Welltower (WELL) 10-Q 2008 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

or

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

For the transition period from                                        to                                        

Commission File number 1-8923

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter)

Delaware	34-1096634
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One SeaGate, Suite 1500, Toledo, Ohio	43604
(Address of principal executive office)	(Zip Code)
(419) 247-2800 (Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yesþ Noo

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

Large accelerated filerþ	Accelerated filero	Non-accelerated filero	Smaller reporting companyo
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

     As of April 30, 2008, the registrant had 89,799,692 shares of common stock outstanding.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — March 31, 2008 and December 31, 2007	3
Consolidated Statements of Income — Three months ended March 31, 2008 and 2007	4
Consolidated Statements of Stockholders’ Equity — Three months ended March 31, 2008 and 2007	5
Consolidated Statements of Cash Flows — Three months ended March 31, 2008 and 2007	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1A. Risk Factors	40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 6. Exhibits	41
Signatures	41
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS

HEALTH CARE REIT, INC. AND SUBSIDIARIES

	March 31,			December 31,
	2008			2007
	(Unaudited)			(Note)
	(In thousands)
Assets
Real estate investments:
Real property owned
Land and land improvements	$	454,474		$	447,029
Buildings and improvements		4,329,405			4,224,955
Acquired lease intangibles		134,388			131,312
Real property held for sale, net of accumulated depreciation		2,150			0
Construction in progress		369,582			313,709
Gross real property owned		5,289,999			5,117,005
Less accumulated depreciation and amortization		(517,487	)		(478,373	)
Net real property owned		4,772,512			4,638,632
Real estate loans receivable:
Real estate loans receivable		388,250			381,394
Less allowance for losses on loans receivable		(7,406	)		(7,406	)
Net real estate loans receivable		380,844			373,988
Net real estate investments		5,153,356			5,012,620
Other assets:
Equity investments		1,168			1,408
Deferred loan expenses		28,817			30,499
Cash and cash equivalents		32,282			30,269
Receivables and other assets		171,833			139,060
Total other assets		234,100			201,236
Total assets	$	5,387,456		$	5,213,856
Liabilities and stockholders’ equity
Liabilities:
Borrowings under unsecured lines of credit arrangements	$	432,500		$	307,000
Senior unsecured notes		1,847,709			1,890,192
Secured debt		478,228			507,476
Accrued expenses and other liabilities		110,715			95,145
Total liabilities		2,869,152			2,799,813
Minority interests		9,697			9,687
Stockholders’ equity:
Preferred stock, $1.00 par value:		327,897			330,243
Authorized - 50,000,000 shares
Issued and outstanding - 12,799,889 shares at March 31, 2008 and 12,879,189 shares at December 31, 2007
Common stock, $1.00 par value:		88,992			85,412
Authorized - 225,000,000 shares
Issued - 89,306,085 shares at March 31, 2008 and 85,600,333 shares at December 31, 2007
Outstanding - 89,175,048 shares at March 31, 2008 and 85,496,164 shares at December 31, 2007
Capital in excess of par value		2,510,260			2,370,037
Treasury stock		(3,986	)		(3,952	)
Cumulative net income		1,110,854			1,074,255
Cumulative dividends		(1,510,296	)		(1,446,959	)
Accumulated other comprehensive income		(18,474	)		(7,381	)
Other equity		3,360			2,701
Total stockholders’ equity		2,508,607			2,404,356
Total liabilities and stockholders’ equity	$	5,387,456		$	5,213,856

NOTE: The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See notes to unaudited consolidated financial statements

3

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

	Three Months Ended
	March 31,
	2008			2007
	(In thousands, except per share data)
Revenues:
Rental income	$	125,044		$	103,496
Interest income		9,092			5,149
Other income		1,716			1,592
Total revenues		135,852			110,237
Expenses:
Interest expense		34,329			31,330
Property operating expenses		11,367			7,168
Depreciation and amortization		39,555			32,682
General and administrative		12,328			9,782
Loan expense		1,772			1,267
Loss (gain) on extinguishment of debt		(1,326	)		0
Total expenses		98,025			82,229
Income from continuing operations before income taxes and minority interests		37,827			28,008
Income tax (expense) benefit		(1,279	)		(11	)
Income from continuing operations before minority interests		36,548			27,997
Minority interests, net of tax		(62	)		(126	)
Income from continuing operations		36,486			27,871
Discontinued operations:
Net gain (loss) on sales of properties		26			977
Income (loss) from discontinued operations, net		87			825
Discontinued operations, net		113			1,802
Net income		36,599			29,673
Preferred stock dividends		6,147			6,317
Net income available to common stockholders	$	30,452		$	23,356
Average number of common shares outstanding:
Basic		86,100			73,224
Diluted		86,610			73,791
Earnings per share:
Basic:
Income from continuing operations available to common stockholders	$	0.35		$	0.29
Discontinued operations, net		0.00			0.02
Net income available to common stockholders*	$	0.35		$	0.32
Diluted:
Income from continuing operations available to common stockholders	$	0.35		$	0.29
Discontinued operations, net		0.00			0.02
Net income available to common stockholders*	$	0.35		$	0.32
Dividends declared and paid per common share	$	0.6600		$	0.2991

* Amounts may not sum due to rounding

See notes to unaudited consolidated financial statements

4

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

	Three Months Ended March 31, 2008
																Accumulated
						Capital in										Other
	Preferred			Common		Excess of		Treasury			Cumulative		Cumulative			Comprehensive			Other
	Stock			Stock		Par Value		Stock			Net Income		Dividends			Income			Equity			Total
	(In thousands)
Balances at beginning of period	$	330,243		$	85,412	$	2,370,037	$	(3,952	)	$	1,074,255	$	(1,446,959	)	$	(7,381	)	$	2,701		$	2,404,356
Comprehensive income:
Net income												36,599											36,599
Other comprehensive income:
Unrealized gain (loss) on equity investments																	(240	)					(240	)
Cash flow hedge activity																	(10,853	)					(10,853	)
Total comprehensive income																							25,506
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					523		22,379		(34	)										(38	)		22,830
Net proceeds from sale of common stock					3,000		115,555																118,555
Conversion of preferred stock		(2,346	)		57		2,289																0
Option compensation expense																				697			697
Cash dividends paid:
Common stock-$0.66 per share														(57,190	)								(57,190	)
Preferred stock, Series D-$0.4922 per share														(1,969	)								(1,969	)
Preferred stock, Series E-$0.3750 per share														(28	)								(28	)
Preferred stock, Series F-$0.4766 per share														(3,336	)								(3,336	)
Preferred stock, Series G-$0.4688 per share														(814	)								(814	)
Balances at end of period	$	327,897		$	88,992	$	2,510,260	$	(3,986	)	$	1,110,854	$	(1,510,296	)	$	(18,474	)	$	3,360		$	2,508,607

	Three Months Ended March 31, 2007
															Accumulated
					Capital in										Other
	Preferred		Common		Excess of		Treasury			Cumulative		Cumulative			Comprehensive			Other
	Stock		Stock		Par Value		Stock			Net Income		Dividends			Income			Equity			Total
	(In thousands)
Balances at beginning of period	$	338,993	$	73,152	$	1,873,811	$	(2,866	)	$	932,853	$	(1,238,860	)	$	(135	)	$	1,845		$	1,978,793
Comprehensive income:
Net income											29,673											29,673
Other comprehensive income																						0
Total comprehensive income																						29,673
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures				779		28,375		(1,075	)										(100	)		27,979
Option compensation expense																			541			541
Cash dividends paid:
Common stock-$0.2991 per share													(22,285	)								(22,285	)
Preferred stock, Series D-$0.4922 per share													(1,969	)								(1,969	)
Preferred stock, Series E-$0.3750 per share													(28	)								(28	)
Preferred stock, Series F-$0.4766 per share													(3,336	)								(3,336	)
Preferred stock, Series G-$0.4688 per share													(984	)								(984	)
Balances at end of period	$	338,993	$	73,931	$	1,902,186	$	(3,941	)	$	962,526	$	(1,267,462	)		($135	)	$	2,286		$	2,008,384

See notes to unaudited consolidated financial statements

5

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

	Three Months Ended
	March 31,
	2008			2007
	(In thousands)
Operating activities
Net income	$	36,599		$	29,673
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization		39,574			33,860
Other amortization expenses		2,323			1,174
Capitalized interest		(5,167	)		(2,327	)
Stock-based compensation expense		3,848			3,177
Minority interests share of earnings		62			126
Loss (gain) on extinguishment of debt, net		(1,326	)		0
Rental income less than (in excess of) cash received		(2,361	)		(2,153	)
Amortization related to above (below) market leases, net		(263	)		(460	)
(Gain) loss on sales of properties		(26	)		(977	)
Increase (decrease) in accrued expenses and other liabilities		4,452			(3,001	)
Decrease (increase) in receivables and other assets		(264	)		2,266
Net cash provided from (used in) operating activities		77,451			61,358
Investing activities
Investment in real property		(168,414	)		(161,675	)
Investment in real estate loans receivable		(7,751	)		(80,427	)
Other investments, net of payments		(26,819	)		(2,716	)
Principal collected on real estate loans receivable		2,081			17,929
Proceeds from sales of real property		99			11,537
Other		(4,872	)		(523	)
Net cash provided from (used in) investing activities		(205,676	)		(215,875	)
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements		125,500			156,000
Principal payments on unsecured senior notes		(42,330	)		0
Principal payments on secured debt		(27,776	)		(1,894	)
Net proceeds from the issuance of common stock		138,254			24,467
Decrease (increase) in deferred loan expense		(21	)		(377	)
Contributions by minority interests		92			0
Distributions to minority interests		(144	)		0
Cash distributions to stockholders		(63,337	)		(28,602	)
Net cash provided from (used in) financing activities		130,238			149,594
Increase (decrease) in cash and cash equivalents		2,013			(4,923	)
Cash and cash equivalents at beginning of period		30,269			36,216
Cash and cash equivalents at end of period	$	32,282		$	31,293
Supplemental cash flow information:
Interest paid	$	23,781		$	21,934
Income taxes paid		1,549			30
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from real property acquisitions:
Secured debt	$	0		$	0
Other liabilities		887			0
Other assets		0			0

See notes to unaudited consolidated financial statements

6

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

     Health Care REIT, Inc., with headquarters in Toledo, Ohio, is an equity real estate investment trust (“REIT”) that invests in senior housing and health care real estate, including independent living, assisted living and skilled nursing facilities, continuing care retirement communities, hospitals and medical office buildings. Our full service platform also offers property management and development services to our customers. As of March 31, 2008, our broadly diversified portfolio consisted of 646 properties in 38 states. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities. More information is available on the Internet at www.hcreit.com.

