of our stock collectively own more than 50% of the value of our stock.

Backup Withholding and Information Reporting.  Under certain circumstances, you may be subject to backup withholding at applicable rates on payments made with respect to, or cash proceeds of a sale or exchange of, shares of our stock. Backup withholding will apply only if you: (1) fail to provide a correct taxpayer identification number, which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer identification number; (3) are notified by the Internal Revenue Service that you have failed to properly report payments of interest or dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct taxpayer identification number and that the Internal Revenue Service has not notified you that you are subject to backup withholding.

Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. You should consult with a tax advisor regarding qualification for exemption from backup withholding, and the procedure for obtaining an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to payment to a stockholder will be allowed as a credit against such stockholder’s United States federal income tax liability and may entitle such stockholder to a refund, provided that the required information is provided to the Internal Revenue Service. In addition, withholding a portion of capital gain distributions made to stockholders may be required for stockholders who fail to certify their non-foreign status.

Taxation of Foreign Stockholders.  The following summary applies to you only if you are a foreign person. The federal taxation of foreign persons is a highly complex matter that may be affected by many considerations.

Except as discussed below, distributions to you of cash generated by our real estate operations in the form of ordinary dividends, but not by the sale or exchange of our capital assets, generally will be subject to U.S. withholding tax at a rate of 30%, unless an applicable tax treaty reduces that tax and you file with us the required form evidencing the lower rate.

In general, you will be subject to United States federal income tax on a graduated rate basis rather than withholding with respect to your investment in our stock if such investment is “effectively connected” with your conduct of a trade or business in the United States. A corporate foreign stockholder that receives income that is, or is treated as, effectively connected with a United States trade or business may also be subject to the branch profits tax, which is payable in addition to regular United States corporate income tax. The following discussion will apply to foreign stockholders whose investment in us is not so effectively connected. We expect to withhold United States income tax, as described below, on the gross amount of any distributions paid to you unless (1) you file an Internal Revenue ServiceForm W-8ECI with us claiming that the distribution is “effectively connected” or (2) certain other exceptions apply.

Distributions by us that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to you under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) as if these distributions were gains “effectively connected” with a United States trade or business. Accordingly, you will be taxed at the normal capital gain rates applicable to a U.S. stockholder on these amounts, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Distributions subject to FIRPTA may also be subject to a branch profits tax in the hands of a corporate foreign stockholder that is not entitled to treaty exemption.

21

We will be required to withhold from distributions subject to FIRPTA, and remit to the Internal Revenue Service, 35% of designated capital gain dividends, or, if greater, 35% of the amount of any distributions that could be designated as capital gain dividends. In addition, if we designate prior distributions as capital gain dividends, subsequent distributions, up to the amount of the prior distributions not withheld against, will be treated as capital gain dividends for purposes of withholding.

For taxable years beginning after October 22, 2004, any capital gain dividend with respect to any class of stock that is “regularly traded” on an established securities market will be treated as an ordinary dividend if the foreign stockholder did not own more than 5% of such class of stock at any time during the taxable year. Once this provision takes effect, foreign stockholders generally will not be required to report distributions received from us on U.S. federal income tax returns and all distributions treated as dividends for U.S. federal income tax purposes including any capital gain dividend will be subject to a 30% U.S. withholding tax (unless reduced under an applicable income tax treaty) as discussed above. In addition, the branch profits tax will no longer apply to such distributions.

Unless our shares constitute a “United States real property interest” within the meaning of FIRPTA or are effectively connected with a U.S. trade or business, a sale of our shares by you generally will not be subject to United States taxation. Our shares will not constitute a United States real property interest if we qualify as a “domestically controlled REIT.” We do, and expect to continue to, qualify as a domestically controlled REIT. A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its shares is held directly or indirectly by foreign stockholders. However, if you are a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions apply, you will be subject to a 30% tax on such capital gains. In any event, a purchaser of our shares from you will not be required under FIRPTA to withhold on the purchase price if the purchased shares are “regularly traded” on an established securities market or if we are a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser may be required to withhold 10% of the purchase price and remit such amount to the Internal Revenue Service.

Backup withholding tax and information reporting will generally not apply to distributions paid to you outside the United States that are treated as (1) dividends to which the 30% or lower treaty rate withholding tax discussed above applies; (2) capital gains dividends; or (3) distributions attributable to gain from the sale or exchange by us of U.S. real property interests. Payment of the proceeds of a sale of stock within the United States or conducted through certain U.S. related financial intermediaries is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that he or she is not a U.S. person (and the payor does not have actual knowledge that the beneficial owner is a U.S. person) or otherwise established an exemption. You may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service.

U.S. Federal Income Taxation of Holders of Depositary Shares

Owners of our depositary shares will be treated as if you were owners of the series of preferred stock represented by the depositary shares. Thus, you will be required to take into account the income and deductions to which you would be entitled if you were a holder of the underlying series of preferred stock.

Conversion or Exchange of Shares for Preferred Stock.  No gain or loss will be recognized upon the withdrawal of preferred stock in exchange for depositary shares and the tax basis of each share of preferred stock will, upon exchange, be the same as the aggregate tax basis of the depositary shares exchanged. If you held your depositary shares as a capital asset at the time of the exchange for shares of preferred stock, the holding period for your shares of preferred stock will include the period during which you owned the depositary shares.

U.S. Federal Income and Estate Taxation of Holders of Our Debt Securities

The following is a general summary of the United States federal income tax consequences and, in the case that you are a holder that is anon-U.S. holder, as defined below, the United States federal estate tax consequences, of purchasing, owning and disposing of debt securities periodically offered under one or more indentures, the forms of which have been filed as exhibits to this registration statement (the “notes”). This summary assumes that you hold the notes as capital assets. This summary applies to you only if you are the initial holder of the notes and you acquire

22

the notes for a price equal to the issue price of the notes. The issue price of the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. In addition, this summary does not consider any foreign, state, local or other tax laws that may be applicable to us or a purchaser of the notes.

U.S. Holders

The following summary applies to you only if you are a U.S. holder, as defined below.

Definition of a U.S. Holder.  A “U.S. holder” is a beneficial owner of a note or notes that is for United States federal income tax purposes:

•  a citizen or resident of the United States;

•  a corporation or partnership, or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state;

•  an estate, the income of which is subject to United States federal income taxation regardless of its source; or

•  a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions.

Payments of Interest.  Stated interest on the notes generally will be taxed as ordinary interest income from domestic sources at the time it is paid or accrues in accordance with your method of accounting for tax purposes.

Sale, Exchange or Other Disposition of Notes.  The adjusted tax basis in your note acquired at a premium will generally be your cost. You generally will recognize taxable gain or loss when you sell or otherwise dispose of your notes equal to the difference, if any, between:

•  the amount realized on the sale or other disposition, less any amount attributable to any accrued interest, which will be taxable in the manner described under “— Payments of Interest” above; and

•  your adjusted tax basis in the notes.

Your gain or loss generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or loss if at the time of the sale or other disposition you have held the notes for more than one year. Subject to limited exceptions, your capital losses cannot be used to offset your ordinary income.

Backup Withholding and Information Reporting.  In general, “backup withholding” may apply to any payments made to you of principal and interest on your note, and to payment of the proceeds of a sale or other disposition of your note before maturity, if you are a non-corporate U.S. holder and (1) fail to provide a correct taxpayer identification number, which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer identification number; (3) are notified by the Internal Revenue Service that you have failed to properly report payments of interest or dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct taxpayer identification number and that the Internal Revenue Service has not notified you that you are subject to backup withholding.

The amount of any reportable payments, including interest, made to you (unless you are an exempt recipient) and the amount of tax withheld, if any, with respect to such payments will be reported to you and to the Internal Revenue Service for each calendar year. You should consult your tax advisor regarding your qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. The backup withholding tax is not an additional tax and will be credited against your U.S. federal income tax liability, provided that correct information is provided to the Internal Revenue Service.

Non-U.S. Holders

The following summary applies to you if you are a beneficial owner of a note and are not a U.S. holder, as defined above (a“non-U.S. holder”).

23

Special rules may apply to certainnon-U.S. holders such as “controlled foreign corporations,” “passive foreign investment companies” and “foreign personal holding companies.” Such entities are encouraged to consult their tax advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them.

U.S. Federal Withholding Tax.  Subject to the discussion below, U.S. federal withholding tax will not apply to payments by us or our paying agent, in its capacity as such, of principal and interest on your notes under the “portfolio interest” exception of the Internal Revenue Code, provided that:

•  you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote;

•  you are not (1) a controlled foreign corporation for U.S. federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership, as provided in the Internal Revenue Code, or (2) a bank receiving interest described in Section 881(c)(3)(A) of the Internal Revenue Code;

•  such interest is not effectively connected with your conduct of a U.S. trade or business; and

•  you provide a signed written statement, under penalties of perjury, which can reliably be related to you, certifying that you are not a U.S. person within the meaning of the Internal Revenue Code and providing your name and address to:

•  us or our paying agent; or

•  a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from you your signed, written statement and provides us or our paying agent with a copy of such statement.

Treasury regulations provide that:

•  if you are a foreign partnership, the certification requirement will generally apply to your partners, and you will be required to provide certain information;

•  if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial owners depending on whether you are a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the Treasury regulations; and

•  look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.

If you are a foreign partnership or a foreign trust, you should consult your own tax advisor regarding your status under these Treasury regulations and the certification requirements applicable to you.

If you cannot satisfy the portfolio interest requirements described above, payments of interest will be subject to the 30% United States withholding tax, unless you provide us with a properly executed (1) Internal Revenue ServiceForm W-8BEN claiming an exemption from or reduction in withholding under the benefit of an applicable treaty or (2) Internal Revenue ServiceForm W-8ECI stating that interest paid on the note is not subject to withholding tax because it is effectively connected with your conduct of a trade or business in the United States. Alternative documentation may be applicable in certain circumstances.

If you are engaged in a trade or business in the United States and interest on a note is effectively connected with the conduct of that trade or business, you will be required to pay United States federal income tax on that interest on a net income basis (although you will be exempt from the 30% withholding tax provided the certification requirement described above is met) in the same manner as if you were a U.S. person, except as otherwise provided by an applicable tax treaty. If you are a foreign corporation, you may be required to pay a branch profits tax on the earnings and profits that are effectively connected to the conduct of your trade or business in the United States.

Sale, Exchange or other Disposition of Notes.  You generally will not have to pay U.S. federal income tax on any gain or income realized from the sale, redemption, retirement at maturity or other disposition of your notes, unless:

24

•  in the case of gain, you are an individual who is present in the United States for 183 days or more during the taxable year of the sale or other disposition of your notes, and specific other conditions are met;

•  you are subject to tax provisions applicable to certain United States expatriates; or

•  the gain is effectively connected with your conduct of a U.S. trade or business.

If you are engaged in a trade or business in the United States and gain with respect to your notes is effectively connected with the conduct of that trade or business, you generally will be subject to U.S. income tax on a net basis on the gain. In addition, if you are a foreign corporation, you may be subject to a branch profits tax on your effectively connected earnings and profits for the taxable year, as adjusted for certain items.

U.S. Federal Estate Tax.  If you are an individual and are not a U.S. citizen or a resident of the United States, as specially defined for U.S. federal estate tax purposes, at the time of your death, your notes will generally not be subject to the U.S. federal estate tax, unless, at the time of your death (1) you owned actually or constructively 10% or more of the total combined voting power of all our classes of stock entitled to vote or (2) interest on the notes is effectively connected with your conduct of a U.S. trade or business.

Backup Withholding and Information Reporting.  Backup withholding will not apply to payments of principal or interest made by us or our paying agent, in its capacity as such, to you if you have provided the required certification that you are anon-U.S. holder as described in “— U.S. Federal Withholding Tax” above, and provided that neither we nor our paying agent have actual knowledge that you are a U.S. holder, as described in “— U.S. Holders” above. We or our paying agent may, however, report payments of interest on the notes.

The gross proceeds from the disposition of your notes may be subject to information reporting and backup withholding tax. If you sell your notes outside the United States through anon-U.S. office of anon-U.S. broker and the sales proceeds are paid to you outside the United States, then the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your notes through anon-U.S. office of a broker that:

•  is a U.S. person, as defined in the Internal Revenue Code;

•  derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States;

•  is a “controlled foreign corporation” for U.S. federal income tax purposes; or

•  is a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons who in the aggregate hold more than 50% of the income or capital interests in the partnership, or the foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence in its files that you are anon-U.S. person and certain other conditions are met or you otherwise establish an exemption. If you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the payment is subject to both U.S. backup withholding and information reporting unless you provide aForm W-8BEN certifying that you are anon-U.S. person or you otherwise establish an exemption.

You should consult your own tax advisor regarding application of backup withholding in your particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding. Any amounts withheld under the backup withholding rules from a payment to you will be allowed as a refund or credit against your U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service.

U.S. Federal Income and Estate Taxation of Holders of Our Warrants

Exercise of Warrants.  You will not generally recognize gain or loss upon the exercise of a warrant. Your basis in the debt securities, preferred stock, depositary shares or common stock, as the case may be, received upon the exercise of the warrant will be equal to the sum of your adjusted tax basis in the warrant and the exercise price paid. Your holding period in the debt securities, preferred stock, depositary shares or common stock, as the case may be, received upon the exercise of the warrant will not include the period during which the warrant was held by you.

25

Expiration of Warrants.  Upon the expiration of a warrant, you will recognize a capital loss in an amount equal to your adjusted tax basis in the warrant.

Sale or Exchange of Warrants.  Upon the sale or exchange of a warrant to a person other than us, you will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and your adjusted tax basis in the warrant. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the warrant was held for more than one year. Upon the sale of the warrant to us, the Internal Revenue Service may argue that you should recognize ordinary income on the sale. You are advised to consult your own tax advisors as to the consequences of a sale of a warrant to us.

Potential Legislation or Other Actions Affecting Tax Consequences

Current and prospective securities holders should recognize that the present federal income tax treatment of an investment in us may be modified by legislative, judicial or administrative action at any time and that any such action may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in federal tax laws and interpretations of these laws could adversely affect the tax consequences of an investment in us.

Internet Access to Our SEC Filings

Our annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and amendments to those reports, as well as our proxy statements and other materials that are filed with, or furnished to, the Securities and Exchange Commission are made available, free of charge, on our Web site at www.hcreit.com, as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission.

Item 1A.   Risk Factors

Forward-Looking Statements and Risk Factors

This Annual Report onForm 10-K and the documents incorporated by reference contain statements that constitute “forward-looking statements” as that term is defined in the federal securities laws. These forward-looking statements include, but are not limited to, those regarding:

•  the possible expansion of our portfolio;

•  the sale of properties;

•  the performance of our operators/tenants and properties;

•  our ability to enter into agreements with new viable tenants for properties that we take back from financially troubled tenants, if any;

•  our ability to retain or increase occupancies in our medical office buildings at similar or higher rates;

•  our ability to make distributions to stockholders;

•  our policies and plans regarding investments, financings and other matters;

•  our tax status as a real estate investment trust;

•  our ability to appropriately balance the use of debt and equity;

•  our ability to access capital markets or other sources of funds; and

•  our ability to meet our earnings guidance.

When we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of

26

future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to:

•  the status of the economy;

•  the status of capital markets, including prevailing interest rates;

•  issues facing the health care industry, including compliance with, and changes to, regulations and payment policies and 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, including, but not limited to, their ability to pay rent and repay loans;

•  our ability to transition or sell facilities with profitable results;

•  the failure to make new investments as and when anticipated;

•  the failure of closings to occur as and when anticipated;

•  acts of God affecting our properties;

•  our ability to re-lease space at similar rates as vacancies occur;

•  our ability to timely reinvest sale proceeds at similar rates to assets sold;

•  operator bankruptcies or insolvencies;

•  government regulations affecting Medicare and Medicaid reimbursement rates;

•  liability or contract claims by or against operators;

•  unanticipated difficultiesand/or expenditures relating to future acquisitions;

•  environmental laws affecting our properties;

•  changes in rules or practices governing our financial reporting;

•  other legal and operational factors, including REIT qualification and key management personnel recruitment and retention; and

•  the risks described below:

Risk factors related to our operators’ revenues and expenses

Our investment property operators’ revenues are primarily driven by occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates. Expenses for these facilities are primarily driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts and state budget shortfalls. Liability insurance and staffing costs continue to increase for our operators. To the extent that any decrease in revenuesand/or any increase in operating expenses result in a property not generating enough cash to make payments to us, the credit of our operator and the value of other collateral would have to be relied upon.

Risk factors related to obligor bankruptcies

We are exposed to the risk that our obligors may not be able to meet the rent, principal and interest or other payments due us, which may result in an obligor bankruptcy or insolvency, or that an obligor might become subject to bankruptcy or insolvency proceedings for other reasons. Although our operating lease agreements provide us with the right to evict a tenant, demand immediate payment of rent and exercise other remedies, and our loans

27

provide us with the right to terminate any funding obligation, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. An obligor in bankruptcy or subject to insolvency proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and interest in the case of a loan, and to exercise other rights and remedies.

We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of an investment property, avoid the imposition of liens on a propertyand/or transition a property to a new tenant. In some instances, we have terminated our lease with a tenant and relet the property to another tenant. In some of those situations, we have provided working capital loans to and limited indemnification of the new obligor. If we cannot transition a leased property to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.

Transfers of health care facilities may require regulatory approvals and these facilities may not have efficient alternative uses

Transfers of health care facilities to successor operators may be subject to regulatory approvals that are not required for transfers of other types of real estate. The replacement of an operator could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility. Alternatively, given the specialized nature of our facilities, we may be required to spend substantial time and funds to adapt these properties to other uses. If we are unable to timely transfer properties to successor operators or find efficient alternative uses, our revenue and operations may be adversely affected.

Risk factors related to government regulations

Our obligors’ businesses are affected by government reimbursement and private payor rates. To the extent that an operator/tenant receives a significant portion of its revenues from governmental payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing governmental investigations and audits at such property. In recent years, governmental payors have frozen or reduced payments to health care providers due to budgetary pressures. Health care reimbursement will likely continue to be of paramount importance to federal and state authorities. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of our obligors and properties. There can be no assurance that adequate reimbursement levels will continue to be available for services provided by any property operator, whether the property receives reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an obligor’s liquidity, financial condition and results of operations, which could adversely affect the ability of an obligor to meet its obligations to us. See “Item 1 — Business — Certain Government Regulations — Reimbursement” above.

Our operators and tenants generally are subject to extensive federal, state and local licensure, certification and inspection laws and regulations. Our operators’ or tenants’ failure to comply with any of these laws could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension or decertification from federal and state health care programs, loss of license or closure of the facility. Such actions may have an effect on our operators’ or tenants’ ability to make lease payments to us and, therefore, adversely impact us.

Many of our medical properties may require a licenseand/or certificate of need to operate. Failure to obtain a license or certificate of need, or loss of a required license or certificate of need would prevent a facility from operating in the manner intended by the operators or tenants. These events could materially adversely affect our operators’ or tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of health care facilities, by requiring a certificate of need or other similar approval.

28

Risk factors related to liability claims and insurance costs

Long-term care property operators (skilled nursing facilities, assisted living facilities, and independent living/continuing care retirement communities) have experienced substantial increases in both the number and size of patient care liability claims in recent years, particularly in the states of Texas and Florida. As a result, general and professional liability costs have increased and may continue to increase. Long-term care liability insurance rates are increasing nationwide because of large jury awards. Over the past four years, both Texas and Florida have adopted skilled nursing property liability laws that modify or limit tort damages. Despite some of these reforms, the long-term care industry overall continues to experience very high general and professional liability costs. Insurance companies have responded to this claims crisis by severely restricting their capacity to write long-term care general and professional liability policies. No assurances can be given that the climate for long-term care general and professional liability insurance will improve in any of the foregoing states or any other states where the property operators conduct business. Insurance companies may continue to reduce or stop writing general and professional liability policies for long-term care facilities. Thus, general and professional liability insurance coverage may be restricted or very costly, which may adversely affect the property operators’ future operations, cash flows and financial condition, and may have a material adverse effect on the property operators’ ability to meet their obligations to us.

Risk factors related to acquisitions

We are exposed to the risk that our future acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and newly acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. If we agree to provide construction funding to an operator/tenant and the project is not completed, we may need to take steps to ensure completion of the project. Moreover, if we issue equity securities or incur additional debt, or both, to finance future acquisitions, it may reduce our per share financial results. These costs may negatively affect our results of operations.

Risk factors related to environmental laws

Under various federal and state laws, owners or operators of real estate may be required to respond to the presence or release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination or exposure to hazardous substances. We may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property. Moreover, we review environmental site assessments of the properties that we own or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which we believe qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition or the business or financial condition of our obligors.

Risk factors related to facilities that require entrance fees

Certain of our senior housing facilities require the payment of an upfront entrance fee by the resident, a portion of which may be refundable by the operator. Some of these facilities are subject to substantial oversight by state regulators. As a result of this oversight, residents of these facilities may have a variety of rights, including, for example, the right to cancel their contracts within a specified period of time and certain lien rights. The oversight and rights of residents within these facilities may have an effect on the revenue or operations of the operators of such facilities and therefore may negatively impact us.

29

Risk factors related to facilities under construction or development

At any given time, we may be in the process of constructing one or more new facilities that ultimately will require a license before they can be utilized by the operator for their intended use. The operator also will need to obtain Medicare and Medicaid provider agreements or third party payor contracts. In the event that the operator is unable to obtain the necessary licensure, provider agreements on contracts after the completion of construction, there is a risk that we will not be able to earn any revenues on the facility until either the initial operator obtains a license to operate the new facility and the necessary provider agreements or contracts or we can find and contract with a new operator that is able to obtain a license to operate the facility for its intended use and the necessary provider agreements or contracts.

In connection with our renovation, redevelopment, development and related construction activities, we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These factors could result in increased costs or our abandonment of these projects. In addition, we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our development activities, and we may not be able to complete construction andlease-up of a property on schedule, which could result in increased debt service expense or construction costs.

Additionally, the time frame required for development, construction andlease-up of these properties means that we may have to wait years for significant cash returns. Because we are required to make cash distributions to our stockholders, if the cash flow from operations or refinancing is not sufficient, we may be forced to borrow additional money to fund such distributions. Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance.

In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy and rental rates. If our financial projections with respect to a new property are inaccurate, and the property is unable to achieve the expected occupancy and rental rates, it may fail to perform as we expected in analyzing our investment. Our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire new properties not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property.

We do not know if our tenants will renew their existing leases, and if they do not, we may be unable to lease the properties on as favorable terms, or at all

We cannot predict whether our tenants will renew existing leases at the end of their lease terms, which expire at various times through 2021. If these leases are not renewed, we would be required to find other tenants to occupy those properties. There can be no assurance that we would be able to identify suitable replacement tenants or enter into leases with new tenants on terms as favorable to us as the current leases or that we would be able to lease those properties at all.

Our ownership of properties through ground leases exposes us to the loss of such properties upon breach or termination of the ground leases

We have acquired an interest in certain of our properties by acquiring a leasehold interest in the property on which the building is located, and we may acquire additional properties in the future through the purchase of interests in ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing the property upon termination of the ground lease or an earlier breach of the ground lease by us.

30

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties

Real estate investments are relatively illiquid. Our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions will be limited. No assurances can be given that we will recognize full value for any property that we are required to sell for liquidity reasons. Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.

Risk factors related to reinvestment of sale proceeds

From time to time, we will have cash available from (1) the proceeds of sales of our securities, (2) principal payments on our loans receivable and (3) the sale of properties, including non-elective dispositions, under the terms of master leases or similar financial support arrangements. We must re-invest these proceeds, on a timely basis, in properties or in qualified short-term investments. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us. Delays in acquiring properties may negatively impact revenues and perhaps our ability to make distributions to stockholders.

Failure to properly manage our rapid growth could distract our management or increase our expenses

We have experienced rapid growth and development in a relatively short period of time and expect to continue this rapid growth in the future. Our rapid growth has resulted in increased levels of responsibility for our management. Future property acquisitions could place significant additional demands on, and require us to expand, our management, resources and personnel. Our failure to manage any such rapid growth effectively could harm our business and, in particular, our financial condition, results of operations and cash flows, which could negatively affect our ability to make distributions to stockholders. Our rapid growth could also increase our capital requirements, which may require us to issue potentially dilutive equity securities and incur additional debt.

Other risk factors

We are also subject to a number of other risks. First, we might fail to qualify or remain qualified as a REIT. We intend to operate as a REIT under the Internal Revenue Code and believe we have and will continue to operate in such a manner. Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and if we do, our earnings will be reduced by the amount of federal taxes owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. Also, if we were not a REIT, we would not be required to make distributions to stockholders since a non-REIT is not required to pay dividends to stockholders amounting to at least the sum of (1) 85% of our REIT ordinary income for such year (other than capital gain that we elect to retain and pay tax on) and (2) any undistributed taxable income from preceding periods. See “Item 1 — Business — Taxation” for a discussion of the provisions of the Internal Revenue Code that apply to us and the effects of non-qualification.

Second, our Second Restated Certificate of Incorporation and Amended and Restated By-Laws contain anti-takeover provisions (staggered board provisions, restrictions on share ownership and transfer and super majority stockholder approval requirements for business combinations) that could make it more difficult for or even prevent a third party from acquiring us without the approval of our incumbent Board of Directors. Provisions and agreements that inhibit or discourage takeover attempts could reduce the market value of our common stock.

Third, we are dependent on key personnel. Although we have entered into employment agreements with our executive officers, losing any one of them could, at least temporarily, have an adverse impact on our operations. We believe that losing more than one would have a material adverse impact on our business.

