Welltower 8K Other Events | WELL 6 Aug 08

Exhibit 99.1


Item 1.	*Business*

General

Health Care REIT, Inc., a Delaware Corporation, is an equity real estate investment trust (“REIT”) that invests across the full spectrum of senior housing and health care real estate, including continuing care retirement communities, independent living, assisted living, skilled nursing, hospitals, long-term acute care hospitals and medical office buildings. We also offer a full array of property management and development services. Founded in 1970, we were the first REIT to invest exclusively in health care properties. As of December 31, 2007, we had $5,020,026,000 of real estate investments in 638 properties located in 38 states.

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

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

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

Windrose Medical Properties Trust Merger

As discussed in our Annual Report onForm 10-K/A for the year ended December 31, 2006, we completed our merger with Windrose Medical Properties Trust on December 20, 2006. These operations are the principal component of our medical office building segment. The results of operations for this segment represent the primary change in our consolidated results of operations from the prior year. Allocation of the purchase price has been finalized. See Note 2 to our consolidated financial statements for additional information.

Rendina/Paramount Acquisition

In May 2007, we completed the acquisition of 17 medical office buildings and Paramount Real Estate Services, a property management company, from affiliates of Rendina Companies. The results of operations for these properties and Paramount have been included in our consolidated results of operations from the date of acquisition. Allocation of the purchase price has been finalized. See Note 2 to our consolidated financial statements for additional information.

Portfolio of Properties

The following table summarizes our portfolio as of December 31, 2007:


	Investments		Percentage of			Revenues(1)		Percentage of			Number of		# Beds/Units		Investment per		Operators/
Type of Property	(In thousands)		Investments			(In thousands)		Revenues			Properties		or Sq. Ft.		metric (2)		Tenants		States

Independent
living/CCRCs	$	777,349		15	%	$	45,502		9	%		62		7,509 units	$	157,564 per unit		21		22
Assisted living
facilities		1,043,467		21	%		114,961		23	%		206		12,750 units		98,087 per unit		24		33
Skilled nursing
facilities		1,592,035		32	%		159,033		32	%		227		30,647 beds		52,752 per bed		21		28
Medical office
buildings		1,248,264		25	%		112,317		23	%		121		5,032,333 sq. ft.		276 per sq. ft.		913		18
Specialty care
facilities		358,911		7	%		25,484		5	%		22		1,541 beds		248,321 per bed		11		10
Interest income							25,823		5	%
Other income							10,035		3	%

Totals	$	5,020,026		100	%		493,155		100	%		638


(1)		Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2007.

(2)		Investment per metric was computed by using the total investment amount of $5,820,723,000 which includes real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $5,020,026,000 and $800,697,000, respectively.

Property Types

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

Assisted Living Facilities

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

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

Skilled Nursing Facilities

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

Independent Living/Continuing Care Retirement Communities

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

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

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

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

Specialty Care Facilities

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

Medical Office Buildings

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

Investments

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

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

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

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

Segment Reporting

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

Investment Properties

Real Property. Our investment properties are those in which we do not participate in the management of the property and are primarily land, building, improvements and related rights that are leased to operators under long-term operating leases. The net value of our investment properties aggregated approximately $3,076,660,000 at December 31, 2007. The leases generally have a fixed contractual term of 12 to 15 years and contain one or more five to15-year renewal options. Most of our rents are received undertriple-net leases requiring the operator to pay rent and all additional charges incurred in the operation of the leased property. The tenants are required to repair, rebuild and maintain the leased properties. Substantially all of these operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period.

At December 31, 2007, 87% of our investment properties were subject to master leases. A master lease is a lease of multiple properties to one tenant entity under a single lease agreement. From time to time, we may acquire additional properties that are then leased to the tenant under the master lease. The tenant is required to make one monthly payment that represents rent on all the properties that are subject to the master lease. Typically, the master lease tenant can exercise its right to purchase the properties or to renew the master lease only with respect to all leased properties at the same time. This bundling feature benefits us because the tenant cannot limit the purchase or renewal to the better performing properties and terminate the leasing arrangement with respect to the poorer performing properties. This spreads our risk among the entire group of properties within the master lease. The bundling feature may provide a similar advantage if the master lease tenant is in bankruptcy. Subject to certain restrictions, a debtor in bankruptcy has the right to assume or reject each of its leases. It is our intent that a tenant in bankruptcy would be required to assume or reject the master lease as a whole, rather than deciding on a property by property basis.

Construction. We currently provide for the construction of properties for tenants as part of long-term operating leases. We capitalize certain interest costs associated with funds used to pay for the construction of properties owned by us. The amount capitalized is based upon the amount advanced during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. We also typically charge a transaction fee at the commencement of construction. The construction period commences upon funding and terminates upon the earlier of the completion of the applicable property or the end of a specified period. During the construction period, we advance funds to the tenants in accordance with agreed upon terms and conditions which require, among other things, periodic site visits by a Company representative. During the construction period, we generally require an additional credit enhancement in the form of payment and performance bondsand/or completion guaranties. At December 31, 2007, we had outstanding construction investments of $313,709,000 and were committed to providing additional funds of approximately $800,697,000 to complete construction.

Real Estate Loans. Our real estate loans are typically structured to provide us with interest income, principal amortization and transaction fees and are generally secured by a first, second or third mortgage lien, leasehold mortgage, corporate guarantiesand/or personal guaranties. At December 31, 2007, we had outstanding real estate loans of $381,394,000. The interest yield averaged approximately 9.24% per annum on our outstanding real estate loan balances. Our yield on real estate loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan and any interest rate adjustments. The real estate loans outstanding at December 31, 2007 are generally subject to three to20-year terms with principal amortization schedulesand/or balloon payments of the outstanding principal balances at the end of the term. Typically, real estate loans are cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.

Medical Office Buildings

Our medical office buildings primarily consist of multi-tenant properties leased to health care providers. Management of these properties is provided by Paramount Real Estate Services, our property management company. Leases with our tenants are primarily triple net leases that require the tenants to pay their proportionate share of operating expenses. Other lease types with our tenants are gross or modified gross leases, where all or a portion of our operating expenses are not reimbursed by tenants. Accordingly, we incur certain property operating expenses, such as real estate taxes, repairs and maintenance, utilities and insurance. At December 31, 2007, 78% of our operating property leases were triple net as compared to 8% gross and 14% modified gross leases. Substantially all of our leases at medical office buildings include annual base rent escalation

clauses that are either predetermined fixed increases or are a function of an inflation index, and typically have an initial term ranging from one to 20 years, with a weighted average remaining term of approximately six years as of December 31, 2007. Medical office building leases are normally credit enhanced by guarantiesand/or letters of credit. The net value of our medical office buildings aggregated approximately $1,248,264,000 at December 31, 2007.

Development Services Group

Through our subsidiary, HCN Development Services Group, Inc. (“DSG”), we develop quality specialty medical properties. Formerly known as Hospital Affiliates Development Corporation or “HADC,” DSG develops and constructs new“build-to-suit” and multi-tenant facilities for us, and in some instances, for third parties who are expected to develop long-term relationships with the Company. DSG provides services such as property development, facility and medical equipment planning and implementation services to healthcare services, physician groups and third party medical property owners.

Equity Investments

Equity investments consist of an investment in a public company that has a readily determinable fair market value. We classify this equity investment asavailable-for-sale and, accordingly, record this investment at its fair market value with unrealized gains and losses included in accumulated other comprehensive income, a separate component of stockholders’ equity. This investment represents a minimal ownership interest in the company.

Borrowing Policies

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

Competition

We compete with other real estate investment trusts, real estate partnerships, private equity and hedge fund investors, banks, insurance companies, finance/investment companies, government-sponsored agencies, taxable and tax-exempt bond funds, health care operators, developers and other investors in the acquisition, development, leasing and financing of health care and senior housing properties. Some of our competitors are larger with greater resources and lower costs of capital than us. Increased competition inhibits our ability to identify and successfully complete investments. We compete for investments based on a number of factors including rates, financings offered, underwriting criteria and reputation. Our ability to successfully compete is also impacted by economic and population trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment terms, availability and cost of capital, construction and renovation costs and new and existing laws and regulations.

The operators/tenants of our properties compete on a local and regional basis with operators/tenants of properties that provide comparable services. Operators/tenants compete for patients and residents based on a number of factors including quality of care, reputation, physical appearance of properties, services offered, family preferences, physicians, staff and price. We also face competition from other health care facilities for tenants, such as physicians and other health care providers that provide comparable facilities and services.

For additional information on the risks associated with our business, please see “Item 1A — Risk Factors” of this Annual Report onForm 10-K.

Employees

As of December 31, 2007, we had 198 employees.