2. Accounting Policies and Related Matters

Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily an indication of the results that may be expected for the year ending December 31, 2008. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

New Accounting Standards

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. SFAS 157 for financial assets and liabilities is effective for fiscal years beginning after November 15, 2007, and was adopted as the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant. SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

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

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate swap agreements are valued using models that assume a hypothetical transaction to sell the asset or transfer the liability in the principal market for the asset or liability based on market data derived from interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates.

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

     The market approach is utilized to measure fair value for our financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

	Fair Value Measurements as of March 31, 2008
	Total			Level 1		Level 2			Level 3
Equity investments (1)	$	1,168		$	1,168	$	0		$	0
Interest rate swap agreements (1)		(18,802	)		0		(18,802	)		0
Totals	$	(17,634	)	$	1,168	$	(18,802	)	$	0

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

7

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

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”) and Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 141(R) will change how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. Early adoption is prohibited for both standards. The provisions of SFAS 141(R) and SFAS 160, effective on January 1, 2009, are to be applied prospectively; however, the disclosure provisions of SFAS 160 are to be applied retrospectively.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 expands quarterly disclosure requirements in SFAS 133 concerning an entity’s derivative instruments and hedging activities. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We are currently assessing the impact of SFAS 161 on our consolidated financial position and results of operations.

3. Real Property Acquisitions and Development

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

	Three Months Ended
	March 31, 2008									March 31, 2007
	Investment			Medical Office						Investment			Medical Office
	Properties			Buildings			Totals			Properties			Buildings		Totals
Real property acquisitions:
Independent living/CCRCs	$	11,800		$	0		$	11,800		$	0		$	0	$	0
Assisted living facilities		4,600						4,600			9,875					9,875
Skilled nursing facilities								0			103,300					103,300
Specialty care facilities		35,200						35,200								0
Medical office buildings					41,628			41,628						7,999		7,999
Total acquisitions		51,600			41,628			93,228			113,175			7,999		121,174
Less: Assumed debt								0								0
Assumed other assets (liabilities), net					(887	)		(887	)							0
Cash disbursed for acquisitions		51,600			40,741			92,341			113,175			7,999		121,174
Construction in progress additions:
Independent living/CCRCs		48,895						48,895			16,724					16,724
Assisted living facilities		16,190						16,190			13,889					13,889
Skilled nursing facilities		3,682						3,682			3,354					3,354
Specialty care facilities		4,587						4,587			4,515					4,515
Medical office buildings					3,954			3,954								0
Total construction in progress additions		73,354			3,954			77,308			38,482			0		38,482
Less: Capitalized interest		(5,025	)		(142	)		(5,167	)		(2,320	)				(2,320	)
Cash disbursed for construction in progress		68,329			3,812			72,141			36,162			0		36,162
Capital improvements to existing properties		2,998			934			3,932			3,574			765		4,339
Total cash invested in real property	$	122,927		$	45,487		$	168,414		$	152,911		$	8,764	$	161,675

     During the three months ended March 31, 2008, one independent living/CCRC facility with a book basis of $19,889,000 and investment property expansions totaling $1,546,000 were placed into service and began earning rent. During the three months ended March 31, 2007, one assisted living facility with a book basis of $6,523,000 and investment property expansions totaling $398,000 were placed into service and began earning rent.

8

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

4. Real Estate Intangibles

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

	March 31, 2008			December 31, 2007
Assets:
In place lease intangibles	$	82,586		$	81,068
Above market tenant leases		9,778			9,592
Below market ground leases		42,024			40,652
Gross historical cost		134,388			131,312
Accumulated amortization		(22,941	)		(18,289	)
Net book value	$	111,447		$	113,023
Weighted-average amortization period in years		24.7			28.4
Liabilities:
Below market tenant leases	$	25,654		$	25,186
Above market ground leases		3,499			3,499
Gross historical cost		29,153			28,685
Accumulated amortization		(5,681	)		(4,446	)
Net book value	$	23,472		$	24,239
Weighted-average amortization period in years		9.7			10.0

5. Dispositions, Assets Held for Sale and Discontinued Operations

     At March 31, 2008, we had one skilled nursing facility held for sale. We did not recognize an impairment loss on this asset as the fair value less estimated costs to sell exceeded our carrying value. During the three months ended March 31, 2008, we sold one parcel of land with a carrying value of $73,000 for a net gain of $26,000. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we have reclassified the income and expenses attributable to all properties sold and attributable to the property held for sale at March 31, 2008 to discontinued operations. Expenses include an allocation of interest expense based on property carrying values and our weighted average cost of debt. The following illustrates the reclassification impact of Statement No. 144 as a result of classifying properties as discontinued operations for the periods presented (in thousands):

	Three Months Ended
	March 31,
	2008		2007
Revenues:
Rental income	$	122	$	2,672
Expenses:
Interest expense		16		669
Provision for depreciation		19		1,178
Income (loss) from discontinued operations, net	$	87	$	825

9

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

6. Real Estate Loans Receivable

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

	Three Months Ended
	March 31, 2008		March 31, 2007
	Amount		Amount
Advances on real estate loans receivable:
Investments in new loans	$	391	$	69,546
Draws on existing loans		7,360		10,881
Total investments in real estate loans		7,751		80,427
Receipts on real estate loans receivable:
Loan payoffs		0		14,182
Principal payments on loans		2,081		3,747
Total principal receipts on real estate loans		2,081		17,929
Net cash advances (receipts) on real estate loans receivable	$	5,670	$	62,498

7. Customer Concentration

     At March 31, 2008, we had 67 investment property operators and over 800 medical office building tenants. The following table summarizes certain information about our customer concentration as of March 31, 2008 (dollars in thousands):

	Number of		Total		Percent of
	Properties		Investment		Investment (2)
Concentration by investment (1):
Emeritus Corporation		50	$	353,593		7	%
Signature Healthcare LLC		34		323,953		6	%
Life Care Centers of America, Inc.		25		257,902		5	%
Brookdale Senior Living, Inc.		84		256,901		5	%
Senior Living Communities, LLC		8		205,768		4	%
Remaining portfolio		445		3,762,645		73	%
Totals		646	$	5,160,762		100	%

	Number of		Total		Percent of
	Properties		Revenue (3)		Revenue (4)
Concentration by revenue (1):
Emeritus Corporation		50	$	11,890		9	%
Signature Healthcare LLC		34		9,817		7	%
Brookdale Senior Living, Inc.		84		9,126		7	%
Life Care Centers of America, Inc.		25		6,468		5	%
Lyric Health Care, LLC		27		4,519		3	%
Remaining portfolio		426		92,438		68	%
Other income		n/a		1,716		1	%
Totals		646	$	135,974		100	%

(1)	All of our top five customers are in our investment properties segment.
(2)	Investments with our top five customers comprised 27% of total investments at December 31, 2007.
(3)	Revenues include gross revenues and revenues from discontinued operations for the three months ended March 31, 2008.
(4)	Revenues from our top five customers were 37% for the three months ended March 31, 2007.

10

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

8. Borrowings Under Line of Credit Arrangement and Related Items

     At March 31, 2008, we had an unsecured line of credit arrangement with a consortium of seventeen banks in the amount of $1,150,000,000, which is scheduled to expire on August 5, 2011 (with the ability to extend for one year at our discretion if we are in compliance with all covenants). Borrowings under the agreement are subject to interest payable in periods no longer than three months at either the agent bank’s prime rate of interest or the applicable margin over LIBOR interest rate, at our option (3.30% at March 31, 2008). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.6% at March 31, 2008. In addition, we pay a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at March 31, 2008. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement.

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

	Three Months Ended March 31,
	2008			2007
Balance outstanding at quarter end	$	432,500		$	381,000
Maximum amount outstanding at any month end	$	491,500		$	381,000
Average amount outstanding (total of daily principal balances divided by days in period)	$	406,687		$	243,650
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		4.75	%		6.63	%

9. Senior Unsecured Notes and Secured Debt

     We have $1,847,709,000 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 $1,845,000,000 adjusted for any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative instruments. See Note 10 for further discussion regarding derivative instruments. On March 15, 2008, we extinguished $42,330,000 of our 7.625% senior unsecured notes at par upon maturity.

     We have secured debt totaling $478,228,000, collateralized by owned properties, with annual interest rates ranging from 4.89% to 8.08%. The carrying amounts of the secured debt represent the par value of $479,197,000 adjusted for any unamortized fair value adjustments. The carrying values of the properties securing the debt totaled $887,889,000 at March 31, 2008. During the three months ended March 31, 2008, we extinguished four secured debt loans totaling $25,683,000 with a weighted-average interest rate of 7.214% prior to maturity and recognized extinguishment gains of $1,326,000.

     Our debt agreements contain various covenants, restrictions and events of default. Among other things, these provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions.

     At March 31, 2008, the annual principal payments due on these debt obligations are as follows (in thousands):

	Senior		Secured
	Unsecured Notes		Debt		Totals
2008	$	0	$	20,684	$	20,684
2009		0		39,741		39,741
2010		0		15,403		15,403
2011		0		52,575		52,575
2012		250,000		21,788		271,788
Thereafter		1,595,000		329,006		1,924,006
Totals	$	1,845,000	$	479,197	$	2,324,197

11

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

10. Derivative Instruments

     We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. Derivatives are recorded at fair market value on the balance sheet as assets or liabilities.