31

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

We lease our corporate headquarters located at One SeaGate, Suite 1500, Toledo, Ohio 43604. We also lease corporate offices in Florida, Indiana and Tennessee. The following table sets forth certain information regarding the properties that comprise our investments as of December 31, 2006 (dollars in thousands):

	Number of		Number of		Total		Annualized
Property Location	Properties		Beds/Units		Investment(1)		Income(2)
Assisted Living Facilities:
Arizona		4		247	$	17,512	$	2,231
California		8		592		52,757		7,659
Colorado		1		46		4,161		556
Connecticut		6		591		52,147		5,892
Delaware		1		97		20,537		2,047
Florida		15		1,162		77,213		10,011
Georgia		2		107		4,388		541
Idaho		3		234		14,638		1,710
Illinois		7		560		37,161		1,752
Indiana		2		78		4,898		685
Iowa		1		208		5,974
Kansas		1		120		10,559		1,568
Kentucky		1		80		7,383		871
Louisiana		1		124		7,668		1,437
Maryland		2		164		9,094		1,100
Massachusetts		7		525		66,411		7,892
Mississippi		2		158		13,053		1,560
Montana		3		205		14,869		1,748
Nevada		3		262		24,081		2,965
New Jersey		2		90		7,188		977
New York		3		185		35,451		3,261
North Carolina		41		1,867		174,623		22,353
Ohio		9		627		44,311		4,925
Oklahoma		16		549		19,098		3,139
Oregon		3		123		10,154		1,485
Pennsylvania		2		135		15,580		1,458
South Carolina		5		266		24,485		3,327
Tennessee		4		216		11,329		1,315
Texas		29		1,615		106,377		8,946
Utah		2		138		13,386		1,548
Virginia		4		326		40,019		4,220
Washington		8		472		31,808		3,676
Wisconsin		6		369		45,906		3,219
Total Assisted Living Facilities		204		12,538		1,024,219		116,074

32

	Number of		Number of		Total		Annualized
Property Location	Properties		Beds/Units		Investment(1)		Income(2)
Skilled Nursing Facilities:
Alabama		8		1,202	$	41,516	$	4,767
Arizona		3		505		20,369		2,169
Colorado		5		816		47,568		4,424
Connecticut		6		753		21,013		2,298
Florida		45		5,942		318,947		36,255
Georgia		3		499		16,692		1,818
Idaho		3		393		17,298		2,582
Illinois		4		406		26,851		2,550
Indiana		8		865		45,748		4,436
Kansas		1		163		9,228		901
Kentucky		10		1,343		65,340		7,808
Louisiana		7		854		34,905		3,770
Maryland		1		100		3,885		524
Massachusetts		23		3,226		206,277		21,503
Michigan		1		99		4,431		438
Mississippi		11		1,527		48,663		5,571
Missouri		3		407		23,709		1,991
Nevada		1		60		1,984		440
New Hampshire		1		68		4,514		529
New Jersey		1		176		4,643		529
Ohio		21		2,797		184,092		18,634
Oklahoma		3		668		21,056		2,415
Oregon		1		111		4,174		639
Pennsylvania		5		734		26,943		3,498
Tennessee		22		3,025		121,490		16,429
Texas		21		3,043		76,967		8,741
Utah		1		120		7,633		745
Virginia		2		316		8,179		1,194
Total Skilled Nursing Facilities		221		30,218		1,414,115		157,598
Independent Living / CCRC Facilities:
Arizona		2		376		12,954		1,332
California		7		1,118		147,284		9,512
Colorado		2		373		33,228		1,773
Florida		3		547		65,762		7,420
Georgia		3		226		19,294		2,603
Idaho		1		254		13,616		1,791
Illinois		1		89		6,498		796
Indiana		3		541		42,918		1,436
Kansas		1		107		12,400		—
Maryland		3		—		9,379		750
Massachusetts		3		—		10,556		1,070
Missouri		1		65		6,000		540
Montana		1		18		1,964		223
Nevada		1		103		7,805		1,031
New York		2		108		11,196		1,259
North Carolina		2		349		23,055		2,021
Pennsylvania		1		—		5,350		428
South Carolina		7		1,011		79,998		6,804
Texas		2		532		19,217		2,326
Washington		1		70		5,476		530
Total Independent Living/CCRC Facilities		47		5,887		533,950		43,645

33

	Number of				Total		Annualized
Property Location	Properties		Sq. Ft.		Investment(1)		Income(2)
Medical Office Buildings:
Alabama		5		303,306	$	44,813	$	4,672
Arizona		1		152,600		48,057		5,034
California		5		269,913		89,897		6,772
Florida		24		836,104		243,668		17,254
Georgia		14		311,003		84,102		6,599
Illinois		3		71,345		17,269		1,709
North Carolina		10		154,930		34,051		2,533
New Jersey		3		116,451		32,543		4,644
Nevada		6		259,579		90,458		7,628
New York		1		100,496		20,873		2,926
Tennessee		4		129,737		35,401		3,511
Texas		13		591,906		159,000		10,547
Total Medical Office Buildings		89		3,297,370		900,132		73,829
				Number of Beds/Units
Specialty Care Facilities:
California		1		231		7,472		523
Idaho		1		60		4,849		—
Illinois		1		72		49,077		5,573
Indiana		1		50		2,110		60
Louisiana		1		50		9,685		744
Massachusetts		3		493		46,124		5,194
Ohio		1		55		27,540		3,905
Oklahoma		2		91		11,568		1,102
Texas		6		249		101,908		10,625
Total Specialty Care Facilities		17		1,351		260,333		27,726
Total All Properties:		578			$	4,132,749	$	418,872

(1)	Investments include real estate investments and credit enhancements which amounted to $4,130,299,000 and $2,450,000, respectively.
(2)	Reflects contract rate of interest for loans, annual straight-line rent for leases with fixed escalators or annual cash rent for leases with contingent escalators, net of collectibility reserves if applicable.

Item 3.   Legal Proceedings

From time to time, there are various legal proceedings pending to which we are a party or to which some of our properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

34

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There were 5,802 stockholders of record as of February 16, 2007. The following table sets forth, for the periods indicated, the high and low prices of our common stock on the New York Stock Exchange, as reported on the Composite Tape, and common dividends paid per share:

	Sales Price				Dividends
	High		Low		Paid
2006
First Quarter	$	38.50	$	33.68	$	0.620
Second Quarter		38.09		32.80		0.640
Third Quarter		40.12		34.55		0.640
Fourth Quarter		43.02		38.60		0.9809	(1)
2005
First Quarter	$	38.04	$	31.15	$	0.600
Second Quarter		37.99		31.69		0.620
Third Quarter		39.20		35.13		0.620
Fourth Quarter		37.37		33.35		0.620

(1) Includes $0.3409 prorated dividend paid on December 28, 2006 in connection with the Windrose merger.

Our Board of Directors approved a new quarterly dividend rate of $0.66 per share of common stock per quarter, commencing with the May 2007 dividend. Our dividend policy is reviewed annually by the Board of Directors. The declaration and payment of quarterly dividends remains subject to the review and approval of the Board of Directors.

On September 29, 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock as partial consideration for an acquisition of assets by us, with the shares valued at $26,500,000 for such purposes. The shares were issued to Southern Assisted Living, Inc. and certain of its shareholders without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended. The shares have a liquidation value of $25 per share. The preferred stock, which has no stated maturity, may be redeemed by us on or after August 15, 2008. The preferred shares are convertible into common stock at a conversion price of $32.66 per share at any time. There were 74,989 of such shares outstanding at December 31, 2006. These shares are not included in the following table:

ISSUER PURCHASES OF EQUITY SECURITIES

					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 Plans	Under the Plans or
Period	Purchased(1)		Paid per Share		or Programs(2)	Programs
October 1, 2006 through October 31, 2006
November 1, 2006 through November 30, 2006
December 1, 2006 through December 31, 2006		3,677	$	41.48
Totals		3,677	$	41.48

(1)	During the three months ended December 31, 2006, the only securities purchased by the Company were 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.
(2)	No shares were purchased as part of publicly announced plans or programs.

35

Stockholder Return Performance Presentation

Set forth below is a line graph comparing the yearly percentage change and the cumulative total stockholder return on our shares of common stock against the cumulative total return of the S & P Composite-500 Stock Index and the NAREIT Equity Index. As of December 31, 2006, 138 companies comprised the NAREIT Equity Index. The Index consists of REITs identified by NAREIT as equity (those REITs which have at least 75% of real property investments). 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, we will provide stockholders with the names of the component issuers. The data are based on the closing prices as of December 31 for each of the five years. 2001 equals $100 and dividends are assumed to be reinvested.

	12/31/01	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
S & P 500	100.00	77.90	100.24	111.15	116.61	135.02
Health Care REIT	100.00	120.70	167.06	185.69	178.34	226.22
NAREIT Equity	100.00	103.82	142.37	187.33	210.12	283.78

Except to the extent that we specifically incorporate this information by reference, the foregoing Stockholder Return Performance Presentation shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report onForm 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended. This information shall not otherwise be deemed filed under such acts.

36

Item 6.   Selected Financial Data

The following selected financial data for the five years ended December 31, 2006 are derived from our audited consolidated financial statements (in thousands, except per share data):

	Year Ended December 31,
	2002		2003		2004		2005		2006
Operating Data
Revenues(1)	$	130,449	$	176,461	$	230,482	$	273,538	$	322,824
Expenses:
Interest expense(1)		32,900		46,516		65,888		77,319		94,802
Depreciation and amortization(1)		27,310		40,277		61,681		74,816		93,131
Property operating expenses										1,115
Other expenses(2)		13,038		17,274		20,391		20,073		30,259
Impairment of assets		2,298		2,792		314
Loss on extinguishment of debt(3)		403						21,484
Total expenses		75,949		106,859		148,274		193,692		219,307
Income before minority interests		54,500		69,602		82,208		79,846		103,517
Minority interests										(13	)
Income from continuing operations		54,500		69,602		82,208		79,846		103,504
Income from discontinued operations, net(1)		13,159		13,138		3,163		4,440		(754	)
Net income		67,659		82,740		85,371		84,286		102,750
Preferred stock dividends		12,468		9,218		12,737		21,594		21,463
Preferred stock redemption charge				2,790
Net income available to common stockholders	$	55,191	$	70,732	$	72,634	$	62,692	$	81,287
Other Data
Average number of common shares outstanding:
Basic		36,702		43,572		51,544		54,110		61,661
Diluted		37,301		44,201		52,082		54,499		62,045
Per Share Data
Basic:
Income from continuing operations available to common stockholders	$	1.15	$	1.32	$	1.35	$	1.08	$	1.33
Discontinued operations, net		0.36		0.30		0.06		0.08		(0.01	)
Net income available to common stockholders	$	1.50	$	1.62	$	1.41	$	1.16	$	1.32
Diluted:
Income from continuing operations available to common stockholders	$	1.13	$	1.30	$	1.33	$	1.07	$	1.32
Discontinued operations, net		0.35		0.30		0.06		0.08		(0.01	)
Net income available to common stockholders	$	1.48	$	1.60	$	1.39	$	1.15	$	1.31
Cash distributions per common share	$	2.34	$	2.34	$	2.385	$	2.46	$	2.8809

(1)	In accordance with FASB Statement No. 144, we have reclassified the income and expenses attributable to the properties sold subsequent to January 1, 2002 and attributable to the properties held for sale at December 31, 2006, to discontinued operations for all periods presented. See Note 16 to our audited consolidated financial statements.
(2)	Other expenses include loan expense, provision for loan losses and general and administrative expenses.
(3)	Effective January 1, 2003, in accordance with FASB Statement No. 145, we reclassified the losses on extinguishments of debt in 2002 to income from continuing operations rather than as extraordinary items as previously required under FASB Statement No. 4.

37

	December 31,
	2002		2003		2004		2005		2006
Balance Sheet Data
Net real estate investments	$	1,524,457	$	1,992,446	$	2,441,972	$	2,849,518	$	4,122,893
Total assets		1,591,482		2,184,088		2,552,171		2,972,164		4,280,610
Total debt		673,703		1,014,541		1,192,958		1,500,818		2,198,001
Total liabilities and minority interest		694,250		1,034,409		1,216,892		1,541,408		2,301,817
Total stockholders’ equity		897,232		1,149,679		1,335,279		1,430,756		1,978,793

38

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based primarily on the consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report onForm 10-K. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk Factors” above.

Executive Overview

Business

Health Care REIT, Inc. is a self-administered, equity real estate investment trust that invests in the full spectrum of senior housing and health care real estate. Founded in 1970, we were the first REIT to invest exclusively in health care properties. The following table summarizes our portfolio as of December 31, 2006:

	Investments(1)		Percentage of			Revenues(2)		Percentage of			Number of		# Beds/Units			Investment per			Operators/
Type of Property	(in thousands)		Investments			(in thousands)		Revenues(2)			Properties		or Sq. Ft.			metric (3)			Tenants		States
Independent living/CCRCs	$	533,950		13	%	$	39,475		12	%		47		5,887	units	$	123,073	unit		18		19
Assisted living facilities		1,024,219		25	%		107,165		33	%		204		12,538	units		90,697	unit		25		33
Skilled nursing facilities		1,414,115		34	%		157,945		48	%		221		30,218	beds		47,279	bed		22		28
Medical office buildings		900,132		22	%		3,247		1	%		89		3,297,370	sq. ft.		273	sq.ft.		642		12
Specialty care facilities		260,333		6	%		16,632		5	%		17		1,351	beds		210,969	bed		9		9
Other income							3,924		1	%
Totals	$	4,132,749		100	%	$	328,388		100	%		578

(1)	Investments include real estate investments and credit enhancements which amounted to $4,130,299,000 and $2,450,000, respectively.
(2)	Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2006.
(3)	Investment per metric was computed by using the total investment amount of $4,475,503,000 which includes real estate investments, credit enhancements and unfunded construction commitments for which initial funding has commenced which amounted to $4,130,299,000, $2,450,000 and $342,754,000, respectively.

Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in rental and interest income and portfolio growth. To meet these objectives, we invest across the full spectrum of senior housing and health care real estate and diversify our investment portfolio by property type, 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, liquidityand/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property and operator/tenant. Our asset management process includes review of monthly financial statements for each property, periodic review of obligor credit, periodic property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends and risks. Through these asset management and research efforts, we are typically able to intervene at an early stage to address payment risk, and in so doing, support both the collectibility of revenue and the value of our investment.

In addition to our asset management and research efforts, we also structure our investments to help mitigate payment risk. We typically limit our investments to no more than 90% of the appraised value of a property.

39

Operating leases and loans are normally credit enhanced by guarantiesand/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the obligor and its affiliates.

For the year ended December 31, 2006, rental income and interest income represented 93% and 6%, respectively, of total gross revenues (including 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 lines of credit arrangements, 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 lines of credit arrangements, 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. We expect to complete gross new investments of $1,000,000,000 to $1,200,000,000 in 2007, including acquisitions of $700,000,000 to $800,000,000 and funded new development of $300,000,000 to $400,000,000. We anticipate the sale of real property and the repayment of loans receivable totaling approximately $100,000,000 to $200,000,000 during 2007. 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 lines of credit arrangements. At December 31, 2006, we had $36,216,000 of cash and cash equivalents and $515,000,000 of available borrowing capacity under our unsecured lines of credit arrangements. Our investment activity may exceed our borrowing capacity under our unsecured lines of credit. To the extent that we are unable to issue equity or debt securities to provide additional capital, we may not be able to fund all of our potential investments, which could have an adverse effect on our revenues and cash flows from operations.

Key Transactions in 2006

We completed the following key transactions during the year ended December 31, 2006:

•  our Board of Directors increased our quarterly dividend to $0.64 per share, which represented a two cent increase from the quarterly dividend of $0.62 paid for 2005. The dividend declared for the quarter ended December 31, 2006 represented the 143rd consecutive dividend payment;

•  we completed a $1.0 billion merger with Windrose Medical Properties Trust on December 20, 2006;

•  we completed $559,209,000 of gross investments offset by $140,791,000 of investment payoffs;

•  we completed a public offering of 3,222,800 shares of common stock with net proceeds of approximately $109,749,000 in April 2006;

•  we extended our $40,000,000 unsecured line of credit which matured in May 2006 to May 2007 and reduced pricing by 40 basis points;

•  we closed on a $700,000,000 unsecured revolving credit facility to replace our $500,000,000 facility, which was scheduled to mature in June 2008. Among other things, the new facility provides us with additional

40

financial flexibility and borrowing capacity, extends our agreement to July 2009 and adds two new lenders to the bank group in addition to commitment increases by eight of the ten existing lenders; and

•  we issued $345,000,000 of 4.75% convertible notes due December 2026 in November and December 2006.

Windrose Medical Properties Trust Merger

On December 20, 2006, we completed our merger with Windrose Medical Properties Trust, a self-managed real estate investment trust based in Indianapolis, Indiana. The aggregate purchase price was approximately $1,018,345,000, including direct acquisition costs of approximately $29,918,000. The Windrose merger diversified our portfolio of investments throughout the health care delivery system. Windrose shareholders received approximately 9,679,000 shares of our common stock (valued at $41.00 per share) and Windrose preferred shareholders received 2,100,000 shares of our 7.5% Series G Cumulative Convertible Preferred Stock (valued at $29.58 per share). Additionally, our investment in Windrose includes $183,139,000 of cash provided to Windrose to extinguish secured debt, the assumption of $301,641,000 of debt and the assumption of other liabilities and minority interests totaling $44,683,000. The results of operations for Windrose have been included in our consolidated results of operations from the date of acquisition.

Key Performance Indicators, Trends and Uncertainties

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

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

	Year Ended
	December 31,		December 31,		December 31,
	2004		2005		2006
Net income available to common stockholders	$	72,634	$	62,692	$	81,287
Funds from operations		146,742		144,293		177,580
Funds available for distribution		136,343		147,730		191,885
Per share data (fully diluted):
Net income available to common stockholders	$	1.39	$	1.15	$	1.31
Funds from operations		2.82		2.65		2.86
Funds available for distribution		2.62		2.71		3.09

Credit Strength.  We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to book capitalization, debt to gross assets and debt to market capitalization. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest plus preferred dividends and secured debt principal amortizations). 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

41

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:

	Year Ended
	December 31,			December 31,			December 31,
	2004			2005			2006
Debt to book capitalization ratio		47	%		51	%		53	%
Debt to market capitalization ratio		34	%		40	%		39	%
Interest coverage ratio		3.22	x		3.06	x		2.97x
Fixed charge coverage ratio		2.66	x		2.37	x		2.39x

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 an operator 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. The following table reflects our recent historical trends of concentration risk:

	December 31,			December 31,			December 31,
	2004			2005			2006
Asset mix:
Real property		90	%		93	%		95	%
Loans receivable		10	%		7	%		5	%
Investment mix:
Assisted living facilities		54	%		34	%		25	%
Skilled nursing facilities		39	%		44	%		34	%
Independent/CCRC(1)					15	%		13	%
Medical office buildings								22	%
Specialty care facilities		7	%		7	%		6	%
Customer mix:
Emeritus Corporation		15	%		13	%		9	%
Brookdale Senior Living Inc.								7	%
Home Quality Management, Inc.		7	%					6	%
Life Care Centers of America, Inc.					7	%		6	%
Merrill Gardens L.L.C.					7	%		4	%
Southern Assisted Living, Inc.(2)		8	%		7	%
Commonwealth Communities Holdings LLC		8	%		7	%
Delta Health Group, Inc.		7	%
Remaining portfolio		55	%		59	%		68	%
Geographic mix:
Florida		15	%		14	%		17	%
Texas		6	%		8	%		11	%
Massachusetts		14	%		13	%		8	%
California					7	%		7	%
Ohio		6	%					6	%
North Carolina		8	%		8	%
Remaining portfolio		51	%		50	%		51	%

42

(1)	As a result of our significant independent living/continuing care retirement community acquisitions in the fourth quarter of 2005, we began to separately disclose this property classification in our portfolio reporting. We adopted the National Investment Center definitions and reclassified certain of our existing facilities to this classification.
(2)	In September 2005, Alterra Healthcare Corporation, one of our tenants, became an indirect wholly-owned subsidiary of Brookdale Senior Living Inc. as a result of Brookdale’s merger with FEBC-ALT Investors LLC. In April 2006, Brookdale completed the acquisition of Southern Assisted Living, Inc.

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. Management regularly monitors various 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 “Item 1A — Risk Factors” above for further discussion.

Portfolio Update

Investment Properties

Payment coverages of the operators in our investment property portfolio continue to improve. Our overall payment coverage is at 1.93 times and represents an increase of one basis point from 2005 and 15 basis points from 2004. The following table reflects our recent historical trends of portfolio coverages. Coverage data reflects the 12 months ended for the periods presented. CBMF represents the ratio of facilities’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. CAMF represents the ratio of earnings before interest, taxes, depreciation, amortization, and rent (but after imputed management fees) to contractual rent or interest due us.

September 30, 2004

September 30, 2005

September 30, 2006

CBMF

CAMF

CBMF

CAMF

CBMF

CAMF

Independent living/CCRCs

1.43

x

1.21

x

1.41

x

1.21x

Assisted living facilities

1.45

x

1.23

x

1.52

x

1.30

x

1.54

x

1.33x

Skilled nursing facilities

2.11

x

1.62

x

2.18

x

1.61

x

2.17

x

1.55x

Specialty care facilities

2.69

x

2.08

x

3.36

x

2.77

x

2.88

x

2.34x

Weighted averages

1.78

x

1.44

x

1.92

x

1.53

x

1.93

x

1.50x

Operating Properties

Our consolidated financial results for the year ended December 31, 2006 include twelve days of revenues and expenses from operating properties due to the Windrose merger completed on December 20, 2006. The primary performance measure for our operating properties is net operating income (“NOI”) as discussed below in Non-GAAP Financial Measures. For the twelve days ended December 31, 2006, our operating properties generated $2,359,000 of net operating income which represents $3,474,000 of rental income less $1,115,000 of property operating expenses.

Corporate Governance

Maintaining investor confidence and trust has become increasingly important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. The Board of Directors adopted and annually reviews its Corporate Governance Guidelines. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on our Web site 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.

43

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, borrowings under unsecured lines of credit arrangements, 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 acquisitions, 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):

	Year Ended						One Year Change						Year Ended			One Year Change						Two Year Change
	Dec. 31, 2004			Dec. 31, 2005			$			%			Dec. 31, 2006			$			%			$			%
Cash and cash equivalents at beginning of period	$	124,496		$	19,763		$	(104,733	)		(84	)%	$	36,237		$	16,474			83	%	$	(88,259	)		(71	)%
Cash provided from (used in) operating activities		144,025			173,755			29,730			21	%		216,446			42,691			25	%		72,421			50	%
Cash provided from (used in) investing activities		(507,362	)		(449,069	)		58,293			(11	)%		(560,815	)		(111,746	)		25	%		(53,453	)		11	%
Cash provided from (used in) financing activities		258,604			291,788			33,184			13	%		344,348			52,560			18	%		85,744			33	%
Cash and cash equivalents at end of period	$	19,763		$	36,237		$	16,474			83	%	$	36,216		$	(21	)		0	%	$	16,453			83	%

Operating Activities.  The increases in net cash provided from operating activities are primarily attributable to increases in net income, excluding depreciation and amortization, stock-based compensation and net straight-line rental income. Net income and the provisions for depreciation and amortization increased primarily as a result of net new investments in properties owned by us. See the discussion of investing activities below for additional details. To the extent that we acquire or dispose of additional properties in the future, our net income and provisions for depreciation and amortization will change accordingly.

The following is a summary of our straight-line rent (dollars in thousands):

	Year Ended						One Year Change						Year Ended			One Year Change						Two Year Change
	Dec. 31, 2004			Dec. 31, 2005			$			%			Dec. 31, 2006			$			%			$			%
Gross straight-line rental income	$	21,936		$	13,142		$	(8,794	)		(40	)%	$	9,432		$	(3,710	)		(28	)%	$	(12,504	)		(57	)%
Cash receipts due to real property sales		(3,756	)		(9,384	)		(5,628	)		(150	)%		(3,544	)		5,840			(62	)%		212			(6	)%
Prepaid rent receipts		(4,388	)		(4,485	)		(97	)		2	%		(17,017	)		(12,532	)		279	%		(12,629	)		288	%
Rental income related to above/below markett leases														60			60			n/a			60			n/a
Cash receipts in excess of (less than) rental income	$	13,792		$	(727	)	$	(14,519	)		n/a		$	(11,069	)	$	(10,342	)		1,423	%	$	(24,861	)		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. 13Accounting for Leases (“SFAS 13”) for leases with fixed rental escalators, net of collectibility reserves, if any. 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 decrease in gross straight-line rental income is primarily due to annual increases in cash rent due on leases with fixed increases. The increase in non-recurring cash receipts is primarily attributable to cash received upon renegotiation of a lease in connection to the acquisition of Commonwealth Communities Holdings LLC by Kindred Healthcare, Inc. in February 2006.

44

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

	Year Ended
	December 31, 2004					December 31, 2005					December 31, 2006
	Facilities		Amount			Facilities		Amount			Facilities		Amount
Real property acquisitions:
Assisted living		22	$	179,940			4	$	47,660			8	$	77,600
Skilled nursing		52		338,951			45		262,084			18		148,955
Independent/CCRC							11		230,225			5		56,417
Specialty care							5		51,000
Land parcels														10,250
Total acquisitions		74		518,891			65		590,969			31		293,222
Less:
Assumed debt				(14,555	)				(22,309	)				(25,049	)
Preferred stock issuance
Cash disbursed for acquisitions				504,336					568,660					268,173
Additions to CIP				11,883					8,790					149,843
Capital improvements to existing properties				26,328					21,841					11,167
Total cash invested in real property				542,547					599,291					429,183
Real property dispositions:
Assisted living		4		20,271			15		90,485			12		58,479
Skilled nursing		2		6,076								3		7,827
Independent/CCRC												1		3,095
Specialty care		1		11,220
Land parcels									840					486
Proceeds from real property sales		7		37,567			15		91,325			16		69,887
Net cash investments in real property		67	$	504,980			50	$	507,966			15	$	359,296
Advances on loans receivable:
Investments in new loans			$	47,826				$	26,554				$	75,209
Draws on existing loans				14,062					13,833					11,781
Total investments in loans				61,888					40,387					86,990
Receipts on loans receivable:
Loan payoffs				38,450					82,379					65,002
Principal payments on loans				17,023					16,259					17,253
Total principal receipts on loans				55,473					98,638					82,255
Net cash advances/(receipts) on loans receivable			$	6,415				$	(58,251	)			$	4,735

The investment in Windrose primarily represents $183,139,000 of cash provided to Windrose to extinguish secured debt and cash used to pay advisory fees, lender consents and other merger-related costs totaling $15,301,000. These cash uses have been offset by $15,591,000 of cash assumed from Windrose on the merger effective date.

45

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, common stock issuances, preferred stock issuances and cash distributions to stockholders.

The following is a summary of our senior unsecured note issuances (dollars in thousands):

Date Issued	Maturity Date	Interest Rate			Face Amount		Net Proceeds
September 2004	November 2013		6.000	%	$	50,000	$	50,708
April 2005	May 2015		5.875	%	$	250,000	$	246,859
November 2005	June 2016		6.200	%		300,000		297,194
2005 Totals					$	550,000	$	544,053
November 2006	December 2006		4.750	%	$	345,000	$	337,517

We repaid $40,000,000 of 8.0% senior unsecured notes upon maturity in April 2004. In May 2005, we redeemed all of our outstanding $50,000,000 8.17% senior unsecured notes due March 2006, we completed a public tender offer for $57,670,000 of our outstanding $100,000,000 7.625% senior unsecured notes due March 2008, and we redeemed $122,500,000 of our outstanding $175,000,000 7.5% senior unsecured notes due August 2007. The increase in principal payments on secured debt during 2005 is primarily due to early extinguishments of outstanding mortgages. During the year ended December 31, 2005, we paid off mortgages with outstanding balances of $72,309,000 and average interest rates of 7.481%.

