Welltower 8K Other Events | WELL 7 Nov 07

Exhibit 99.1


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)	$	128,107	$	173,188	$	225,826	$	267,339	$	316,345
Expenses:
Interest expense(1)		32,296		45,600		64,690		75,523		93,015
Depreciation and amortization(1)		26,531		39,475		60,421		72,997		91,280
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		74,566		105,141		145,816		190,077		215,669
Income before minority interests		53,541		68,047		80,010		77,262		100,676
Minority interests										(13	)

Income from continuing operations		53,541		68,047		80,010		77,262		100,663
Income from discontinued operations, net(1)		14,118		14,693		5,361		7,024		2,087

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	$	1.12	$	1.29	$	1.31	$	1.03	$	1.28
Discontinued operations, net		0.38		0.34		0.10		0.13		0.03

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	$	1.10	$	1.27	$	1.29	$	1.02	$	1.28
Discontinued operations, net		0.38		0.33		0.10		0.13		0.03

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


*		Amounts may not sum due to rounding

(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 through September 30, 2007 and attributable to the properties held for sale at September 30, 2007, 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.


	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 interests		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


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. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk Factors” in the Annual Report on Form 10-K/A for the year ended December 31, 2006.

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.

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 $109,748,000 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


		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

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		3.21	x		3.06	x		2.97x
Fixed charge coverage ratio		2.65	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	%


(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” in the Annual Report on Form 10-K/A for the year ended December 31, 2006 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

1.21

1.41

1.21x

Assisted living facilities

1.45

1.23

1.52

1.30

1.54

1.33x

Skilled nursing facilities

2.11

1.62

2.18

1.61

2.17

1.55x

Specialty care facilities

2.69

2.08

3.36

2.77

2.88

2.34x

Weighted averages

1.78

1.44

1.92

1.53

1.93

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.

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 market 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.

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 $15,023,000. These cash uses have been offset by $15,591,000 of cash assumed from Windrose on the merger effective date.

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.

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.

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 $752,917,000 at December 31, 2006. Total contractual interest obligations on mortgage loans totaled $146,427,000 at December 31, 2006.

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		235,377		254,731		19,354			8	%		300,485		45,754		18	%		65,108		28	%

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

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	$	200,526	$	238,798	$	38,272			19	%	$	293,592	$	54,794			23	%	$	93,066			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	$	225,826	$	267,339	$	41,513			18	%	$	316,345	$	49,006			18	%	$	90,519			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	$	64,690	$	75,523	$	10,833			17	%	$	93,015	$	17,492			23	%	$	28,325			44	%
Property operating expenses												1,115		1,115			n/a			1,115			n/a
Depreciation and amortization		60,421		72,997		12,576			21	%		91,280		18,283			25	%		30,859			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	$	145,816	$	190,077	$	44,261			30	%	$	215,669	$	25,592			13	%	$	69,853			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.

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			9,413			6,497		223	%		11,397			1,984			21	%		8,481			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		(7,866	)		(7,102	)		764		(10	)%		(3,819	)		3,283			(46	)%		4,047			(51	)%

Totals	$	64,690		$	75,523		$	10,833		17	%	$	93,015		$	17,492			23	%	$	28,325			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	%

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.

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 8.26% 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		5,504			3,797			(1,707	)		(31	)%		820			(2,977	)		(78	)%		(4,684	)		(85	)%
Preferred dividends		(12,737	)		(21,594	)		(8,857	)		70	%		(21,463	)		131			(1	)%		(8,726	)		69	%

Totals	$	(7,376	)	$	(14,570	)	$	(7,194	)		98	%	$	(19,389	)	$	(4,819	)		33	%	$	(12,013	)		163	%

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. During the nine months ended September 30, 2007, we sold properties with carrying values of $63,165,000 for a net gain of $2,775,000. Also, at September 30, 2007, two properties were classified as held for sale.

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 through September 30, 2007 and attributable to assets held for sale at September 30, 2007 to discontinued operations. These properties generated $5,504,000, $3,797,000 and $820,000 of income after deducting depreciation and interest expense from rental revenue for the years ended December 31, 2004, 2005 and 2006, respectively. Please refer to Note 16 of our audited consolidated financial statements in the Annual Report on Form 10-K/A for the year ended December 31, 2006 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

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.


	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

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

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		3,393			2,710			3,255

EBITDA		235,377			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	$	239,464		$	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	$	235,377		$	254,731		$	300,485

Interest coverage ratio		3.21	x		3.06	x		2.97	x
EBITDA - adjusted	$	239,464		$	279,541		$	308,465

Interest coverage ratio - adjusted		3.26	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	$	235,377		$	254,731		$	300,485

Fixed charge coverage ratio		2.65	x		2.37	x		2.39	x
EBITDA - adjusted	$	239,464		$	279,541		$	308,465

Fixed charge coverage ratio - adjusted		2.70	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.