     On May 6, 2004, we entered into two interest rate swap agreements (the “2004 Swaps”) for a total notional amount of $100,000,000 to hedge changes in fair value attributable to changes in the LIBOR swap rate of $100,000,000 of fixed rate debt with a maturity date of November 15, 2013. The 2004 Swaps were treated as fair-value hedges for accounting purposes and we utilized the short-cut method to assess effectiveness. The 2004 Swaps were with highly rated counterparties in which we received a fixed rate of 6.0% and paid a variable rate based on six-month LIBOR plus a spread. For the three months ended March 31, 2007, we generated $1,000 of savings related to the 2004 Swaps that was recorded as a reduction of interest expense. On September 12, 2007, we terminated the 2004 Swaps and we received a $2,125,000 cash settlement. The unamortized amount of this settlement at March 31, 2008 was $1,888,000 and is recorded as an adjustment to the hedged debt. This amount will be amortized to interest expense over the life of the hedged debt using the effective interest method. For the three months ended March 31, 2008, $85,000 of amortization was recognized as a reduction to senior unsecured notes interest expense.

     On July 2, 2007, we entered into two forward-starting interest rate swaps (the “July 2007 Swaps”), with an aggregate notional amount of $200,000,000 that were designated as cash flow hedges of the variability in forecasted interest payments attributable to changes in the LIBOR swap rate, on long-term fixed rate debt forecasted to be issued in 2007. The July 2007 Swaps had the economic effect of fixing $200,000,000 of our debt at 4.913% for five years. The July 2007 Swaps were settled on July 17, 2007, which was the date that the forecasted debt was priced. The cash settlement value of these contracts at July 17, 2007 was $733,000. This amount represented the effective portion of the hedges as there was no hedge ineffectiveness. Therefore, the $733,000 settlement value was deferred in accumulated other comprehensive income (“AOCI”) and will be amortized to interest expense using the effective interest method. The unamortized amount of AOCI related to these contracts at March 31, 2008 is $631,000. For the three months ended March 31, 2008, we reclassified $37,000 out of AOCI as a reduction of interest expense.

     On September 12, 2007, we entered into two forward-starting interest rate swaps (the “September 2007 Swaps”) for a total notional amount of $250,000,000 to hedge 10 years of interest payments associated with a long-term borrowing that is expected to occur in 2008. The September 2007 Swaps each have an effective date of September 12, 2008 and a maturity date of September 12, 2018. We expect to settle the September 2007 Swaps when the forecasted debt is priced. The September 2007 Swaps have the economic effect of fixing $250,000,000 of our future debt at 4.469% plus a credit spread for 10 years. The September 2007 Swaps have been designated as cash flow hedges and we expect the September 2007 Swaps to be highly effective at offsetting changes in cash flows of interest payments on $250,000,000 of our future debt due to changes in the LIBOR swap rate. Therefore, effective changes in the fair value of the September 2007 Swaps will be recorded in AOCI and reclassified to interest expense when the hedged forecasted transactions affect earnings (as interest payments are made on the expected debt issuance). The ineffective portion of the changes in fair value will be recorded directly in earnings. At March 31, 2008, the September 2007 Swaps were reported at their fair value of negative $18,802,000 and are included in other liabilities and AOCI.

     The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values for our derivatives are estimated by a third party consultant, which utilizes pricing models that consider forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future.

11. Commitments and Contingencies

     We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide workers’ compensation insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2009. At March 31, 2008, our obligation under the letter of credit was $2,350,000.

     We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide liability and property insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2013. At March 31, 2008, our obligation under the letter of credit was $1,000,000.

12

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

     We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in 2010. At March 31, 2008, our obligation under the letter of credit was $679,320.

     We have an outstanding letter of credit issued for the benefit of a municipality in Pennsylvania in connection with the completion and installation of certain property improvements by one of our subsidiaries. The improvements are expected to be completed in 2009. At March 31, 2008, our obligation under the letter of credit was $485,810.

     At March 31, 2008, we had outstanding construction financings of $369,582,000 for leased properties and were committed to providing additional financing of approximately $757,625,000 to complete construction. At March 31, 2008, we had contingent purchase obligations totaling $24,524,000. 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 March 31, 2008, we had operating lease obligations of $54,604,000 relating to certain ground leases and Company office space. We incurred rental expense relating to our Company office space of $277,000 and $98,000 for the three months ended March 31, 2008 and 2007, respectively. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At March 31, 2008, aggregate future minimum rentals to be received under these noncancelable subleases totaled $12,492,000.

     At March 31, 2008, future minimum lease payments due under operating leases are as follows (in thousands):

2008	$	2,588
2009		3,117
2010		2,952
2011		2,767
2012		2,829
Thereafter		40,351
Totals	$	54,604

12. Stockholders’ Equity

Preferred Stock

     During the three months ended March 31, 2008, certain holders of our Series G Cumulative Convertible Preferred Stock converted 79,300 shares into 56,754 shares of our common stock, leaving 1,724,900 of such shares outstanding at March 31, 2008.

Common Stock

     The following is a summary of our common stock issuances during the three months ended March 31, 2008 and 2007 (dollars in thousands, except per share amounts):

	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
2007 Dividend reinvestment plan issuances		338,685	$	44.78	$	15,166	$	15,166
2007 Option exercises		331,947		28.02		9,301		9,301
2007 Totals		670,632			$	24,467	$	24,467
March 2008 public issuance		3,000,000	$	41.44	$	124,320	$	118,555
2008 Dividend reinvestment plan issuances		452,440		40.88		18,496		18,496
2008 Option exercises		48,722		24.69		1,203		1,203
2008 Totals		3,501,162			$	144,019	$	138,254

     On February 20, 2008, we paid a dividend of $0.66 per share to stockholders of record on January 31, 2008. These dividends related to the period from October 1, 2007 through December 31, 2007.

13

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

Accumulated Other Comprehensive Income

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

	March 31, 2008			December 31, 2007
Fair value of cash flow hedges	$	18,046		$	7,194
Unrecognized gains (losses) on equity investments		433			192
Unrecognized actuarial gains (losses)		(5	)		(5	)
Totals	$	18,474		$	7,381

     Please see Note 10 for a discussion of our cash flow hedge activity. We did not recognize any comprehensive income other than the recorded net income for the three months ended March 31, 2007.

Other Equity

     Other equity consists of accumulated option compensation expense which represents the amount of amortized compensation costs related to stock options awarded to employees and directors subsequent to January 1, 2003. Expense, which is recognized as the options vest based on the market value at the date of the award, totaled $697,000 and $541,000 for the three months ended March 31, 2008 and 2007, respectively.

13. Stock Incentive Plans

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

Valuation Assumptions

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

	Three Months Ended			Three Months Ended
	March 31, 2008			March 31, 2007
Dividend yield (1)		6.47	%		5.60	%
Expected volatility		20.5	%		19.9	%
Risk-free interest rate		3.42	%		4.74	%
Expected life (in years)		6.5			5
Weighted-average fair value (1)	$	6.25		$	8.31

(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.

     The dividend yield represented the dividend yield of our common stock on the dates of grant. Our computation of expected volatility was based on historical volatility. The risk-free interest rates used were the 7-year U.S. Treasury Notes yield on the date of grant for the 2008 grants and the 5-year U.S. Treasury Notes yield on the date of grant for the 2007 grants. The expected life was based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations regarding future employee behavior.

14

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

Option Award Activity

     The following table summarizes information about stock option activity for the three months ended March 31, 2008:

	Number
	of			Weighted		Weighted Average		Aggregate
	Shares			Average		Remaining		Intrinsic
Stock Options	(000’s)			Exercise Price		Contract Life (years)		Value ($000’s)
Options at beginning of year		637		$	35.54		8.0
Options granted		307			40.83
Options exercised		(49	)		28.24
Options terminated		(2	)		40.40
Options at end of period		893		$	37.75		8.1	$	5,498
Options exercisable at end of period		353		$	33.42		6.5	$	3,705
Weighted average fair value of options granted during the period				$	6.25

     The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock for the options that were in-the-money at March 31, 2008. During the three months ended March 31, 2008, the aggregate intrinsic value of options exercised under our stock incentive plans was $838,000 determined as of the date of option exercise. During the three months ended March 31, 2007, the aggregate intrinsic value of options exercised under our stock incentive plans was $5,341,000 determined as of the date of option exercise. Cash received from option exercises under our stock incentive plans for the three months ended March 31, 2008 was $1,203,000. Cash received from option exercises under our stock incentive plans for the three months ended March 31, 2007 was $9,301,000.

     As of March 31, 2008, there was approximately $2,778,000 of total unrecognized compensation cost related to unvested stock options granted under our stock incentive plans. That cost is expected to be recognized over a weighted average period of four years. As of March 31, 2008, there was approximately $12,295,000 of total unrecognized compensation cost related to unvested restricted stock granted under our stock incentive plans. That cost is expected to be recognized over a weighted average period of three years.

     The following table summarizes information about non-vested stock incentive awards as of March 31, 2008 and changes for the three months ended March 31, 2008:

	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, 2007		382		$	7.20		398		$	40.94
Vested		(147	)		6.02		(96	)		36.37
Granted		307			6.25		155			40.82
Terminated		(2	)		7.30		(1	)		40.32
Non-vested at March 31, 2008		540		$	6.98		456		$	41.86

15

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

14. Earnings Per Share

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

	Three Months Ended
	March 31,
	2008		2007
Numerator for basic and diluted earnings per share — net income available to common stockholders	$	30,452	$	23,356
Denominator for basic earnings per share — weighted average shares		86,100		73,224
Effect of dilutive securities:
Employee stock options		54		178
Non-vested restricted shares		456		389
Dilutive potential common shares		510		567
Denominator for diluted earnings per share — adjusted weighted average shares		86,610		73,791
Basic earnings per share	$	0.35	$	0.32
Diluted earnings per share	$	0.35	$	0.32

     The diluted earnings per share calculation excludes the dilutive effect of 123,000 stock options for the three months ended March 31, 2008 because the exercise prices were greater than the average market price. The diluted earnings per share calculation excludes the dilutive effect of 124,000 stock options for the three months ended March 31, 2007 because the exercise prices were greater than the average market price. The Series E Cumulative Convertible and Redeemable Preferred Stock, the Series G Cumulative Convertible Preferred Stock, the $345,000,000 senior unsecured convertible notes due December 2026 and the $400,000,000 senior unsecured convertible notes due July 2027 were not included in these calculations as the effect of the conversions into common stock was anti-dilutive for the relevant periods presented.