The change in common stock is primarily attributable to public and private issuances and common stock issuances related to our dividend reinvestment and stock purchase plan (“DRIP”). The remaining difference in common stock issuances is primarily due to issuances pursuant to stock incentive plans.

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

Date Issued	Shares Issued		Issue Price		Gross Proceeds		Net Proceeds
2004 DRIP		1,532,819	$	33.65	$	51,575	$	51,575
November 2005		3,000,000	$	34.15	$	102,450	$	100,977
2005 DRIP		1,546,959	$	34.59		53,505		53,505
		4,546,959			$	155,955	$	154,482
April 2006		3,222,800	$	36.00	$	116,021	$	109,748
2006 DRIP		1,876,377	$	36.34		68,184		68,184
		5,099,177			$	184,205	$	177,932

In September 2004, we closed on a public offering of 7,000,000 shares of 7.625% Series F Cumulative Redeemable Preferred Stock, which generated net proceeds of approximately $169,107,000. The proceeds were used to repay borrowings under our unsecured lines of credit arrangements and to invest in additional properties.

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 increases in dividends are primarily attributable to increases in outstanding common and preferred stock shares as discussed above and increases in our annual common stock dividend per share and the payment of a prorated dividend of $0.3409 in December 2006 in conjunction with the Windrose merger.

46

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

	Year Ended
	December 31, 2004				December 31, 2005				December 31, 2006
	Per Share		Amount		Per Share		Amount		Per Share		Amount
Common Stock	$	2.385	$	122,987	$	2.46	$	132,548	$	2.8809	$	178,365
Series D Preferred Stock		1.97		7,875		1.97		7,875		1.97		7,875
Series E Preferred Stock		1.50		933		1.50		375		1.50		112
Series F Preferred Stock		1.50		3,929		1.91		13,344		1.91		13,344
Series G Preferred Stock										0.0625		132
Totals			$	135,724			$	154,142			$	199,828

Off-Balance Sheet Arrangements

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 under the letter of credit matures in 2009. At December 31, 2006, our obligation under the letter of credit was $2,450,000.

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. As of December 31, 2006, we participated in two interest rate swap agreements related to our long-term debt. Our interest rate swaps are discussed below in “Contractual Obligations.”

We have a $52,215,000 liability to a subsidiary trust issuing trust preferred securities that was assumed in the Windrose merger. On March 24, 2006, Windrose’s wholly-owned subsidiary, Windrose Capital Trust I (the “Trust”), completed the issuance and sale in a private placement of $50,000,000 in aggregate principal amount of fixed/floating rate preferred securities. The trust preferred securities mature on March 30, 2036, are redeemable at our option beginning March 30, 2011, and require quarterly distributions of interest to the holders of the trust preferred securities. The trust preferred securities bear a fixed rate per annum equal to 7.22% through March 30, 2011, and a variable rate per annum equal to LIBOR plus 2.05% thereafter.

The common stock of the Trust was purchased by an operating partnership of Windrose for $1,000,000. The Trust used the proceeds from the sale of the trust preferred securities together with the proceeds from the sale of the common stock to purchase $51,000,000 in aggregate principal amount of unsecured fixed/floating junior subordinated notes due March 30, 2036 issued by an operating partnership. The operating partnership received approximately $49,000,000 in net proceeds, after the payment of fees and expenses, from the sale of the junior subordinated notes to the Trust. In accordance with FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, we have not consolidated the trust because the operating partnership is not considered the primary beneficiary.

47

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of December 31, 2006 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		2007		2008-2009		2010-2011		Thereafter
Unsecured lines of credit arrangements(1)	$	740,000	$	40,000	$	700,000	$	0	$	0
Senior unsecured notes		1,539,830		52,500		42,330		0		1,445,000
Secured debt		378,400		19,199		85,176		62,013		212,012
Trust preferred liability		51,000		0		0		0		51,000
Contractual interest obligations		1,114,788		143,201		254,340		219,379		497,868
Capital lease obligations		0		0		0		0		0
Operating lease obligations		37,378		2,756		4,664		4,005		25,953
Purchase obligations		375,036		80,907		245,924		48,205		0
Other long-term liabilities		0		0		0		0		0
Total contractual obligations	$	4,236,432	$	338,563	$	1,332,434	$	333,602	$	2,231,833

(1) Unsecured lines of credit arrangements reflected at 100% capacity.

We have an unsecured credit arrangement with a consortium of twelve banks providing for a revolving line of credit (“revolving credit facility”) in the amount of $700,000,000, which expires on July 26, 2009 (with the ability to extend for one year at our discretion if we are in compliance with all covenants). The agreement specifies that borrowings under the revolving credit facility 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 (6.275% at December 31, 2006). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.9% at December 31, 2006. In addition, we pay a facility fee annually to each bank based on the bank’s commitment under the revolving credit facility. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.015% at December 31, 2006. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. We have another unsecured line of credit arrangement with a bank for a total of $40,000,000, which expires May 31, 2007. Borrowings under this line of credit are subject to interest at either the bank’s prime rate of interest (8.25% at December 31, 2006) or 0.9% over LIBOR interest rate, at our option. Principal is due upon expiration of the agreement. At December 31, 2006, we had $225,000,000 outstanding under the unsecured lines of credit arrangements and estimated total contractual interest obligations of $35,196,000. Contractual interest obligations are estimated based on the assumption that the balance of $225,000,000 at December 31, 2006 is constant until maturity at interest rates in effect at December 31, 2006.

We have $1,539,830,000 of senior unsecured notes principal outstanding with fixed annual interest rates ranging from 4.75% to 8.0%, payable semi-annually. Total contractual interest obligations on senior unsecured notes totaled $890,675,000 at December 31, 2006. Additionally, we have 63 mortgage loans totaling with total outstanding principal of $378,400,000, collateralized by owned properties, with annual interest rates ranging from 4.89% to 8.5%, payable monthly. The carrying values of the properties securing the mortgage loans totaled $559,513,000 at December 31, 2006. Total contractual interest obligations on mortgage loans totaled $146,427,000 at December 31, 2006.

On May 6, 2004, we entered into two interest rate swap agreements (the “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 Swaps are treated as fair-value hedges for accounting purposes and we utilize the short-cut method in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The Swaps are with highly rated counterparties in which we receive a fixed rate of 6% and pay a variable rate based on six-month

48

LIBOR plus a spread. At December 31, 2006, total contractual interest obligations were estimated to be $42,490,000 at interest rates in effect at that time.

At December 31, 2006, we had operating lease obligations of $37,378,000 relating to our ground leases at certain of our properties and office space leases.

Purchase obligations are comprised of unfunded construction commitments and contingent purchase obligations. At December 31, 2006, we had outstanding construction financings of $138,222,000 for leased properties and were committed to providing additional financing of approximately $342,754,000 to complete construction. At December 31, 2006, we had contingent purchase obligations totaling $32,282,000. 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.

Capital Structure

As of December 31, 2006, we had stockholders’ equity of $1,978,793,000 and a total outstanding debt balance of $2,198,001,000, which represents a debt to total book capitalization ratio of 53%. Our ratio of debt to market capitalization was 39% at December 31, 2006. For the year ended December 31, 2006, our coverage ratio of EBITDA to interest was 2.97 to 1.00. For the year ended December 31, 2006, our coverage ratio of EBITDA to fixed charges was 2.39 to 1.00. Also, at December 31, 2006, we had $36,216,000 of cash and cash equivalents and $515,000,000 of available borrowing capacity under our unsecured lines of credit arrangements.

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 December 31, 2006, we were in compliance with all of the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration that could be triggered by our debt ratings. However, under our unsecured lines of credit arrangements, the ratings on our senior unsecured notes are used to determine the fees and interest payable.

Our senior unsecured notes are rated Baa3 (ratings watch positive), BBB- (stable) and BBB- (positive) 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 commensurate 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, liquidityand/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. Also, as of February  16, 2007, we had an effective registration statement on file in connection with our enhanced DRIP program under which we may issue up to 6,314,213 shares of common stock. As of February 16, 2007, 1,101,020 shares of common stock remained available for issuance under this registration statement. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured lines of credit arrangements.

Results of Operations

	Year Ended				One Year Change						Year Ended		One Year Change					Two Year Change
	Dec. 31, 2004		Dec. 31, 2005		$			%			Dec. 31, 2006		$		%			$		%
Net income available to common stockholders	$	72,634	$	62,692	$	(9,942	)		(14	)%	$	81,287	$	18,595		30	%	$	8,653		12	%
Funds from operations		146,742		144,293		(2,449	)		(2	)%		177,580		33,287		23	%		30,838		21	%
Funds available for distribution		136,343		147,730		11,387			8	%		191,885		44,155		30	%		55,542		41	%
EBITDA		236,231		254,731		18,500			8	%		300,485		45,754		18	%		64,254		27	%

49

The components of the changes in revenues, expenses and other items are discussed in detail below. The following is a summary of certain items that impact the results of operations for the year ended December 31, 2006:

•  $5,213,000 ($0.08 per diluted share) of merger-related expenses;

•  $1,287,000 ($0.02 per diluted share) of additional compensation costs related to accelerated vesting requirements of certain stock-based compensation awards;

•  $1,267,000 ($0.02 per diluted share) of gains on the sales of real property; and

•  $20,561,000 ($0.33 per diluted share) prepaid/straight-line rent cash receipts for FAD only.

The following is a summary of certain items that impact the results of operations for the year ended December 31, 2005:

•  $20,662,000 ($0.38 per diluted share) of net losses on extinguishments of debt;

•  $4,523,000 ($0.08 per diluted share) of additional interest income related to the payoffs of loans that were either on non-accrual or partial accrual and all contractual interest due was received from the borrowers;

•  $3,227,000 ($0.06 per diluted share) of gains on the sales of real property; and

•  $13,869,000 ($0.25 per diluted share) prepaid/straight-line rent cash receipts for FAD only.

The following is a summary of certain items that impact the results of operations for the year ended December 31, 2004:

•  $314,000 ($0.01 per diluted share) of impairment charges;

•  $143,000 ($0.00 per diluted share) of losses on the sales of real property; and

•  $8,144,000 ($0.16 per diluted share) prepaid/straight-line rent cash receipts for FAD only.

The increase in fully diluted average common shares outstanding is primarily the result of the Windrose merger, public and private common stock offerings and common stock issuances pursuant to our DRIP. The following table represents the changes in outstanding common stock for the period from January 1, 2004 to December 31, 2006 (in thousands):

	Year Ended
	Dec. 31,		Dec. 31,		Dec. 31,
	2004		2005		2006		Totals
Beginning balance		50,361		52,925		58,125		50,361
Windrose merger						9,679		9,679
Public/private offerings				3,000		3,223		6,223
DRIP issuances		1,533		1,547		1,877		4,957
Preferred stock conversions		369		210				579
Other issuances		662		443		288		1,393
Ending balance		52,925		58,125		73,192		73,192
Average number of common shares outstanding:
Basic		51,544		54,110		61,661
Diluted		52,082		54,449		62,045

50

Revenues were comprised of the following (dollars in thousands):

	Year Ended				One Year Change						Year Ended		One Year Change						Two Year Change
	Dec. 31, 2004		Dec. 31, 2005		$			%			Dec. 31, 2006		$			%			$			%
Rental income	$	205,182	$	244,997	$	39,815			19	%	$	300,071	$	55,074			22	%	$	94,889			46	%
Interest income		22,818		23,993		1,175			5	%		18,829		(5,164	)		(22	)%		(3,989	)		(17	)%
Other income		2,432		4,548		2,116			87	%		3,924		(624	)		(14	)%		1,492			61	%
Prepayment fees		50				(50	)		n/a								n/a			(50	)		(100	)%
Totals	$	230,482	$	273,538	$	43,056			19	%	$	322,824	$	49,286			18	%	$	92,342			40	%

The increase in gross revenues is primarily attributable to increased rental income resulting from the acquisitions of new properties from which we receive rent. See the discussion of investing activities in “Liquidity and Capital Resources” above for further information. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Indexand/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. While this change does not affect our cash flow or our ability to pay dividends, it is anticipated that we will generate additional organic growth and minimize non-cash straight-line rent over time. If gross operating revenues at our facilitiesand/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 decreased in 2006 primarily due to recognition of additional interest income of approximately $4,523,000 in 2005. The additional interest income related to the payoffs of loans that were either on non-accrual or partial accrual and all contractual interest was received from the borrowers. The decrease from 2004 to 2006 is primarily due to the decrease in outstanding loans receivable from $258,734,000 at December 31, 2003 to $194,448,000 at December 31, 2006.

Expenses were comprised of the following (dollars in thousands):

	Year Ended				One Year Change						Year Ended		One Year Change						Two Year Change
	Dec. 31, 2004		Dec. 31, 2005		$			%			Dec. 31, 2006		$			%			$			%
Interest expense	$	65,888	$	77,319	$	11,431			17	%	$	94,802	$	17,483			23	%	$	28,914			44	%
Property operating expenses												1,115		1,115			n/a			1,115			n/a
Depreciation and amortization		61,681		74,816		13,135			21	%		93,131		18,315			24	%		31,450			51	%
General and administrative		15,798		16,163		365			2	%		26,004		9,841			61	%		10,206			65	%
Loan expense		3,393		2,710		(683	)		(20	)%		3,255		545			20	%		(138	)		(4	)%
Impairment of assets		314				(314	)		n/a								n/a			(314	)		(100	)%
Loss on extinguishment of debt				21,484		21,484			100	%				(21,484	)		(100	)%					n/a
Provision for loan losses		1,200		1,200		0			0	%		1,000		(200	)		(17	)%		(200	)		(17	)%
Totals	$	148,274	$	193,692	$	45,418			31	%	$	219,307	$	25,615			13	%	$	71,033			48	%

The increase in total expenses is primarily attributable to increases in interest expense and the provisions for depreciation and amortization offset by the recognition of losses on extinguishment of debt in 2005. The increases in interest expense are primarily due to higher average borrowings and changes in the amount of capitalized interest offsetting interest expense. If we borrow under our unsecured lines of credit arrangements, issue additional senior unsecured notes or assume additional secured debt, our interest expense will increase.

51

The following is a summary of our interest expense (dollars in thousands):

	Year Ended						One Year Change					Year Ended			One Year Change						Two Year Change
	Dec. 31, 2004			Dec. 31, 2005			$		%			Dec. 31, 2006			$			%			$			%
Senior unsecured notes	$	61,216		$	63,080		$	1,864		3	%	$	80,069		$	16,989			27	%	$	18,853			31	%
Secured debt		11,069			11,769			700		6	%		9,641			(2,128	)		(18	)%		(1,428	)		(13	)%
Unsecured lines of credit		2,916			9,412			6,496		223	%		11,398			1,986			21	%		8,482			291	%
Capitalized interest		(875	)		(665	)		210		(24	)%		(4,470	)		(3,805	)		572	%		(3,595	)		411	%
SWAP losses (savings)		(1,770	)		(972	)		798		(45	)%		197			1,169			n/a			1,967			n/a
Discontinued operations		(6,668	)		(5,305	)		1,363		(20	)%		(2,033	)		3,272			(62	)%		4,635			(70	)%
Totals	$	65,888		$	77,319		$	11,431		17	%	$	94,802		$	17,483			23	%	$	28,914			44	%

The change in interest expense on senior unsecured notes is due to the net effect and timing of issuances and extinguishments. See the discussion of financing activities in “Liquidity and Capital Resources” above for further information.

The following is a summary of our senior unsecured notes activity (dollars in thousands):

	Year Ended December 31, 2004						Year Ended December 31, 2005						Year Ended December 31, 2006
				Weighted Average						Weighted Average					Weighted Average
	Amount			Interest Rate			Amount			Interest Rate			Amount		Interest Rate
Beginning balance	$	865,000			7.291	%	$	875,000			7.181	%	$	1,194,830		6.566	%
Debt issued		50,000			6.000	%		550,000			6.052	%		345,000		4.750	%
Debt extinguished		(40,000	)		8.090	%		(230,170	)		7.677	%
Ending balance	$	875,000			7.181	%	$	1,194,830			6.566	%	$	1,539,830		6.159	%
Monthly averages	$	852,692			7.242	%	$	961,469			6.829	%	$	1,244,445		6.494	%

The change in interest expense on secured debt is due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our secured debt activity (dollars in thousands):

	Year Ended December 31, 2004						Year Ended December 31, 2005						Year Ended December 31, 2006
				Weighted Average						Weighted Average						Weighted Average
	Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	148,184			7.512	%	$	160,225			7.508	%	$	107,540			7.328	%
Debt assumed		14,555			7.500	%		22,309			6.561	%		273,893			6.053	%
Debt extinguished								(72,309	)		7.481	%
Principal payments		(2,514	)		7.709	%		(2,685	)		7.584	%		(3,033	)		7.226	%
Ending balance	$	160,225			7.508	%	$	107,540			7.328	%	$	378,400			6.406	%
Monthly averages	$	148,141			7.510	%	$	156,027			7.452	%	$	144,512			7.021	%

The change in interest expense on unsecured lines of credit arrangements is due primarily to higher average interest rates. The following is a summary of our unsecured lines of credit arrangements (dollars in thousands):

	Year Ended December 31
	2004			2005			2006
Balance outstanding at December 31	$	151,000		$	195,000		$	225,000
Maximum amount outstanding at any month end		159,000			318,000			276,000
Average amount outstanding (total of daily principal balances divided by days in year)		54,770			181,232			164,905
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		5.32	%		5.19	%		6.91	%

52

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 borrowings 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. Capitalized interest for the years ended December 31, 2004, 2005 and 2006 totaled $875,000, $665,000 and $4,470,000, respectively.

On May 6, 2004, we entered into two interest rate swap agreements (the “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. We receive a fixed rate of 6.0% and pay a variable rate based on six-month LIBOR plus a spread. For the year ended December 31, 2006, we incurred $197,000 of losses related to our Swaps that was recorded as an addition to interest expense. For the years ended December 31, 2005, and 2004, we generated $972,000 and $1,770,000, respectively, of savings related to our Swaps that was recorded as a reduction of interest expense.

Property operating expenses represent 12 days of expenses in 2006 related to Windrose’s operating properties acquired on December 20, 2006. These expenses include ground leases, property taxes and other expenses not reimbursed by tenants.

Depreciation and amortization increased primarily as a result of additional investments in properties owned directly by us. See the discussion of investing activities in “Liquidity and Capital Resources” above for further information. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation will change accordingly.

General and administrative expenses as a percentage of revenues (including discontinued operations) for the year ended December 31, 2006, were 8.27% as compared with 5.89% and 6.54% for the same periods in 2005 and 2004, respectively. The 2006 increase is directly attributable to $5,213,000 of merger related expenses and $1,287,000 of accelerated stock-based compensation expenses. The change from 2004 to 2005 is due to increased costs to attract and retain appropriate personnel to achieve our business objectives offset by a decrease in professional service fees and other operating costs as a result of focused expense control.

The change in loan expense was primarily due to increased costs in 2006 related to amending our primary unsecured line of credit arrangement and costs related to the issuance of senior unsecured notes.

During the year ended December 31, 2004, it was determined that the projected undiscounted cash flows from one of our properties did not exceed its related net book value and an impairment charge of $314,000 was recorded to reduce the property to its estimated fair market value. The estimated fair market value of the property was determined by an independent appraisal. We did not record any impairment charges for the years ended December 31, 2005 or December 31, 2006.

The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed below in “Critical Accounting Policies.”

Other items were comprised of the following (dollars in thousands):

	Year Ended						One Year Change						Year Ended			One Year Change						Two Year Change
	Dec. 31, 2004			Dec. 31, 2005			$			%			Dec. 31, 2006			$			%			$			%
Minority interests													$	(13	)	$	(13	)		n/a		$	(13	)		n/a
Gain (loss) on sales of properties		(143	)		3,227			3,370			n/a			1,267			(1,960	)		(61	)%		1,410			n/a
Discontinued operations, net		3,306			1,213			(2,093	)		(63	)%		(2,021	)		(3,234	)		n/a			(5,327	)		n/a
Preferred dividends		(12,737	)		(21,594	)		(8,857	)		70	%		(21,463	)		131			(1	)%		(8,726	)		69	%
Totals	$	(9,574	)	$	(17,154	)	$	(7,580	)		44	%	$	(22,230	)	$	(5,076	)		30	%	$	(12,656	)		132	%

Three assisted living facilities were held for sale at December 31, 2006 and were sold subsequent to year-end. During the years ended December 31, 2004, 2005 and 2006, we sold properties with carrying values of $37,710,000, $88,098,000 and $75,989,000 for net losses of $143,000 and net gains of $3,227,000 and $1,267,000, respectively.

53

In accordance with Statement of Financial Accounting Standards No. 144, we have reclassified the income and expenses attributable to the properties sold subsequent to January 1, 2002 and attributable to assets held for sale at December 31, 2006 to discontinued operations. These properties generated $3,306,000 and $1,213,000 of income after deducting depreciation and interest expense from rental revenue for the years ended December 31, 2004 and 2005, respectively and a loss of $2,021,000 for the year ended December 31, 2006. Please refer to Note 16 of our audited consolidated financial statements for further discussion.

The increase in preferred dividends is primarily due to the increase in average outstanding preferred shares. The following is a summary of our preferred stock activity:

	Year Ended December 31, 2004						Year Ended December 31, 2005						Year Ended December 31, 2006
				Weighted Average						Weighted Average					Weighted Average
	Shares			Dividend Rate			Shares			Dividend Rate			Shares		Dividend Rate
Beginning balance		4,830,444			7.553	%		11,350,045			7.663	%		11,074,989		7.704	%
Shares issued		7,000,000			7.625	%								2,100,000		7.500	%
Shares redeemed
Shares converted		(480,399	)		6.000	%		(275,056	)		6.000	%
Ending balance		11,350,045			7.663	%		11,074,989			7.704	%		13,174,989		7.672	%
Monthly averages		6,786,481			7.621	%		11,245,073			7.679	%		11,236,527		7.701	%

In conjunction with the acquisition of Windrose Medical Properties Trust in December 2006, we issued 2,100,000 shares of 7.5% Series G Cumulative Convertible Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after June 30, 2010. Each Series G Preferred Share is convertible by the holder into our common stock at a conversion price of $34.93, equivalent to a conversion rate of 0.7157 common shares per Series G Preferred Share. These shares were recorded at $29.58 per share, which was deemed to be the fair value at the date of issuance.

Non-GAAP Financial Measures

We believe that net income available to common stockholders, as defined by U.S. GAAP, is the most appropriate earnings measurement. However, we consider FFO and FAD to be useful supplemental measures 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. FAD represents FFO excluding the net straight-line rental adjustments, rental income related to above/below market leases and amortization of deferred loan expenses and less cash used to fund capital expenditures, tenant improvements and lease commissions.

In April 2002, the Financial Accounting Standards Board issued Statement No. 145 that requires gains and losses on extinguishment of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement No. 4. We adopted the standard effective January 1, 2003 and have properly reflected the $21,484,000, or $0.39 per diluted share, of losses on extinguishment of debt for the year ended December 31, 2005. These charges have not been added back for the calculations of FFO, FAD or EBITDA.

In October 2003, NAREIT informed its member companies that the SEC had changed its position on certain aspects of the NAREIT FFO definition, including impairment charges. Previously, the SEC accepted NAREIT’s view that impairment charges were effectively an early recognition of an expected loss on an impending sale of

54

property and thus should be added back to net income in the calculation of FFO and FAD similar to other gains and losses on sales. However, the SEC’s clarified interpretation is that recurring impairments taken on real property may not be added back to net income in the calculation of FFO and FAD. We have adopted this interpretation and have not added back impairment charges of $314,000, or $0.01 per diluted share, recorded for the year ended December 31, 2004.

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. Additionally, restrictive covenants in our long-term debt arrangements contain financial ratios based on EBITDA. 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.

FFO, FAD and EBITDA are financial measures that 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, FFO and FAD are utilized by the Board of Directors to evaluate management. FFO, FAD and EBITDA do not 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, FFO, FAD and EBITDA, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

Net operating income (“NOI”) is used to evaluate the operating performance of certain real estate properties such as medical office buildings. We define NOI as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments, interest expense and discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of our medical office buildings 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 medical office buildings.

The table below reflects the reconciliation of FFO to net income available to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. The provisions for depreciation and amortization includes provisions for depreciation and amortization from discontinued operations. Amounts are in thousands except for per share data.

55

	Year Ended
	December 31,			December 31,			December 31,
	2004			2005			2006
FFO Reconciliation:
Net income available to common stockholders	$	72,634		$	62,692		$	81,287
Depreciation and amortization		74,015			84,828			97,564
Loss (gain) on sales of properties		143			(3,227	)		(1,267	)
Minority interests								(4	)
Prepayment fees		(50	)
Funds from operations	$	146,742		$	144,293		$	177,580
Average common shares outstanding:
Basic		51,544			54,110			61,661
Diluted		52,082			54,499			62,045
Per share data:
Net income available to common stockholders
Basic	$	1.41		$	1.16		$	1.32
Diluted		1.39			1.15			1.31
Funds from operations
Basic	$	2.85		$	2.67		$	2.88
Diluted		2.82			2.65			2.86

56

The table below reflects the reconciliation of FAD to net income available to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. The provisions for depreciation and amortization includes provisions for depreciation and amortization from discontinued operations. Amounts are in thousands except for per share data.

	Year Ended
	December 31,			December 31,			December 31,
	2004			2005			2006
FAD Reconciliation:
Net income available to common stockholders	$	72,634		$	62,692		$	81,287
Depreciation and amortization		74,015			84,828			97,564
Loss (gain) on sales of properties		143			(3,227	)		(1,267	)
Prepayment fees		(50	)
Gross straight-line rental income		(21,936	)		(13,142	)		(9,432	)
Prepaid/straight-line rent receipts		8,144			13,869			20,561
Rental income related to above/(below) market leases, net								(60	)
Amortization of deferred loan expenses		3,393			2,710			3,255
Cap Ex, tenant improvements, lease commissions								(21	)
Minority interests								(2	)
Funds available for distribution	$	136,343		$	147,730		$	191,885
Average common shares outstanding:
Basic		51,544			54,110			61,661
Diluted		52,082			54,499			62,045
Per share data:
Net income available to common stockholders
Basic	$	1.41		$	1.16		$	1.32
Diluted		1.39			1.15			1.31
Funds available for distribution
Basic	$	2.65		$	2.73		$	3.11
Diluted		2.62			2.71			3.09

57

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 includes discontinued operations. Tax expense represents income-based taxes. Amortization represents the amortization of deferred loan expenses. Adjusted EBITDA represents EBITDA as adjusted below for items pursuant to covenant provisions of our unsecured lines of credit arrangements. Dollars are in thousands.