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


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

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 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 the Annual Report on Form 10-K/A for the year ended December 31, 2006. 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 (not included herein) expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Toledo, Ohio

February 28, 2007,
except for Note 16, as to which the date is November 5, 2007

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

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
	2006			2005		2004
	(In thousands, except per share data)

Revenues:
Rental income	$	293,592		$	238,798	$	200,526
Interest income		18,829			23,993		22,818
Other income		3,924			4,548		2,432
Prepayment fees							50

		316,345			267,339		225,826
Expenses:
Interest expense		93,015			75,523		64,690
Property operating expenses		1,115
Depreciation and amortization		91,280			72,997		60,421
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

		215,669			190,077		145,816

Income before minority interests		100,676			77,262		80,010
Minority interests		(13	)

Income from continuing operations		100,663			77,262		80,010
Discontinued operations:
Net gain (loss) on sales of properties		1,267			3,227		(143	)
Income (loss) from discontinued operations, net		820			3,797		5,504

		2,087			7,024		5,361

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	$	1.28		$	1.03	$	1.31
Discontinued operations, net		0.03			0.13		0.10

Net income available to common stockholders*	$	1.32		$	1.16	$	1.41

Diluted:
Income from continuing operations and after preferred stock dividends	$	1.28		$	1.02	$	1.29
Discontinued operations, net		0.03			0.13		0.10

Net income available to common stockholders*	$	1.31		$	1.15	$	1.39


*		Amounts may not sum due to rounding

See accompanying notes

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

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

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

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.

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,

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

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 estimated 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

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	$	409,832	$	352,151
Income from continuing operations available to common stockholders		59,640		35,511
Income from continuing operations available to common stockholders per share — basic		0.84		0.56
Income from continuing operations available to common stockholders per share — diluted		0.83		0.55


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.

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

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):


					Buildings,				Accumulated
	Number of				Intangibles &		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

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Buildings,				Accumulated
	Number of				Intangibles &		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

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Buildings,
	Number of				Intangibles &		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		2,926
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

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.		13		183,841		4	%
Remaining portfolio		365		2,828,047		68	%

Totals		578	$	4,132,749		100	%

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	%

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 $752,917,000 at December 31, 2006.

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

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)		6.79%		6.88	%		6.34	%
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 (“DERs”). The fair value of options with DERs also includes the net present value of projected future dividend payments over the expected life of the option discounted at the dividend yield rate. In 2004 and 2005, substantially all options granted included DERs, while in 2006, approximately 19.5% of options granted included DERs.

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.

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.

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

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

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	Commitments and Contingencies

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

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.

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

52,587

Equity investments

4,700

2,970

Cash and cash equivalents

36,216

36,237

Interest rate swap agreements

902

2,211

Financial Liabilities:

Borrowings under lines of credit arrangements

225,000

195,000

Senior unsecured notes

1,541,814

1,895,672

1,198,278

1,271,370

Mortgage loans payable

378,972

107,540

Trust preferred liability

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. During the nine months ended September 30, 2007, we sold properties with carrying values of $63,165,000 for a net gain of $2,775,000. Also, at September 30, 2007, two properties were classified as held for sale. 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	$	12,043	$	23,816	$	27,751
Expenses:
Interest expense		3,819		7,102		7,866
Depreciation and amortization		6,284		11,831		13,594
General and administrative		1,120		1,086		787

Income (loss) from discontinued operations, net	$	820	$	3,797	$	5,504


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.

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

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

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

(2,993

)

(3,121

)

(1,961

)

(1,701

)

Revenues — as adjusted(1)

74,420

77,055

78,784

86,086

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		(6,149	)		(6,223	)		(4,730	)		(3,577	)

Revenues — as adjusted(1)	$	62,230		$	62,384		$	68,335		$	74,390

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 through September 30, 2007 and attributable to the properties held for sale at September 30, 2007 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.

HEALTH CARE REIT, INC.

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2006


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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(5)		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


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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(4)		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


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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		906,783		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


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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


								Gross Amount at Which
								Carried at Close of Period
		Initial Cost to Company										Accumulated
				Buildings,		Cost Capitalized				Buildings,		Depreciation
				Intangibles &		Subsequent to				Intangibles &		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


								Gross Amount at Which
								Carried at Close of Period
		Initial Cost to Company										Accumulated
				Buildings,		Cost Capitalized				Buildings,		Depreciation
				Intangibles &		Subsequent to				Intangibles &		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			1,330		17,926				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


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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		111,169		1,298,352		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


									Gross Amount at Which
									Carried at Close of Period
			Initial Cost to Company										Accumulated
					Buildings,		Cost Capitalized				Buildings,		Depreciation
					Intangibles &		Subsequent to				Intangibles &		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		386,388		3,607,249		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

Gross Amount at Which

Carried at Close of Period

Initial Cost to Company

Accumulated

Buildings,

Cost Capitalized

Buildings,

Depreciation

Intangibles &

Subsequent to

Intangibles &

and

Year

Description

Encumbrances

Land

Improvements

Acquisition

Land

Improvements

Amortization

Acquired

Built

Total Investment in Real Property Owned

378,400

388,258

3,635,928

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 $25,049,000. 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.

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 $4,049,675,000, $2,389,766,000 and $2,411,323,000 at December 31, 2006, 2005 and 2004, respectively.

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

9.89%

09/30/20

Monthly Payments

34,000

33,894

None

Florida

$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

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

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

205,548

177,615

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.

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