15. Segment Reporting

     We invest in senior housing and health care real estate. We evaluate our business and make resource allocations on our two business segments — investment properties and medical office buildings. Under the investment property segment, we invest in senior housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our primary investment property types include skilled nursing facilities, assisted living facilities, independent living/continuing care retirement communities and specialty care facilities. Under the medical office building segment, our properties are typically leased under gross leases, modified gross leases or triple-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 to our Annual Report on Form 10-K for the year ended December 31, 2007). There are no intersegment sales or transfers. We evaluate performance based upon net operating income of the combined properties in each segment.

     Non-segment revenue consists mainly of interest income on non-real estate investments and other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate office equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining net operating income.

     During the three months ended March 31, 2008, we changed the name of the operating properties segment to medical office buildings and reclassified certain assets and related revenues. Four specialty care facilities that were formerly classified as operating properties have been reclassified to investment properties. Accordingly, we have reclassified the following prior year amounts to be consistent with the current year classification: (i) rental income of $1,885,000; (ii) real estate depreciation/amortization of $779,000; and (iii) total assets of $73,400,000. Additionally, we have restated the following prior year non-segment/corporate assets and revenues to be included in the related business segments to be consistent with the current year classification: (i) $1,343,000 of other income has been reclassified to investment properties; (ii) $75,184,000 of total assets have been reclassified to investment properties; and (iii) $16,395,000 of total assets have been reclassified to medical office buildings.

16

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

     Summary information for the reportable segments during the three months ended March 31, 2008 and 2007 is as follows (in thousands):

									Property		Net		Real Estate
	Rental		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income (1)		Income		Income		Revenues (1)		Expenses		Income (2)		Amortization (1)		Expense (1)		Assets
Three months ended March 31, 2008:
Investment Properties	$	91,933	$	9,092	$	1,296	$	102,321			$	102,321	$	26,410	$	1,973	$	3,993,615
Medical Office Buildings		33,233				210		33,443	$	11,367		22,076		13,164		5,565		1,309,109
Non-segment/Corporate						210		210				210				26,807		84,732
	$	125,166	$	9,092	$	1,716	$	135,974	$	11,367	$	124,607	$	39,574	$	34,345	$	5,387,456
Three months ended March 31, 2007:
Investment Properties	$	82,488	$	5,149	$	1,343	$	88,980			$	88,980	$	25,158	$	2,310	$	3,479,969
Medical Office Buildings		23,680						23,680	$	7,168		16,512		8,702		4,305		915,994
Non-segment/Corporate						249		249				249				25,384		62,691
	$	106,168	$	5,149	$	1,592	$	112,909	$	7,168	$	105,741	$	33,860	$	31,999	$	4,458,654

(1)

Includes amounts from discontinued operations.

(2)

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

16. Income Taxes

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

17

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

     The following discussion and analysis is based primarily on the consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2007, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Executive Summary

Company Overview

     Health Care REIT, Inc. is an equity real estate investment trust (“REIT”) that invests in senior housing and health care real estate. Founded in 1970, we were the first REIT to invest exclusively in health care facilities. The following table summarizes our portfolio as of March 31, 2008:

	Investments		Percentage of			Number of		# Beds/Units			Investment per
Type of Property	(in thousands)		Investments			Properties		or Sq. Ft.			metric (1)			States
Independent living/CCRCs	$	837,050		16	%		63		7,681	units	$	154,888	per unit		22
Assisted living facilities		1,058,998		21	%		208		12,880	units		97,791	per unit		33
Skilled nursing facilities		1,588,520		31	%		227		30,656	beds		52,502	per bed		28
Specialty care facilities		395,549		7	%		23		1,581	beds		262,310	per bed		10
Medical office buildings		1,280,645		25	%		125		5,317,024	sq. ft.		272	per sq. ft.		20
Totals	$	5,160,762		100	%		646

(1) Investment per metric was computed by using the total committed investment amount of $5,918,387,000, which includes net real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $5,160,762,000 and $757,625,000, respectively.

Health Care Industry

     The demand for health care services, and consequently health care properties, is projected to reach unprecedented levels in the near future. The Centers for Medicare and Medicaid Services projects that national health expenditures will rise to $3.8 trillion in 2015 or 18.8% of gross domestic product (“GDP”). This is up from $2 trillion or 15.9% of GDP in 2005. Health expenditures per capita are projected to rise 5.8% per year from 2005 to 2015. While demographics are the primary driver of demand, economic conditions and availability of services contribute to health care service utilization rates. We believe the health care property market is less susceptible to fluctuations and economic downturns relative to other property sectors. Investor interest in the market remains strong, especially in specific sectors such as medical office buildings, regardless of the current stringent lending environment. As a REIT, we believe we are situated to benefit from any turbulence in the capital markets due to our access to capital.

     The total U.S. population is projected to increase by 20% through 2030. The elderly are an important component of health care utilization, especially independent living services, assisted living services, skilled nursing services, inpatient and outpatient hospital services and physician ambulatory care. The elderly population aged 65 and over is projected to increase by 85% through 2030. Most health care services are provided within a health care facility such as a hospital, a physician’s office or a senior housing facility. Therefore, we believe there will be continued demand for companies such as ours with expertise in health care real estate.

18

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

65+ Population and % of Total

     Source: U.S. Census Bureau

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

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

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

• On-going merger and acquisition activity.

Business Strategy

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

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

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

     For the three months ended March 31, 2008, rental income and interest income represented 92% and 7%, respectively, of total gross revenues (including revenues from discontinued operations). Substantially all of our operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

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     Depending upon the availability and cost of external capital, we anticipate investing in additional properties. New investments are generally funded from temporary borrowings under our unsecured line of credit arrangement, internally generated cash and the proceeds from sales of real property. Our investments generate internal cash from rent and interest receipts and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under the unsecured line of credit arrangement, is expected to be provided through a combination of public and private offerings of debt and equity securities and the incurrence or assumption of secured debt. We believe our liquidity and various sources of available capital are sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions and finance future investments.

     Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. During the three months ended March 31, 2008, we completed $181,285,000 of gross and net new investments. We expect to complete gross new investments of approximately $1.1 billion to $1.4 billion during 2008, including acquisitions of approximately $700,000,000 to $900,000,000 and funded new development of approximately $400,000,000 to $500,000,000. We anticipate the sale of real property and the repayment of loans receivable totaling approximately $300,000,000 to $400,000,000 resulting in net new investments of approximately $700,000,000 to $1.1 billion during 2008. It is possible that additional loan repayments or sales of real property may occur in the future. To the extent that loan repayments and real property sales exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any loan repayments and real property sales in new investments. To the extent that new investment requirements exceed our available cash on hand, we expect to borrow under our unsecured line of credit arrangement. At March 31, 2008, we had $32,282,000 of cash and cash equivalents and $717,500,000 of available borrowing capacity under our unsecured line of credit arrangement.

Key Transactions in 2008

     We have completed the following key transactions to date in 2008:

• our Board of Directors increased our quarterly dividend to $0.68 per share, which represents a two cent increase from the quarterly dividend of $0.66 paid for 2007. The dividend declared for the quarter ended March 31, 2008 represents the 148^th consecutive quarterly dividend payment;

• we completed $181,285,000 of gross and net investments during the three months ended March 31, 2008; and

• we completed a public offering of 3,000,000 shares of common stock with net proceeds of approximately $118,555,000 in March 2008.

Key Performance Indicators, Trends and Uncertainties

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

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

	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2007		2007		2007		2007		2008
Net income available to common stockholders	$	23,356	$	25,620	$	24,529	$	42,768	$	30,452
Funds from operations		56,207		59,979		63,830		71,099		69,913
Funds available for distribution		53,825		59,016		66,379		73,564		68,375
Net operating income		105,741		111,360		115,550		123,029		124,607
Per share data (fully diluted):
Net income available to common stockholders	$	0.32	$	0.32	$	0.30	$	0.52	$	0.35
Funds from operations		0.76		0.75		0.79		0.86		0.81
Funds available for distribution		0.73		0.74		0.82		0.89		0.79

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

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
	2007			2007			2007			2007			2008
Debt to book capitalization ratio		54	%		52	%		53	%		53	%		52	%
Debt to undepreciated book capitalization ratio		50	%		48	%		49	%		48	%		48	%
Debt to market capitalization ratio		40	%		41	%		40	%		39	%		39	%
Interest coverage ratio		2.82	x		2.83	x		2.81	x		3.17	x		2.87	x
Fixed charge coverage ratio		2.28	x		2.30	x		2.31	x		2.62	x		2.38	x