	Year Ended
	December 31,			December 31,			December 31,
	2004			2005			2006
EBITDA Reconciliation:
Net income	$	85,371		$	84,286		$	102,750
Interest expense		72,556			82,625			96,834
Tax expense(benefit)		42			282			82
Depreciation and amortization		74,015			84,828			97,564
Amortization of deferred loan expenses		4,247			2,710			3,255
EBITDA		236,231			254,731			300,485
Stock-based compensation expense		2,887			2,948			6,980
Provision for loan losses		1,200			1,200			1,000
Loss on extinguishment of debt, net					20,662
EBITDA - adjusted	$	240,318		$	279,541		$	308,465
Interest Coverage Ratio:
Interest expense	$	72,556		$	82,625		$	96,834
Capitalized interest		875			665			4,470
Total interest		73,431			83,290			101,304
EBITDA	$	236,231		$	254,731		$	300,485
Interest coverage ratio		3.22	x		3.06	x		2.97	x
EBITDA - adjusted	$	240,318		$	279,541		$	308,465
Interest coverage ratio - adjusted		3.27	x		3.36	x		3.04	x
Fixed Charge Coverage Ratio:
Total interest	$	73,431		$	83,290		$	101,304
Secured debt principal amortization		2,514			2,685			3,033
Preferred dividends		12,737			21,594			21,463
Total fixed charges		88,682			107,569			125,800
EBITDA	$	236,231		$	254,731		$	300,485
Fixed charge coverage ratio		2.66	x		2.37	x		2.39	x
EBITDA - adjusted	$	240,318		$	279,541		$	308,465
Fixed charge coverage ratio - adjusted		2.71	x		2.60	x		2.45	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.

58

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, liquidityand/or financial condition. Please refer to Note 1 of our audited consolidated financial statements for further information on significant accounting policies that impact us. There were no material changes to these policies in 2006.

We adopted the fair value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in FASB Statement No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Because Statement 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date of Statement 123(R), and because we adopted Statement 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date of Statement 123), compensation cost for some previously granted awards that were not recognized under Statement 123 has been recognized under Statement 123(R). Additionally, we amortize compensation cost for share based payments to the date that the awards become fully vested or to the expected retirement date, if sooner. Effective with the adoption of Statement 123(R) we began recognizing compensation cost to the date the awards become fully vested or to the retirement eligible date, if sooner. Had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share to our audited consolidated financial statements. The adoption of Statement 123(R) increased compensation cost by approximately $1,287,000 for 2006 as a result of amortizing share based awards to the retirement eligible date.

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/
Accounting Estimate	Approach 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 or other collateral. For the year ended December 31, 2006 we recorded $1,000,000 as provision for loan losses, resulting in an allowance for loan losses of $7,406,000 relating to loans with outstanding balances of $78,113,000 at December 31, 2006. At December 31, 2006, we had loans with outstanding balances of $10,529,000 on non- accrual status.
Depreciation and Amortization and Useful Lives
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, Business Combinations. The allocation of the acquisition costs of properties is based on appraisals commissioned from independent real estate appraisal firms.	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, five to 15 years for improvements and five years for intangibles. For the year ended December 31, 2006, we recorded $79,284,000, $17,955,000 and $325,000 as provisions for depreciation and amortization relating to buildings, improvements and intangibles, respectively, including amounts reclassified as discontinued

59

Nature of Critical	Assumptions/
Accounting Estimate	Approach Used
	operations. The average useful life of our buildings and improvements was 32.1 years and 11.5 years, respectively, at December 31, 2006. The amortization of lease intangibles represents 12 days of amortization expenses due to the Windrose merger on December 20, 2006.
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 year ended December 31, 2006.
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 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 which may change in the future. At December 31, 2006, we participated in two interest rate swap agreements related to our long-term debt. At December 31, 2006, the swaps were reported at their fair value as a $902,000 other asset. For the year ended December 31, 2006, we incurred $197,000 of losses related to our swaps that was recorded as an addition to interest expense.
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 either fixed or contingent escalating rent structure. Leases with fixed annual rental escalators are generally recognized on a straight- line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period.	We 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 year ended December 31, 2006 we recognized $18,829,000 of interest income and $305,635,000 of rental income, including discontinued operations. Cash receipts on leases with deferred revenue provisions were $20,561,000 as compared to gross straight-line rental income recognized of $9,432,000. At December 31, 2006, our straight-line receivable balance was $53,281,000, net of reserves totaling $5,902,000. Also at December 31, 2006, we had loans with outstanding balances of $10,529,000 on non-accrual status.

Impact of Inflation

During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, our earnings are primarily long-term investments with fixed rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes and borrowings under our

60

unsecured lines of credit arrangements. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to fund our fixed rate investments with long-term fixed rate debt and equity, 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. The following section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates.

We historically borrow on our unsecured lines of credit arrangements 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 lines of credit arrangements.

A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. At December 31, 2006, we had $1,539,830,000 of outstanding principal balances related to our senior unsecured notes. A 1% increase in interest rates would result in a decrease in fair value of our senior unsecured notes by approximately $71,108,000 at December 31, 2006. At December 31, 2005, we had $1,194,830,000 of outstanding principal balances related to our senior unsecured notes. A 1% increase in interest rates would result in a decrease in fair value of our senior unsecured notes by approximately $36,770,000 at December 31, 2005. At December 31, 2006, we had $363,848,000 of outstanding principal balances related to our fixed rate secured debt. A 1% increase in interest rates would result in a decrease in fair value of our fixed rate secured debt by approximately $17,214,000 at December 31, 2006. At December 31, 2005, we had $107,540,000 of outstanding principal balances related to our fixed rate secured debt. A 1% increase in interest rates would result in a decrease in fair value of our fixed rate secured debt by approximately $3,962,000 at December 31, 2005. At December 31, 2006, we had $51,000,000 of outstanding principal balances related to our liability to a subsidiary trust issuing preferred securities. A 1% increase in interest rates would result in a decrease in fair value of this liability by approximately $1,891,000 at December 31, 2006. 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.

On May 6, 2004, we entered into two interest rate swap agreements (the “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 Swaps are treated as fair-value hedges for accounting purposes and we utilize the short-cut method in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The Swaps are with highly rated counterparties in which we receive a fixed rate of 6.0% and pay a variable rate based on six-month LIBOR plus a spread. At December 31, 2006 and 2005, the Swaps were reported at their fair values as a $902,000 and $2,211,000 other asset, respectively. A 1% increase in interest rates would result in a decrease in fair value of our Swaps by approximately $4,659,000 and $6,435,000 at December 31, 2006 and 2005.

Our variable rate debt, including our unsecured lines of credit arrangements and one mortgage loan, is reflected at fair value. At December 31, 2006, we had $239,552,000 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 $2,396,000. At December 31, 2005, we had $195,000,000 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 $1,950,000.

61

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

For additional information regarding fair values of financial instruments, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Note 15 to our audited consolidated financial statements.

Item 8.   Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Directors

Health Care REIT, Inc.

We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedules listed in Item 15(a)(2) of thisForm 10-K. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health Care REIT, Inc. at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 9 to the consolidated financial statements, effective January 1, 2006, the Company changed its method of accounting for stock-based compensation to conform to Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.”

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Toledo, Ohio

February 28, 2007

62

HEALTH CARE REIT, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	(In thousands)
ASSETS
Real estate investments:
Real property owned
Land and land improvements	$	386,693		$	261,236
Buildings & improvements		3,659,065			2,659,746
Acquired lease intangibles		84,082			0
Real property held for sale, net of accumulated depreciation		14,796			11,912
Construction in progress		138,222			3,906
		4,282,858			2,936,800
Less accumulated depreciation and amortization		(347,007	)		(274,875	)
Total real property owned		3,935,851			2,661,925
Loans receivable		194,448			194,054
Less allowance for losses on loans receivable		(7,406	)		(6,461	)
		187,042			187,593
Net real estate investments		4,122,893			2,849,518
Other assets:
Equity investments		4,700			2,970
Deferred loan expenses		20,657			12,228
Cash and cash equivalents		36,216			36,237
Receivables and other assets		96,144			71,211
		157,717			122,646
Total assets	$	4,280,610		$	2,972,164
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Borrowings under unsecured lines of credit arrangements	$	225,000		$	195,000
Senior unsecured notes		1,541,814			1,198,278
Secured debt		378,972			107,540
Liability to subsidiary trust issuing preferred securities		52,215			0
Accrued expenses and other liabilities		101,588			40,590
Total liabilities		2,299,589			1,541,408
Minority interests		2,228			0
Stockholders’ equity:
Preferred stock, $1.00 par value:		338,993			276,875
Authorized — 25,000,000 shares
Issued and outstanding — 13,174,989 in 2006 and 11,074,989 shares in 2005 at liquidation preference
Common stock, $1.00 par value:		73,152			58,050
Authorized — 125,000,000 shares
Issued — 73,272,052 shares in 2006 and 58,182,592 shares in 2005
Outstanding — 73,192,128 shares in 2006 and 58,124,657 shares in 2005
Capital in excess of par value		1,873,811			1,306,471
Treasury stock		(2,866	)		(2,054	)
Cumulative net income		932,853			830,103
Cumulative dividends		(1,238,860	)		(1,039,032	)
Accumulated other comprehensive loss		(135	)		0
Other equity		1,845			343
Total stockholders’ equity		1,978,793			1,430,756
Total liabilities and stockholders’ equity	$	4,280,610		$	2,972,164

See accompanying notes

63

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended December 31,
	2006			2005		2004
	(In thousands, except per share data)
Revenues:
Rental income	$	300,071		$	244,997	$	205,182
Interest income		18,829			23,993		22,818
Other income		3,924			4,548		2,432
Prepayment fees							50
		322,824			273,538		230,482
Expenses:
Interest expense		94,802			77,319		65,888
Property operating expenses		1,115
Depreciation and amortization		93,131			74,816		61,681
General and administrative		26,004			16,163		15,798
Loan expense		3,255			2,710		3,393
Impairment of assets							314
Loss on extinguishment of debt					21,484
Provision for loan losses		1,000			1,200		1,200
		219,307			193,692		148,274
Income before minority interests		103,517			79,846		82,208
Minority interests		(13	)
Income from continuing operations		103,504			79,846		82,208
Discontinued operations:
Net gain (loss) on sales of properties		1,267			3,227		(143	)
Income (loss) from discontinued operations, net		(2,021	)		1,213		3,306
		(754	)		4,440		3,163
Net income		102,750			84,286		85,371
Preferred stock dividends		21,463			21,594		12,737
Net income available to common stockholders	$	81,287		$	62,692	$	72,634
Average number of common shares outstanding:
Basic		61,661			54,110		51,544
Diluted		62,045			54,499		52,082
Earnings per share:
Basic:
Income from continuing operations available to common stockholders	$	1.33		$	1.08	$	1.35
Discontinued operations, net		(0.01	)		0.08		0.06
Net income available to common stockholders	$	1.32		$	1.16	$	1.41
Diluted:
Income from continuing operations and after preferred stock dividends	$	1.32		$	1.07	$	1.33
Discontinued operations, net		(0.01	)		0.08		0.06
Net income available to common stockholders	$	1.31		$	1.15	$	1.39

See accompanying notes

64

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

																	Accumulated
						Capital in											Other
	Preferred			Common		Excess of			Treasury			Cumulative		Cumulative			Comprehensive			Other
	Stock			Stock		Par Value			Stock			Net Income		Dividends			Loss			Equity			Total
				(In thousands, except per share data)
Balances at December 31, 2003	$	120,761		$	50,298	$	1,069,887		$	(523	)	$	660,446	$	(749,166	)	$	1		$	(2,025	)	$	1,149,679
Comprehensive income:
Net income													85,371											85,371
Other comprehensive income:
Unrealized loss on equity investments																								0
Total comprehensive income																								85,371
Proceeds from issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,194		64,087			(763	)													65,518
Restricted stock amortization																					949			949
Option compensation expense																					379			379
Proceeds from issuance of preferred stock		175,000					(5,893	)																169,107
Redemption of preferred stock		(12,010	)		368		11,642																	0
Cash dividends:
Common stock-$2.385 per share															(122,987	)								(122,987	)
Preferred stock,Series D-$1.97 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(933	)								(933	)
Preferred stock,Series F-$1.50 per share															(3,929	)								(3,929	)
Balances at December 31, 2004		283,751			52,860		1,139,723			(1,286	)		745,817		(884,890	)		1			(697	)		1,335,279
Comprehensive income:
Net income													84,286											84,286
Other comprehensive income:
Unrealized loss on equity investments																		(1	)					(1	)
Total comprehensive income																								84,285
Proceeds from issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					1,980		62,105			(768	)													63,317
Restricted stock amortization																					728			728
Option compensation expense																					312			312
Net proceeds from sale of common stock					3,000		97,977																	100,977
Conversion of preferred stock		(6,876	)		210		6,666																	0
Cash dividends:
Common stock-$2.46 per share															(132,548	)								(132,548	)
Preferred stock,Series D-$1.97 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(375	)								(375	)
Preferred stock,Series F-$1.91 per share															(13,344	)								(13,344	)
Balances at December 31, 2005		276,875			58,050		1,306,471			(2,054	)		830,103		(1,039,032	)		0			343			1,430,756
Net income													102,750											102,750
Other comprehensive income:																								0
Total comprehensive income																								102,750
Adjustment to adopt SFAS 158																		(135	)					(135	)
Proceeds from issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,200		75,081			(812	)										(85	)		76,384
Option compensation expense																					1,066			1,066
Shares issued in Windrose Medical Properties Trust merger		62,118			9,679		386,255																	458,052
Net proceeds from sale of common stock					3,223		106,525																	109,748
SFAS 123(R) reclassification							(521	)													521			0
Cash dividends:
Common stock-$2.8809 per share															(178,365	)								(178,365	)
Preferred stock,Series D-$1.97 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(112	)								(112	)
Preferred stock,Series F-$1.91 per share															(13,344	)								(13,344	)
Preferred stock,Series G-$0.06 per share															(132	)								(132	)
Balances at December 31, 2006	$	338,993		$	73,152	$	1,873,811		$	(2,866	)	$	932,853	$	(1,238,860	)	$	(135	)	$	1,845		$	1,978,793

See accompanying notes

65

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2006			2005			2004
	(In thousands)
Operating activities
Net income	$	102,750		$	84,286		$	85,371
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization		97,564			84,828			74,015
Other amortization expenses		3,090			3,935			3,393
Stock-based compensation expense		6,980			2,948			2,887
Capitalized interest		(4,470	)		(665	)		(875	)
Provision for loan losses		1,000			1,200			1,200
Minority interests		13
Impairment of assets								314
Rental income less than (in excess of) cash received		11,069			727			(13,792	)
Loss (gain) on sales of properties		(1,267	)		(3,227	)		143
Increase (decrease) in accrued expenses and other liabilities		5,810			(3,375	)		2,030
Decrease (increase) in receivables and other assets		(6,093	)		3,098			(10,661	)
Net cash provided from (used in) operating activities		216,446			173,755			144,025
Investing activities
Investment in real property		(429,183	)		(599,291	)		(542,547	)
Investment in loans receivable		(86,990	)		(40,387	)		(61,888	)
Other investments, net of payments		(11,761	)		328
Principal collected on loans receivable		82,255			98,638			55,473
Investment in Windrose, net of cash assumed		(182,571	)
Proceeds from sales of properties		69,887			91,325			37,567
Other		(2,452	)		318			4,033
Net cash provided from (used in) investing activities		(560,815	)		(449,069	)		(507,362	)
Financing activities
Net increase under unsecured lines of credit arrangements		30,000			44,000			151,000
Proceeds from issuance of senior unsecured notes		337,517			544,053			50,708
Principal payments on senior unsecured notes					(230,170	)		(40,000	)
Principal payments on secured debt		(3,033	)		(74,994	)		(2,514	)
Net proceeds from the issuance of common stock		182,069			165,062			66,281
Net proceeds from the issuance of preferred stock								169,107
Increase in deferred loan expense		(2,377	)		(2,021	)		(254	)
Cash distributions to stockholders		(199,828	)		(154,142	)		(135,724	)
Net cash provided from (used in) financing activities		344,348			291,788			258,604
Increase (decrease) in cash and cash equivalents		(21	)		16,474			(104,733	)
Cash and cash equivalents at beginning of year		36,237			19,763			124,496
Cash and cash equivalents at end of year	$	36,216		$	36,237		$	19,763
Supplemental cash flow information-interest paid	$	94,461		$	85,123		$	73,308
Supplemental schedule of non-cash activities:
Secured debt assumed from real property acquisitions		25,049			22,309			14,555
Assets and liabilities assumed from the Windrose acquisition:
Real estate investments	$	975,475
Other assets acquired		21,154
Secured debt		249,424
Liability to subsidiary trust issuing preferred securities		52,217
Other liabilities		42,468
Minority interests		2,215
Issuance of common stock		396,846
Issuance of preferred stock		62,118

See accompanying notes

66

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Accounting Policies and Related Matters

Industry

We are a self-administered, equity real estate investment trust that invests across the full spectrum of senior housing and health care real estate including skilled nursing facilities, independent living facilities/continuing care retirement communities, assisted living facilities, hospitals, long-term acute care hospitals and medical office buildings.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries after the elimination of all significant intercompany accounts and transactions.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recorded in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as amended (“SAB 104”). SAB 104 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. 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 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.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.

Loans Receivable

Loans receivable consist of mortgage loans, construction loans and working capital loans. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectibility risks. The mortgage loans and construction loans are primarily collateralized by a first or second mortgage lien or leasehold mortgage on, or an assignment of the partnership interest in, the related properties. Working capital loans are generally either unsecured or secured by the operator’s leasehold rights, corporate guarantiesand/or personal guaranties.

Allowance for Loan Losses

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 these loans, including general economic conditions and estimated collectibility of loan payments. 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 collateral. If such factors

67

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. At December 31, 2006, we had loans with outstanding balances of $10,529,000 on non-accrual status ($16,770,000 at December 31, 2005). To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding balance.

Real Property Owned

Real property developed by us is recorded at cost, including the capitalization of construction period interest. The cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their respective fair values in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. The allocation of the acquisition costs of tangible assets (land, building and equipment) is based on appraisals commissioned from independent real estate appraisal firms. Substantially all of the properties owned by us are leased under operating leases and are recorded at cost. These properties are depreciated on a straight-line basis over their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements.

The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value of in-place leases.

The value allocable to the above or below market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in acquired lease intangibles and below market leases are included in other liabilities in the balance sheet and are amortized to rental income over the remaining terms of the respective leases.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The estimated aggregate amortization expense for acquired lease intangibles is approximately $16,816,000 for each of the next five years.

The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset. If these external factors and the projected undiscounted cash flows of the asset over the remaining depreciation period indicate that the asset will not be recoverable, the carrying value may be reduced to the estimated fair market value.

Capitalization of Construction Period Interest

We capitalize interest costs associated with funds used to finance the construction of properties owned directly by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our cost of financing. We capitalized interest costs of $4,470,000, $665,000, and $875,000, during 2006, 2005 and 2004, respectively, related to construction of real property owned by us. Our interest expense reflected in the consolidated statements of income has been reduced by the amounts capitalized.

68

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred Loan Expenses

Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments of short-term and long-term debt. We amortize these costs over the term of the debt using the straight-line method, which approximates the interest yield method.

Equity Investments

Equity investments consist of investments in private companies where we do not have the ability to exercise influence and are accounted for under the cost method. Under the cost method of accounting, investments in private companies are carried at cost and are adjusted only forother-than-temporary declines in fair value, distributions of earnings and additional investments. For investments in public companies, if any that have readily determinable fair market values, we classify our equity investments asavailable-for-sale and, accordingly, record these investments at their fair market values with unrealized gains and losses included in accumulated other comprehensive income, a separate component of stockholders’ equity. These investments represent a minimal ownership interest in these companies. In connection with the Windrose merger, we assumed a $1,000,000 investment in an unconsolidated subsidiary that holds trust preferred securities and is accounted for under the cost method.

Segment Reporting

We report consolidated financial statements in accordance with Financial Accounting Standards Board Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. Segments are based on our method of internal reporting which classifies operations by leasing activities. Our segments include investment properties and operating properties. See Note 18 for additional information.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes unrealized gains or losses on our equity investments and unrecognized actuarial losses from the adoption of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans — An amendment of FASB Statements No. 87, 88, 106 and 132(R) on December 31, 2006. Accumulated unrealized gains and losses totaled $0, $0 and $1,000 at December 31, 2006, 2005 and 2004, respectively, and is included as a component of stockholders’ equity.

Fair Value of Derivative Instruments

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 our policy to fund our fixed rate investments with long-term fixed rate debt and equity, 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.

On May 6, 2004, we entered into two interest rate swap agreements (the “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 Swaps are treated as fair-value hedges for accounting purposes and we utilize the short-cut method in accordance with Statement No. 133, as amended. The Swaps are with highly rated counterparties in which we receive a fixed rate of 6.0% and pay a variable rate based on six-month LIBOR plus a spread. The hedging arrangement is considered highly effective and, as such, changes in the Swaps’ fair values exactly offset the corresponding changes in the fair value of senior unsecured notes and, as a result, the changes in fair value do not result in an impact on net income. At December 31, 2006 and 2005, the Swaps were reported at their fair value of $902,000 and $2,211,000, respectively, in other assets with an offsetting adjustment to the underlying senior unsecured notes. For the year ended December 31, 2006, we incurred $197,000 of losses related to the Swaps that was recorded as an addition to interest expense. For the years ended December 31,

69

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005 and 2004, we generated $972,000 and $1,770,000, respectively, of savings related to the Swaps that was recorded as a reduction in interest expense.

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.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding for the period adjusted for non-vested shares of restricted stock. The computation of diluted earnings per share is similar to basic earnings per share, except that the number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Federal Income Tax

No provision has been made for federal income taxes since we have elected to be treated as a real estate investment trust under the applicable provisions of the Internal Revenue Code, and we believe that we have met the requirements for qualification as such for each taxable year. See Note 12.

New Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised 2004), Share-Based Payment. See Note 9 for a discussion of our adoption of Statement 123(R) as of January 1, 2006.

In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans — An amendment of FASB Statements No. 87, 88, 106 and 132(R). The statement requires employers to recognize the overfunded and underfunded portion of a defined benefit plan as an asset or liability, respectively, and any unrecognized gains and losses or prior service costs as a component of accumulated other comprehensive income. It also requires that a plan’s funded status to be measured at the employer’s fiscal year-end. The new statement, which is effective as of December 31, 2006, increased accrued pension costs and accumulated other comprehensive loss by $135,000.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes, and will be effective for the Company’s fiscal year 2007. The interpretation prescribes guidance for recognizing, measuring, reporting and disclosing a tax position taken or expected to be taken in a tax return. We are currently evaluating the effects the interpretation will have on our financial position.

In September 2006, the FASB also issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The statement will be effective for fiscal year 2008. Adoption of this statement is not expected to have a material impact on our financial position, although additional disclosures may be required.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No, 108. The guidance requires registrants to evaluate adjusting entries using both the roll-over method and the iron curtain method. Previously, registrants would use one method to perform their evaluation of an error’s materiality, even though their conclusion may be different under the other method. If an adjustment is deemed quantitatively and

70

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

qualitatively material to the financial statements under either method, correction of the error is required. The adoption of the guidance during the fourth quarter of 2006 did not have a material impact on our financial position.

Reclassifications

Certain amounts in prior years have been reclassified to conform with the current year presentation.

2.   Windrose Medical Properties Trust Merger

On December 20, 2006, we completed our merger with Windrose Medical Properties Trust, a self-managed real estate investment trust based in Indianapolis, Indiana. The aggregate purchase price was approximately $1,018,345,000, including direct acquisition costs of approximately $29,918,000. The Windrose merger diversified our portfolio of investments throughout the health care delivery system. Windrose shareholders received approximately 9,679,000 shares of our common stock (valued at $41.00 per share) and Windrose preferred shareholders received 2,100,000 shares of our 7.5% Series G Cumulative Convertible Preferred Stock (valued at $29.58 per share). Additionally, our investment in Windrose includes $183,139,000 of cash provided to Windrose to extinguish secured debt, the assumption of $301,641,000 of debt and the assumption of other liabilities and minority interests totaling $44,683,000. The total purchase price for Windrose has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values. Such allocations have not been finalized and as such, the allocation of the purchase consideration included in the accompanying Consolidated Balance Sheet at December 31, 2006, is preliminary and subject to adjustment.

The following table presents the allocation of the purchase price, net of merger-related expenses and capitalized equity issuance costs of $5,213,000 and $912,000, respectively, to assets acquired and liabilities assumed, based on their fair values (in thousands):

Land and land improvements	$	102,328
Buildings & improvements		758,599
Acquired lease intangibles		80,883
Above market lease intangibles		33,665
Cash and cash equivalents		15,591
Receivables and other assets		21,154
Total assets acquired		1,012,220
Secured debt		249,424
Liability to subsidiary trust issuing preferred securities		52,217
Below market lease intangibles		23,491
Accrued expenses and other liabilities		18,977
Total liabilities assumed		344,109
Minority interests		2,215
Net assets acquired	$	665,896

71

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following pro forma consolidated results of operations have been prepared as if the acquisition of Windrose had occurred as of January 1, 2005 (in thousands, except per share data):

	Year Ended December 31,
	2006		2005
	(unaudited)
Revenues	$	416,311	$	358,350
Income from continuing operations available to common stockholders		62,481		38,095
Income from continuing operations available to common stockholders per share — basic		0.88		0.60
Income from continuing operations available to common stockholders per share — diluted		0.87		0.59

3.   Loans Receivable

The following is a summary of loans receivable (in thousands):

	December 31,
	2006		2005
Mortgage loans	$	177,615	$	141,467
Working capital loans		16,833		52,587
Totals	$	194,448	$	194,054

Loans to related parties (an entity whose ownership included one Company director) that existed in prior years were at rates comparable to loans to other third-party borrowers and were equal to or greater than our net interest cost on borrowings to support such loans. There were no such loans outstanding during 2006 or 2005. The amount of interest income and commitment fees from related parties amounted to $682,000 for 2004.