Customer Concentrations

The following table summarizes certain information about our customer concentrations as of December 31, 2007 (dollars in thousands):


	Number of		Total		Percent of
	Properties		Investment		Investment(1)

Concentration by investment:
Emeritus Corporation		50	$	355,147		7	%
Signature Healthcare LLC		34		325,744		6	%
Brookdale Senior Living, Inc		84		258,990		5	%
Life Care Centers of America, Inc.		25		255,168		5	%
Senior Living Communities, LLC		8		187,437		4	%
Remaining portfolio		437		3,637,540		73	%

Totals		638	$	5,020,026		100	%


	Number of		Total		Percent of
	Properties		Revenue(2)		Revenue(3)

Concentration by revenue:
Emeritus Corporation		50	$	39,546		8	%
Brookdale Senior Living, Inc		84		37,791		8	%
Home Quality Management, Inc.		35		24,512		5	%
Life Care Centers of America, Inc.		25		23,854		5	%
Tara Cares, LLC		33		18,982		4	%
Remaining portfolio		411		338,435		68	%
Other income		n/a		10,035		2	%

Totals		638	$	493,155		100	%


(1)		Investments with our top five customers comprised 32% of total investments at December 31, 2006.

(2)		Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2007.

(3)		Revenues from our top five customers were 43% and 43% for the years ended December 31, 2006 and 2005, respectively.

Certain Government Regulations

Health Law Matters — Generally

We invest in assisted living, skilled nursing, independent living/continuing care retirement communities, medical office buildings and specialty care facilities, which represented approximately 21%, 32%, 15%, 25% and 7%, respectively, of our investments at December 31, 2007.

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

Licensing and Certification

The primary regulations that affect assisted living facilities are the states’ licensing laws. In granting and renewing these licenses, the regulatory authorities consider numerous factors relating to a property’s physical plant and operations including, but not limited to, admission and discharge standards and staffing and training. A decision to grant or renew a license is also affected by a property’s record with respect to patient and consumer rights and medication guidelines and rules. Certain of the senior housing facilities mortgaged to or owned by us may require the resident to pay an entrance or upfront fee, a portion of which may be refundable. These entrance fee communities are subject to significant state regulatory oversight, including, for example, oversight of each facility’s financial condition, establishment and monitoring of reserve requirements and other financial restrictions, the right of residents to cancel their contracts within a specified period of time, lien rights in favor of residents, restrictions on change of ownership and similar matters. Such oversight and the rights of residents within these entrance fee communities may have an effect on the revenue or operations of the operators of such facilities and therefore may adversely affect us.

Skilled nursing facilities are subject to a variety of licensure and certificate of need (“CON”) laws and regulations. CON laws in those states that have them generally require a facility to demonstrate the need for constructing a new facility, expanding an existing facility, changing the ownership or control of an existing licensed facility, or terminating services that have been approved through the CON process. CONs, where applicable, generally are required before a covered facility can construct a new facility, add beds or expand services, invest in major capital equipment or add new services, or terminate services for which the facility has previously been awarded a CON and a license. The CON laws and regulations may restrict the ability of operators to add new properties or expand an existing facility’s size or services. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. If we have to replace a barred property operator, our ability to replace the operator may be affected by CON rules and policies governing changes in control.

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

Reimbursement

Assisted Living Facilities. Approximately 23% of our rental revenues for the year ended December 31, 2007, were attributable to assisted living facilities. The majority of the revenues received by the operators of our assisted living facilities are from private pay sources. The remaining revenue source is primarily Medicaid under certain waiver programs. As a part of the Omnibus Budget Reconciliation Act (“OBRA”) of 1981, Congress established a waiver program enabling some states to offer Medicaid reimbursement to assisted living facilities as an alternative to institutional long-term care services. The provisions of OBRA and the subsequent OBRA Acts of 1987 and 1990 permit states to seek a waiver from typical Medicaid requirements to develop cost-effective alternatives to long-term care, including Medicaid payments for assisted living and home health. At December 31, 2007, five of our 24 assisted living operators received Medicaid reimbursement pursuant to Medicaid waiver programs. For the twelve months ended September 30, 2007, approximately 12% of the revenues at our assisted living facilities were from Medicaid reimbursement. There can be no guarantee that a state Medicaid program operating pursuant to a waiver will be able to maintain its waiver status. If a state loses its waiver status under Medicaid, the state will be unable to maintain Medicaid reimbursement to assisted living facilities, which will reduce the revenues of some of our operators, making it more difficult for such operators to cover expenses, including our rent or debt service.

Rates paid by self-pay residents are set by the facilities and are largely determined by local market conditions and operating costs. Generally, facilities receive a higher payment per day for a private pay resident than for a Medicaid beneficiary who requires a comparable level of care. The level of Medicaid reimbursement varies from state to state. Thus, the revenues generated by operators of our assisted living facilities may be adversely affected by payor mix, acuity level and changes in Medicaid eligibility and reimbursement levels. In addition, a state could lose its Medicaid waiver and no longer be permitted to utilize Medicaid dollars to reimburse for assisted living services. Changes in revenues could in turn have a material adverse effect on an operator’s ability to meet its obligations to us.

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

Medicare Reimbursement and Skilled Nursing Facilities. For the twelve months ended September 30, 2007, approximately 29% of the revenues at our skilled nursing facilities (which comprised 32% of our rental revenues for the year ended December 31, 2007) were from Medicare reimbursement. In an effort to reduce federal spending on health care, the Balanced Budget Act of 1997 (“BBA”) fundamentally altered Medicare payment methodologies for skilled nursing facilities by mandating the institution of the skilled nursing facility prospective payment system. The prospective payment system shifted reimbursement from reasonable cost to a prospective fee schedule that generally reduced Medicare reimbursement for skilled nursing facility services. The reductions in Medicare payments resulted in immediate financial difficulties for skilled nursing facilities and caused a number of operators to seek bankruptcy protection. The federal government subsequently passed legislation to lessen the negative financial impact from the prospective payment system. These payment increases have since expired.

Skilled nursing facilities received a 3.3% inflationary market basket increase in Medicare payments for federal fiscal year 2008, which represents $690 million of additional Medicare spending. Section 5008 of the Deficit Reduction Act of 2005 directs the Secretary (as defined in that statute) to conduct a demonstration program beginning January 1, 2008 assessing the costs and outcomes of patients discharged from hospitals in a variety of post-acute care settings, including skilled nursing facilities. The outcome of that demonstration program could lead to changes in Medicare coverage and reimbursement for post-acute care. It is not known how either the demonstration program, or any other changes in Medicare reimbursement or regulatory obligations that might be proposed, might impact tenants of the Company’s properties.

The BBA mandated caps on Medicare reimbursement for certain therapy services. However, Congress imposed various moratoriums on the implementation of those caps. The moratoriums on the therapy caps for Part B outpatient rehabilitation services expired December 31, 2005. The annual payment cap of $1,810 per patient applies to occupational therapy and a separate $1,810 cap applies to speech and physical therapy. Until June 30, 2008, patients exceeding the cap will be able to obtain additional Medicare coverage through a waiver program if the therapy is deemed medically necessary. If the waiver program is not further extended, patients will need to use private funds to pay for the cost of therapy above the caps. The waiver has historically been extended.

Medicare Reimbursement and Specialty Care Facilities. For the twelve months ended September 30, 2007, approximately 39% of the revenues at our specialty care facilities (which comprised 5% of our rental revenues for the year ended December 31, 2007) were from Medicare. Specialty care facilities generally are reimbursed by Medicare under either the diagnosis related group prospective payment system reimbursement methodology for inpatient hospitals, or the long-term acute care hospital prospective payment system for long-term acute care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services including, but not limited

to, surgery, rehabilitation, therapy and clinical laboratories. Long-term acute care hospitals provide inpatient services for patients with complex medical conditions that require more intensive care, monitoring or emergency support than that available in most skilled nursing facilities.

With respect to Medicare’s diagnosis related group/outpatient prospective payment system methodology for regular hospitals, reimbursement for inpatient services is on the basis of a fixed, prospective rate based on the principal diagnosis of the patient. Hospitals are at risk to the extent that their costs in treating a specific case exceed the fixed payment. The diagnosis related group reimbursement system was significantly changed for 2008, with the expansion of diagnosis groups from 538 to 745 diagnosis related groups to greater reflect severity. It is possible that this change in the DRG system will adversely impact reimbursement for some of our hospitals. In some cases, a hospital might be able to qualify for an outlier payment if the hospital’s losses exceed a threshold.

Medicaid Reimbursement. Medicaid is a major payor source for residents in our skilled nursing and specialty care facilities. For the twelve months ended September 30, 2007, approximately 52% of the revenues of our skilled nursing facilities and 28% of the revenues of our specialty care facilities were attributable to Medicaid payments. The federal government and the states share responsibility for financing Medicaid. The federal matching rate, known as the Federal Medical Assistance Percentage, varies by state based on relative per capita income, but is at least 50% in all states. On average, Medicaid is the largest component of total state spending, representing approximately 22.0% of total state spending. The percentage of Medicaid dollars used for long-term care varies from state to state due in part to different ratios of elderly population and eligibility requirements. Within certain federal guidelines, states have a wide range of discretion to determine eligibility and reimbursement methodology. Many states reimburse long-term care facilities using fixed daily rates, which are applied prospectively based on patient acuity and the historical costs incurred in providing patient care. Reasonable costs typically include allowances for staffing, administrative and general, and property and equipment (e.g., real estate taxes, depreciation and fair rental).