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

	March 31,			June 30,			September 30,			December 31,			March 31,
	2007			2007			2007			2007			2008
Asset mix:
Real property		94	%		95	%		94	%		92	%		92	%
Real estate loans receivable		6	%		5	%		6	%		8	%		8	%
Investment mix:
Independent living/CCRCs		13	%		13	%		14	%		15	%		16	%
Assisted living facilities		24	%		22	%		21	%		21	%		21	%
Skilled nursing facilities		36	%		33	%		32	%		32	%		31	%
Specialty care facilities		6	%		6	%		7	%		7	%		7	%
Medical office buildings		21	%		26	%		26	%		25	%		25	%
Customer mix:
Emeritus Corporation		8	%		8	%		7	%		7	%		7	%
Signature Healthcare LLC											6	%		6	%
Brookdale Senior Living Inc.		7	%		6	%		5	%		5	%		5	%
Life Care Centers of America, Inc.		6	%		5	%		5	%		5	%		5	%
Senior Living Communities, LLC											4	%		4	%
Home Quality Management, Inc.		6	%		5	%		5	%
Merrill Gardens L.L.C.		4	%		4	%		4	%
Remaining customers		69	%		72	%		74	%		73	%		73	%
Geographic mix:
Florida		16	%		16	%		16	%		15	%		15	%
Texas		13	%		13	%		13	%		13	%		13	%
Massachusetts		8	%		7	%		7	%		7	%		7	%
California		7	%		7	%		7	%		7	%		7	%
Tennessee											6	%		6	%
Ohio		6	%		6	%		6	%
Remaining states		50	%		51	%		51	%		52	%		52	%

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     We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Forward-Looking Statements and Risk Factors” and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2007, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

Portfolio Update

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

	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
	2007		2007		2007		2007		2008
Net operating income:
Investment properties	$	88,980	$	93,504	$	94,538	$	102,495	$	102,321
Medical office buildings		16,512		17,524		20,450		20,150		22,076
Non-segment/corporate		249		332		562		384		210
Net operating income	$	105,741	$	111,360	$	115,550	$	123,029	$	124,607

     Payment coverage. Payment coverage of the operators in our investment property portfolio continues to remain strong. Our overall payment coverage is at 1.99 times, which represents an improvement of five basis points from the prior year. The table below reflects our recent historical trends of portfolio coverage. Coverage data reflects the 12 months ended for the periods presented. CBMF represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. CAMF represents the ratio of our customers’ earnings before interest, taxes, depreciation, amortization and rent (but after imputed management fees) to contractual rent or interest due us.

	December 31, 2005				December 31, 2006				December 31, 2007
	CBMF		CAMF		CBMF		CAMF		CBMF		CAMF
Independent living/CCRCs	1.45	x	1.23	x	1.39	x	1.19	x	1.45	x	1.23x
Assisted living facilities	1.52	x	1.30	x	1.56	x	1.35	x	1.59	x	1.37x
Skilled nursing facilities	2.21	x	1.63	x	2.19	x	1.57	x	2.26	x	1.66x
Specialty care facilities	3.19	x	2.60	x	2.77	x	2.21	x	2.64	x	2.07x
Weighted averages	1.94	x	1.54	x	1.94	x	1.51	x	1.99	x	1.55x

Corporate Governance

     Maintaining investor confidence and trust has become increasingly important in today’s business environment. Health Care REIT, Inc.’s 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. In March 2004, the Board of Directors adopted its Corporate Governance Guidelines. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on our website at www.hcreit.com and from us upon written request sent to the Senior Vice President — Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475.

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Liquidity and Capital Resources

Sources and Uses of Cash

     Our primary sources of cash include rent and interest receipts, borrowings under the unsecured line of credit arrangement, public and private offerings of debt and equity securities, proceeds from the sales of real property and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including construction advances), loan advances and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below.

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Cash and cash equivalents at beginning of period	$	30,269		$	36,216		$	(5,947	)		-16	%
Cash provided from (used in) operating activities		77,451			61,358			16,093			26	%
Cash provided from (used in) investing activities		(205,676	)		(215,875	)		10,199			-5	%
Cash provided from (used in) financing activities		130,238			149,594			(19,356	)		-13	%
Cash and cash equivalents at end of period	$	32,282		$	31,293		$	989			3	%

     Operating Activities. The change in net cash provided from operating activities is primarily attributable to an increase in net income, excluding depreciation and amortization, and to changes in accrued expenses and other liabilities. The increase in net income is discussed below in “Results of Operations.” The change in accrued expenses and other liabilities is primarily attributable to the timing of cash disbursements for our contractual interest obligations and accounts payable related to our medical office buildings.

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Gross straight-line rental income	$	5,336		$	4,231		$	1,105			26	%
Prepaid rent receipts		(2,975	)		(2,078	)		(897	)		43	%
Amortization related to above (below) market leases, net		263			460			(197	)		-43	%
	$	2,624		$	2,613		$	11			0	%

     Gross straight-line rental income represents the non-cash difference between contractual cash rent due and the average rent recognized pursuant to Statement of Financial Accounting Standards No. 13, Accounting for Leases (“SFAS 13”), for leases with fixed rental escalators, net of collectibility reserves. This amount is positive in the first half of a lease term (but declining every year due to annual increases in cash rent due) and is negative in the second half of a lease term. The increase in gross straight-line rental income is primarily due to an increase in the number of leases with fixed annual increases resulting from medical office building acquisitions completed subsequent to March 31, 2007.

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

	Three Months Ended
	Mar. 31, 2008					Mar. 31, 2007
	Properties		Amount			Properties		Amount
Real property acquisitions:
Independent living/CCRCs		1	$	11,800
Assisted living facilities		1		4,600			2	$	9,875
Skilled nursing facilities							7		103,300
Specialty care facilities		1		35,200
Medical office buildings		3		41,628			1		7,999
Total acquisitions		6		93,228			10		121,174
Less: Assumed debt				0					0
Assumed other assets (liabilities), net				(887	)				0
Cash disbursed for acquisitions				92,341					121,174
Construction in progress additions				72,141					36,162
Capital improvements to existing properties				3,932					4,339
Total cash invested in real property				168,414					161,675
Real property dispositions:
Assisted living facilities							2		11,537
Land parcels				99
Proceeds from real property sales		0		99			2		11,537
Net cash investments in real property		6	$	168,315			8	$	150,138
Advances on real estate loans receivable:
Investments in new loans			$	391				$	69,546
Draws on existing loans				7,360					10,881
Total investments in real estate loans				7,751					80,427
Receipts on real estate loans receivable:
Loan payoffs				0					14,182
Principal payments on loans				2,081					3,747
Total principal receipts on real estate loans				2,081					17,929
Net cash advances (receipts) on real estate loans receivable			$	5,670				$	62,498

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

     For the three months ended March 31, 2008, we had a net increase of $125,500,000 on our unsecured line of credit arrangement as compared to a net increase of $156,000,000 for the same period in 2007. On March 15, 2008, we extinguished $42,330,000 of our 7.625% senior unsecured notes at maturity. During the three months ended March 31, 2008, we extinguished four secured debt loans totaling $25,683,000 with a weighted-average interest rate of 7.214% prior to maturity and recognized extinguishment gains of $1,326,000.

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

	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
2007 Dividend reinvestment plan issuances		338,685	$	44.78	$	15,166	$	15,166
2007 Option exercises		331,947		28.02		9,301		9,301
2007 Totals		670,632			$	24,467	$	24,467
March 2008 public issuance		3,000,000	$	41.44	$	124,320	$	118,555
2008 Dividend reinvestment plan issuances		452,440		40.88		18,496		18,496
2008 Option exercises		48,722		24.69		1,203		1,203
2008 Totals		3,501,162			$	144,019	$	138,254

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

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outstanding and the payment of prorated dividends of $0.2991 per common share in February 2007 due to the prorated dividend payment of $0.3409 per common share in December 2006 in conjunction with the Windrose merger.

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

	Three Months Ended
	Mar. 31, 2008				Mar. 31, 2007
	Per Share		Amount		Per Share		Amount
Common Stock	$	0.6600	$	57,190	$	0.2991	$	22,285
Series D Preferred Stock		0.4922		1,969		0.4922		1,969
Series E Preferred Stock		0.3750		28		0.3750		28
Series F Preferred Stock		0.4766		3,336		0.4766		3,336
Series G Preferred Stock		0.4688		814		0.4688		984
Totals			$	63,337			$	28,602

Off-Balance Sheet Arrangements

     At March 31, 2008, we had four outstanding letter of credit obligations totaling $4,515,130 and expiring between 2009 and 2013. Please see Note 11 to our unaudited consolidated financial statements for additional information.

     We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on the general trend in interest rates at the applicable dates, our perception of the future volatility of interest rates and our relative levels of variable rate debt and variable rate investments. As of March 31, 2008, we participated in two forward-starting interest rate swap agreements related to our long-term debt. Please see Note 10 to our unaudited consolidated financial statements for additional information.

Contractual Obligations

     The following table summarizes our payment requirements under contractual obligations as of March 31, 2008 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		2008		2009-2010		2011-2012		Thereafter
Unsecured line of credit arrangement	$	432,500	$	0	$	0	$	432,500	$	0
Senior unsecured notes (1)		1,845,000		0		0		250,000		1,595,000
Secured debt (1)		479,197		20,684		55,144		74,363		329,006
Contractual interest obligations		1,362,325		119,655		294,332		264,132		684,206
Capital lease obligations		0		0		0		0		0
Operating lease obligations		54,604		2,588		6,069		5,596		40,351
Purchase obligations		782,149		118,110		662,261		1,778		0
Other long-term liabilities		4,190		112		788		3,290		0
Total contractual obligations	$	4,959,965	$	261,149	$	1,018,594	$	1,031,659	$	2,648,563

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

     At March 31, 2008, we had an unsecured line of credit arrangement with a consortium of seventeen banks in the amount of $1.15 billion, which is scheduled to expire on August 5, 2011. Borrowings under the agreement are subject to interest payable in periods no longer than three months at either the agent bank’s prime rate of interest or the applicable margin over LIBOR interest rate, at our option (3.30% at March 31, 2008). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.6% at March 31, 2008. In addition, we pay a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at March 31, 2008. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. At March 31, 2008, we had $432,500,000 outstanding under the unsecured line of credit arrangement and estimated total contractual interest obligations of $48,519,000. Contractual interest obligations are estimated based on the assumption that the balance of $432,500,000 at March 31, 2008 is constant until maturity at interest rates in effect at March 31, 2008.