72

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of mortgage loans at December 31, 2006:

Final		Number			Principal
Payment		of			Amount at		Carrying
Due		Loans		Payment Terms	Inception		Amount
					(In thousands)
	2007		7	Monthly payments from $1,478 to $234,525, including interest from 7.52% to 19.26%	$	38,704	$	32,171
	2008		7	Monthly payments from $2,552 to $91,547, including interest from 8.96% to 19.00%		46,496		30,254
	2009		10	Monthly payments from $185 to $48,165, including interest from 3.90% to 19.26%		19,141		19,155
	2010		5	Monthly payments from $46,525 to $275,000, including interest from 9.13% to 13.69%		20,645		19,174
	2011		4	Monthly payments from $802 to $4,495, including interest from 10.14% to 15.21%		386		782
	2012		2	Monthly payments from $73,954 to $128,975, including interest from 7.00% to 11.50%		25,891		16,991
	2013		1	Monthly payments of $30,938, including interest of 8.25%		4,500		4,500
	2014		1	Monthly payments of $44, including interest of 9.25%		6		6
	2015		1	Monthly payments of $21,327, including interest of 11.38%		2,016		1,964
	2016		2	Monthly payments from $91 to $7,496, including interest from 10.14% to 10.75%		51		848
	2017		1	Monthly payments of $211, including interest of 10.14%		75		25
	2018		1	Monthly payments of $52,708, including interest of 5.75%		11,000		11,000
	2019		1	Monthly payments of $20,865, including interest of 10.35%		2,419		2,419
	2020		3	Monthly payments from $40,512 to $184,969, including interest from 9.885% to 9.89%		38,500		38,326
				Totals	$	209,830	$	177,615

4.   Allowance for Loan Losses

The following is a summary of the allowance for loan losses (in thousands):

	Year Ended December 31,
	2006			2005		2004
Balance at beginning of year	$	6,461		$	5,261	$	7,825
Provision for loan losses		1,000			1,200		1,200
Charge-offs		(55	)		0		(3,764	)
Balance at end of year	$	7,406		$	6,461	$	5,261

73

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of our loan impairments (in thousands):

	December 31,
	2006		2005		2004
Balance of impaired loans at year end	$	10,529	$	16,770	$	35,918
Allowance for loan losses		7,406		6,461		5,261
Balance of impaired loans not reserved	$	3,123	$	10,309	$	30,657
Average impaired loans for the year	$	13,650	$	26,344	$	33,221

Interest income recognized on non-accrual loans was $2,495,000 and $2,391,000 for the years ended December 31, 2006 and 2005, respectively. We did not recognize any interest on non-accrual loans for the year ended December 31, 2004.

5.   Real Property Owned

The following table summarizes certain information about our real property owned as of December 31, 2006 (dollars in thousands):

									Accumulated
	Number of				Building &		Gross		Depreciation
	Properties		Land		Improvements		Investment		and Amortization
Assisted Living Facilities:
Arizona		4	$	2,100	$	17,563	$	19,663	$	2,410
California		8		8,050		49,994		58,044		7,353
Colorado		1		940		3,721		4,661		500
Connecticut		5		8,030		36,799		44,829		4,396
Delaware		1		560		21,220		21,780		1,243
Florida		15		8,797		82,894		91,691		15,260
Georgia		2		1,080		3,688		4,768		451
Idaho		3		1,125		14,875		16,000		1,362
Illinois		4		8,063		15,300		23,363
Indiana		2		220		5,520		5,740		842
Kansas		1		600		10,590		11,190		631
Kentucky		1		490		7,610		8,100		717
Louisiana		1		1,100		10,161		11,261		3,593
Maryland		2		870		9,155		10,025		931
Massachusetts		7		8,160		62,490		70,650		4,875
Mississippi		2		1,080		13,470		14,550		1,497
Montana		3		1,460		14,772		16,232		1,664
Nevada		3		1,820		25,126		26,946		3,383
New Jersey		2		740		7,447		8,187		999
New York		3		2,320		34,452		36,772		1,322
North Carolina		41		15,863		181,932		197,795		23,170
Ohio		7		3,293		30,985		34,278		6,335
Oklahoma		16		1,928		24,346		26,274		7,176
Oregon		3		1,167		11,099		12,266		2,112
Pennsylvania		2		2,234		13,409		15,643		1,466
South Carolina		5		2,002		26,584		28,586		4,215
Tennessee		4		1,526		9,152		10,678		1,561
Texas		23		6,736		88,147		94,883		12,443
Utah		2		1,420		12,842		14,262		1,431
Virginia		4		2,300		40,486		42,786		2,767
Washington		8		5,940		28,696		34,636		2,829
Wisconsin		4		3,140		31,387		34,527		922
Construction in progress		12						55,197
Assets held for sale		3						14,796
		204		105,154		945,912		1,121,059		119,856

74

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

									Accumulated
	Number of				Building &		Gross		Depreciation
	Properties		Land		Improvements		Investment		and Amortization
Skilled Nursing Facilities:
Alabama		8	$	3,000	$	41,419	$	44,419	$	4,540
Arizona		3		2,050		19,965		22,015		1,647
Colorado		5		6,060		37,152		43,212		2,696
Connecticut		6		2,700		18,941		21,641		628
Florida		42		23,312		280,501		303,813		31,502
Georgia		3		2,650		14,932		17,582		1,354
Idaho		3		2,010		20,662		22,672		5,374
Illinois		4		1,110		24,700		25,810		7,644
Indiana		8		2,289		40,342		42,631		5,367
Kansas		1		1,120		8,360		9,480		252
Kentucky		10		3,015		65,432		68,447		4,483
Louisiana		7		783		34,717		35,500		1,175
Maryland		1		390		4,010		4,400		515
Massachusetts		23		19,318		212,574		231,892		31,619
Mississippi		11		1,625		52,651		54,276		6,860
Missouri		3		1,247		23,827		25,074		5,444
Nevada		1		182		2,503		2,685		701
New Hampshire		1		340		4,360		4,700		186
New Jersey		1		1,850		3,050		4,900		257
Ohio		20		11,520		184,199		195,719		14,230
Oklahoma		3		1,427		21,920		23,347		2,293
Oregon		1		300		5,316		5,616		1,442
Pennsylvania		4		3,179		21,414		24,593		5,045
Tennessee		22		8,730		122,604		131,334		16,740
Texas		15		8,346		69,545		77,891		5,462
Utah		1		991		6,850		7,841		208
Virginia		2		1,891		7,312		9,203		1,022
Construction in progress		1						14,852
		210		111,435		1,349,258		1,475,545		158,686

75

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Number of				Building &		Gross		Accumulated Depreciation
	Properties		Land		Improvements		Investment		and Amortization
Independent Living/CCRC Facilities:
Arizona		1	$	950	$	9,087	$	10,037	$	1,583
California		7		17,960		123,505		141,465		2,952
Colorado		1		5,029		14,906		19,935		98
Florida		3		6,843		68,173		75,016		9,717
Georgia		3		3,256		24,759		28,015		8,733
Idaho		1		550		14,740		15,290		1,674
Illinois		1		670		6,780		7,450		952
Indiana		2		670		13,591		14,261		1,980
Kansas		1		1,400		11,000		12,400
Missouri		1		510		5,490		6,000
Nevada		1		1,144		10,831		11,975		4,170
New York		1		1,510		9,490		11,000		1,238
North Carolina		2		3,120		20,155		23,275		538
South Carolina		4		7,190		62,345		69,535		2,445
Texas		2		5,670		16,620		22,290		3,073
Washington		1		620		4,780		5,400		407
Construction in progress		3						61,709
		35		57,092		416,252		535,053		39,560
Medical Office Buildings:
Alabama		5		1,447		43,431		44,878		64
Arizona		1				48,134		48,134		76
California		5		4,796		85,196		89,992		96
Florida		23		28,745		202,868		231,613		313
Georgia		14		19,137		65,080		84,217		114
Illinois		3		3,205		14,088		17,293		23
North Carolina		10		4,963		29,131		34,094		43
New Jersey		3		9,582		22,995		32,577		34
Nevada		7		8,702		94,245		102,947		122
New York		1				20,915		20,915		42
Tennessee		4		4,472		30,974		35,446		45
Texas		13		8,977		150,237		159,214		216
		89		94,026		807,294		901,320		1,188
Specialty Care Facilities:
Illinois		1		3,650		18,559		22,209		3,333
Louisiana		1		1,383		8,318		9,701		15
Massachusetts		3		3,375		62,101		65,476		19,352
Ohio		1		3,020		27,445		30,465		2,924
Oklahoma		2		2,101		9,651		11,752		184
Texas		6		5,457		98,357		103,814		1,907
Construction in progress		2						6,464
		16		18,986		224,431		249,881		27,717
Total Real Property Owned		554	$	386,693	$	3,743,147	$	4,282,858	$	347,007

76

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2006, future minimum lease payments receivable under operating leases are as follows (in thousands):

2007	$	380,170
2008		372,888
2009		368,000
2010		368,064
2011		354,637
Thereafter		2,395,209
Totals	$	4,238,968

We purchased $11,204,000, $3,908,000 and $8,500,000 of real property that had previously been financed by the Company with loans in 2006, 2005 and 2004, respectively. We converted $24,330,000 and $29,238,000 of completed construction projects into operating lease properties in 2006 and 2005, respectively. We acquired properties which included the assumption of mortgages totaling $274,473,000, $22,309,000 and $14,555,000 in 2006, 2005 and 2004, respectively. Certain of our 2006 and 2005 acquisitions included deferred acquisition payments totaling $2,000,000 and $18,125,000, respectively. These non-cash activities are appropriately not reflected in the accompanying statements of cash flows. See the accompanying statement of cash flows for non-cash investing activity related to the Windrose merger.

During the year ended December 31, 2004, it was determined that the projected undiscounted cash flows from a property did not exceed its related net book value and an impairment charge of $314,000 was recorded to reduce the property to its estimated fair market value. The estimated fair market value was determined by an offer to purchase received from a third party. We did not record any impairment charges during the years ended December 31, 2006 or 2005.

At December 31, 2006 and 2005, we had $14,796,000 and $11,912,000, respectively, related to assets held for sale. See Note 16 for further discussion of discontinued operations.

6.   Concentration of Risk

As of December 31, 2006, long-term care facilities, which include skilled nursing, independent living/continuing care retirement communities and assisted living facilities, comprised 72% (93% at December 31, 2005) of our real estate investments and were located in 37 states. The following table summarizes certain information about our customer concentration as of December 31, 2006 (dollars in thousands):

	Number of		Total		Percent of
	Properties		Investment(1)		Investment(2)
Concentration by investment:
Emeritus Corporation		50	$	353,641		9	%
Brookdale Senior Living Inc.		87		284,161		7	%
Home Quality Management, Inc.		37		244,449		6	%
Life Care Centers of America, Inc.		26		238,610		6	%
Merrill Gardens L.L.C.		25		183,841		4	%
Remaining portfolio		353		2,828,047		68	%
Totals		578	$	4,132,749		100	%

77

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Number of		Total		Percent of
	Properties		Revenue(3)		Revenue
Concentration by revenue(4):
Emeritus Corporation		50	$	36,878		11	%
Brookdale Senior Living Inc.		87		33,581		10	%
Home Quality Management, Inc.		37		27,318		8	%
Life Care Centers of America, Inc.		26		23,261		7	%
Delta Health Group, Inc.		25		22,861		7	%
Remaining portfolio		353		180,565		56	%
Other income		n/a		3,924		1	%
Totals		578	$	328,388		100	%

(1)	Investments include real estate investments and credit enhancements which amounted to $4,130,299,000 and $2,450,000, respectively.
(2)	Investments with top five customers comprised 41% of total investments at December 31, 2005.
(3)	Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2006.
(4)	Revenues from top five customers were 43% and 46% for the years ended December 31, 2005 and 2004, respectively. All of our top five customers are in our investment segment.

7.   Borrowings Under Lines of Credit Arrangements and Related Items

We have an unsecured credit arrangement with a consortium of twelve banks providing for a revolving line of credit (“revolving credit”) in the amount of $700,000,000, which expires on July 26, 2009 (with the ability to extend for one year at our discretion if we are in compliance with all covenants). The agreement specifies that borrowings under the revolving credit are subject to interest payable in periods no longer than three months at either the agent bank’s prime rate of interest (8.25% at December 31, 2006) or the applicable margin over LIBOR interest rate, at our option (6.275% at December 31, 2006). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.9% at December 31, 2006. In addition, we pay a facility fee annually to each bank based on the bank’s commitment under the revolving credit facility. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at December 31, 2006. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. We have another unsecured line of credit arrangement with a bank for a total of $40,000,000, which expires May 31, 2007. Borrowings under this line of credit are subject to interest at either the bank’s prime rate of interest (8.25% at December 31, 2006) or 0.9% over LIBOR interest rate (6.25% at December 31, 2006), at our option. Principal is due upon expiration of the agreement.

The following information relates to aggregate borrowings under the unsecured lines of credit arrangements (dollars in thousands):

	Year Ended December 31,
	2006			2005			2004
Balance outstanding at December 31	$	225,000		$	195,000		$	151,000
Maximum amount outstanding at any month end	$	276,000		$	318,000		$	159,000
Average amount outstanding (total of daily principal balances divided by days in year)	$	164,905		$	181,232		$	54,770
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		6.91	%		5.19	%		5.32	%

78

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   Senior Unsecured Notes and Secured Debt

We have $1,541,814,000 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 $1,539,830,000 adjusted for any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative instruments. See Note 1 for further discussion regarding derivative instruments.

In November and December 2006, we issued $345,000,000 of 4.75% senior unsecured convertible notes due December 2026, generating net proceeds of $337,517,000. The notes will be convertible, in certain circumstances, into cash and, if applicable, shares of Health Care REIT’s common stock at an initial conversion rate of 20.8833 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately $47.89 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion value of such note, cash up to the principal amount of such note and Health Care REIT common stock for the note’s conversion value in excess of such principal amount.

We have 63 mortgage loans totaling $378,972,000, collateralized by owned properties with annual interest rates ranging from 4.89% to 8.50%. The carrying amounts of the mortgage loans represent the outstanding principal balance of $378,400,000 adjusted for any unamortized fair market value adjustments. The carrying values of the properties securing the mortgage loans totaled $559,513,000 at December 31, 2006.

We have a $52,215,000 liability to a subsidiary trust issuing trust preferred securities that was assumed in the Windrose merger. On March 24, 2006, Windrose’s wholly-owned subsidiary, Windrose Capital Trust I (the “Trust”), completed the issuance and sale in a private placement of $50,000,000 in aggregate principal amount of fixed/floating rate preferred securities. The trust preferred securities mature on March 30, 2036, are redeemable at our option beginning March 30, 2011, and require quarterly distributions of interest to the holders of the trust preferred securities. The trust preferred securities bear a fixed rate per annum equal to 7.22% through March 30, 2011, and a variable rate per annum equal to LIBOR plus 2.05% thereafter.

The common stock of the Trust was purchased by an operating partnership of Windrose for $1,000,000. The Trust used the proceeds from the sale of the trust preferred securities together with the proceeds from the sale of the common stock to purchase $51,000,000 in aggregate principal amount of unsecured fixed/floating junior subordinated notes due March 30, 2036 issued by an operating partnership. The operating partnership received approximately $49,000,000 in net proceeds, after the payment of fees and expenses, from the sale of the junior subordinated notes to the Trust. In accordance with FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, we have not consolidated the trust because the operating partnership is not considered the primary beneficiary.

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.

79

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2006, the annual principal payments on these long-term obligations are as follows (in thousands):

					Trust
	Senior		Mortgage		Preferred
	Unsecured Notes		Loans		Liability		Totals
2007	$	52,500	$	19,199	$	0	$	71,699
2008		42,330		40,115				82,445
2009				45,061				45,061
2010				12,504				12,504
2011				49,509				49,509
2012		250,000		18,558				268,558
2013		300,000		56,972				356,972
Thereafter		895,000		136,482		51,000		1,082,482
Totals	$	1,539,830	$	378,400	$	51,000	$	1,969,230

9.   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 salaried employees under the 1995 Plan continue to vest through 2015 and expire ten years from the date of grant. Our non-employee directors, officers and key salaried 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.

The following summarizes the activity in the plans (shares in thousands):

	Year Ended December 31
	2006					2005					2004
	Number			Average		Number			Average		Number			Average
	of			Exercise		of			Exercise		of			Exercise
Stock Options	Shares			Price		Shares			Price		Shares			Price
Options at beginning of year		685		$	26.87		1,015		$	24.86		1,503		$	23.15
Options granted		460			32.42		60			34.88		112			36.92
Options exercised		(227	)		22.24		(380	)		22.84		(600	)		22.83
Options terminated		(1	)		36.50		(10	)		25.24
Options at end of year		917		$	30.79		685		$	26.87		1,015		$	24.86
Options exercisable at end of year		462		$	28.83		257		$	23.16		639		$	23.54
Weighted average fair value of options granted during the year				$	5.26				$	12.48				$	12.09

80

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of each option grant is estimated on the date of grant using a Black-Scholes-Merton option pricing model with the following weighted-average assumptions:

	2006		2005			2004
Dividend yield(1)		0%-6.79%		0.0	%		0.6	%
Expected volatility		20.3%		22.8	%		22.4	%
Risk-free interest rate		4.35%		4.25	%		4.11	%
Expected life (in years)		5		7			7
Weighted-average fair value(1)		$5.26	$	12.48		$	12.09

(1) Certain options granted to employees include dividend equivalent rights. These options are assumed to have a dividend yield of 0% for purposes of the Black-Scholes-Merton option pricing model and result in higher fair values than options without dividend equivalent rights.

Vesting periods for options and restricted shares range from three years for directors to five years for officers and key salaried employees. Options expire ten years from the date of grant. We granted 98,000, 85,000 and 112,000 restricted shares during 2006, 2005 and 2004, respectively, including 13,000, 16,000 and 10,000 shares to non-employee directors in 2006, 2005 and 2004, respectively. Expense, which is recognized as the shares vest based on the market value at the date of the award, totaled $6,980,000, $2,948,000 and $2,887,000, in 2006, 2005 and 2004, respectively.

The following table summarizes information about stock options outstanding at December 31, 2006 (options in thousands):

	Options Outstanding						Options Exercisable
					Weighted
Range of Per			Weighted		Average				Weighted
Share Exercise	Number		Average		Remaining		Number		Average
Prices	Outstanding		Exercise Price		Contract Life		Exercisable		Exercise Price
$16-$20		11	$	16.81		4.0		11	$	16.81
$20-$25		111		24.42		5.0		98		24.42
$25-$30		290		26.20		7.0		152		26.55
$30-$40		505		35.13		9.2		201		33.36
Totals		917	$	30.79		7.9		462	$	28.83

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 werein-the-money at December 31, 2006. During the year ended December 31, 2006, the aggregate intrinsic value of options exercised under our stock incentive plans was $3,140,000 determined as of the date of option exercise. During the year ended December 31, 2005, the aggregate intrinsic value of options exercised under our stock incentive plans was $4,705,000 determined as of the date of option exercise. Cash received from option exercises under our stock incentive plans for the year ended December 31, 2006 was $4,872,000. Cash received from option exercises under our stock incentive plans for the year ended December 31, 2005 was $8,690,000.

As of December 31, 2006, there was approximately $2,349,000 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 three years. As of December 31, 2006, there was approximately $4,761,000 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.

81

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes information about non-vested stock incentive awards as of December 31, 2006 and changes for the year ended December 31, 2006:

	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, 2005		428		$	5.36		222		$	31.56
Vested		(105	)		5.23		(72	)		29.64
Granted		155			5.26		98			36.51
Terminated		0					0
Non-vested at December 31, 2006		478		$	5.35		248		$	34.07

We adopted the fair value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Currently, we use the Black-Scholes-Merton option pricing model to estimate the value of stock option grants and expect to continue to use this acceptable option valuation model. Because we adopted Statement No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date of Statement No. 123), compensation cost for some previously granted awards that were not recognized under Statement No. 123 will now be recognized effective with the adoption of Statement No. 123(R) on January 1, 2006. In addition, we previously amortized compensation cost for share-based payments to the date that the awards became fully vested or to the expected retirement date, if sooner. Effective with the adoption of Statement No.  123(R), we began recognizing compensation cost to the date the awards become fully vested or to the retirement eligible date, if sooner. Compensation cost totaled $6,980,000 for the year ended December 31, 2006.

82

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table illustrates the effect on net income available to common stockholders if we had applied the fair value recognition provisions of Statement 123 to stock-based compensation for options granted since 1995 but prior to adoption at January 1, 2003 (in thousands, except per share data):

	Year Ended December 31,
	2005		2004
Numerator:
Net income available to common stockholders — as reported	$	62,692	$	72,634
Deduct: Additional stock-based employee compensation expense determined under fair value based method for all awards		181		274
Net income available to common stockholders — pro forma	$	62,511	$	72,360
Denominator:
Basic weighted average shares — as reported and pro forma		54,110		51,544
Effect of dilutive securities:
Employee stock options — pro forma				365
Non-vested restricted shares		208		161
Dilutive potential common shares		208		526
Diluted weighted average shares — pro forma		54,318		52,070
Net income available to common stockholders per share — as reported
Basic	$	1.16	$	1.41
Diluted	$	1.15	$	1.39
Net income available to common stockholders per share — pro forma
Basic	$	1.16	$	1.40
Diluted	$	1.15	$	1.39

10.   Other Equity

Other equity consists of the following (in thousands):

	December 31,
	2006		2005			2004
Accumulated compensation expense related to stock options	$	1,845	$	864		$	552
Unamortized restricted stock		0		(521	)		(1,249	)
Totals	$	1,845	$	343		$	(697	)

Unamortized restricted stock represented the unamortized value of restricted stock granted to employees and non-employee directors prior to January 1, 2003. Expense related to these grants, which is recognized as the shares vest based on the market value at the date of the award, totaled $521,000, $728,000 and $949,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

11.   Preferred Stock

In July 2003, we closed a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in

83

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after July 9, 2008.

In September 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock as partial consideration for an acquisition of assets by the Company, with the shares valued at $26,500,000 for such purposes. The shares were issued to Southern Assisted Living, Inc. and certain of its stockholders without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended. The shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after August 15, 2008. The preferred shares are convertible into common stock at a conversion price of $32.66 per share at any time. During the year ended December 31, 2005, certain holders of our Series E Preferred Stock converted 275,056 shares into 210,541 shares of our common stock, leaving 74,989 of such shares outstanding at December 31, 2006 and 2005.

In September 2004, we closed a public offering of 7,000,000 shares of 7.625% Series F Cumulative Redeemable Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after September 14, 2009.

In conjunction with the acquisition of Windrose Medical Properties Trust in December 2006, we issued 2,100,000 shares of 7.5% Series G Cumulative Convertible Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after June 30, 2010. Each Series G Preferred Share is convertible by the holder into our common stock at a conversion price of $34.93, equivalent to a conversion rate of 0.7157 common shares per Series G Preferred Share. The shares were recorded at $29.58 per share, which was deemed to be the fair value at the date of the issuance.

12.   Income Taxes and Distributions

To qualify as a real estate investment trust for federal income tax purposes, 90% of taxable income (including 100% of capital gains) must be distributed to stockholders. Real estate investment trusts that do not distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise tax. The principal differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

Cash distributions paid to common stockholders, for federal income tax purposes, are as follows:

	Year Ended December 31,
	2006		2005		2004
Per Share:
Ordinary income	$	1.7461	$	1.266	$	1.189
Return of capital	$	1.1348		1.194		1.196
Totals	$	2.8809	$	2.460	$	2.385

84

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13.   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 under the letter of credit matures in 2009. At December 31, 2006, our obligation under the letter of credit was $2,450,000.

At December 31, 2006, we had outstanding construction financings of $138,222,000 for leased properties and were committed to providing additional financing of approximately $342,754,000 to complete construction. At December 31, 2006, we had contingent purchase obligations totaling $32,282,000. 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. Amounts due from the tenant are increased to reflect the additional investment in the property.

At December 31, 2006, we had operating lease obligations of $37,378,000 relating to certain ground leases and Company office space. We incurred rental expense relating to our Company office space of $939,000, $283,000 and $292,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Regarding the property leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At December 31, 2006, aggregate future minimum rentals to be received under these noncancelable subleases totaled $12,982,000.

At December 31, 2006, future minimum lease payments due under operating leases are as follows (in thousands):

2007	$	2,756
2008		2,374
2009		2,290
2010		2,138
2011		1,867
Thereafter		25,953
Totals	$	37,378

85

HEALTH CARE REIT, INC.

NOTES TO 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):

	Year Ended December 31
	2006		2005		2004
Numerator for basic and diluted earnings per share — net income available to common stockholders	$	81,287	$	62,692	$	72,634
Denominator for basic earnings per share — weighted average shares		61,661		54,110		51,544
Effect of dilutive securities:
Employee stock options		136		181		377
Non-vested restricted shares		248		208		161
Dilutive potential common shares		384		389		538
Denominator for diluted earnings per share — adjusted weighted average shares		62,045		54,499		52,082
Basic earnings per share	$	1.32	$	1.16	$	1.41
Diluted earnings per share	$	1.31	$	1.15	$	1.39

The diluted earnings per share calculation excludes the dilutive effect of 0, 112,000 and 112,000 options for 2006, 2005 and 2004, respectively, because the exercise price was greater than the average market price. The Series E Cumulative Convertible and Redeemable Preferred Stock was not included in the calculations for 2006, 2005 and 2004 as the effect of the conversions was anti-dilutive. The $345,000,000 senior unsecured convertible notes due December 2026 and the Series G Cumulative Convertible Preferred Stock were not included in the calculation for 2006 as the effect of the conversion was anti-dilutive.

15.   Disclosure about Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

Mortgage Loans Receivable — The fair value of all mortgage loans receivable is estimated by discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Working Capital Loans and Construction Loans — The carrying amount is a reasonable estimate of fair value based on the interest rates received, which approximates current market rates.

Cash and Cash Equivalents — The carrying amount approximates fair value.

Equity Investments — Equity investments are recorded at their fair market value.

Borrowings Under Lines of Credit Arrangements — The carrying amount of the lines of credit arrangements approximates fair value because the borrowings are interest rate adjustable.

Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated by discounting the estimated future cash flows using the current borrowing rate available to the Company for similar debt.

Mortgage Loans Payable — Mortgage loans payable is a reasonable estimate of fair value based on the interest rates paid, which approximates current market rates.

86

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Interest Rate Swap Agreements — Our interest rate swap agreements are recorded as assets or liabilities on the balance sheet at fair market value. Fair market value is estimated by a third party consultant, which utilizes pricing models that consider forward yield curves and discount rates.