In most states, Medicaid does not fully reimburse the cost of providing skilled nursing services. Certain states are attempting to slow the rate of growth in Medicaid expenditures by freezing rates or restricting eligibility and benefits. States in which we have skilled nursing property investments increased their per diem Medicaid rates roughly 3.3% on average for fiscal year 2008. Three of our states have effectively frozen rates for fiscal year 2008, which will impact profitability to the extent that expenses continue to rise. In addition, Medicaid rates may decline if revenues in a particular state are not sufficient to fund budgeted expenditures.

The Medicare Part D drug benefit became effective January 1, 2006. The direct impact on nursing facilities is that residents dually eligible for Medicare (and enrolled in one of the new Part D plans) and Medicaid now may enroll and receive reimbursement for drugs through Medicare Part D rather than through Medicaid. Part D will result in increased administrative responsibilities for nursing home operators because enrollment in Part D is voluntary and residents have the choice of multiple prescription drug plans. Operators may also experience increased expenses to the extent that patients’ specific prescribed drugs may not be on the Part D drug plan formulary for the plan in which specific patients are enrolled.

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

Other Related Laws

Skilled nursing and specialty care facilities (and assisted living facilities that receive Medicaid payments) are subject to federal, state and local laws and regulations that govern the operations and financial and other arrangements that may be entered into by health care providers. Certain of these laws prohibit direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for medical products or services reimbursable by governmental programs. Other laws require providers to furnish only medically necessary

services and submit to the government valid and accurate statements for each service. Still other laws require providers to comply with a variety of safety, health and other requirements relating to the condition of the licensed property and the quality of care provided. Sanctions for violations of these laws and regulations may include, but are not limited to, criminaland/or civil penalties and fines and a loss of licensure, immediate termination of governmental payments, and exclusion from eligibility for any governmental reimbursement. In certain circumstances, violation of these rules (such as those prohibiting abusive and fraudulent behavior) with respect to one property may subject other facilities under common control or ownership to sanctions, including exclusion from participation in the Medicare and Medicaid programs. In the ordinary course of its business, a property operator is regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations.

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

Other legislative developments over the past several years, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), have greatly expanded the definition of health care fraud and related offenses and broadened its scope to include private health care plans in addition to government payors. Congress also has greatly increased funding for the Department of Justice, Federal Bureau of Investigation and the Office of the Inspector General of the Department of Health and Human Services to audit, investigate and prosecute suspected health care fraud. Moreover, a significant portion of the billions in health care fraud recoveries over the past several years has also been returned to government agencies to further fund their fraud investigation and prosecution efforts.

Additionally, other HIPAA provisions and regulations provide for communication of health information through standard electronic transaction formats and for the privacy and security of health information. In order to comply with the regulations, health care providers must undergo significant operational and technical changes. Operators also face significant financial exposure if they fail to maintain the confidentiality of medical records and personal, identifiable health information about individuals.

In November 2002, the Centers for Medicare & Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services, began a national Nursing Home Quality Initiative (NHQI). Under this initiative, historical survey information, the NHQI Pilot Evaluation Report and the NHQI Overview is made available to the public on-line. The NHQI website provides consumer and provider information regarding the quality of care in nursing homes. The data allows consumers, providers, states and researchers to compare quality information that shows how well nursing homes are caring for their residents’ physical and clinical needs. The posted nursing home

quality measures come from resident assessment data that nursing homes routinely collect on the residents at specified intervals during their stay. If the operators of nursing facilities are unable to achieve quality of care ratings that are comparable or superior to those of their competitors, they may lose market share to other facilities, reducing their revenues and adversely impacting their ability to make rental payments.

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

Environmental Laws

A wide variety of federal, state and local environmental and occupational health and safety laws and regulations affect health care facility operations or special medical properties. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property or a secured lender (such as the Company) may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages and the owner’s or secured lender’s liability for such costs could exceed the value of the property,and/or the assets of the owner or secured lender. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, would reduce revenues.

Taxation

Federal Income Tax Considerations

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

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

General

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

In any year in which we qualify as a REIT, in general, we will not be subject to federal income tax on that portion of our REIT taxable income or capital gain that is distributed to stockholders. We may, however, be subject to tax at normal corporate rates on any taxable income or capital gain not distributed. If we elect to retain and pay

income tax on our net long-term capital gain, stockholders are required to include their proportionate share of our undistributed long-term capital gain in income, but they will receive a refundable credit for their share of any taxes paid by us on such gain.

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


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

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

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

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

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

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

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

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

Qualification as a REIT

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


	(1)	which is managed by one or more trustees or directors;

	(2)	the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;

	(3)	which would be taxable as a domestic corporation but for the federal income tax law relating to REITs;

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


	(5)	the beneficial ownership of which is held by 100 or more persons in each taxable year of the REIT except for its first taxable year;

	(6)	not more than 50% in value of the outstanding stock of which is owned during the last half of each taxable year, excluding its first taxable year, directly or indirectly, by or for five or fewer individuals (which includes certain entities) (the “Five or Fewer Requirement”); and

	(7)	which meets certain income and asset tests described below.

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

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

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

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

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

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


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

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

For taxable years beginning on or before October 22, 2004, (1) payments to us under an interest rate swap or cap agreement, option, futures contract, forward rate agreement or any similar financial instrument entered into by us to reduce interest rate risk on indebtedness incurred or to be incurred and (2) gain from the sale or other

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

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


	•	The amount of rent must not be based in whole or in part on the income or profits of any person, although rents generally will not be excluded merely because they are based on a fixed percentage or percentages of receipts or sales.

	•	Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our taxable REIT subsidiary and certain other requirements are met with respect to the real property being rented.

	•	If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as “rents from real property.”

	•	For rents to qualify as rents from real property, we generally must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, except that we may directly provide services that are “usually or customarily rendered” in the geographic area in which the property is located in connection with the rental of real property for occupancy only, or are not otherwise considered “rendered to the occupant for his convenience.”

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

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

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

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

October 22, 2004) over the amount of qualifying gross income for purposes of the 95% income test, multiplied by (b) a fraction intended to reflect our profitability.

Asset Tests. Within 30 days after the close of each quarter of our taxable year, we must also satisfy several tests relating to the nature and diversification of our assets determined in accordance with generally accepted accounting principles. At least 75% of the value of our total assets must be represented by real estate assets, cash, cash items (including receivables arising in the ordinary course of our operation), government securities and qualified temporary investments. Although the remaining 25% of our assets generally may be invested without restriction, we are prohibited from owning securities representing more than 10% of either the vote (the “10% vote test”) or value (the “10% value test”) of the outstanding securities of any issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary. Further, no more than 20% of the total assets may be represented by securities of one or more taxable REIT subsidiaries (the “20% asset test”) and no more than 5% of the value of our total assets may be represented by securities of any non-governmental issuer other than a qualified REIT subsidiary (the “5% asset test”), another REIT or a taxable REIT subsidiary. Each of the 10% vote test, the 10% value test and the 20% and 5% asset tests must be satisfied at the end of each quarter. There are special rules which provide relief if the value related tests are not satisfied due to changes in the value of the assets of a REIT.

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

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

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

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

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

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

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

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

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

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

Failure to Qualify as a REIT

If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible nor will any particular amount of distributions be required to be made in any year. All distributions to stockholders will be taxable as ordinary income to the extent of current and accumulated earnings and profits allocable to these distributions and, subject to

certain limitations, will be eligible for the dividends received deduction for corporate stockholders. Unless entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances we would be entitled to statutory relief. Failure to qualify for even one year could result in our need to incur indebtedness or liquidate investments in order to pay potentially significant resulting tax liabilities.

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

Federal Income Taxation of Holders of Our Stock

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


	•	a citizen or resident of the United States;

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

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

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

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

Generally, for taxable years ending after May 6, 2003 through December 31, 2010, the maximum marginal rate of tax payable by individuals on dividends received from corporations that are subject to a corporate level of tax is 15%. Except in limited circumstances, this tax rate will not apply to dividends paid to you by us on our shares, because generally we are not subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our stockholders. The reduced maximum federal income tax rate will apply to that portion, if any, of dividends received by you with respect to our shares that are attributable to: (1) dividends received by us from non-REIT corporations or other taxable REIT subsidiaries; (2) income from the prior year with respect to which we were required to pay federal corporate income tax during the prior year (if, for example, we did not distribute 100% of our REIT taxable income for the prior year); or (3) the amount of any earnings and profits that were distributed by us and accumulated in a non-REIT year.

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

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

You may not include in your federal income tax return any of our net operating losses or capital losses. Federal income tax rules may also require that certain minimum tax adjustments and preferences be apportioned to you. In addition, any distribution declared by us in October, November or December of any year on a specified date in any

such month shall be treated as both paid by us and received by you on December 31 of that year, provided that the distribution is actually paid by us no later than January 31 of the following year.