     We have $1,845,000,000 of senior unsecured notes principal outstanding with fixed annual interest rates ranging from 4.75% to 8%, payable semi-annually. Total contractual interest obligations on senior unsecured notes totaled $1,148,124,000 at March 31, 2008. Additionally, we have secured debt with total outstanding principal of $479,197,000, collateralized by owned properties, with fixed

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annual interest rates ranging from 4.89% to 8.08%, payable monthly. The carrying values of the properties securing the debt totaled $887,889,000 at March 31, 2008. Total contractual interest obligations on secured debt totaled $165,682,000 at March 31, 2008.

     At March 31, 2008, we had operating lease obligations of $54,604,000 relating primarily to ground leases at certain of our properties and office space leases.

     Purchase obligations are comprised of unfunded construction commitments and contingent purchase obligations. At March 31, 2008, we had outstanding construction financings of $369,582,000 for leased properties and were committed to providing additional financing of approximately $757,625,000 to complete construction. At March 31, 2008, we had contingent purchase obligations totaling $24,524,000. These contingent purchase obligations primarily relate to deferred acquisition fundings and capital improvements. Deferred acquisition fundings are contingent upon a tenant satisfying certain conditions in the lease. Upon funding, amounts due from the tenant are increased to reflect the additional investment in the property.

     Other long-term liabilities relate to our Supplemental Executive Retirement Plan (“SERP”) and certain non-compete agreements. We have a SERP, a non-qualified defined benefit pension plan, which provides certain executive officers with supplemental deferred retirement benefits. The SERP provides an opportunity for participants to receive retirement benefits that cannot be paid under our tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and length of service and the SERP is unfunded. No contributions by the Company are anticipated for the 2008 fiscal year. Benefit payments are expected to total $3,290,000 during the next five fiscal years and no benefit payments are expected to occur during the succeeding five fiscal years. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $2,035,000 and $1,915,000 at March 31, 2008 and December 31, 2007, respectively.

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

Capital Structure

     As of March 31, 2008, we had stockholders’ equity of $2,508,607,000 and a total outstanding debt balance of $2,758,437,000, which represents a debt to total book capitalization ratio of 52%. Our ratio of debt to market capitalization was 39% at March 31, 2008. For the three months ended March 31, 2008, our interest coverage ratio was 2.87 to 1.00. For the three months ended March 31, 2008, our fixed charge coverage ratio was 2.38 to 1.00. Also, at March 31, 2008, we had $32,282,000 of cash and cash equivalents and $717,500,000 of available borrowing capacity under our unsecured line of credit arrangement.

     Our debt agreements contain various covenants, restrictions and events of default. Among other things, these provisions require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of March 31, 2008, we were in compliance with all of the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services. However, under our unsecured line of credit arrangement, these ratings on our senior unsecured notes are used to determine the fees and interest charged.

     As of April 30, 2008, our senior unsecured notes were rated Baa2 (stable), BBB- (positive) and BBB (stable) by Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings, respectively. We plan to manage the company to maintain investment grade status with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the noted rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

     On May 12, 2006, we filed an open-ended automatic or “universal” shelf registration statement with the Securities and Exchange Commission covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units. As of April 30, 2008, we had an effective registration statement on file in connection with our enhanced dividend reinvestment plan under which we may issue up to 10,760,247 shares of common stock. As of April 30, 2008, 9,028,447 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 line of credit arrangement.

26

Results of Operations

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Net income available to common stockholders	$	30,452		$	23,356		$	7,096			30	%
Funds from operations		69,913			56,207			13,706			24	%
Funds available for distribution		68,375			53,825			14,550			27	%
EBITDA		113,569			96,810			16,759			17	%
Net operating income		124,607			105,741			18,866			18	%
Per share data (fully diluted):
Net income available to common stockholders	$	0.35		$	0.32		$	0.03			9	%
Funds from operations		0.81			0.76			0.05			7	%
Funds available for distribution		0.79			0.73			0.06			8	%
Interest coverage ratio		2.87	x		2.82	x		0.05	x		2	%
Fixed charge coverage ratio		2.38	x		2.28	x		0.10	x		4	%

     We evaluate our business and make resource allocations on our two business segments — investment properties and medical office buildings. Under the investment property segment, properties are primarily leased under triple-net leases and we are not involved in the management of the property. Under the medical office building segment, our properties are typically leased under gross leases, modified gross leases or triple-net leases, to multiple tenants, and generally require a certain level of property management. There are no intersegment sales or transfers. Non-segment revenue consists mainly of interest income on non-real estate investments and other income. Non-property specific revenues and expenses are not allocated to individual segments in determining net operating income. Please see Note 15 to our unaudited consolidated financial statements for additional information.

     Investment Properties

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

	Three Months Ended					Change
	Mar. 31, 2008			Mar. 31, 2007		$			%
Revenues:
Rental income	$	91,811		$	79,816	$	11,995			15	%
Interest income		9,092			5,149		3,943			77	%
Other income		1,296			1,343		(47	)		-3	%
		102,199			86,308		15,891			18	%
Expenses:
Interest expense		1,957			1,641		316			19	%
Depreciation and amortization		26,391			23,980		2,411			10	%
Gain on extinguishment of debt		(40	)		0		(40	)		n/a
		28,308			25,621		2,687			10	%
Income from continuing operations before income taxes		73,891			60,687		13,204			22	%
Income tax expense		(1,350	)		0		(1,350	)		n/a
Income from continuing operations		72,541			60,687		11,854			20	%
Discontinued operations:
Net gain (loss) on sales of properties		26			977		(951	)		-97	%
Income (loss) from discontinued operations, net		87			825		(738	)		-89	%
Discontinued operations, net		113			1,802		(1,689	)		-94	%
Net income	$	72,654		$	62,489	$	10,165			16	%

27

     The increase in rental income is primarily attributable to the acquisitions of new investment 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 Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income.

     Interest income increased from 2007 primarily due to an increase in the balance of outstanding loans. Other income decreased from 2007 primarily due to the receipt of $673,000 from a lease termination fee in the prior year.

     Interest expense for the three months ended March 31, 2008 represents $1,973,000 of secured debt interest expense offset by $16,000 of discontinued operations. Interest expense for the three months ended March 31, 2007 represents $2,310,000 of secured debt interest expense offset by $669,000 of discontinued operations. The change in secured debt interest expense is due to the net effect and timing of assumptions, extinguishments and principal amortizations. During the three months ended March 31, 2008, we extinguished two investment property secured debt loans prior to maturity and recognized extinguishment gains of $40,000. The following is a summary of our investment property secured debt activity (dollars in thousands):

	Three Months Ended						Three Months Ended
	March 31, 2008						March 31, 2007
				Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	114,543			7.000	%	$	129,617			7.134	%
Debt extinguished		(4,750	)		7.125	%
Principal payments		(700	)		6.974	%		(820	)		7.218	%
Ending balance	$	109,093			6.994	%	$	128,797			7.134	%
Monthly averages	$	111,817			6.997	%	$	129,208			7.134	%

     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 additional details. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

     At March 31, 2008, we had one skilled nursing facility held for sale. We did not recognize an impairment loss on this asset as the fair value less estimated costs to sell exceeded our carrying value. During the three months ended March 31, 2008, we sold one parcel of land with a carrying value of $73,000 for a net gain of $26,000. These properties generated $87,000 of income after deducting depreciation and interest expense from rental revenue for the three months ended March 31, 2008. All properties sold subsequent to January 1, 2005 and held for sale at March 31, 2008 generated $825,000 of income after deducting depreciation and interest expense from rental revenue for the three months ended March 31, 2007. Please refer to Note 5 to our unaudited consolidated financial statements for further discussion.

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

28

     Medical Office Buildings

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Revenues:
Rental income	$	33,233		$	23,680		$	9,553			40	%
Other income		210			0			210			n/a
		33,443			23,680			9,763			41	%
Expenses:
Interest expense		5,565			4,305			1,260			29	%
Property operating expenses		11,367			7,168			4,199			59	%
Depreciation and amortization		13,164			8,702			4,462			51	%
Loan expense		97			76			21			28	%
Gain on extinguishment of debt		(1,286	)		0			(1,286	)		n/a
		28,907			20,251			8,656			43	%
Income from continuing operations before income taxes and minority interests		4,536			3,429			1,107			32	%
Income tax expense		(32	)		0			(32	)		n/a
Income from continuing operations before minority interests		4,504			3,429			1,075			31	%
Minority interests		(62	)		(126	)		64			-51	%
Net income	$	4,442		$	3,303		$	1,139			34	%

     The increase in rental income is primarily attributable to the acquisitions of medical office buildings 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 Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. The increase in other income is attributable to third party management fee income.

     Interest expense for the three months ended March 31, 2008 represents $5,565,000 of secured debt interest expense. Interest expense for the three months ended March 31, 2007 represents $3,454,000 of secured debt interest expense plus $851,000 of interest expense related to the subsidiary trust liability. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. During the three months ended March 31, 2008, we extinguished two medical office building secured debt loans prior to maturity and recognized extinguishment gains of $1,286,000. The following is a summary of our medical office building secured debt activity (dollars in thousands):

	Three Months Ended						Three Months Ended
	March 31, 2008						March 31, 2007
				Weighted Avg.						Weighted Avg.
	Amount			Interest Rate			Amount			Interest Rate
Beginning balance	$	392,430			5.854	%	$	248,783			5.939	%
Debt extinguished		(20,933	)		7.234	%
Principal payments		(1,393	)		5.727	%		(1,074	)		5.964	%
Ending balance	$	370,104			5.777	%	$	247,709			5.939	%
Monthly averages	$	381,272			5.817	%	$	248,266			5.939	%

     Additionally, at March 31, 2007, we had $51,000,000 of trust preferred liability principal outstanding with a fixed annual interest rate of 7.22%. On November 6, 2007, we purchased all $50,000,000 of the outstanding trust preferred securities at par for the purpose of unwinding this financing arrangement and extinguishing the liability of the operating partnership to the subsidiary trust. For further information, please refer to Note 8 included in our Annual Report on Form 10-K for the year ended December 31, 2007.