The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):

	December 31, 2006				December 31, 2005
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Financial Assets:
Mortgage loans receivable	$	177,615	$	180,537	$	141,467	$	150,105
Working capital loans		16,833		16,833		52,587		52,587
Equity investments		4,700		4,700		2,970		2,970
Cash and cash equivalents		36,216		36,216		36,237		36,237
Interest rate swap agreements		902		902		2,211		2,211
Financial Liabilities:
Borrowings under lines of credit arrangements	$	225,000	$	225,000	$	195,000	$	195,000
Senior unsecured notes		1,541,814		1,895,672		1,198,278		1,271,370
Mortgage loans payable		378,972		378,972		107,540		107,540
Trust preferred liability		52,215		52,215

16.   Discontinued Operations

Three assisted living facilities were held for sale at December 31, 2006 and were sold subsequent to year-end. During the years ended December 31, 2006, 2005 and 2004, we sold properties with carrying values of $75,789,000, $88,098,000 and $37,710,000 for net gains of $1,267,000 and $3,227,000 and net losses of $143,000, respectively. In accordance with Statement No. 144, we have reclassified the income and expenses attributable to these properties 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 the properties as discontinued operations (in thousands):

	Year Ended December 31,
	2006			2005		2004
Revenues:
Rental Income	$	5,564		$	17,617	$	23,095
Expenses:
Interest expense		2,032			5,306		6,668
Depreciation and amortization		4,433			10,012		12,334
General and adminstrative		1,120			1,086		787
Income (loss) from discontinued operations, net	$	(2,021	)	$	1,213	$	3,306

17.   Retirement Arrangements

As a result of the merger with Windrose Properties Trust in December 2006, we now have two retirement plans and trusts (the “401(k) Plans”) covering all eligible employees. Under the 401(k) Plans, eligible employees may make contributions, and we may make matching contributions and a profit sharing contribution. Our contributions to the Health Care REIT, Inc. 401(k) Plan totaled $413,000, $337,000 and $289,000 in 2006, 2005 and 2004, respectively. We did not make any contributions to the Windrose Medical Properties Trust 401(k) Plan in 2006.

87

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We have a Supplemental Executive Retirement Plan (“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 2006 fiscal year. No benefit payments are expected to occur during the next five fiscal years and total $1,713,000 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 $1,597,000 at December 31, 2006 ($1,032,000 at December 31, 2005).

The following tables provide a reconciliation of the changes in the SERP’s benefit obligations and a statement of the funded status for the periods indicated (in thousands):

	Year Ended December 31,
	2006			2005
Reconciliation of benefit obligation:
Obligation at January 1	$	1,255		$	729
Service cost		352			286
Interest cost		72			44
Actuarial (gain)/loss		(82	)		196
Obligation at December 31	$	1,597		$	1,255

	December 31,
	2006			2005
Funded status:
Funded status at December 31	$	(1,597	)	$	(1,255	)
Unrecognized (gain)/loss		0			223
Prepaid/(accrued) benefit cost	$	(1,597	)	$	(1,032	)

The accrued benefit cost increased $135,000 during 2006 as a result of adopting SFAS 158. See Note 1 for additional information.

The following table shows the components of net periodic benefit costs for the periods indicated (in thousands):

	Year Ended December 31,
	2006		2005
Service cost	$	352	$	286
Interest cost		72		44
Net actuarial loss		8		0
Net periodic benefit cost	$	432	$	330

88

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides information for the SERP, which has an accumulated benefit in excess of plan assets (in thousands):

	December 31,
	2006		2005
Projected benefit obligation	$	1,597	$	1,255
Accumulated benefit obligation		1,121		831
Fair value of assets		n/a		n/a

The following table reflects the weighted-average assumptions used to determine the benefit obligations and net periodic benefit cost for the SERP:

	Benefit Obligations						Net Periodic Benefit Cost
	December 31,						Year Ended December 31,
	2006			2005			2006			2005
Discount rate		6.00	%		5.75	%		5.75	%		6.00	%
Rate of compensation increase		4.25	%		4.00	%		4.00	%		4.25	%
Expected long-term return on plan assets		n/a			n/a			n/a			n/a

18.   Segment Reporting

Our business consists primarily of financing and leasing senior housing and health care real estate. We evaluate our business and make resource allocations on our two business segments — investment properties and operating properties. 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 undertriple-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 operating property segment, we primarily invest in medical office buildings that are typically leased under gross leases, modified gross leases ortriple-net leases, 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). 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, accounts receivable and deferred financing costs among others. Non-property specific revenues and expenses are not allocated to individual segments in determining our performance measure.

Summary information for the reportable segments during the year ended December 31, 2006 is as follows (in thousands):

									Property		Net		Real Estate
	Rental		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income(1)		Income		Income		Revenues		Expenses		Income(2)		Amortization		Expense		Assets
Investment Properties	$	302,161	$	18,829			$	320,990			$	320,990	$	96,351	$	9,041	$	3,156,001
Operating Properties		3,474						3,474		1,115		2,359		1,213		600		974,298
Non-segment/Corporate						3,924		3,924								87,193		150,311
	$	305,635	$	18,829	$	3,924	$	328,388	$	1,115	$	323,349	$	97,564	$	96,834	$	4,280,610

(1)

Rental income includes rent from discontinued operations

(2)

Net operating income (“NOI”) is used to evaluate the operating performance of certain real estate properties such as medical office buildings. We define NOI as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments, interest expense and discontinued operations. We believe

89

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOI provides investors relevant and useful information because it measures the operating performance of our medical office buildings 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 medical office buildings.

All assets, revenues and expenses for the years ended December 31, 2005 and 2004 were attributable to our investment property segment.

19.   Quarterly Results of Operations (Unaudited)

The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2006 and 2005 (in thousands, except per share data):

	Year Ended December 31, 2006
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter(2)
Revenues — as reported	$	77,413		$	80,176		$	80,745		$	87,787
Discontinued operations		(1,405	)		(1,533	)		(359	)		0
Revenues — as adjusted(1)	$	76,008		$	78,643		$	80,386		$	87,787
Net income available to common stockholders	$	19,645		$	22,668		$	21,480		$	17,494
Net income available to common stockholders per share:
Basic	$	0.34		$	0.37		$	0.34		$	0.27
Diluted		0.34			0.37			0.34			0.27

	Year Ended December 31, 2005
	1st Quarter			2nd Quarter(3)			3rd Quarter			4th Quarter
Revenues — as reported	$	68,379		$	68,607		$	73,065		$	77,967
Discontinued operations		(4,615	)		(4,674	)		(3,237	)		(1,954	)
Revenues — as adjusted(1)	$	63,764		$	63,933		$	69,828		$	76,013
Net income (loss) available to common stockholders	$	17,803		$	(1,606	)	$	19,908		$	26,587
Net income (loss) available to common stockholders per share:
Basic	$	0.34		$	(0.03	)	$	0.37		$	0.47
Diluted		0.33			(0.03	)		0.37			0.47

(1)	In accordance with FASB Statement No. 144, we have reclassified the income attributable to the properties sold subsequent to January 1, 2002 and attributable to the properties held for sale at December 31, 2006 to discontinued operations. See Note 16.
(2)	The decrease in net income and amounts per share are primarily attributable to costs associated with the Windrose merger ($5,213,000) and the write-off of a straight-line rent receivable ($5,143,000), offset by the favorable impact of prior period adjustments resulting from reassessment of straight-line rent revenue recognition policies ($3,266,000).
(3)	The net loss and amounts per share are primarily attributable to the loss on extinguishment of debt recorded in second quarter 2005.

20.   Subsequent Events

On January 11, 2007, we announced an agreement to purchase a portfolio of medical office buildings from affiliates of Rendina Companies. As part of the transaction, we also agreed to acquire Paramount Real Estate Services, the property management group of Rendina Companies. The property portfolio includes 18 medical office buildings in ten states. The transactions are subject to standard due diligence and are anticipated to close in the second quarter of 2007.

90

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined inRule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined inRule 13a-15(f) of the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in a report entitled Internal Control — Integrated Framework. The scope of management’s assessment as of December 31, 2006 did not include an assessment of the internal control over financial reporting for Windrose Medical Properties Trust in a purchase business combination on December 20, 2006. The acquired business represents 23.7% of the Company’s consolidated total assets at December 31, 2006 and 0.4% of the Company’s net income available to common stockholders for the year ended December 31, 2006. The scope of management’s assessment on internal control over financial reporting for fiscal year 2007 will include the acquired Windrose Medical Properties Trust operations.

Based on this assessment, using the criteria above, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2006.

The registered independent public accounting firm of Ernst & Young LLP, as auditors of the Company’s consolidated financial statements, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined inRule 13a-15(f) of the Securities Exchange Act of 1934, as amended) occurred during the fourth quarter of the one-year period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

91

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Stockholders and Directors

Health Care REIT, Inc.

We have audited management’s assessment, included in Management’s Report on Internal Control over Financial Reporting, that Health Care REIT, Inc. maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Health Care REIT Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Property, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Windrose Medical Properties Trust, which is included in the consolidated financial statements of Health Care REIT, Inc. and constitute 23.7% of consolidated total assets as of December 31, 2006 and 1.0% of consolidated revenues for the year then ended. Management did not include an assessment of the internal control over financial reporting of Windrose Medical Properties Trust because it was acquired in a business combination on December 19, 2006.

In our opinion, management’s assessment that Health Care REIT, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Health Care REIT, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

92

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006 of Health Care REIT, Inc. and our report dated February 28, 2007 expressed an unqualified opinion thereon.

/s/  Ernst & Young LLP

Toledo, Ohio

February 28, 2007

93

Item 9B.   Other Information

None.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference to the information under the headings “Election of Directors,” “Executive Officers,” “Board and Committees” and “Security Ownership of Directors and Management and Certain Beneficial Owners — Section 16(a) Compliance” in our definitive proxy statement, which will be filed with the Securities and Exchange Commission (“Commission”) prior to April 30, 2007.

We have adopted a Code of Business Conduct & Ethics that applies to our directors, officers and employees. The code is posted on our Web site at www.hcreit.com and is available from the Company upon written request to the Senior Vice President — Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio43603-1475. Any amendment to, or waivers from, the code that relate to any officer or director of the Company will be promptly disclosed on our Internet Web site at www.hcreit.com.

In addition, the Board has adopted charters for the Audit, Compensation and Nominating/Corporate Governance Committees. These charters are posted on our Web site at www.hcreit.com and are available from the Company upon written request to the Senior Vice President — Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio43603-1475.

Item 11.   Executive Compensation

The information required by this Item is incorporated herein by reference to the information under the headings “Executive Compensation,” “Compensation Committee Report” and “Director Compensation” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2007.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference to the information under the headings “Security Ownership of Directors and Management and Certain Beneficial Owners” and “Equity Compensation Plan Information” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2007.

Item 13.   Certain Relationships and Related Transactions and Director Independence

The information required by this Item is incorporated herein by reference to the information under the headings “Board and Committees — Independence and Meetings” and “Certain Relationships and Related Transactions” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2007.

Item 14.   Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the information under the heading “Ratification of the Appointment of the Independent Registered Public Accounting Firm” and “Pre-Approval Policies and Procedures” in our definitive proxy statement, which will be filed with the Commission prior to April 30, 2007.

94

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a)1. Our Consolidated Financial Statements are included in Part II, Item 8:

Report of Independent Registered Public Accounting Firm	62
Consolidated Balance Sheets — December 31, 2006 and 2005	63
Consolidated Statements of Income — Years ended December 31, 2006, 2005 and 2004	64
Consolidated Statements of Stockholders’ Equity — Years ended December 31, 2006, 2005 and 2004	65
Consolidated Statements of Cash Flows — Years ended December 31, 2006, 2005 and 2004	66
Notes to Consolidated Financial Statements	67

2. The following Financial Statement Schedules are included in Item 15(c):

III — Real Estate and Accumulated Depreciation

IV — Mortgage Loans on Real Estate

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

3. Exhibit Index:

2	.1	Agreement and Plan of Merger, dated as of September 12, 2006, by and among Health Care REIT, Inc., Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’sForm 8-K filed September 15, 2006, and incorporated herein by reference thereto).
2	.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among Health Care REIT, Inc., Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’sForm 8-K filed October 13, 2006, and incorporated herein by reference thereto).
3	.1	Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.2	Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.3	Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.4	Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed June 13, 2003, and incorporated herein by reference thereto).
3	.5	Certificate of Designation of 77/8% Series D Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’sForm 8-A/A filed July 8, 2003, and incorporated herein by reference thereto).
3	.6	Certificate of Designation of 6% Series E Cumulative Convertible and Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed October 1, 2003, and incorporated herein by reference thereto).
3	.7	Certificate of Designation of 75/8% Series F Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’sForm 8-A filed September 10, 2004, and incorporated herein by reference thereto).

95

3	.8	Certificate of Designation of 7.5% Series G Cumulative Convertible Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed December 20, 2006, and incorporated herein by reference thereto).
3	.9	Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed September 8, 2004, and incorporated herein by reference thereto).
4	.1	The Company, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument that defines the rights of holders of long-term debt of the Company and authorizes a total amount of securities not in excess of 10% of the total assets of the Company.
4	.2	Indenture dated as of April 17, 1997 between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed April 21, 1997, and incorporated herein by reference thereto).
4	.3	First Supplemental Indenture, dated as of April 17, 1997, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed April 21, 1997, and incorporated herein by reference thereto).
4	.4	Second Supplemental Indenture, dated as of March 13, 1998, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed March 11, 1998, and incorporated herein by reference thereto).
4	.5	Third Supplemental Indenture, dated as of March 18, 1999, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed March 17, 1999, and incorporated herein by reference thereto).
4	.6	Fourth Supplemental Indenture, dated as of August 10, 2001, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed August 9, 2001, and incorporated herein by reference thereto).
4	.7	Supplemental Indenture No. 5, dated September 10, 2003, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.8	Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 5, dated September 10, 2003, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.3 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.9	Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 9, 2002, and incorporated herein by reference thereto).
4	.10	Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed September 9, 2002, and incorporated herein by reference thereto).
4	.11	Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed March 14, 2003, and incorporated herein by reference thereto).
4	.12	Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.13	Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.14	Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed October 30, 2003, and incorporated herein by reference thereto).

96

4	.15	Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 13, 2004, and incorporated herein by reference thereto).
4	.16	Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed April 28, 2005, and incorporated herein by reference thereto).
4	.17	Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed November 30, 2005, and incorporated herein by reference thereto).
4	.18	Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed November 20, 2006, and incorporated herein by reference thereto).
4	.19	Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed November 20, 2006, and incorporated herein by reference thereto).
4	.20	Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to the Company’sForm S-3 (FileNo. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).
4	.21	Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to the Company’sForm S-3 (FileNo. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).
10	.1	Third Amended and Restated Loan Agreement, dated as of July 26, 2006, by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as documentation agents (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed July 28, 2006, and incorporated herein by reference thereto).
10	.2	Amendment No. 1 to Third Amended and Restated Loan Agreement by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as documentation agents, dated as of September 20, 2006 (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed September 26, 2006, and incorporated herein by reference thereto).
10	.3	Credit Agreement, dated as of May 31, 2006, by and among the Company and certain of its subsidiaries and Fifth Third Bank (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed June 5, 2006, and incorporated by reference thereto).
10	.4	ISDA Master Agreement and Schedule dated as of May 6, 2004 by and between Bank of America, N.A. and Health Care REIT, Inc. (filed with the Commission as Exhibit 10.3 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.5	Interest Rate Swap Confirmation dated May 10, 2004 between Health Care REIT, Inc. and Bank of America, N.A. (filed with the Commission as Exhibit 10.4 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.6	Interest Rate Swap Confirmation dated May 6, 2004 between Health Care REIT, Inc. and Deutsche Bank AG (filed with the Commission as Exhibit 10.5 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.7	Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed with the Commission as Exhibit 10.6 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).

97

10	.8	The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995, and incorporated herein by reference thereto).*
10	.9	First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.2 to the Company’sForm S-8 (FileNo. 333-40771) filed November 21, 1997, and incorporated herein by reference thereto).*
10	.10	Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.3 to the Company’sForm S-8 (FileNo. 333-73916) filed November 21, 2001, and incorporated herein by reference thereto).*
10	.11	Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.15 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.12	Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.1 to the Company’sForm 10-Q filed May 10, 2004, and incorporated herein by reference thereto).*
10	.13	First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed May 10, 2004, and incorporated herein by reference thereto).*
10	.14	Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the Commission as Appendix A to the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders, filed March 28, 2005, and incorporated herein by reference thereto).*
10	.15	Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.17 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*
10	.16	Form of Restricted Stock Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*
10	.17	Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.3 to the Company’sForm 10-Q/A filed October 27, 2004, and incorporated herein by reference thereto).*
10	.18	Form of Restricted Stock Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*
10	.19	Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.20	Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.21	Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.22	Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.23	Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.24	Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.23 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*

98

10	.25	Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.26	Restricted Stock Agreement, dated January 22, 2007, by and between Health Care REIT and Raymond W. Braun (filed with the Commission as Exhibit 10.2 to the Company’sForm 8-K filed January 25, 2007, and incorporated herein by reference thereto).*
10	.27	Third Amended and Restated Employment Agreement, dated January 22, 2007, by and between the Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed January 25, 2007, and incorporated herein by reference thereto).*
10	.28	Second Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Raymond W. Braun (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.29	Second Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Erin C. Ibele (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.30	Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.31	Amended and Restated Employment Agreement, effective March 17, 2006, by and between Health Care REIT, Inc. and Scott A. Estes (filed with the Commission as Exhibit 10.1 to the Company’sForm 10-Q filed May 10, 2006, and incorporated herein by reference thereto).*
10	.32	Employment Agreement, effective July 1, 2004, by and between Health Care REIT, Inc. and Jeffrey H. Miller (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).*
10	.33	Consulting Agreement dated as of September 12, 2006 between the Company and Fred S. Klipsch (filed with the Commission as Exhibit 10.1 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.34	Consulting Agreement dated as of September 12, 2006 between the Company and Frederick L. Farrar (filed with the Commission as Exhibit 10.2 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.35	Employment Agreement dated as of September 12, 2006 between the Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.3 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.36	Health Care REIT, Inc. Supplemental Executive Retirement Plan, effective as of January 1, 2001 (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 10, 2003, and incorporated herein by reference thereto).*
10	.37	Health Care REIT, Inc. Executive Loan Program, effective as of August 1999 (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 10, 2003, and incorporated herein by reference thereto).*
10	.38	Form of Indemnification Agreement between the Company and each director, executive officer and officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed February 18, 2005, and incorporated herein by reference thereto).*
10	.39	Summary of Director Compensation.*
14		Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).
21		Subsidiaries of the Company.
23		Consent of Ernst & Young LLP, independent registered public accounting firm.
24	.1	Power of Attorney executed by Pier C. Borra (Director).
24	.2	Power of Attorney executed by Thomas J. DeRosa (Director).
24	.3	Power of Attorney executed by Jeffrey H. Donahue (Director).
24	.4	Power of Attorney executed by Peter J. Grua (Director).

99

24	.5	Power of Attorney executed by Fred S. Klipsch (Director).
24	.6	Power of Attorney executed by Sharon M. Oster (Director).
24	.7	Power of Attorney executed by R. Scott Trumbull (Director).
24	.8	Power of Attorney executed by George L. Chapman (Director, Chairman of the Board and Chief Executive Officer and Principal Executive Officer).
24	.9	Power of Attorney executed by Scott A. Estes (Senior Vice President and Chief Financial Officer and Principal Financial Officer).
24	.10	Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal Accounting Officer).
31	.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31	.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32	.1	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
32	.2	Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.

*  Management Contract or Compensatory Plan or Arrangement.

(b)  Exhibits:

The exhibits listed in Item 15(a)(3) above are either filed with this Form10-K or incorporated by reference in accordance withRule 12b-32 of the Securities Exchange Act of 1934.

(c)  Financial Statement Schedules:

Financial statement schedules are included on pages 100 through 111.

100

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HEALTH CARE REIT, INC.

By:  /s/  George L. Chapman

Chairman, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2007, by the following person on behalf of the Company and in the capacities indicated.

/s/  Pier C. Borra*	/s/  Sharon M. Oster*
Pier C. Borra, Director	Sharon M. Oster, Director
/s/  Thomas J. Derosa*	/s/  R. Scott Trumbull*
Thomas J. DeRosa, Director	R. Scott Trumbull, Director
/s/  Jeffrey H. Donahue*	/s/  George L. Chapman
Jeffrey H. Donahue, Director	George L. Chapman, Chairman, Chief Executive Officer and Director (Principal Executive Officer)
/s/  Peter J. Grua*	/s/  Scott A. Estes*
Peter J. Grua, Director	Scott A. Estes, Senior Vice President and Chief Financial Officer (Principal Financial Officer)
/s/  Fred S. Klipsch*	/s/  Paul D. Nungester, Jr.*
Fred S. Klipsch, Vice Chairman	Paul D. Nungester, Jr., Vice President and Controller (Principal Accounting Officer)
	*By: /s/  George L. Chapman George L. Chapman,Attorney-in-Fact

101

HEALTH CARE REIT, INC.

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Assisted Living Facilities:
Alhambra, CA			$	420	$	2,534			$	420	$	2,534	$	410		1999		1999
Amarillo, TX				390		5,100				390		5,100		302		2004		1996
Asheboro, NC(3)	$	3,548		290		5,032	$	21		290		5,053		464		2003		1998
Asheville, NC				204		3,489				204		3,489		795		1999		1999
Asheville, NC				280		1,955		351		280		2,306		234		2003		1992
Auburn, MA(1)		4,446		1,050		7,950				1,050		7,950		746		2003		1997
Azusa, CA				570		3,141				570		3,141		531		1998		1988
Baltimore, MD				510		4,515				510		4,515		485		2003		1999
Bartlesville, OK				100		1,380				100		1,380		432		1996		1995
Beaumont, TX				520		6,050				520		6,050		378		2004		1997
Bellevue, WI				1,740		18,260				1,740		18,260		243		2006		2004
Bellingham, WA				300		3,200				300		3,200		285		2003		1994
Bluffton, SC				700		5,598		3,085		700		8,683		1,226		1999		2000
Bradenton, FL				252		3,298				252		3,298		1,051		1996		1995
Bradenton, FL				100		1,700		942		100		2,642		863		1999		1996
Brandon, FL				860		7,140				860		7,140		609		2003		1990
Bremerton, WA				390		2,210				390		2,210				2006		1999
Burlington, NC				280		4,297		707		280		5,004		446		2003		2000
Burlington, NC(3)		2,787		460		5,501		5		460		5,506		503		2003		1997
Butte, MT				550		3,957		43		550		4,000		667		1998		1999
Canton, OH				300		2,098				300		2,098		483		1998		1998
Cape Coral, FL				530		3,281				530		3,281		437		2002		2000
Cary, NC				1,500		4,350		986		1,500		5,336		1,100		1998		1996
Cedar Hill, TX				171		1,490				171		1,490		436		1997		1996
Chapel Hill, NC				354		2,646		783		354		3,429		396		2002		1997
Chelmsford, MA(2)		9,019		1,040		10,960				1,040		10,960		944		2003		1997
Chickasha, OK				85		1,395				85		1,395		430		1996		1996
Chubbuck, ID				125		5,375				125		5,375		488		2003		1996
Claremore, OK				155		1,428				155		1,428		415		1996		1996
Clarksville, TN				330		2,292				330		2,292		522		1998		1998
Coeur D’ Alene, ID				530		7,570				530		7,570		681		2003		1987
Columbia, TN				341		2,295				341		2,295		519		1999		1999
Concord, NC(3)		4,698		550		3,921		78		550		3,998		404		2003		1997
Corpus Christi, TX				155		2,935		15		155		2,950		1,221		1997		1996
Corpus Christi, TX				420		4,796		139		420		4,935		2,475		1996		1997
Danville, VA				410		3,954		722		410		4,676		433		2003		1998
Dayton, OH				690		2,970		1,428		690		4,398		743		2003		1994
Desoto, TX				205		1,383				205		1,383		394		1996		1996
Duncan, OK				103		1,347				103		1,347		408		1995		1996
Durham, NC				1,476		10,659		2,196		1,476		12,855		4,517		1997		1999
Eden, NC(3)		3,049		390		5,039		89		390		5,128		464		2003		1998
Edmond, OK				175		1,564				175		1,564		465		1995		1996
Elizabeth City, NC				200		2,760		2,010		200		4,771		813		1998		1999
Encinitas, CA				1,460		7,721				1,460		7,721		1,420		2000		2000
Enid, OK				90		1,390				90		1,390		435		1995		1995
Everett, WA				1,400		5,476				1,400		5,476		1,160		1999		1999
Fairfield, CA				1,460		14,040				1,460		14,040		1,906		2002		1998
Fairhaven, MA				770		6,230				770		6,230		455		2004		1999
Fayetteville, NY				410		3,962		500		410		4,462		581		2001		1997
Federal Way, WA				540		3,960				540		3,960		352		2003		1978
Findlay, OH				200		1,800				200		1,800		489		1997		1997
Flagstaff, AZ				540		4,460				540		4,460		406		2003		1999
Florence, NJ				300		2,978				300		2,978		394		2002		1999
Forest City, NC(3)		3,121		320		4,576		51		320		4,628		429		2003		1999
Fort Myers, FL				440		2,560				440		2,560		240		2003		1980
Fort Worth, TX				64		3,881				64		3,881		1,635		1996		1984
Fredricksburg, VA(4)		7,424		1,000		20,000				1,000		20,000		918		2005		1999
Gastonia, NC(3)		4,153		470		6,129		9		470		6,138		559		2003		1998
Gastonia, NC(3)		1,944		310		3,096		38		310		3,134		305		2003		1994
Gastonia, NC(3)		3,900		400		5,029		1		400		5,029		467		2003		1996