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

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

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

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

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

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

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

acquisition of the shares of our stock with debt, a portion of its income from us will constitute UBTI pursuant to the “debt financed property” rules. Likewise, a portion of the Exempt Organization’s income from us would constitute UBTI if we held a residual interest in a real estate mortgage investment conduit.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following is a general summary of the United States federal income tax consequences and, in the case that you are a holder that is anon-U.S. holder, as defined below, the United States federal estate tax consequences, of purchasing, owning and disposing of debt securities periodically offered under one or more indentures (the “notes”). This summary assumes that you hold the notes as capital assets. This summary applies to you only if you are the initial holder of the notes and you acquire the notes for a price equal to the issue price of the notes. The issue price of the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. In

addition, this summary does not consider any foreign, state, local or other tax laws that may be applicable to us or a purchaser of the notes.

U.S. Holders

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

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


	•	a citizen or resident of the United States;

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

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

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

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

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


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

	•	your adjusted tax basis in the notes.

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

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

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

Non-U.S. Holders

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

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

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


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

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

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

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


	•	us or our paying agent; or

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

Treasury regulations provide that:


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

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

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

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

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

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

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


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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

Potential Legislation or Other Actions Affecting Tax Consequences

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

Internet Access to Our SEC Filings

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


Item 6.	*Selected Financial Data*

The following selected financial data for the five years ended December 31, 2007 are derived from our audited consolidated financial statements (in thousands, except per share data):


	Year Ended December 31,
	2003		2004		2005		2006			2007

Operating Data
Revenues(1)	$	162,250	$	206,720	$	246,170	$	294,520		$	465,899
Expenses:
Interest expense(1)		42,741		58,948		69,084		86,625			129,113
Depreciation and amortization(1)		37,229		55,930		66,263		83,731			141,198
Property operating expenses		0		0		0		1,115			37,475
Other expenses(1)(2)		17,274		20,391		20,073		30,259			43,630
Impairment of assets		2,792		314		0		0			0
Loss (gain) on extinguishment of debt		0		0		21,484		0			(1,081	)

Total expenses		100,036		135,583		176,904		201,730			350,335
Income before minority interests		62,214		71,137		69,266		92,790			115,564
Minority interests		0		0		0		(13	)		(238	)

Income from continuing operations(1)		62,214		71,137		69,266		92,777			115,326
Income from discontinued operations, net(1)		20,526		14,234		15,020		9,973			26,076

Net income		82,740		85,371		84,286		102,750			141,402
Preferred stock dividends		9,218		12,737		21,594		21,463			25,130
Preferred stock redemption charge		2,790		0		0		0			0

Net income available to common stockholders	$	70,732	$	72,634	$	62,692	$	81,287		$	116,272

Other Data
Average number of common shares outstanding:
Basic		43,572		51,544		54,110		61,661			78,861
Diluted		44,201		52,082		54,499		62,045			79,409
Per Share Data
Basic:
Income from continuing operations available to common stockholders	$	1.15	$	1.13	$	0.88	$	1.16		$	1.14
Discontinued operations, net		0.47		0.28		0.28		0.16			0.33

Net income available to common stockholders*	$	1.62	$	1.41	$	1.16	$	1.32		$	1.47

Diluted:
Income from continuing operations available to common stockholders	$	1.14	$	1.12	$	0.87	$	1.15		$	1.14
Discontinued operations, net		0.46		0.27		0.28		0.16			0.33

Net income available to common stockholders*	$	1.60	$	1.39	$	1.15	$	1.31		$	1.46

Cash distributions per common share	$	2.34	$	2.385	$	2.46	$	2.8809		$	2.2791


*		Amounts may not sum due to rounding


(1)		In accordance with FASB Statement No. 144, we have reclassified the income and expenses attributable to the properties sold subsequent to January 1, 2002 through June 30, 2008 and attributable to the properties held for sale at June 30, 2008, to discontinued operations for all periods presented. See Note 16 to our audited consolidated financial statements.

(2)		Other expenses include loan expense, provision for loan losses and general and administrative expenses.


	December 31,
	2003		2004		2005		2006		2007

Balance Sheet Data
Net real estate investments	$	1,992,446	$	2,441,972	$	2,849,518	$	4,122,893	$	5,012,620
Total assets		2,184,088		2,552,171		2,972,164		4,280,610		5,213,856
Total long-term obligations		1,014,541		1,192,958		1,500,818		2,198,001		2,704,668
Total liabilities and minority interests		1,034,409		1,216,892		1,541,408		2,301,817		2,809,500
Total redeemable preferred stock		120,761		283,751		276,875		338,993		330,243
Total stockholders’ equity		1,149,679		1,335,279		1,430,756		1,978,793		2,404,356


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

The following discussion and analysis is based primarily on the consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto. Other important factors are identified in “Item 1 — Business” above and “Item 1A — Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2007.

Executive Overview

Business

Health Care REIT, Inc. is an equity real estate investment trust that invests in the full spectrum of senior housing and health care real estate. Founded in 1970, we were the first REIT to invest exclusively in health care properties. The following table summarizes our portfolio as of December 31, 2007:


	Investments		Percentage of			Revenues(1)		Percentage of			Number of		# Beds/Units		Investment per		Operators/
Type of Property	(in thousands)		Investments			(in thousands)		Revenues			Properties		or Sq. Ft.		metric(2)		Tenants		States

Independent living/CCRCs	$	777,349		15	%	$	45,502		9	%		62		7,509 units	$	157,564 per unit		21		22
Assisted living facilities		1,043,467		21	%		114,961		23	%		206		12,750 units		98,087 per unit		24		33
Skilled nursing facilities		1,592,035		32	%		159,033		32	%		227		30,647 beds		52,752 per bed		21		28
Medical office buildings		1,248,264		25	%		112,317		23	%		121		5,032,333 sq. ft.		276 per sq. ft.		913		18
Specialty care facilities		358,911		7	%		25,484		5	%		22		1,541 beds		248,321 per bed		11		10
Interest income							25,823		5	%
Other income							10,035		3	%

Totals	$	5,020,026		100	%	$	493,155		100	%		638


(1)		Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2007.

(2)		Investment per metric was computed by using the total investment amount of $5,820,723,000 which includes real estate investments and unfunded construction commitments for which initial funding has commenced which amounted to $5,020,026,000 and $800,697,000, respectively.

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

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

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

For the year ended December 31, 2007, rental income and interest income represented 93% and 5%, respectively, of total gross revenues (including discontinued operations). Substantially all of our operating leases are designed with either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments

due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

Depending upon the availability and cost of external capital, we anticipate investing in additional properties. New investments are generally funded from temporary borrowings under our unsecured 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. We expect to complete gross new investments of $900,000,000 to $1,200,000,000 in 2008, including acquisitions of $500,000,000 to $700,000,000 and funded new development of $400,000,000 to $500,000,000. We anticipate the sale of real property and the repayment of loans receivable totaling approximately $100,000,000 to $200,000,000 during 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 December 31, 2007, we had $30,269,000 of cash and cash equivalents and $843,000,000 of available borrowing capacity under our unsecured line of credit arrangement. Our investment activity may exceed our borrowing capacity under our unsecured line of credit. To the extent that we are unable to issue equity or debt securities to provide additional capital, we may not be able to fund all of our potential investments, which could have an adverse effect on our revenues and cash flows from operations.

Key Transactions in 2007

We completed the following key transactions during the year ended December 31, 2007:


	•	our Board of Directors increased our quarterly dividend to $0.66 per share, which represents a two cent increase from the quarterly dividend of $0.64 paid for 2006. The dividend declared for the quarter ended December 31, 2007 represented the 147th consecutive dividend payment;

	•	we completed $1,189,472,000 of gross investments offset by $125,905,000 of investment payoffs;

	•	we completed a public offering of 6,325,000 shares of common stock with net proceeds to the Company of approximately $265,294,000 in April 2007;

	•	we issued $400,000,000 of 4.75% convertible senior unsecured notes due July 2027 with net proceeds to the company of approximately $388,943,000 in July 2007;

	•	we closed on a $1,150,000,000 unsecured revolving credit facility in August 2007 to replace our $700,000,000 facility which was scheduled to mature in July 2009 and our $40,000,000 facility which was scheduled to mature in May 2008. Among other things, the new facility provides us with additional financial flexibility and borrowing capacity, extends our agreement to August 2011 and reduces our incremental borrowing cost from 80 basis points to 60 basis points over LIBOR based on our then current ratings; and

	•	we completed a public offering of 3,500,000 shares of common stock with net proceeds to the Company of approximately $147,139,000 in December 2007.