     The increase in property operating expenses is primarily attributable to the acquisition of new medical office buildings for which we incur certain property operating expenses.

29

     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 additional details. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

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

     Minority interests primarily relate to certain joint venture properties acquired in connection with the Windrose merger in December 2006.

     Non-Segment/Corporate

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Revenues:
Other income	$	210		$	249		$	(39	)		-16	%
		210			249			(39	)		-16	%
Expenses:
Interest expense		26,807			25,384			1,423			6	%
General and administrative		12,328			9,782			2,546			26	%
Loan expense		1,675			1,191			484			41	%
		40,810			36,357			4,453			12	%
Net loss from continuing operations before income taxes		(40,600	)		(36,108	)		(4,492	)		12	%
Income tax (expense) benefit		103			(11	)		114			n/a
Net loss		(40,497	)		(36,119	)		(4,378	)		12	%
Preferred stock dividends		6,147			6,317			(170	)		-3	%
Net loss attributable to common stockholders	$	(46,644	)	$	(42,436	)	$	(4,208	)		10	%

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

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

	Three Months Ended						Change
	Mar. 31, 2008			Mar. 31, 2007			$			%
Senior unsecured notes	$	27,188		$	23,671		$	3,517			15	%
Unsecured lines of credit		4,826			4,041			785			19	%
Capitalized interest		(5,167	)		(2,327	)		(2,840	)		122	%
SWAP losses (savings)		(40	)		(1	)		(39	)		3,900	%
Totals	$	26,807		$	25,384		$	1,423			6	%

     The increase in interest expense on senior unsecured notes is due to higher average borrowings offset partially by lower average interest rates. The following is a summary of our senior unsecured note activity (dollars in thousands):

	Three Months Ended						Three Months Ended
	March 31, 2008						March 31, 2007
	Face			Weighted Avg.			Face		Weighted Avg.
	Amount			Interest Rate			Amount		Interest Rate
Beginning balance	$	1,887,330			5.823	%	$	1,539,830		6.159	%
Principal payments		(42,330	)		7.625	%
Ending balance	$	1,845,000			5.782	%	$	1,539,830		6.159	%
Monthly averages	$	1,876,748			5.813	%	$	1,539,830		6.159	%

30

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

	Three Months Ended March 31,
	2008			2007
Balance outstanding at quarter end	$	432,500		$	381,000
Maximum amount outstanding at any month end	$	491,500		$	381,000
Average amount outstanding (total of daily principal balances divided by days in period)	$	406,687		$	243,650
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		4.75	%		6.63	%

     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 three months ended March 31, 2008 and 2007 totaled $5,167,000 and $2,327,000, respectively.

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

     General and administrative expenses as a percentage of revenues (including revenues from discontinued operations) for the three months ended March 31, 2008 and 2007, were 9.07% and 8.66%, respectively. The increase from 2007 is primarily related to costs associated with our initiatives to attract and retain appropriate personnel to achieve our business objectives.

     Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. The change in loan expense is primarily due to costs associated with the issuance of $400,000,000 of senior unsecured convertible notes in July 2007 and costs associated with the amendment of our unsecured line of credit arrangement in August 2007.

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

	Three Months Ended						Three Months Ended
	March 31, 2008						March 31, 2007
				Weighted Avg.					Weighted Avg.
	Shares			Dividend Rate			Shares		Dividend Rate
Beginning balance		12,879,189			7.676	%		13,174,989		7.672	%
Shares converted		(67,600	)		7.500	%
Ending balance		12,811,589			7.677	%		13,174,989		7.672	%
Monthly averages		12,828,489			7.676	%		13,174,989		7.672	%

31

Non-GAAP Financial Measures

     We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measurement. However, we consider FFO 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 non-cash straight-line rental adjustments, amortization of above/below market leases and amortization of deferred loan expenses and adjusted for cash disbursed for capital expenditures, tenant improvements and lease commissions related to our medical office buildings.

     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.

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

     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. We have properly reflected the $1,326,000, or $0.02 per diluted share, of gains on extinguishment of debt for the quarter ended March 31, 2008 and the $1,081,000, or $0.01 per diluted share, of gains on extinguishment of debt for the quarter ended December 31, 2007. These amounts have not been added back for the calculations of FFO, FAD or EBITDA.

     During the quarter ended June 30, 2007, we recorded $1,750,000 ($0.02 per diluted share) of one-time acquisition finders’ fees paid to former Windrose management in connection with the closing of the Rendina/Paramount transaction. These fees relate to services rendered prior to the consummation of the Windrose merger in December 2006. Due to the recipients’ current employment status with the company, the fees were expensed as compensation rather than included in the purchase price of the acquisition, as is typical with such fees. These fees have not been added back for the calculations of FFO, FAD or EBITDA.

     During the quarter ended March 31, 2008, we recorded $1,325,000 ($0.02 per diluted share) of non-recurring income tax expense. These taxes have not been added back for the calculations of FFO or FAD.

     Our supplemental measures 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, these measures are utilized by the Board of Directors to evaluate management. Our supplemental measures 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, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

32

     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 include provisions for depreciation and amortization from discontinued operations. Amounts are in thousands except for per share data.

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
FFO Reconciliation:	2007			2007			2007			2007			2008
Net income available to common stockholders	$	23,356		$	25,620		$	24,529		$	42,768		$	30,452
Depreciation and amortization		33,860			35,547			40,137			40,081			39,574
Loss (gain) on sales of properties		(977	)		(1,033	)		(766	)		(11,662	)		(26	)
Minority interests		(32	)		(155	)		(70	)		(88	)		(87	)
Funds from operations	$	56,207		$	59,979		$	63,830		$	71,099		$	69,913
Average common shares outstanding:
Basic		73,224			79,060			80,710			82,346			86,100
Diluted		73,791			79,546			81,163			82,784			86,610
Per share data:
Net income available to common stockholders
Basic	$	0.32		$	0.32		$	0.30		$	0.52		$	0.35
Diluted		0.32			0.32			0.30			0.52			0.35
Funds from operations
Basic	$	0.77		$	0.76		$	0.79		$	0.86		$	0.81
Diluted		0.76			0.75			0.79			0.86			0.81

     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 include provisions for depreciation and amortization from discontinued operations. Amounts are in thousands except for per share data.

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
FAD Reconciliation:	2007			2007			2007			2007			2008
Net income available to common stockholders	$	23,356		$	25,620		$	24,529		$	42,768		$	30,452
Depreciation and amortization		33,860			35,547			40,137			40,081			39,574
Loss (gain) on sales of properties		(977	)		(1,033	)		(766	)		(11,662	)		(26	)
Gross straight-line rental income		(4,231	)		(3,878	)		(4,555	)		(4,365	)		(5,336	)
Prepaid/straight-line rent receipts		2,078			2,832			5,881			6,678			2,975
Amortization related to above (below) market leases, net		(460	)		(464	)		268			(136	)		(263	)
Amortization of deferred loan expenses		1,267			1,236			1,504			1,971			1,772
Cap Ex, tenant improvements, lease commissions		(1,063	)		(762	)		(704	)		(1,763	)		(765	)
Minority interests		(5	)		(82	)		85			(8	)		(8	)
Funds available for distribution	$	53,825		$	59,016		$	66,379		$	73,564		$	68,375
Average common shares outstanding:
Basic		73,224			79,060			80,710			82,346			86,100
Diluted		73,791			79,546			81,163			82,784			86,610
Per share data:
Net income available to common stockholders
Basic	$	0.32		$	0.32		$	0.30		$	0.52		$	0.35
Diluted		0.32			0.32			0.30			0.52			0.35
Funds available for distribution
Basic	$	0.74		$	0.75		$	0.82		$	0.89		$	0.79
Diluted		0.73			0.74			0.82			0.89			0.79

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     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. Amortization represents the amortization of deferred loan expenses. Adjusted EBITDA represents EBITDA as adjusted below for items pursuant to covenant provisions of our unsecured line of credit arrangement. Dollars are in thousands.

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,
EBITDA Reconciliation:	2007			2007			2007			2007			2008
Net income	$	29,673		$	31,937		$	30,846		$	48,947		$	36,599
Interest expense		31,999			33,624			35,082			35,593			34,345
Income tax expense (benefit)		11			(69	)		(23	)		269			1,279
Depreciation and amortization		33,860			35,547			40,137			40,081			39,574
Amortization of deferred loan expenses		1,267			1,236			1,504			1,971			1,772
EBITDA		96,810			102,275			107,546			126,861			113,569
Stock-based compensation expense		3,177			1,276			1,301			1,298			3,848
Loss (gain) on extinguishment of debt		0			0			0			(1,081	)		(1,326	)
Adjusted EBITDA	$	99,987		$	103,551		$	108,847		$	127,078		$	116,091
Interest Coverage Ratio:
Interest expense	$	31,999		$	33,624		$	35,082		$	35,593		$	34,345
Capitalized interest		2,327			2,570			3,162			4,468			5,167
Total interest		34,326			36,194			38,244			40,061			39,512
EBITDA	$	96,810		$	102,275		$	107,546		$	126,861		$	113,569
Interest coverage ratio		2.82	x		2.83	x		2.81	x		3.17	x		2.87	x
Adjusted EBITDA	$	99,987		$	103,551		$	108,847		$	127,078		$	116,091
Interest coverage ratio-adjusted		2.91	x		2.86	x		2.85	x		3.17	x		2.94	x
Fixed Charge Coverage Ratio:
Total interest	$	34,326		$	36,194		$	38,244		$	40,061		$	39,512
Secured debt principal amortization		1,894			1,900			2,022			2,147			2,093
Preferred dividends		6,317			6,317			6,317			6,179			6,147
Total fixed charges		42,537			44,411			46,583			48,387			47,752
EBITDA	$	96,810		$	102,275		$	107,546		$	126,861		$	113,569
Fixed charge coverage ratio		2.28	x		2.30	x		2.31	x		2.62	x		2.38	x
EBITDA — adjusted	$	99,987		$	103,551		$	108,847		$	127,078		$	116,091
Fixed charge coverage ratio-adjusted		2.35	x		2.33	x		2.34	x		2.63	x		2.43	x