102

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Georgetown, TX			$	200	$	2,100			$	200	$	2,100	$	557		1997		1997
Grand Terrace, CA				530		2,770				530		2,770		196		2004		1982
Greensboro, NC				330		2,970	$	555		330		3,524		334		2003		1996
Greensboro, NC				560		5,507		1,013		560		6,520		614		2003		1997
Greenville, NC(3)	$	3,639		290		4,393		20		290		4,413		407		2003		1998
Greenville, SC				310		4,750				310		4,750		314		2004		1997
Hagerstown, MD				360		4,640				360		4,640		445		2003		1999
Hamden, CT				1,470		4,530				1,470		4,530		699		2002		1998
Hamilton, NJ				440		4,469				440		4,469		605		2001		1998
Happy Valley, OR				628		3,585		232		628		3,817		787		1998		1999
Harlingen, TX				92		2,057		127		92		2,184		866		1997		1989
Hattiesburg, MS				560		5,790				560		5,790		823		2002		1998
Henderson, NV				380		9,220		65		380		9,285		1,965		1998		1998
Henderson, NV				380		4,360		41		380		4,401		723		1999		2000
Hickory, NC				290		987		232		290		1,219		155		2003		1994
High Point, NC				560		4,443		793		560		5,236		488		2003		2000
High Point, NC				370		2,185		410		370		2,595		259		2003		1999
High Point, NC(3)		2,655		330		3,395		34		330		3,429		323		2003		1994
High Point, NC(3)		2,996		430		4,147		3		430		4,150		387		2003		1998
Highlands Ranch, CO				940		3,721				940		3,721		500		2002		1999
Hilton Head Island, SC				510		6,037		2,380		510		8,417		1,437		1998		1999
Hopedale, MA				130		8,170				130		8,170		416		2005		1999
Houston, TX				360		2,640				360		2,640		321		2002		1999
Houston, TX				360		2,640				360		2,640		317		2002		1999
Hutchinson, KS				600		10,590				600		10,590		631		2004		1997
Jackson, TN				540		1,633		177		540		1,810		199		2003		1998
Jonesboro, GA				460		1,304				460		1,304		131		2003		1992
Kalispell, MT				360		3,282				360		3,282		739		1998		1998
Kenner, LA				1,100		10,036		125		1,100		10,161		3,593		1998		2000
Kirkland, WA(2)		4,937		1,880		4,320				1,880		4,320		396		2003		1996
Knoxville, TN				314		2,756				315		2,754		320		2002		1998
Lake Havasu City, AZ				450		4,223				450		4,223		874		1998		1999
Lake Havasu City, AZ				110		2,244		136		110		2,380		531		1998		1994
Lakeland, FL				520		4,580				520		4,580		410		2003		1991
Lakewood, NY				470		8,530				470		8,530		740		2003		1999
Lawton, OK				144		1,456				144		1,456		436		1995		1996
Lecanto, FL				200		6,900				200		6,900		438		2004		1986
Lenoir, NC				190		3,748		641		190		4,389		407		2003		1998
Lexington, NC				200		3,900		1,015		200		4,915		554		2002		1997
Longview, TX				320		4,440				320		4,440		280		2004		1997
Louisville, KY(1)		3,305		490		7,610				490		7,610		717		2003		1997
Lubbock, TX				280		6,220		1,660		280		7,880		591		2003		1996
Manassas, VA(2)		3,757		750		7,450				750		7,450		653		2003		1996
Margate, FL				500		7,303		2,459		500		9,762		4,246		1998		1972
Martinsville, NC				349						349						2003
Marysville, CA				450		4,172		44		450		4,216		706		1998		1999
Matthews, NC(3)		3,811		560		4,869		183		560		5,051		468		2003		1998
McHenry, IL				1,632						1,632						2006
McHenry, IL				3,550		15,300				3,550		15,300				2006		2004
Middleburg Heights, OH				960		7,780				960		7,780		473		2004		1998
Middleton, WI				420		4,006				420		4,006		525		2001		1991
Midland, TX				400		4,930				400		4,930		303		2004		1997
Midwest City, OK				95		1,385				95		1,385		434		1996		1995
Missoula, MT(5)		6,516		550		7,490				550		7,490		258		2005		1998
Monroe, NC				470		3,681		648		470		4,329		412		2003		2001
Monroe, NC				310		4,799		857		310		5,656		506		2003		2000
Monroe, NC(3)		3,343		450		4,021		13		450		4,033		388		2003		1997
Morehead City, NC				200		3,104		1,648		200		4,752		799		1999		1999
Moses Lake, WA				260		5,940				260		5,940		536		2003		1986
Mt. Vernon, WA				400		2,200				400		2,200				2006		2001
New York, NY				1,440		21,460				1,440		21,460				2006		1997
Newark, DE				560		21,220				560		21,220		1,243		2004		1998
Newburyport, MA				960		8,290				960		8,290		1,033		2002		1999
Norman, OK				55		1,484				55		1,484		533		1995		1995
North Augusta, SC				332		2,558				332		2,558		570		1999		1998
North Miami Beach, FL				300		5,709		2,006		300		7,715		3,177		1998		1987
North Oklahoma City, OK				87		1,508				87		1,508		432		1996		1996

103

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Ocean Shores, WA			$	770	$	1,390			$	770	$	1,390	$	101		2004		1996
Ogden, UT				360		6,700				360		6,700		412		2004		1998
Oklahoma City, OK				130		1,350				130		1,350		412		1995		1996
Oklahoma City, OK				220		2,943				220		2,943		592		1999		1999
Ontario, OR				90		2,110				90		2,110		188		2003		1985
Orlando, FL				1,390		4,630				1,390		4,630		344		2004		1973
Oshkosh, WI				900		3,800				900		3,800		81		2006		2005
Owasso, OK				215		1,380				215		1,380		400		1996		1996
Palestine, TX				173		1,410				173		1,410		411		1996		1996
Palestine, TX				180		4,320				180		4,320		51		2006		2005
Paris, TX				490		5,452				490		5,452		59		2006		2006
Paso Robles, CA				1,770		8,630				1,770		8,630		1,163		2002		1998
Phoenix, AZ				1,000		6,500				1,000		6,500		598		2003		1999
Pinehurst, NC				290		2,690	$	484		290		3,174		312		2003		1998
Piqua, OH				204		1,885				204		1,885		461		1997		1997
Pittsburgh, PA				1,750		8,572		115		1,750		8,687		426		2005		1998
Pocatello, ID				470		1,930				470		1,930		193		2003		1991
Ponca City, OK				114		1,536				114		1,536		480		1995		1995
Quincy, MA				2,690		15,410				2,690		15,410		812		2004		1999
Reidsville, NC				170		3,830		857		170		4,687		537		2002		1998
Reno, NV				1,060		11,440				1,060		11,440		695		2004		1998
Ridgeland, MS(2)	$	4,772		520		7,680				520		7,680		674		2003		1997
Rocky Hill, CT				1,460		7,040				1,460		7,040		983		2002		1998
Rocky Hill, CT(1)		4,561		1,090		6,710				1,090		6,710		637		2003		1996
Romeoville, IL				1,895						1,895						2006
Roswell, GA				620		2,200		184		620		2,384		320		2002		1997
Salem, OR				449		5,172				449		5,172		1,137		1999		1998
Salisbury, NC(3)		3,621		370		5,697		57		370		5,754		528		2003		1997
Salt Lake City, UT				1,060		6,142				1,060		6,142		1,019		1999		1986
San Angelo, TX				260		8,800				260		8,800		524		2004		1997
San Juan Capistrano, CA				1,390		6,942				1,390		6,942		1,022		2000		2001
Sarasota, FL				475		3,175				475		3,175		1,012		1996		1995
Sarasota, FL				1,190		4,810				1,190		4,810		455		2003		1988
Seven Fields, PA				484		4,663		63		484		4,725		1,040		1999		1999
Shawnee, OK				80		1,400				80		1,400		435		1996		1995
Sheboygan, WI				80		5,320				80		5,320		74		2006		2006
Sherman, TX				700		5,221				700		5,221				2006		2006
Smithfield, NC(3)		3,554		290		5,777		52		290		5,830		529		2003		1998
St. Charles, IL				986						986						2006
Statesville, NC				150		1,447		267		150		1,713		168		2003		1990
Statesville, NC(3)		2,895		310		6,183		32		310		6,215		551		2003		1996
Statesville, NC(3)		2,494		140		3,798		33		140		3,832		341		2003		1999
Staunton, VA				140		8,360				140		8,360		763		2003		1999
Stillwater, OK				80		1,400				80		1,400		438		1995		1995
Sunrise, FL				1,480		15,950				1,480		15,950		1,010		2004		1988
Tewksbury, MA				1,520		5,480				1,520		5,480		468		2003		1989
Texarkana, TX				192		1,403				192		1,403		406		1996		1996
Troy, OH				200		2,000				200		2,000		533		1997		1997
Valparaiso, IN				112		2,558				112		2,558		395		2001		1998
Valparaiso, IN				108		2,962				108		2,962		447		2001		1999
Vero Beach, FL				262		3,189				262		3,189		477		2001		1999
Vero Beach, FL				297		3,263				297		3,263		493		2001		1996
W. Hartford, CT				2,650		5,980				2,650		5,980		467		2004		1905
Waco, TX				180		4,500				180		4,500		295		2004		1997
Wake Forest, NC				200		3,003		1,742		200		4,745		874		1998		1999
Walterboro, SC				150		1,838		337		150		2,175		667		1999		1992
Waterford, CT				1,360		12,540				1,360		12,540		1,611		2002		2000
Waxahachie, TX				154		1,430				154		1,430		416		1996		1996
Westerville, OH				740		8,287		2,736		740		11,023		3,152		1998		2001
Wichita Falls, TX				470		3,010				470		3,010		205		2004		1997
Wilmington, NC				210		2,991				210		2,991		651		1999		1999
Winston-Salem, NC				360		2,514		459		360		2,973		282		2003		1996
Total Assisted Living Facilities:		104,945		105,153		906,738		39,131		105,154		945,912		119,856
Skilled Nursing Facilities:
Agawam, MA				880		16,112		2,133		880		18,246		2,076		2002		1993
Akron, OH				290		8,219				290		8,219		250		2005		1961
Akron, OH				630		7,535				630		7,535		106		2006		1915

104

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Alliance, OH(6)	$	5,055	$	270	$	7,723			$	270	$	7,723	$	169		2006		1982
Amarillo, TX				540		7,260				540		7,260		319		2005		1986
Arcadia, LA				240		5,460				240		5,460		126		2006		2006
Atlanta, GA				460		5,540				460		5,540		265		2005		1972
Auburndale, FL				750		5,950				750		5,950		270		2005		1983
Aurora, CO				2,600		5,906				2,600		5,906		132		2006		1988
Baltic, OH(6)		4,145		50		8,709				50		8,709		185		2006		1983
Baytown, TX				450		6,150				450		6,150		781		2002		2000
Beachwood, OH				1,260		23,478				1,260		23,478		3,264		2001		1990
Beattyville, KY				100		6,900				100		6,900		241		2005		1972
Bernice, LA				16		1,017				16		1,017		69		2005		1969
Birmingham, AL				390		4,902				390		4,902		542		2003		1977
Birmingham, AL				340		5,734				340		5,734		586		2003		1974
Boise, ID				810		5,401				810		5,401		1,542		1998		1966
Boise, ID				600		7,383				600		7,383		1,863		1998		1997
Boonville, IN				190		5,510				190		5,510		724		2002		2000
Bountiful, UT				991		6,850				991		6,850		208		2005		1987
Boynton Beach, FL				980		8,112				980		8,112		578		2004		1999
Braintree, MA				170		7,157	$	1,290		170		8,447		3,895		1997		1968
Brandon, MS				115		9,549				115		9,549		1,000		2003		1963
Bridgewater, NJ				1,850		3,050				1,850		3,050		257		2004		1970
Brighton, MA				240		3,859		1,497		240		5,356		232		2005		1982
Broadview Heights, OH				920		12,400				920		12,400		1,729		2001		1984
Bunnell, FL				260		7,118				260		7,118		537		2004		1985
Butler, AL				90		3,510				90		3,510		282		2004		1960
Byrdstown, TN						2,414						2,414		443		2004		1982
Canton, MA				820		8,201		263		820		8,464		1,126		2002		1993
Carrollton, TX				730		2,770				730		2,770		152		2005		1976
Centerville, MA				1,490		9,650		307		1,490		9,957		553		2004		1982
Cheswick, PA				384		6,041		1,293		384		7,334		1,805		1998		1933
Clarksville, TN				480		5,020				480		5,020		65		2006		1989
Clearwater, FL				160		7,218				160		7,218		493		2004		1961
Clearwater, FL				1,260		2,740				1,260		2,740		162		2005		1983
Cleveland, MS						1,850						1,850		648		2003		1977
Cleveland, TN				350		5,000		122		350		5,122		768		2001		1987
Coeur d’Alene, ID				600		7,878				600		7,878		1,969		1998		1996
Colorado Springs, CO				310		6,290				310		6,290		294		2005		1985
Columbia, TN				590		3,787				590		3,787		450		2003		1974
Columbus, IN				530		5,170		1,540		530		6,710		751		2002		2001
Columbus, OH				1,070		11,726		205		1,070		11,930		339		2005		1968
Columbus, OH(6)		4,774		1,010		4,931				1,010		4,931		119		2006		1983
Columbus, OH(6)		10,699		1,860		16,624				1,860		16,624		363		2006		1978
Corpus Christi, TX				307		443				307		443		55		2005		1985
Corpus Christi, TX				400		1,916				400		1,916		86		2005		1985
Dade City, FL				250		7,150				250		7,150		495		2004		1975
Daytona Beach, FL				470		5,930				470		5,930		447		2004		1986
Daytona Beach, FL				490		5,710				490		5,710		446		2004		1961
Daytona Beach, FL				1,850		2,650				1,850		2,650		162		2005		1964
DeBary, FL				440		7,460				440		7,460		514		2004		1965
Dedham, MA				1,790		12,936				1,790		12,936		1,768		2002		1996
Defuniak Springs, FL				1,350		10,250				1,350		10,250		98		2006		1980
DeLand, FL				220		7,080				220		7,080		492		2004		1967
Denton, MD				390		4,010				390		4,010		515		2003		1982
Denver, CO				2,530		9,514				2,530		9,514		281		2005		1987
Douglasville, GA				1,350		7,471				1,350		7,471		830		2003		1975
Easton, PA				285		6,315				285		6,315		2,745		1993		1959
Eight Mile, AL				410		6,110				410		6,110		707		2003		1973
El Paso, TX				539		8,961				539		8,961		397		2005		1970
El Paso, TX				642		3,958				642		3,958		210		2005		1969
Elizabethton, TN				310		4,604		336		310		4,940		794		2001		1980
Erin, TN				440		8,060		134		440		8,194		1,180		2001		1981
Eugene, OR				300		5,316				300		5,316		1,442		1998		1972
Fairfield, AL				530		9,134				530		9,134		962		2003		1965
Fall River, MA				620		5,829		4,856		620		10,685		2,341		1996		1973
Farmerville, LA				147		4,087				147		4,087		161		2005		1984
Florence, AL				320		3,975				320		3,975		495		2003		1972
Fort Myers, FL				636		6,026				636		6,026		2,197		1998		1984
Fort Pierce, FL				440		3,560				440		3,560		141		2005		1973

105

								Gross Amount at Which
								Carried at Close of Period
												Accumulated
		Initial Cost to Company				Cost Capitalized						Depreciation
				Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances	Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Gardnerville, NV		$	182	$	1,718	$	785	$	182	$	2,503	$	701		2004		2000
Goshen, IN			210		6,160				210		6,160		82		2006		2006
Graceville, FL			150		13,000				150		13,000		121		2006		1980
Grand Prairie, TX			574		3,426				574		3,426		182		2005		1982
Granite City, IL			610		7,143		842		610		7,985		2,781		1998		1973
Granite City, IL			400		4,303		707		400		5,010		1,700		1999		1964
Greeneville, TN			400		8,290				400		8,290		663		2004		1979
Hanover, IN			210		4,430				210		4,430		325		2004		2000
Hardin, IL			50		5,350		135		50		5,485		1,506		2002		1996
Harriman, TN			590		8,060		158		590		8,218		1,260		2001		1972
Herculaneum, MO			127		10,373		393		127		10,766		2,852		2002		1984
Hilliard, FL			150		6,990				150		6,990		1,657		1999		1990
Homestead, FL			2,750		11,750				2,750		11,750		112		2006		1994
Houston, TX			600		2,700				600		2,700		150		2005		1974
Houston, TX			630		5,970		750		630		6,720		811		2002		1995
Huron, OH			160		6,088		252		160		6,340		177		2005		1983
Indianapolis, IN			255		2,473				255		2,473		63		2006		1981
Indianapolis, IN			75		925				75		925		106		2004		1942
Jackson, MS			410		1,814				410		1,814		234		2003		1968
Jackson, MS					4,400						4,400		1,540		2003		1980
Jackson, MS					2,150						2,150		753		2003		1970
Jamestown, TN					6,707						6,707		1,230		2004		1966
Jefferson City, MO			370		6,730		301		370		7,031		1,852		2002		1982
Jefferson, OH			80		9,120				80		9,120		246		2006		1984
Jonesboro, GA			840		1,921				840		1,921		260		2003		1992
Kent, OH			215		3,367				215		3,367		1,339		1989		1983
Kissimmee, FL			230		3,854				230		3,854		273		2004		1972
LaBelle, FL			60		4,946				60		4,946		380		2004		1986
Lake Placid, FL			150		12,850				150		12,850		910		2004		1984
Lakeland, FL			696		4,843				696		4,843		1,784		1998		1984
Lee, MA			290		18,135		926		290		19,061		2,440		2002		1998
Littleton, MA			1,240		2,910				1,240		2,910		445		1996		1975
Longview, TX			293		1,707				293		1,707		105		2005		1971
Longwood, FL			480		7,520				480		7,520		530		2004		1980
Louisville, KY			490		10,010				490		10,010		530		2005		1978
Louisville, KY			430		7,135		163		430		7,298		1,085		2002		1974
Louisville, KY			350		4,675		109		350		4,784		727		2002		1975
Lowell, MA			370		7,450				370		7,450		413		2004		1977
Lufkin, TX			416		1,184				416		1,184		106		2005		1919
Manchester, NH			340		4,360				340		4,360		186		2005		1984
Marianna, FL			340		8,910				340		8,910		83		2006		1997
McComb, MS			120		5,786				120		5,786		592		2003		1973
Memphis, TN			970		4,246				970		4,246		506		2003		1981
Memphis, TN			480		5,656				480		5,656		624		2003		1982
Memphis, TN			940		5,963				940		5,963		545		2004		1951
Merrillville, IN			643		7,084		3,526		643		10,610		3,045		1997		1999
Mesa, AZ			940		2,579				940		2,579		117		2005		1984
Midwest City, OK			470		5,673				470		5,673		1,898		1998		1958
Midwest City, OK			484		5,516				484		5,516		256		2005		1987
Millbury, MA			930		4,570				930		4,570		399		2004		1972
Mobile, AL			440		3,625				440		3,625		437		2003		1982
Monteagle, TN			310		3,318				310		3,318		367		2003		1980
Monterey, TN					4,195						4,195		769		2004		1977
Monticello, FL			140		4,471				140		4,471		354		2004		1986
Morgantown, KY			380		3,705				380		3,705		387		2003		1965
Moss Point, MS			120		7,280				120		7,280		524		2004		1933
Mountain City, TN			220		5,896		661		220		6,556		1,579		2001		1976
Naples, FL			550		5,450				550		5,450		351		2004		1968
Natchitoches, LA			190		4,096				190		4,096		153		2005		1965
Needham, MA			1,610		13,715		365		1,610		14,081		1,969		2002		1994
New Haven, CT			160		4,778				160		4,778		11		2006		1958
New Haven, IN			176		3,524				176		3,524		270		2004		1981
New Port Richey, FL			624		7,307				624		7,307		2,644		1998		1984
North Miami, FL			430		3,918				430		3,918		379		2004		1968
North Miami, FL			440		4,830				440		4,830		382		2004		1963
Norwalk, CT			410		2,118		1,782		410		3,900		210		2004		1971
Oklahoma City, OK			473		10,729				473		10,729		136		2006		1979
Ormond Beach, FL					2,739		74				2,812		651		2002		1983

106

								Gross Amount at Which
								Carried at Close of Period
												Accumulated
		Initial Cost to Company				Cost Capitalized						Depreciation
				Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances	Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Overland Park, KS		$	1,120	$	8,360			$	1,120	$	8,360	$	252		2005		1970
Owensboro, KY			240		6,760				240		6,760		345		2005		1966
Owensboro, KY			225		13,275				225		13,275		582		2005		1964
Owenton, KY			100		2,400				100		2,400		129		2005		1979
Panama City, FL			300		9,200				300		9,200		653		2004		1992
Payson, AZ			180		3,988				180		3,988		1,145		1998		1985
Pigeon Forge, TN			320		4,180	$	117		320		4,297		689		2001		1986
Plano, TX			1,305		9,095				1,305		9,095		412		2005		1977
Pleasant Grove, AL			480		4,429				480		4,429		529		2003		1964
Plymouth, MA			440		6,220				440		6,220		361		2004		1968
Port St. Joe, FL			370		2,055				370		2,055		271		2004		1982
Prospect, CT			820		1,441		2,118		820		3,559		151		2004		1970
Pueblo, CO			370		6,051				370		6,051		1,701		1998		1989
Pueblo, CO			250		9,391				250		9,391		289		2005		1986
Quincy, FL			200		5,333				200		5,333		425		2004		1983
Quitman, MS			60		10,340				60		10,340		701		2004		1976
Rheems, PA			200		1,575				200		1,575		169		2003		1996
Richmond, VA			1,210		2,889				1,210		2,889		434		2003		1995
Ridgely, TN			300		5,700		97		300		5,797		856		2001		1990
Ringgold, LA			30		4,174				30		4,174		150		2005		1984
Rochdale, MA			675		11,847		1,899		675		13,746		1,552		2002		1995
Rockledge, FL			360		4,117				360		4,117		815		2001		1970
Rockwood, TN			500		7,116		741		500		7,857		1,205		2001		1979
Rogersville, TN			350		3,278				350		3,278		363		2003		1980
Royal Palm Beach, FL			980		8,320				980		8,320		604		2004		1984
Ruleville, MS			0		50						50		18		2003		1978
Ruston, LA			130		9,403				130		9,403		300		2005		1988
San Antonio, TX			560		7,315				560		7,315		936		2002		2000
Sandwich, MA			1,140		11,190		136		1,140		11,326		634		2004		1987
Sarasota, FL			560		8,474				560		8,474		1,685		1999		2000
Sarasota, FL			600		3,400				600		3,400		244		2004		1982
Scituate, MA			1,740		10,640				1,740		10,640		297		2005		1976
Seville, OH			230		1,770				230		1,770		105		2005		1981
Shelby, MS			60		5,340				60		5,340		373		2004		1979
Shelbyville, KY			630		3,870				630		3,870		172		2005		1965
South Boston, MA			385		2,002		5,218		385		7,220		1,666		1995		1961
South Pittsburg, TN			430		5,628				430		5,628		486		2004		1979
Southbridge, MA			890		8,110		762		890		8,872		671		2004		1976
Spring City, TN			420		6,085		2,579		420		8,664		1,232		2001		1987
St. Louis, MO			750		6,030				750		6,030		740		1995		1994
Starke, FL			120		10,180				120		10,180		717		2004		1990
Stuart, FL			390		8,110				390		8,110		566		2004		1985
Swanton, OH			330		6,370				330		6,370		388		2004		1950
Tampa, FL			830		6,370				830		6,370		554		2004		1968
Torrington, CT			360		1,261		624		360		1,885		112		2004		1966
Troy, OH			470		16,730				470		16,730		980		2004		1971
Tucson, AZ			930		13,399				930		13,399		385		2005		1985
Tupelo, MS			740		4,092				740		4,092		478		2003		1980
Uhrichsville, OH			24		6,716				24		6,716		159		2006		1977
Venice, FL			500		6,000				500		6,000		379		2004		1987
Vero Beach, FL			660		9,040		1,461		660		10,501		3,650		1998		1984
Wareham, MA			875		10,313		1,701		875		12,014		1,450		2002		1989
Warren, OH			240		3,810				240		3,810		180		2005		1973
Waterbury, CT			370		2,166				370		2,166		5		2006		1972
Webster, MA			234		3,580		713		500		4,026		2,186		1995		1986
Webster, MA			70		5,917				70		5,917		3,050		1995		1982
Webster, TX			360		5,940				360		5,940		757		2002		2000
West Haven, CT			580		1,620		1,034		580		2,654		138		2004		1971
West Palm Beach, FL			696		8,037				696		8,037		3,293		1998		1984
West Worthington, OH			510		5,090				510		5,090		135		2006		1980
Westlake, OH			1,320		17,936				1,330		17,926		2,532		2001		1985
Westlake, OH			571		5,411				571		5,411		1,464		1998		1957
Westmoreland, TN			330		1,822		2,635		330		4,456		669		2001		1994
White Hall, IL			50		5,550		670		50		6,220		1,658		2002		1971
Whitemarsh, PA			2,310		6,190				2,310		6,190		327		2005		1967
Williamstown, KY			70		6,430				70		6,430		285		2005		1987
Winnfield, LA			31		6,480				31		6,480		217		2005		1964