Windrose Medical Properties Trust Merger

Rendina/Paramount Acquisition

Key Performance Indicators, Trends and Uncertainties

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

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


	Year Ended
	December 31,		December 31,		December 31,
	2005		2006		2007

Net income available to common stockholders	$	62,692	$	81,287	$	116,272
Funds from operations		144,293		177,580		251,117
Per share data (fully diluted):
Net income available to common stockholders	$	1.15	$	1.31	$	1.46
Funds from operations		2.65		2.86		3.16

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


	Year Ended
	December 31,			December 31,			December 31,
	2005			2006			2007

Debt to book capitalization ratio		51	%		53	%		53	%
Debt to undepreciated book capitalization ratio		47	%		49	%		48	%
Debt to market capitalization ratio		40	%		39	%		39	%
Interest coverage ratio		3.06	x		2.97	x		2.91	x
Fixed charge coverage ratio		2.37	x		2.39	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 an operator pursuant to a long-term operating lease. Investment mix measures the portion of our investments that relate to our various property types. Customer mix measures the portion of our investments that relate to our top five customers. 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:


	December 31,			December 31,			December 31,
	2005			2006			2007

Asset mix:
Real property		93	%		95	%		92	%
Loans receivable		7	%		5	%		8	%
Investment mix:
Assisted living facilities		34	%		25	%		21	%
Skilled nursing facilities		44	%		34	%		32	%
Independent/CCRC		15	%		13	%		15	%
Medical office buildings					22	%		25	%
Specialty care facilities		7	%		6	%		7	%
Customer mix:
Emeritus Corporation		13	%		9	%		7	%
Signature Healthcare LLC								6	%
Brookdale Senior Living Inc					7	%		5	%
Life Care Centers of America, Inc.		7	%		6	%		5	%
Senior Living Communities, LLC								4	%
Home Quality Management, Inc.					6	%
Merrill Gardens L.L.C.		7	%		4	%
Southern Assisted Living, Inc.		7	%
Commonwealth Communities Holdings LLC		7	%
Remaining portfolio		59	%		68	%		73	%
Geographic mix:
Florida		14	%		17	%		15	%
Texas		8	%		11	%		13	%
Massachusetts		13	%		8	%		7	%
California		7	%		7	%		7	%
Tennessee								6	%
Ohio					6	%
North Carolina		8	%
Remaining portfolio		50	%		51	%		52	%

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Management regularly monitors various economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to “Item 1A — Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2007 for further discussion.

Portfolio Update

Investment Properties

Payment coverage of the operators in our investment property portfolio continues to improve. Our overall payment coverage is at 1.99 times and represents an increase of six basis point from 2006 and seven basis points from 2005. The following table 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.


	September 30, 2005						September 30, 2006						September 30, 2007
	CBMF			CAMF			CBMF			CAMF			CBMF			CAMF

Independent living/CCRCs		1.43	x		1.21	x		1.41	x		1.21	x		1.47	x		1.26	x
Assisted living facilities		1.52	x		1.30	x		1.54	x		1.33	x		1.57	x		1.35	x
Skilled nursing facilities		2.18	x		1.61	x		2.17	x		1.55	x		2.25	x		1.65	x
Specialty care facilities		3.36	x		2.77	x		2.88	x		2.34	x		2.72	x		2.16	x

Weighted averages		1.92	x		1.53	x		1.93	x		1.50	x		1.99	x		1.55	x

Medical Office Buildings

The primary performance measure for our medical office buildings is net operating income (“NOI”) as discussed below in Non-GAAP Financial Measures. At December 31, 2007, we had 121 medical office buildings. Our consolidated financial results for the year ended December 31, 2006 include twelve days of revenues and expenses due to the Windrose merger completed on December 20, 2006. The following table summarizes and reconciles our net operating income for the periods indicated (in thousands):


			Property		Net
	Total		Operating		Operating
	Revenues		Expenses		Income

Year ended December 31, 2006:
Medical office buildings	$	3,247	$	1,115	$	2,132

Year ended December 31, 2007:
Medical office buildings	$	112,111	$	37,475	$	74,636

Corporate Governance

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

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, borrowings under our 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 acquisitions, loan advances and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below.

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


							One Year									One Year						Two Year
	Year Ended						Change						Year Ended			Change						Change
	Dec. 31, 2005			Dec. 31, 2006			$			%			Dec. 31, 2007			$			%			$			%

Cash and cash equivalents at beginning of period	$	19,763		$	36,237		$	16,474			83	%	$	36,216		$	(21	)		0	%	$	16,453			83	%
Cash provided from (used in) operating activities		194,417			216,446			22,029			11	%		263,883			47,437			22	%		69,466			36	%
Cash provided from (used in) investing activities		(449,069	)		(560,815	)		(111,746	)		25	%		(885,336	)		(324,521	)		58	%		(436,267	)		97	%
Cash provided from (used in) financing activities		271,126			344,348			73,222			27	%		615,506			271,158			79	%		344,380			127	%

Cash and cash equivalents at end of period	$	36,237		$	36,216		$	(21	)		0	%	$	30,269		$	(5,947	)		(16	)%	$	(5,968	)		(16	)%

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

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


	Year Ended						One Year Change						Year Ended			One Year Change						Two Year Change
	Dec. 31, 2005			Dec. 31, 2006			$			%			Dec. 31, 2007			$			%			$			%

Gross straight-line rental income	$	13,142		$	9,432		$	(3,710	)		(28	)%	$	17,029		$	7,597			81	%	$	3,887			30	%
Cash receipts due to real property sales		(9,384	)		(3,544	)		5,840			(62	)%		(4,527	)		(983	)		28	%		4,857			(52	)%
Prepaid rent receipts		(4,485	)		(17,017	)		(12,532	)		279	%		(12,942	)		4,075			(24	)%		(8,457	)		189	%
Amortization related to above/below market leases, net		0			60			60			n/a			792			732			1,220	%		792			n/a

	$	(727	)	$	(11,069	)	$	(10,342	)		1,423	%	$	352		$	11,421			n/a		$	1,079			n/a

Gross straight-line rental income represents the non-cash difference between contractual cash rent due and the average rent recognized pursuant to Statement of Financial Accounting Standards No. 13 Accounting for Leases (“SFAS 13”) for leases with fixed rental escalators, net of collectibility reserves, if any. This amount is positive in the first half of a lease term (but declining every year due to annual increases in cash rent due) and is negative in the second half of a lease term. The increase in gross straight-line rental income is primarily due to an increase in the number of our leases with fixed annual increases resulting primarily from the Windrose merger completed in December 2006 and the Rendina/Paramount acquisition completed in May 2007. The change in prepaid rent cash receipts is primarily attributable to cash received upon renegotiation of a lease in connection to the acquisition of Commonwealth Communities Holdings LLC by Kindred Healthcare, Inc. in February 2006.

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


	Year Ended
	December 31, 2005					December 31, 2006(1)					December 31, 2007(2)
	Facilities		Amount			Facilities		Amount			Facilities		Amount

Real property acquisitions:
Independent/CCRC		11	$	230,225			5	$	56,417			1	$	43,000
Assisted living		4		47,660			8		77,600			4		36,233
Skilled nursing		45		262,084			18		148,955			8		122,875
Medical office				0					0			28		381,134
Specialty care		5		51,000					0			1		11,923
Land parcels				0					10,250					8,928

Total acquisitions		65		590,969			31		293,222			42		604,093
Less:
Assumed debt				(22,309	)				(25,049	)				(166,188	)
Assumed other assets/(liabilities), net				0					0					(2,432	)

Cash disbursed for acquisitions				568,660					268,173					435,473
Additions to CIP				8,790					149,843					295,102
Capital improvements to existing properties				21,841					11,167					39,976

Total cash invested in real property				599,291					429,183					770,551
Real property dispositions:
Assisted living		15		90,485			12		58,479			10		59,694
Skilled nursing				0			3		7,827			7		23,055
Independent/CCRC				0			1		3,095			1		11,919
Specialty care				0					0					0
Land parcels				840					486					3,646

Proceeds from real property sales		15		91,325			16		69,887			18		98,314

Net cash investments in real property		50	$	507,966			15	$	359,296			24	$	672,237

Advances on loans receivable:
Investments in new loans			$	26,554				$	75,209				$	205,770
Draws on existing loans				13,833					11,781					30,124

Total investments in loans				40,387					86,990					235,894
Receipts on loans receivable:
Loan payoffs				82,379					65,002					42,028
Principal payments on loans				16,259					17,253					10,318

Total principal receipts on loans				98,638					82,255					52,346

Net cash advances/(receipts) on loans receivable			$	(58,251	)			$	4,735				$	183,548


(1)		2006 excludes the Windrose merger.

(2)		2007 includes the Rendina/Paramount acquisition.

The investment in Windrose during 2006 primarily represented $183,139,000 of cash provided to Windrose to extinguish secured debt and cash used to pay advisory fees, lender consents and other merger-related costs totaling $15,023,000. These cash uses were offset by $15,591,000 of cash assumed from Windrose on the merger effective

date. The investment in Rendina/Paramount primarily represented cash consideration of $141,967,000 offset by $4,000 of cash assumed from Paramount.

Financing Activities. The changes in net cash provided from or used in financing activities are primarily attributable to changes related to our debt, common stock issuances, preferred stock issuances and cash distributions to stockholders.