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

	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,
NOI Reconciliation:	2007		2007		2007		2007		2008
Total revenues:
Investment properties:
Rental income:
Independent living/CCRCs	$	9,387	$	9,477	$	11,765	$	12,443	$	13,414
Assisted living facilities		25,750		25,345		28,734		28,646		30,228
Skilled nursing facilities		41,011		44,713		40,970		41,025		40,100
Specialty care facilities		6,340		6,581		6,485		7,012		8,191
Sub-total rental income		82,488		86,116		87,954		89,126		91,933
Interest income		5,149		6,576		5,947		8,151		9,092
Other income		1,343		812		637		5,218		1,296
Total investment property income		88,980		93,504		94,538		102,495		102,321
Medical office buildings:
Rental income		23,680		26,181		30,876		30,877		33,233
Other income		0		0		0		497		210
Total medical office building income		23,680		26,181		30,876		31,374		33,443
Non-segment/corporate other income		249		332		562		384		210
Total revenues		112,909		120,017		125,976		134,253		135,974
Property operating expenses:
Investment properties		0		0		0		0		0
Medical office buildings		7,168		8,657		10,426		11,224		11,367
Non-segment/corporate		0		0		0		0		0
Total property operating expenses		7,168		8,657		10,426		11,224		11,367
Net operating income:
Investment properties		88,980		93,504		94,538		102,495		102,321
Medical office buildings		16,512		17,524		20,450		20,150		22,076
Non-segment/corporate		249		332		562		384		210
Net operating income	$	105,741	$	111,360	$	115,550	$	123,029	$	124,607

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Critical Accounting Policies

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

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

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

          Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the disclosure presented below relating to them. Management believes the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2007 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2008. See Note 2 to our consolidated financial statements for the impact of new accounting pronouncements.

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

Nature of Critical	Assumptions/Approach
Accounting Estimate	Used
Allowance for Loan Losses
We maintain an allowance for loan losses in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended, and SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status.	The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectibility of loan payments and principal. We evaluate the collectibility of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property. As a result of our quarterly evaluation, we concluded that the allowance for loan losses at December 31, 2007 remained appropriate as of March 31, 2008, resulting in an allowance for loan losses of $7,406,000 relating to loans with outstanding balances of $115,656,000. Also at March 31, 2008, we had loans with outstanding balances of $6,799,000 on non-accrual status.

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Nature of Critical	Assumptions/Approach
Accounting Estimate	Used
Business Combinations
Substantially all of the properties owned by us are leased under operating leases and are recorded at cost. The cost of our real property is allocated to land, buildings, improvements and intangibles in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations.	We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Lives for intangibles are based on the remaining term of the underlying leases.
	For the three months ended March 31, 2008, we recorded $31,812,000, $4,082,000 and $3,680,000 as provisions for depreciation and amortization relating to buildings, improvements and intangibles, respectively, including amounts reclassified as discontinued operations. The average useful life of our buildings, improvements and intangibles was 32.3 years, 13.0 years and 5.5 years, respectively, for the three months ended March 31, 2008.
Impairment of Long-Lived Assets
We review our long-lived assets for potential impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. An impairment charge must be recognized when the carrying value of a long-lived asset is not recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.	The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful life and changes in the market that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely use of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held.
	We did not record any impairment charges for the three months ended March 31, 2008.
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 March 31, 2008, we participated in two forward-starting interest rate swap agreements. At March 31, 2008, the swaps were reported at their fair value of negative $18,802,000 and are included in other liabilities and accumulated other comprehensive income.

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Nature of Critical	Assumptions/Approach
Accounting Estimate	Used
Revenue Recognition
Revenue is recorded in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as amended (“SAB104”). SAB104 requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectibility. If the collectibility of revenue is determined incorrectly, the amount and timing of our reported revenue could be significantly affected. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectibility risk. Substantially all of our operating leases contain fixed and/or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period.	We evaluate the collectibility of our revenues and related receivables on an on-going basis. We evaluate collectibility based on assumptions and other considerations including, but not limited to, the certainty of payment, payment history, the financial strength of the investment’s underlying operations as measured by cash flows and payment coverages, the value of the underlying collateral and guaranties and current economic conditions. If our evaluation indicates that collectibility is not reasonably assured, we may place an investment on non-accrual or reserve against all or a portion of current income as an offset to revenue. For the three months ended March 31, 2008, we recognized $9,092,000 of interest income and $125,166,000 of rental income, including discontinued operations. Cash receipts on leases with deferred revenue provisions were $2,975,000 as compared to gross straight-line rental income recognized of $5,336,000 for the three months ended March 31, 2008. At March 31, 2008, our straight-line receivable balance was $55,141,000, net of reserves totaling $1,152,000. Also at March 31, 2008, we had loans with outstanding balances of $6,799,000 on non-accrual status.

Forward-Looking Statements and Risk Factors

          This Quarterly Report on Form 10-Q may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concern and are based upon, among other things, the possible expansion of the company’s portfolio; the sale of properties; the performance of its operators and properties; its occupancy rates; its ability to acquire or develop properties; its ability to manage properties; its ability to enter into agreements with new viable tenants for vacant space or for properties that the company takes back from financially troubled tenants, if any; its ability to make distributions; its policies and plans regarding investments, financings and other matters; its tax status as a real estate investment trust; its ability to appropriately balance the use of debt and equity; its ability to access capital markets or other sources of funds; its critical accounting policies; and its ability to meet its earnings guidance. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company’s expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including prevailing interest rates; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and senior housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the company’s ability to transition or sell facilities with profitable results; the failure to make new investments as and when anticipated; the failure of closings to occur as and when anticipated; acts of God affecting the company’s properties; the company’s ability to re-lease space at similar rates as vacancies occur; the company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant bankruptcies or insolvencies; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions; environmental laws affecting the company’s properties; changes in rules or practices governing the company’s financial reporting; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Other important factors are identified in the company’s Annual Report on Form 10-K for the year ended December 31, 2007, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements.

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Item 3.Quantitative and Qualitative Disclosures about Market Risk

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

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

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

	March 31, 2008					December 31, 2007
	Principal		Change in			Principal		Change in
	balance		fair value			balance		fair value
Senior unsecured notes	$	1,845,000	$	(100,540	)	$	1,887,330	$	(96,726	)
Secured debt		479,197		(24,121	)		492,741		(24,530	)
Totals	$	2,324,197	$	(124,661	)	$	2,380,071	$	(121,256	)

          On September 12, 2007, we entered into two forward-starting interest rate swaps (the “September 2007 Swaps”) for a total notional amount of $250,000,000 to hedge 10 years of interest payments associated with a long-term borrowing that is expected to occur in 2008. The September 2007 Swaps each have an effective date of September 12, 2008 and a maturity date of September 12, 2018. We expect to settle the September 2007 Swaps when the forecasted debt is priced. The September 2007 Swaps have the economic effect of fixing $250,000,000 of our future debt at 4.469% plus a credit spread for 10 years. The September 2007 Swaps have been designated as cash flow hedges and we expect the September 2007 Swaps to be highly effective at offsetting changes in cash flows of interest payments on $250,000,000 of our future debt due to changes in the LIBOR swap rate. Therefore, effective changes in the fair value of the September 2007 Swaps will be recorded in accumulated other comprehensive income (“AOCI”) and reclassified to interest expense when the hedged forecasted transactions affect earnings (as interest payments are made on the expected debt issuance). The ineffective portion of the changes in fair value will be recorded directly in earnings. At March 31, 2008, the September 2007 Swaps were reported at their fair value of negative $18,802,000 and are included in other liabilities and AOCI. A 1% increase in interest rates would result in an increase in fair value of our September 2007 Swaps by approximately $1,226,000 at March 31, 2008. At December 31, 2007, the September 2007 Swaps were reported at their fair value of negative $7,990,000 and were included in other liabilities and AOCI. A 1% increase in interest rates would result in an increase in fair value of our September 2007 Swaps by approximately $10,871,000 at December 31, 2007.

          Our variable rate debt, including our unsecured line of credit arrangement, is reflected at fair value. At March 31, 2008, we had $432,500,000 outstanding related to our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $4,325,000. At December 31, 2007, we had $321,232,000 outstanding related to our variable rate debt and assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $3,212,000.

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

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Item 4.Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1A.Risk Factors

          Except as provided in “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward Looking Statements and Risk Factors,” there have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.

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

ISSUER PURCHASES OF EQUITY SECURITIES

					Total Number	Maximum Number
					of Shares Purchased	of Shares that May
	Total Number				as Part of Publicly	Yet Be Purchased
	of Shares		Average Price		Announced	Under the Plans or
Period	Purchased (1)		Paid Per Share		Plans or Programs (2)	Programs
January 1, 2008 through January 31, 2008		26,078	$	42.89
February 1, 2008 through February 29, 2008
March 1, 2008 through March 31, 2008		790	$	43.40
Totals		26,868	$	42.90

(1)	During the three months ended March 31, 2008, the only securities purchased by the Company were shares of common stock held by employees who tendered owned shares to satisfy the tax withholding on the lapse of certain restrictions on restricted stock.
(2)	No shares were purchased as part of publicly announced plans or programs.

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Item 6.Exhibits

10.1	Summary of Director Compensation.
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
32.2	Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.

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

	HEALTH CARE REIT, INC.
Date: May 9, 2008	By:	/s/George L. Chapman
	George L. Chapman,
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Date: May 9, 2008	By:	/s/Scott A. Estes
	Scott A. Estes,
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)
Date: May 9, 2008	By:	/s/ Paul D. Nungester, Jr.
	Paul D. Nungester, Jr.,
	Vice President and Controller
	(Principal Accounting Officer)

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