107

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Woodbridge, VA			$	680	$	4,423			$	680	$	4,423	$	590		2002		1977
Worcester, MA				1,053		2,265	$	268		1,053		2,533		1,580		1997		1961
Worcester, MA				1,100		5,400		2,497		1,100		7,897		516		2004		1962
Total Skilled Nursing Facilities:	$	24,673		111,159		1,298,362		51,175		111,435		1,349,258		158,686
Independent Living / CCRC Facilities:
Amelia Island, FL				3,290		24,310		1,342		3,290		25,652		632		2005		1998
Anderson, SC				710		6,290				710		6,290		589		2003		1986
Atlanta, GA				2,059		14,914				2,059		14,914		4,919		1997		1999
Aurora, CO				1,379						1,379						2006
Austin, TX				880		9,520				880		9,520		2,149		1999		1998
Columbia, SC				2,120		4,860		2,185		2,120		7,045		601		2003		2000
Denver, CO				3,650		14,906				3,650		14,906		98		2006		1987
Douglasville, GA				90		217				90		217		25		2003		1985
Fremont, CA				3,400		25,300				3,400		25,300		668		2005		1988
Gardnerville, NV				1,144		10,830				1,144		10,830		4,170		1998		1999
Gilroy, CA				760		13,880				760		13,880		30		2006		2006
Houston, TX				4,791		7,100				4,791		7,100		924		2003		1974
Indianapolis, IN				495		6,287				495		6,287		110		2006		1981
Lauderhill, FL				1,836		25,216				1,836		25,216		1,017		2005		1976
Manteca, CA				1,300		12,125				1,300		12,125		329		2005		1988
Marysville, WA				620		4,780				620		4,780		407		2003		1998
Mesa, AZ				950		9,087				950		9,087		1,584		1999		2000
Mount Airy, NC				270		6,430				270		6,430		170		2005		1998
Naples, FL				1,716		17,306				1,716		17,306		8,070		1997		1999
Ossining, NY				1,510		9,490				1,510		9,490		1,238		2002		1967
Pawleys Island, SC				1,010		32,590		670		1,010		33,260		844		2005		1998
Raytown, MO				510		5,490				510		5,490				2006		2000
Rohnert Park, CA				6,500		18,700				6,500		18,700		500		2005		1988
Roswell, GA				1,107		9,627				1,107		9,627		3,787		1997		1999
Sonoma, CA				1,100		18,400				1,100		18,400		489		2005		1988
Spartanburg, SC				3,350		15,750				3,350		15,750		410		2005		1998
Terre Haute, IN				175		3,499		3,806		175		7,305		1,870		1999		1999
Twin Falls, ID				550		14,740				550		14,740		1,674		2002		1991
Urbana, IL				670		6,780				670		6,780		952		2002		1998
Vacaville, CA				900		17,100				900		17,100		457		2005		1988
Vallejo, CA				4,000		18,000				4,000		18,000		479		2005		1988
Wichita, KS				1,400		11,000				1,400		11,000				2006		1997
Winston-Salem, NC				2,850		13,550		175		2,850		13,725		368		2005		1997
Total Independent Living / CCRC Facilities:		0		57,092		408,074		8,178		57,092		416,252		39,560
Specialty Care Facilities:
Amarillo, TX				72		11,928				72		11,928		467		2005		1986
Bellaire, TX				3,740		36,966		3,828		3,740		40,793		53		2006		2005
Braintree, MA				300		13,781				300		13,781		4,103		2005		1918
Chicago, IL				3,650		7,505		11,054		3,650		18,559		3,333		2002		1979
Corpus Christi, TX				77		3,923				77		3,923		178		2005		1968
El Paso, TX				112		15,888				112		15,888		616		2005		1994
Lafayette, LA				1,383		6,644		1,674		1,383		8,318		15		2006		1993
Midwest City, OK				146		3,854				146		3,854		171		2005		1996
New Albany, OH				3,020		27,445				3,020		27,445		2,925		2002		2003
Plano, TX				195		14,805				195		14,805		574		2005		1995
Springfield, MA				2,100		22,913		160		2,100		23,073		7,202		2005		1952
Stoughton, MA				975		25,247				975		25,247		8,048		2005		1958
Tulsa, OK				1,954		3,809		1,988		1,954		5,798		13		2006		1992
Webster, TX				1,262		8,575		2,444		1,262		11,019		19		2006		1991
Total Specialty Care Facilities:		0		18,986		203,283		21,148		18,986		224,431		27,717
Medical Office Buildings:
Arcadia, CA(7)		10,830		4,796		27,567		2,416		4,796		29,983		31		2006		1984
Atlanta, GA				10,760		12,774		3,311		10,790		16,056		30		2006		1992
Aurora, IL				482		7,859		1,021		482		8,880		13		2006		1996
Aurora, IL				1,740		1,177		1,062		1,740		2,239		5		2006		1989
Austell, GA(7)		4,551		2,704		5,197		3,341		2,704		8,538		23		2006		1999
Bellaire, TX				3,657		27,672		3,547		3,657		31,219		44		2006		2005
Birmingham, AL						7,178		2,127				9,305		13		2006		1971

108

									Gross Amount at Which
									Carried at Close of Period
													Accumulated
			Initial Cost to Company				Cost Capitalized						Depreciation
					Buildings &		Subsequent to				Buildings &		and		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Amortization		Acquired		Built
Birmingham, AL					$	8,070	$	1,905			$	9,975	$	13		2006		1985
Birmingham, AL						15,278		3,393				18,672		27		2006		1989
Boca Raton, FL(7)	$	14,729				23,852		2,760				26,612		35		2006		1995
Boynton Beach, FL(7)		4,910	$	1,446		6,034		1,400	$	1,446		7,434		11		2006		1993
Boynton Beach, FL(7)		4,404		1,451		6,425		1,096		1,451		7,521		10		2006		1995
Charlotte, NC				641		7,881		1,037		641		8,918		12		2006		1988
Coral Springs, FL				1,246		7,949		1,928		1,246		9,877		18		2006		1993
Dallas, TX(7)		16,571				29,208		5,401				34,608		58		2006		1995
Decatur, GA				508		974		979		508		1,953		6		2006		1971
Delray Beach, FL(7)		14,552				21,449		11,986				33,436		46		2006		1983
Durham, NC(7)		6,812		4,322		15,702		4,510		4,322		20,213		31		2006		1980
Edinburg, TX(7)		6,392		337		13,375		649		337		14,023		15		2006		1996
El Paso, TX				897		2,336		603		897		2,939		5		2006		1982
El Paso, TX(7)		11,088				21,915		2,867				24,782		28		2006		1997
Fayetteville, GA(7)		3,531		522		6,238		905		522		7,143		10		2006		1999
Germantown, TN				1,962		9,289		1,790		1,962		11,079		16		2006		2002
Jupiter, FL(7)		7,740		1,676		9,345		1,621		1,676		10,966		16		2006		2001
Lakewood, CA						10,964		901				11,865		12		2006		1993
Las Vegas, NV(7)		4,789		2,052		9,378		906		2,052		10,283		11		2006		1991
Las Vegas, NV(7)		8,505		5,730		47,861		4,761		5,730		52,622		65		2006		1982
Lawrenceville, GA				1,274		8,140		1,585		1,274		9,725		14		2006		2001
Lawrenceville, GA(7)		2,511		603		3,862		750		603		4,612		7		2006		2002
Lewisville, TX						8,133		914				9,047		12		2006		1997
Los Gatos, CA						14,512		5,015				19,528		26		2006		1993
Loxahatchee, FL(7)		3,519		1,675		5,171		804		1,675		5,975		7		2006		1993
Loxahatchee, FL(7)		2,888		1,240		3,954		639		1,240		4,594		6		2006		1996
Loxahatchee, FL						3,899		697				4,596		6		2006		1996
Middletown, NY						13,156		7,759				20,915		42		2006		1998
Nashville, TN				1,505		5,469		1,218		1,505		6,687		11		2006		1986
North Las Vegas, NV(7)		6,491				10,696		1,689				12,385		18		2006		2000
Ocala, FL				1,708		4,095		1,044		1,708		5,139		9		2006		1991
Palm Bay, FL(7)		2,063		1,026		2,322		1,554		1,026		3,876		10		2006		1997
Palm Springs, CA						9,870		1,384				11,254		14		2006		1998
Palm Springs, FL				832		5,474		1,112		840		6,578		10		2006		1997
Palm Springs, FL(7)		2,960		684		3,115		610		684		3,724		6		2006		1993
Pearland, TX(7)		2,547		458		4,309		752		458		5,060		7		2006		2000
Pearland, TX(7)		1,732		1,542		3,408		694		1,542		4,102		6		2006		2002
Pelham, AL				688		2,412		583		688		2,995		5		2006		1990
Phoenix, AZ(7)		31,380				38,216		9,917				48,133		77		2006		1998
Plantation, FL(7)		10,503		7,892		6,666		2,226		7,892		8,892		17		2006		1996
Plantation, FL(7)		9,807		7,860		3,500		4,559		7,860		8,058		29		2006		1995
Reno, NV(7)		8,600		921		16,489		2,465		921		18,955		28		2006		1991
Sacramento, CA(7)		5,230				9,015		3,552				12,566		15		2006		1990
San Antonio, TX(7)		6,881		1,320		11,395		3,558		1,320		14,954		28		2006		1999
Suwanee, GA				1,127		5,116		1,044		1,127		6,160		9		2006		1998
Suwanee, GA				967		4,746		1,115		967		5,860		9		2006		2001
Suwanee, GA				643		4,423		609		643		5,032		6		2006		2003
Tomball, TX(7)		3,116		766		8,167		1,335		766		9,503		12		2006		1982
Trussville, AL				759		1,495		990		759		2,485		6		2006		1990
Union City, TN				1,005		11,799		1,409		1,005		13,208		17		2006		1998
Voorhees, NJ				9,582		19,482		3,513		9,582		22,995		34		2006		1997
Wellington, FL(7)		7,574				12,960		1,417				14,377		16		2006		2002
West Palm Beach, FL(7)		6,498				10,185		4,068				14,254		17		2006		1995
West Palm Beach, FL(7)		7,838				10,373		3,247				13,621		24		2006		1993
West Palm Beach, FL(7)		7,240				11,034		2,305				13,339		20		2006		1991
Yorkville, IL				982		2,146		823		982		2,969		5		2006		1980
Total Medical Office Buildings:		248,782		93,988		662,151		145,178		94,026		807,294		1,188
Construction in Progress:						138,222						138,222
		378,400		386,378		3,607,259		264,810		386,693		3,881,369		347,004
Assets Held for Sale
Litchfield, CT				660		9,652		283		660		9,934		4,379		1997		1998
Middletown, OH				800		3,700				800		3,700		264		2004		2000
Newark, OH				410		5,711		409		410		6,120		2,185		1998		1987
Total Assets Held for Sale		0		1,870		19,063		692		1,870		19,754		6,828

109

Gross Amount at Which

Carried at Close of Period

Accumulated

Initial Cost to Company

Cost Capitalized

Depreciation

Buildings &

Subsequent to

Buildings &

and

Year

Year

Description

Encumbrances

Land

Improvements

Acquisition

Land

Improvements

Amortization

Acquired

Built

Total Investment in Real Property Owned

$

378,400

$

388,248

$

3,635,938

$

265,502

$

388,563

$

3,901,123

$

353,832

(1)	In June 2003, three wholly-owned subsidiaries of the Company completed the acquisitions of three assisted living facilities from Emeritus Corporation. The properties were subject to existing mortgage debt of $13,981,000. The three wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(2)	In September 2003, four wholly-owned subsidiaries of the Company completed the acquisitions of four assisted living facilities from Emeritus Corporation. The properties were subject to existing mortgage debt of $24,291,000. The four wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(3)	In September 2003, 17 wholly-owned subsidiaries of the Company completed the acquisitions of 17 assisted living facilities from Southern Assisted Living, Inc. The properties were subject to existing mortgage debt of $59,471,000. The 17 wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(4)	In September 2005, one wholly-owned subsidiary of the Company completed the acquisition of one assisted living facility from Emeritus Corporation. The property was subject to existing mortgage debt of $6,705,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(5)	In January 2005, one wholly-owned subsidiary of the Company completed the acquisition of one assisted living facility from Emeritus Corporation. The property was subject to existing mortgage debt of $7,875,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(6)	In March 2006, four wholly-owned subsidiaries of the Company completed the acquisition of four skilled nursing facilities from Provider Services, Inc. The properties were subject to existing mortgage debt of $25,099. The wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.
(7)	In December 2006, the Company completed the acquisition of Windrose Medical Properties Trust. Certain of the properties were subject to existing mortgage debt of $248,844,000 (principal only). Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries related to the aforementioned properties be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

110

HEALTH CARE REIT, INC.

	Year Ended December 31,
	2006			2005			2004
				(In thousands)
Investment in real estate:
Balance at beginning of year	$	2,936,800		$	2,409,963		$	1,893,977
Additions:
Acquisitions		1,239,289			568,660			504,336
Improvements		169,811			31,422			33,538
Conversions from loans receivable		11,204			3,908			8,500
Deferred acquisition payments		2,000			18,125
Assumed debt		25,049			22,309			14,555
Total additions		1,447,353			644,424			560,929
Deductions:
Cost of real estate sold		(94,466	)		(115,179	)		(44,629	)
Reclassification of accumulated depreciation for assets held for sale		(6,829	)		(2,408	)
Impairment of assets								(314	)
Total deductions		(101,295	)		(117,587	)		(44,943	)
Balance at end of year(1)	$	4,282,858		$	2,936,800		$	2,409,963
Accumulated depreciation:
Balance at beginning of year	$	274,875		$	219,536		$	152,440
Additions:
Depreciation and amortization expenses		97,638			84,828			74,015
Deductions:
Sale of properties		(18,677	)		(27,081	)		(6,919	)
Reclassification of accumulated depreciation for assets held for sale		(6,829	)		(2,408	)
Balance at end of year	$	347,007		$	274,875		$	219,536

(1) The aggregate cost for tax purposes for real property equals $4,049,675 at December 31, 2006.

111

HEALTH CARE REIT, INC.

SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE

December 31, 2006

(In thousands)

Principal Amount

of Loans Subject

Final

Carrying

to Delinquent

Interest

Maturity

Periodic Payment

Prior

Face Amount

Amount of

Principal or

Description

Rate

Date

Terms

Liens

of Mortgages

Mortgages

Interest

Two skilled nursing facilities in Florida

9.89%

09/30/20

Monthly Payments

$

34,000

$

33,894

None

$306,326

Chicago, IL

16.48%

6/30/07

Monthly Payments

20,355

18,330

None

(Specialty care facility)

$234,525

Lauderhill, FL

11.50%

09/01/12

Monthly Payments

12,700

12,453

None

(Skilled nursing facility)

$128,975

Four assisted living facilities in Ohio

8.96%

08/01/08

Monthly Payments

15,965

11,047

None

and Pennsylvania

$82,480

Six skilled nursing facilities

5.75%

06/30/18

Monthly Payments

11,000

11,000

None

in Illinois and Missouri

$52,708

26 skilled nursing facilities and three

13.69%

03/31/10

Monthly Payments

11,143

9,252

None

assisted living facilities in Florida,

$275,000

Pennsylvania, South Carolina,

Tennessee and Kentucky

Sun Valley, CA

9.63%

05/01/08

Monthly Payments

18,800

7,472

None

(Specialty care facility)

$91,547

Bala, PA

11.50%

07/01/08

Monthly Payments

7,400

7,145

None

(Skilled nursing facility)

$68,470

Plymouth, MA

19.26%

09/09/09

Monthly Payments

6,175

6,175

None

(Independent living facility)

$52,179

Boalsburg, PA

19.00%

06/01/07

Monthly Payments

5,938

5,350

None

(Independent living facility)

$35,666

28 mortgage loans relating to 19 skilled nursing facilities, 63 assisted living facilities, 12 independent living facilities and 2 specialty care facilities

From 3.9% to 19.26%

From 06/01/07 07/01/20

Monthly Payments from $45 to $99,787

62,072

55,497

None

Totals

$

204,316

$

177,615

$

0

112

HEALTH CARE REIT, INC.

	Year Ended December 31,
	2006		2005		2004
			(In thousands)
Reconciliation of mortgage loans:
Balance at beginning of year	$	141,467	$	155,266	$	164,139
Additions:
New mortgage loans		87,563		36,055		30,057
		229,030		191,321		194,196
Deductions:
Collections of principal(1)		40,155		45,946		20,197
Conversions to real property		11,204		3,908		8,500
Charge-offs		56
Other(2)						10,233
		51,415		49,854		38,930
Balance at end of year	$	177,615	$	141,467	$	155,266

(1)	Includes collection of negative principal amortization.
(2)	Includes mortgage loans that were reclassified to working capital loans during the periods indicated.

113

EXHIBIT INDEX

2	.1	Agreement and Plan of Merger, dated as of September 12, 2006, by and among Health Care REIT, Inc., Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’sForm 8-K filed September 15, 2006, and incorporated herein by reference thereto).
2	.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of October 12, 2006, by and among Health Care REIT, Inc., Heat Merger Sub, LLC, Heat OP Merger Sub, L.P., Windrose Medical Properties Trust and Windrose Medical Properties, L.P. (filed with the Commission as Exhibit 2.1 to the Company’sForm 8-K filed October 13, 2006, and incorporated herein by reference thereto).
3	.1	Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.2	Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A, of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.3	Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 10-K filed March 20, 2000, and incorporated herein by reference thereto).
3	.4	Certificate of Amendment of Second Restated Certificate of Incorporation of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed June 13, 2003, and incorporated herein by reference thereto).
3	.5	Certificate of Designation of 77/8% Series D Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’sForm 8-A/A filed July 8, 2003, and incorporated herein by reference thereto).
3	.6	Certificate of Designation of 6% Series E Cumulative Convertible and Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed October 1, 2003, and incorporated herein by reference thereto).
3	.7	Certificate of Designation of 75/8% Series F Cumulative Redeemable Preferred Stock of the Company (filed with the Commission as Exhibit 2.5 to the Company’sForm 8-A filed September 10, 2004, and incorporated herein by reference thereto).
3	.8	Certificate of Designation of 7.5% Series G Cumulative Convertible Preferred Stock of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed December 20, 2006, and incorporated herein by reference thereto).
3	.9	Amended and Restated By-Laws of the Company (filed with the Commission as Exhibit 3.1 to the Company’sForm 8-K filed September 8, 2004, and incorporated herein by reference thereto).
4	.1	The Company, by signing this Report, agrees to furnish the Securities and Exchange Commission upon its request a copy of any instrument that defines the rights of holders of long-term debt of the Company and authorizes a total amount of securities not in excess of 10% of the total assets of the Company.
4	.2	Indenture dated as of April 17, 1997 between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed April 21, 1997, and incorporated herein by reference thereto).
4	.3	First Supplemental Indenture, dated as of April 17, 1997, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed April 21, 1997, and incorporated herein by reference thereto).
4	.4	Second Supplemental Indenture, dated as of March 13, 1998, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed March 11, 1998, and incorporated herein by reference thereto).
4	.5	Third Supplemental Indenture, dated as of March 18, 1999, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed March 17, 1999, and incorporated herein by reference thereto).
4	.6	Fourth Supplemental Indenture, dated as of August 10, 2001, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed August 9, 2001, and incorporated herein by reference thereto).

114

4	.7	Supplemental Indenture No. 5, dated September 10, 2003, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.8	Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 5, dated September 10, 2003, to Indenture dated as of April 17, 1997, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.3 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.9	Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 9, 2002, and incorporated herein by reference thereto).
4	.10	Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed September 9, 2002, and incorporated herein by reference thereto).
4	.11	Amendment No. 1, dated March 12, 2003, to Supplemental Indenture No. 1, dated as of September 6, 2002, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed March 14, 2003, and incorporated herein by reference thereto).
4	.12	Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.13	Amendment No. 1, dated September 16, 2003, to Supplemental Indenture No. 2, dated as of September 10, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.4 to the Company’sForm 8-K filed September 24, 2003, and incorporated herein by reference thereto).
4	.14	Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed October 30, 2003, and incorporated herein by reference thereto).
4	.15	Amendment No. 1, dated September 13, 2004, to Supplemental Indenture No. 3, dated as of October 29, 2003, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A., as successor to Fifth Third Bank (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed September 13, 2004, and incorporated herein by reference thereto).
4	.16	Supplemental Indenture No. 4, dated as of April 27, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed April 28, 2005, and incorporated herein by reference thereto).
4	.17	Supplemental Indenture No. 5, dated as of November 30, 2005, to Indenture for Senior Debt Securities, dated as of September 6, 2002, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed November 30, 2005, and incorporated herein by reference thereto).
4	.18	Indenture, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.1 to the Company’sForm 8-K filed November 20, 2006, and incorporated herein by reference thereto).
4	.19	Supplemental Indenture No. 1, dated as of November 20, 2006, between the Company and The Bank of New York Trust Company, N.A. (filed with the Commission as Exhibit 4.2 to the Company’sForm 8-K filed November 20, 2006, and incorporated herein by reference thereto).
4	.20	Form of Indenture for Senior Subordinated Debt Securities (filed with the Commission as Exhibit 4.9 to the Company’sForm S-3 (FileNo. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).

115

4	.21	Form of Indenture for Junior Subordinated Debt Securities (filed with the Commission as Exhibit 4.10 to the Company’sForm S-3 (FileNo. 333-73936) filed November 21, 2001, and incorporated herein by reference thereto).
10	.1	Third Amended and Restated Loan Agreement, dated as of July 26, 2006, by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as documentation agents (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed July 28, 2006, and incorporated herein by reference thereto).
10	.2	Amendment No. 1 to Third Amended and Restated Loan Agreement by and among the Company and certain of its subsidiaries, the banks signatory thereto, KeyBank National Association, as administrative agent, Deutsche Bank Securities Inc., as syndication agent, and UBS Securities LLC, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as documentation agents, dated as of September 20, 2006 (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed September 26, 2006, and incorporated herein by reference thereto).
10	.3	Credit Agreement, dated as of May 31, 2006, by and among the Company and certain of its subsidiaries and Fifth Third Bank (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed June 5, 2006, and incorporated by reference thereto).
10	.4	ISDA Master Agreement and Schedule dated as of May 6, 2004 by and between Bank of America, N.A. and Health Care REIT, Inc. (filed with the Commission as Exhibit 10.3 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.5	Interest Rate Swap Confirmation dated May 10, 2004 between Health Care REIT, Inc. and Bank of America, N.A. (filed with the Commission as Exhibit 10.4 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.6	Interest Rate Swap Confirmation dated May 6, 2004 between Health Care REIT, Inc. and Deutsche Bank AG (filed with the Commission as Exhibit 10.5 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.7	Health Care REIT, Inc. Interest Rate & Currency Risk Management Policy adopted on May 6, 2004 (filed with the Commission as Exhibit 10.6 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).
10	.8	The 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Appendix II to the Company’s Proxy Statement for the 1995 Annual Meeting of Stockholders, filed September 29, 1995, and incorporated herein by reference thereto).*
10	.9	First Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.2 to the Company’sForm S-8 (FileNo. 333-40771) filed November 21, 1997, and incorporated herein by reference thereto).*
10	.10	Second Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 4.3 to the Company’sForm S-8 (FileNo. 333-73916) filed November 21, 2001, and incorporated herein by reference thereto).*
10	.11	Third Amendment to the 1995 Stock Incentive Plan of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.15 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.12	Stock Plan for Non-Employee Directors of Health Care REIT, Inc. (filed with the Commission as Exhibit 10.1 to the Company’sForm 10-Q filed May 10, 2004, and incorporated herein by reference thereto).*
10	.13	First Amendment to the Stock Plan for Non-Employee Directors of Health Care REIT, Inc. effective April 21, 1998 (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed May 10, 2004, and incorporated herein by reference thereto).*
10	.14	Health Care REIT, Inc. 2005 Long-Term Incentive Plan (filed with the Commission as Appendix A to the Company’s Proxy Statement for the 2005 Annual Meeting of Stockholders, filed March 28, 2005, and incorporated herein by reference thereto).*
10	.15	Form of Stock Option Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.17 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*

116

10	.16	Form of Restricted Stock Agreement for Executive Officers under the 1995 Stock Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*
10	.17	Form of Stock Option Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.3 to the Company’sForm 10-Q/A filed October 27, 2004, and incorporated herein by reference thereto).*
10	.18	Form of Restricted Stock Agreement under the Stock Plan for Non-Employee Directors (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 16, 2005, and incorporated herein by reference thereto).*
10	.19	Form of Stock Option Agreement (with Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.20	Form of Stock Option Agreement (with Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.21	Form of Stock Option Agreement (without Dividend Equivalent Rights) for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.22	Form of Stock Option Agreement (without Dividend Equivalent Rights) for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.21 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.23	Form of Restricted Stock Agreement for the Chief Executive Officer under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.22 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.24	Form of Restricted Stock Agreement for Executive Officers under the 2005 Long-Term Incentive Plan (filed with the Commission as Exhibit 10.23 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.25	Form of Deferred Stock Unit Grant Agreement for Non-Employee Directors under the 2005 Long- Term Incentive Plan (filed with the Commission as Exhibit 10.24 to the Company’sForm 10-K filed March 10, 2006, and incorporated herein by reference thereto).*
10	.26	Restricted Stock Agreement, dated January 22, 2007, by and between Health Care REIT and Raymond W. Braun (filed with the Commission as Exhibit 10.2 to the Company’sForm 8-K filed January 25, 2007, and incorporated herein by reference thereto).*
10	.27	Third Amended and Restated Employment Agreement, dated January 22, 2007, by and between the Company and George L. Chapman (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed January 25, 2007, and incorporated herein by reference thereto).*
10	.28	Second Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Raymond W. Braun (filed with the Commission as Exhibit 10.18 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.29	Second Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Erin C. Ibele (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.30	Amended and Restated Employment Agreement, effective January 1, 2004, by and between Health Care REIT, Inc. and Charles J. Herman, Jr. (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).*
10	.31	Amended and Restated Employment Agreement, effective March 17, 2006, by and between Health Care REIT, Inc. and Scott A. Estes (filed with the Commission as Exhibit 10.1 to the Company’sForm 10-Q filed May 10, 2006, and incorporated herein by reference thereto).*
10	.32	Employment Agreement, effective July 1, 2004, by and between Health Care REIT, Inc. and Jeffrey H. Miller (filed with the Commission as Exhibit 10.2 to the Company’sForm 10-Q filed July 23, 2004, and incorporated herein by reference thereto).*

117

10	.33	Consulting Agreement dated as of September 12, 2006 between the Company and Fred S. Klipsch (filed with the Commission as Exhibit 10.1 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.34	Consulting Agreement dated as of September 12, 2006 between the Company and Frederick L. Farrar (filed with the Commission as Exhibit 10.2 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.35	Employment Agreement dated as of September 12, 2006 between the Company and Daniel R. Loftus (filed with the Commission as Exhibit 10.3 to the Company’sForm S-4 filed October 13, 2006, and incorporated herein by reference thereto).*
10	.36	Health Care REIT, Inc. Supplemental Executive Retirement Plan, effective as of January 1, 2001 (filed with the Commission as Exhibit 10.19 to the Company’sForm 10-K filed March 10, 2003, and incorporated herein by reference thereto).*
10	.37	Health Care REIT, Inc. Executive Loan Program, effective as of August 1999 (filed with the Commission as Exhibit 10.20 to the Company’sForm 10-K filed March 10, 2003, and incorporated herein by reference thereto).*
10	.38	Form of Indemnification Agreement between the Company and each director, executive officer and officer of the Company (filed with the Commission as Exhibit 10.1 to the Company’sForm 8-K filed February 18, 2005, and incorporated herein by reference thereto).*
10	.39	Summary of Director Compensation.
14		Code of Business Conduct and Ethics (filed with the Commission as Exhibit 14 to the Company’sForm 10-K filed March 12, 2004, and incorporated herein by reference thereto).
21		Subsidiaries of the Company.
23		Consent of Ernst & Young LLP, independent registered public accounting firm.
24	.1	Power of Attorney executed by Pier C. Borra (Director).
24	.2	Power of Attorney executed by Thomas J. DeRosa (Director).
24	.3	Power of Attorney executed by Jeffrey H. Donahue (Director).
24	.4	Power of Attorney executed by Peter J. Grua (Director).
24	.5	Power of Attorney executed by Fred S. Klipsch (Director).
24	.6	Power of Attorney executed by Sharon M. Oster (Director).
24	.7	Power of Attorney executed by R. Scott Trumbull (Director).
24	.8	Power of Attorney executed by George L. Chapman (Director, Chairman of the Board and Chief Executive Officer and Principal Executive Officer).
24	.9	Power of Attorney executed by Scott A. Estes (Senior Vice President and Chief Financial Officer and Principal Financial Officer).
24	.10	Power of Attorney executed by Paul D. Nungester, Jr. (Vice President and Controller and Principal Accounting Officer).
31	.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31	.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32	.1	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
32	.2	Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.

* Management Contract or Compensatory Plan or Arrangement.

118