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


Date Issued	Maturity Date	Interest Rate			Face Amount		Net Proceeds

April 2005	May 2015		5.875	%	$	250,000	$	246,859
November 2005	June 2016		6.200	%	$	300,000	$	297,194

2005 Totals					$	550,000	$	544,053

November 2006	December 2006		4.750	%	$	345,000	$	337,517

July 2007	July 2027		4.750	%	$	400,000	$	388,943

In May 2005, we redeemed all of our outstanding $50,000,000 8.17% senior unsecured notes due March 2006, we completed a public tender offer for $57,670,000 of our outstanding $100,000,000 7.625% senior unsecured notes due March 2008, and we redeemed $122,500,000 of our outstanding $175,000,000 7.5% senior unsecured notes due August 2007. In connection with that extinguishment, we recorded a $20,662,000 loss on extinguishment of debt. During the year ended December 31, 2005, we paid off mortgages with outstanding balances of $72,309,000 and average interest rates of 7.481%. In August 2007, we repaid $52,500,000 of 7.5% senior unsecured notes at maturity. During the year ended December 31, 2007, we paid off mortgages with outstanding balances of $29,797,000 and average interest rates of 7.338%. In November 2007, we repurchased $50,000,000 liquidation amount of preferred securities of a subsidiary trust and, in December 2007, obtained the satisfaction and discharge of a related $51,000,000 liability of an operating partnership and recorded a $1,081,000 gain on extinguishment of debt.

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

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


Date Issued	Shares Issued		Average Price		Gross Proceeds		Net Proceeds

November 2005 public issuance		3,000,000	$	34.15	$	102,450	$	100,977
2005 DRIP		1,546,959	$	34.59		53,505		53,505
2005 Options		380,108	$	23.38		8,889		8,889

2005 Totals		4,927,067			$	164,844	$	163,371

April 2006 public issuance		3,222,800	$	36.00	$	116,021	$	109,748
2006 DRIP		1,876,377	$	36.34		68,184		68,184
2006 Options		226,961	$	22.62		5,133		5,133

2006 Totals		5,326,138			$	189,338	$	183,065

April 2007 public issuance		6,325,000	$	44.01	$	278,363	$	265,294
December 2007 public issuance		3,500,000	$	42.14		147,490		147,139
2007 DRIP		1,626,000	$	41.81		67,985		67,985
2007 Options		401,630	$	27.82		11,175		11,175

2007 Totals		11,852,630			$	505,013	$	491,593

In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income (including 100% of capital gains) to our stockholders. The increases in dividends are primarily attributable to increases in outstanding common and preferred stock shares as discussed above and increases in our annual

common stock dividend per share and the payment of a prorated dividend of $0.3409 in December 2006 in conjunction with the Windrose merger.

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


	Year Ended
	December 31, 2005				December 31, 2006				December 31, 2007
	Per Share		Amount		Per Share		Amount		Per Share		Amount

Common Stock	$	2.46	$	132,548	$	2.8809	$	178,365	$	2.2791	$	182,969
Series D Preferred Stock		1.96875		7,875		1.96875		7,875		1.96875		7,875
Series E Preferred Stock		1.50		375		1.50		112		1.50		112
Series F Preferred Stock		1.90625		13,344		1.90625		13,344		1.90625		13,344
Series G Preferred Stock				0		0.0625		132		1.875		3,799

Totals			$	154,142			$	199,828			$	208,099

Off-Balance Sheet Arrangements

We have an outstanding letter of credit issued for the benefit of certain insurance companies that provide workers’ compensation insurance to one of our tenants. Our obligation to provide the letter of credit terminates in 2009. At December 31, 2007, 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 December 31, 2007, our obligation under the letter of credit was $1,000,000.

We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a facility. Our obligation to provide the letter of credit terminates in 2010. At December 31, 2007, 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 facility improvements by one of our subsidiaries. The improvements are expected to be completed in 2009. At December 31, 2007, our obligation under the letter of credit was $485,810.

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on the general trend in interest rates at the applicable dates, our perception of the future volatility of interest rates and our relative levels of variable rate debt and variable rate investments. As of December 31, 2007, we participated in two forward-starting interest rate swap agreements related to our debt arrangements. Our interest rate swaps are discussed below in “Results of Operations.”

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of December 31, 2007 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2008		2009-2010		2011-2012		Thereafter

Unsecured line of credit arrangement	$	307,000	$	0	$	0	$	307,000	$	0
Senior unsecured notes(1)		1,887,330		42,330		0		250,000		1,595,000
Secured debt(1)		506,973		27,941		69,232		74,482		335,318
Contractual interest obligations		1,419,740		158,722		302,172		267,810		691,036
Capital lease obligations		0		0		0		0		0
Operating lease obligations		54,993		3,148		5,896		5,423		40,526
Purchase obligations		826,318		456,905		369,413		0		0
Other long-term liabilities		4,190		112		788		3,290		0

Total contractual obligations	$	5,006,544	$	689,158	$	747,501	$	908,005	$	2,661,880


(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 December 31, 2007, we had an unsecured credit arrangement with a consortium of seventeen banks providing for a revolving line of credit 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 (4.6% at December 31, 2007). The applicable margin is based on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.6% at December 31, 2007. In addition, we pay a facility fee annually to each bank based on the bank’s commitment under the revolving credit facility. The facility fee depends on our ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services and was 0.15% at December 31, 2007. We also pay an annual agent’s fee of $50,000. Principal is due upon expiration of the agreement. At December 31, 2007, we had $307,000,000 outstanding under the unsecured line of credit arrangement and estimated total contractual interest obligations of $61,329,000. Contractual interest obligations are estimated based on the assumption that the balance of $307,000,000 at December 31, 2007 is constant until maturity at interest rates in effect at December 31, 2007.

We have $1,887,330,000 of senior unsecured notes principal outstanding with fixed annual interest rates ranging from 4.75% to 8.0%, payable semi-annually. Total contractual interest obligations on senior unsecured notes totaled $1,171,437,000 at December 31, 2007. Additionally, we have mortgage loans with total outstanding principal of $506,973,000, collateralized by owned properties, with fixed annual interest rates ranging from 4.89% to 8.21%, payable monthly. The carrying values of the properties securing the mortgage loans totaled $969,543,000 at December 31, 2007. Total contractual interest obligations on mortgage loans totaled $186,974,000 at December 31, 2007.

At December 31, 2007, we had operating lease obligations of $54,993,000 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 December 31, 2007, we had outstanding construction financings of $313,709,000 for leased properties and were committed to providing additional financing of approximately $800,697,000 to complete construction. At December 31, 2007, we had contingent purchase obligations totaling $25,621,000. 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 $1,915,000 at December 31, 2007 ($1,597,000 at December 31, 2006).

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 December 31, 2007, we had stockholders’ equity of $2,404,356,000 and a total outstanding debt balance of $2,704,668,000, which represents a debt to total book capitalization ratio of 53%. Our ratio of debt to market capitalization was 39% at December 31, 2007. For the twelve months ended December 31, 2007, our interest coverage ratio was 2.91 to 1.00. For the twelve months ended December 31, 2007, our fixed charge coverage ratio was 2.38 to 1.00. Also, at December 31, 2007, we had $30,269,000 of cash and cash equivalents and $843,000,000 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 December 31, 2007, we were in compliance with all of the covenants under our debt agreements. Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings with Moody’s Investors Service and Standard & Poor’s Ratings Services. However, under our unsecured line of credit arrangement, these ratings on our senior unsecured notes are used to determine the fees and interest payable.

As of February 15, 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, liquidityand/or financial condition.

On May 12, 2006, we filed an open-ended automatic or “universal” shelf registration statement with the Securities and Exchange Commission covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units. As of February 15, 2008, we had an effective registration statement on file in connection with our enhanced DRIP program under which we may issue up to 10,760,247 shares of common stock. As of February 15, 2008, 9,481,345 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.

Results of Operations


	Year Ended				One Year Change					Year Ended		One Year Change					Two Year Change
	Dec. 31, 2005		Dec. 31, 2006		$		%			Dec. 31, 2007		$		%			$		%

Net income available to common stockholders	$	62,692	$	81,287	$	18,595		30	%	$	116,272	$	34,985		43	%	$	53,580		85	%
Funds from operations		144,293		177,580		33,287		23	%		251,117	��	73,537		41	%		106,824		74	%
EBITDA		254,731		300,485		45,754		18	%		433,495		133,010		44	%		178,764		70	%

The components of the changes in revenues, expenses and other items are discussed in detail below. The following is a summary of certain items that impact the results of operations for the year ended December 31, 2007:


	•	$1,750,000 ($0.02 per diluted share) of one-time acquisition finders’ fees;

	•	$1,081,000 ($0.01 per diluted share) of net gains on extinguishments of debt;

	•	$1,457,000 ($0.02 per diluted share) of additional compensation costs related to accelerated vesting requirements of certain stock-based compensation awards;

	•	$3,900,000 ($0.05 per diluted share) of additional other income related to the payoff of a warrant equity investment; and

	•	$14,437,000 ($0.18 per diluted share) of gains on the sales of real property.

The following is a summary of certain items that impact the results of operations for the year ended December 31, 2006:


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

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

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

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


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

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

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

The increase in fully diluted average common shares outstanding is primarily the result of the Windrose merger, public and private common stock offerings and common stock issuances pursuant to our DRIP. The following table represents the changes in outstanding common stock for the period from January 1, 2005 to December 31, 2007 (in thousands):


	Year Ended
	Dec. 31,		Dec. 31,		Dec. 31,
	2005		2006		2007		Totals

Beginning balance		52,925		58,125		73,192		52,925
Windrose merger		0		9,679		0		9,679
Public offerings		3,000		3,223		9,825		16,048
DRIP issuances		1,547		1,877		1,626		5,050
Preferred stock conversions		210		0		212		422
Option exercises		380		227		402		1,009
Other issuances		63		61		239		363

Ending balance		58,125		73,192		85,496		85,496

Average number of common shares outstanding:
Basic		54,110		61,661		78,861
Diluted		54,499		62,045		79,409

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


	Year Ended				One Year Change						Year Ended		One Year Change					Two Year Change
	Dec. 31, 2005		Dec. 31, 2006		$			%			Dec. 31, 2007		$		%			$		%

Rental income	$	217,629	$	271,767	$	54,138			25	%	$	430,041	$	158,274		58	%	$	212,412		98	%
Interest income		23,993		18,829		(5,164	)		(22	)%		25,823		6,994		37	%		1,830		8	%
Other income		4,548		3,924		(624	)		(14	)%		10,035		6,111		156	%		5,487		121	%

Totals	$	246,170	$	294,520	$	48,350			20	%	$	465,899	$	171,379		58	%	$	219,729		89	%

The increase in gross revenues is primarily attributable to increased rental income resulting from the acquisitions of new properties from which we receive rent. See the discussion of investing activities in “Liquidity and Capital Resources” above for further information. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Indexand/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilitiesand/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income.

Interest income decreased in 2006 primarily due to recognition of additional interest income of approximately $4,523,000 in 2005. The additional interest income related to the payoffs of loans that were either on non-accrual or partial accrual and all contractual interest was received from the borrowers. Interest income increased in 2007 primarily due to an increase in loans receivable.

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


	Year Ended				One Year						Year Ended									Two Year
	Dec. 31,		Dec. 31,		Change						Dec. 31,			One Year Change						Change
	2005		2006		$			%			2007			$			%			$			%

Interest expense	$	69,084	$	86,625	$	17,541			25	%	$	129,113		$	42,488			49	%	$	60,029			87	%
Property operating expenses		0		1,115		1,115			n/a			37,475			36,360			3,261	%		37,475			n/a
Depreciation and amortization		66,263		83,731		17,468			26	%		141,198			57,467			69	%		74,935			113	%
General and administrative		16,163		26,004		9,841			61	%		37,653			11,649			45	%		21,490			133	%
Loan expense		2,710		3,255		545			20	%		5,977			2,722			84	%		3,267			121	%
Loss (gain) on extinguishment of debt		21,484		0		(21,484	)		(100	)%		(1,081	)		(1,081	)		n/a			(22,565	)		n/a
Provision for loan losses		1,200		1,000		(200	)		(17	)%		0			(1,000	)		(100	)%		(1,200	)		(100	)%

Totals	$	176,904	$	201,730	$	24,826			14	%	$	350,335		$	148,605			74	%	$	173,431			98	%

The increase in total expenses is primarily attributable to increases in interest expense, property operating expenses, the provisions for depreciation and amortization and general and administrative expenses. The increases in interest expense are primarily due to higher average borrowings and changes in the amount of capitalized interest offsetting interest expense. If we borrow under our unsecured line of credit arrangement, issue additional senior unsecured notes or assume additional secured debt, our interest expense will increase.

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


	Year Ended						One Year						Year Ended			One Year						Two Year
	Dec. 31,			Dec. 31,			Change						Dec. 31,			Change						Change
	2005			2006			$			%			2007			$			%			$			%

Senior unsecured notes	$	63,080		$	80,069		$	16,989			27	%	$	101,618		$	21,549			27	%	$	38,538			61	%
Secured debt		11,769			9,529			(2,240	)		(19	)%		28,543			19,014			200	%		16,774			143	%
Unsecured lines of credit		9,413			11,397			1,984			21	%		15,652			4,255			37	%		6,239			66	%
Subsidiary trust liability		0			112			112			n/a			3,104			2,992			2,671	%		3,104			n/a
Capitalized interest		(665	)		(4,470	)		(3,805	)		572	%		(12,526	)		(8,056	)		180	%		(11,861	)		1,784	%
SWAP losses (savings)		(972	)		197			1,169			n/a			(89	)		(286	)		n/a			883			(91	)%
Discontinued operations		(13,541	)		(10,209	)		3,332			-25	%		(7,189	)		3,020			-30	%		6,352			-47	%

Totals	$	69,084		$	86,625		$	17,541			25	%	$	129,113		$	42,488			49	%	$	60,029			87	%

The change in interest expense on senior unsecured notes is due to the net effect and timing of issuances and extinguishments. In May 2005, we redeemed all of our outstanding $50,000,000 8.17% senior unsecured notes due March 2006, we completed a public tender offer for $57,670,000 of our outstanding $100,000,000 7.625% senior unsecured notes due March 2008, and we redeemed $122,500,000 of our outstanding $175,000,000 7.5% senior unsecured notes due August 2007. In connection with that extinguishment, we recorded a $20,662,000 loss on

extinguishment of debt. In August 2007, we repaid $52,500,000 of 7.5% senior unsecured notes at maturity. The following is a summary of our senior unsecured notes activity (dollars in thousands):


	Year Ended December 31, 2005						Year Ended December 31, 2006					Year Ended December 31, 2007
				Weighted Average					Weighted Average						Weighted Average
	Amount			Interest Rate			Amount		Interest Rate			Amount			Interest Rate

Beginning balance	$	875,000			7.181	%	$	1,194,830		6.566	%	$	1,539,830			6.159	%
Debt issued		550,000			6.052	%		345,000		4.750	%		400,000			4.750	%
Debt extinguished		(230,170	)		7.677	%		0					(52,500	)		7.500	%

Ending balance	$	1,194,830			6.566	%	$	1,539,830		6.159	%	$	1,887,330			5.823	%

Monthly averages	$	961,469			6.829	%	$	1,244,445		6.494	%	$	1,704,253			5.991	%

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


	Year Ended December 31, 2005						Year Ended December 31, 2006						Year Ended December 31, 2007
				Weighted Average						Weighted Average						Weighted Average
	Amount			Interest Rate			Amount			Interest Rate			Amount			Interest Rate

Beginning balance	$	160,225			7.508	%	$	107,540			7.328	%	$	378,400			6.406	%
Debt assumed		22,309			6.561	%		273,893			6.053	%		166,331			5.808	%
Debt extinguished		(72,309	)		7.481	%		0						(29,797	)		7.338	%
Principal payments		(2,685	)		7.584	%		(3,033	)		7.226	%		(7,961	)		6.334	%

Ending balance		107,540			7.328	%	$	378,400			6.406	%	$	506,973			6.113	%

Monthly averages	$	156,027			7.452	%	$	144,512			7.021	%	$	456,795			6.204	%

The change in interest expense on unsecured lines of credit arrangements is due primarily to changes in average amounts outstanding and fluctuating variable interest rates. The following is a summary of our unsecured lines of credit arrangements (dollars in thousands):


	Year Ended December 31,
	2005			2006			2007

Balance outstanding at December 31	$	195,000		$	225,000		$	307,000
Maximum amount outstanding at any month end		318,000			276,000			434,000
Average amount outstanding (total of daily principal balances divided by days in year)		181,232			164,905			234,392
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		5.19	%		6.91	%		6.68	%

At December 31, 2006, 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, in December 2007, surrendered these securities and the related $1,000,000 liquidation amount of common securities for cancellation, resulting in the satisfaction and discharge of this $51,000,000 liability. In connection with this transaction, we recorded a $1,081,000 gain on extinguishment of debt. Please see Note 8 to our consolidated financial statements for additional information.

We capitalize certain interest costs associated with funds used to finance the construction of properties owned directly by us. The amount capitalized is based upon the borrowings outstanding during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. Capitalized interest for the years ended December 31, 2005, 2006 and 2007 totaled $665,000, $4,470,000 and $12,526,000, respectively.

On May 6, 2004, we entered into two interest rate swap agreements (the “2004 Swaps”) for a total notional amount of $100,000,000 to hedge changes in fair value attributable to changes in the LIBOR swap rate of $100,000,000 of fixed rate debt with a maturity date of November 15, 2013. The 2004 Swaps were treated as fair-

value hedges for accounting purposes and we utilized the short-cut method to assess effectiveness. The 2004 Swaps were with highly rated counterparties in which we received a fixed rate of 6.0% and paid a variable rate based on six-month LIBOR plus a spread. On September 12, 2007, we terminated the 2004 Swaps and we received a $2,125,000 cash settlement. The unamortized amount of this settlement at December 31, 2007 was $1,973,000 and is recorded as an adjustment to the hedged item. This amount will be amortized to interest expense over the life of the hedged debt using the effective interest method. For the years ended December 31, 2005, 2006 and 2007, we generated $972,000 of savings, $197,000 of losses and $89,000 of savings, respectively, related to the 2004 Swaps that were recorded as adjustments of interest expense.

On July 2, 2007, we entered into two forward-starting interest rate 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 2007 Swaps have the economic effect of fixing $200,000,000 of our debt at 4.913% for five years. The 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 December 31, 2007 is $668,000. For the year ended December 31, 2007, we reclassified $65,000 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 2007 Swaps when the 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 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 December 31, 2007, the September 2007 Swaps were reported at their fair value of $7,990,000 and are included in other liabilities and AOCI.

As discussed in our Annual Report onForm 10-K/A for the year ended December 31, 2006, we completed our merger with Windrose Medical Properties Trust on December 20, 2006. These operations are the principal component of our property operating expenses from the date of acquisition. There was no similar activity in the prior periods. In addition to a full year of operations for the Windrose properties, we acquired 28 medical office buildings during the year ended December 31, 2007.

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.

General and administrative expenses as a percentage of revenues (including revenues from discontinued operations) for the year ended December 31, 2007, were 7.64%, as compared with 8.26% and 5.89% for the same periods in 2006 and 2005. The increase from 2005 to 2006 is directly attributable to $5,213,000 of merger-related expenses and $1,287,000 of accelerated stock-based compensation expenses. The increase from 2006 to 2007 is primarily related to the Windrose merger completed on December 20, 2006, the Paramount acquisition completed in May 2007, $1,750,000 of acquisition finders’ fees paid during the three months ended June 30, 2007 and costs associated with our initiatives to attract and retain appropriate personnel to achieve our business objectives. During the quarter ended June 30, 2007, we recorded $1,750,000 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 have been expensed as compensation rather than included in the purchase price of the acquisition, as is typical with such fees.

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 $345,000,000 of senior unsecured convertible notes in November and December 2006, costs related to the assumption of secured debt in connection with the Windrose merger in December 2006, the issuance of $400,000,000 of senior unsecured convertible notes in July 2007 and costs associated with the extension and expansion of our unsecured line of credit in August 2007.

As a result of our quarterly evaluations, we concluded that the allowance for loan losses at December 31, 2006 remained appropriate as of December 31, 2007. The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed below in “Critical Accounting Policies.”

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


	Year Ended						One Year Change						Year Ended			One Year Change						Two Year Change
	Dec. 31, 2005			Dec. 31, 2006			$			%			Dec. 31, 2007			$			%			$			%

Minority interests	$	0			(13	)		(13	)		n/a		$	(238	)	$	(225	)		1,731	%	$	(238	)		n/a
Gain (loss) on sales of properties		3,227			1,267			(1,960	)		(61	)%		14,437			13,170			1,039	%		11,210			347	%
Discontinued operations, net		11,793			8,706			(3,087	)		-26	%		11,639			2,933			34	%		(154	)		-1	%
Preferred dividends		(21,594	)		(21,463	)		131			(1	)%		(25,130	)		(3,667	)		17	%		(3,536	)		16	%

Totals	$	(6,574	)	$	(11,503	)	$	(4,929	)		75	%	$	708		$	12,211			n/a		$	7,282			n/a

During the year ended December 31, 2007, we sold ten assisted living facilities, one independent living facility, seven skilled nursing facilities and one parcel of land with carrying values of $83,877,000 for a net gain of $14,437,000. During the six months ended June 30, 2008, we sold 19 assisted living facilities, two independent living facilities, two skilled nursing facilities and one parcel of land. Also, at June 30, 2008, we had ten assisted living facilities and one skilled nursing facility held for sale. These properties generated $11,639,000 of income after deducting depreciation and interest expense from rental revenue for the year ended December 31, 2007. All properties sold subsequent to January 1, 2005 through June 30, 2008 and attributable to assets held for sale at June 30, 2008 generated $8,706,000 and $11,793,000 of income after deducting general and administrative expenses, depreciation and interest expense from rental revenue for the years ended December 31, 2006 and 2005, respectively. Please refer to Note 16 to our consolidated financial statements for further discussion.

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


	Year Ended December 31, 2005						Year Ended December 31, 2006					Year Ended December 31, 2007
				Weighted Average					Weighted Average						Weighted Average
	Shares			Dividend Rate			Shares		Dividend Rate			Shares			Dividend Rate

Beginning balance		11,350,045			7.663	%		11,074,989		7.704	%		13,174,989			7.672	%
Shares issued		0						2,100,000		7.500	%		0
Shares converted		(275,056	)		6.000	%		0					(295,800	)		7.500	%

Ending balance		11,074,989			7.704	%		13,174,989		7.672	%		12,879,189			7.676	%

Monthly averages		11,245,073			7.679	%		11,236,527		7.701	%		13,129,481			7.672	%

In conjunction with the acquisition of Windrose Medical Properties Trust in December 2006, we issued 2,100,000 shares of 7.5% Series G Cumulative Convertible Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after June 30, 2010. Each Series G Preferred Share is convertible by the holder into our common stock at a conversion price of $34.93, equivalent to a conversion rate of 0.7157 common shares per Series G Preferred Share. These shares were recorded at $29.58 per share, which was deemed to be the fair value at the date of issuance. During the year ended December 31, 2007, certain holders of our Series G Preferred Stock converted 295,800 shares into 211,702 shares of our common stock, leaving 1,804,200 of such shares outstanding at December 31, 2007.

Non-GAAP Financial Measures

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

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

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

Net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments, interest expense and discontinued operations. We believe NOI provides investors relevant and useful information because it measures the operating performance of our 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 $21,484,000, or $0.39 per diluted share, of losses on extinguishment of debt for the year ended December 31, 2005 and the $1,081,000, or $0.01 per diluted share, of gains on extinguishment of debt for the year ended December 31, 2007. These amounts have not been added back for the calculations of FFO, EBITDA or Adjusted EBITDA.

Other than Adjusted EBITDA, 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. Adjusted EBITDA is used solely to determine our compliance with a financial covenant of our line of credit arrangement and is not being presented for use by investors for any other purpose. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

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


	Year Ended
	December 31,			December 31,			December 31,
	2005			2006			2007

FFO Reconciliation:
Net income available to common stockholders	$	62,692		$	81,287		$	116,272
Depreciation and amortization		84,828			97,564			149,626
Loss (gain) on sales of properties		(3,227	)		(1,267	)		(14,437	)
Minority interests		0			(4	)		(344	)

Funds from operations	$	144,293		$	177,580		$	251,117
Average common shares outstanding:
Basic		54,110			61,661			78,861
Diluted		54,499			62,045			79,409
Per share data:
Net income available to common stockholders
Basic	$	1.16		$	1.32		$	1.47
Diluted		1.15			1.31			1.46
Funds from operations
Basic	$	2.67		$	2.88		$	3.18
Diluted		2.65			2.86			3.16

The table below reflects the reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Interest expense and the provisions for depreciation and amortization include discontinued operations. Tax expense represents income-based taxes. Amortization represents the amortization of deferred loan expenses. Adjusted EBITDA represents EBITDA as adjusted below for items pursuant to covenant provisions of our unsecured lines of credit arrangements. Dollars are in thousands.


	Year Ended
	December 31,			December 31,			December 31,
	2005			2006			2007

EBITDA Reconciliation:
Net income	$	84,286		$	102,750		$	141,402
Interest expense		82,625			96,834			136,302
Tax expense/(benefit)		282			82			188
Depreciation and amortization		84,828			97,564			149,626
Amortization of deferred loan expenses		2,710			3,255			5,977

EBITDA		254,731			300,485			433,495
Stock-based compensation expense		2,948			6,980			7,050
Provision for loan losses		1,200			1,000			0
Loss/(gain) on extinguishment of debt, net		20,662			0			(1,081	)

EBITDA - adjusted	$	279,541		$	308,465		$	439,464
Interest Coverage Ratio:
Interest expense	$	82,625		$	96,834		$	136,302
Capitalized interest		665			4,470			12,526

Total interest		83,290			101,304			148,828
EBITDA	$	254,731		$	300,485		$	433,495

Interest coverage ratio		3.06	x		2.97	x		2.91	x
EBITDA - adjusted	$	279,541		$	308,465		$	439,464

Interest coverage ratio - adjusted		3.36	x		3.04	x		2.95	x
Fixed Charge Coverage Ratio:
Total interest	$	83,290		$	101,304		$	148,828
Secured debt prinicipal amortization		2,685			3,033			7,961
Preferred dividends		21,594			21,463			25,130

Total fixed charges		107,569			125,800			181,919
EBITDA	$	254,731		$	300,485		$	433,495

Fixed charge coverage ratio		2.37	x		2.39	x		2.38	x
EBITDA - adjusted	$	279,541		$	308,465		$	439,464

Fixed charge coverage ratio - adjusted		2.60	x		2.45	x		2.42x

Critical Accounting Policies

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


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

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

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the disclosure presented below relating

to them. Management believes the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidityand/or financial condition. Please refer to Note 1 of our audited consolidated financial statements for further information on significant accounting policies that impact us. There were no material changes to these policies in 2007.

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


Nature of Critical		Assumptions/
Accounting Estimate		Approach Used

*Allowance for Loan Losses*
We maintain an allowance for loan losses in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended, and SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues. The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status.		The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectibility of loan payments and principal. We evaluate the collectibility of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property. As a result of our quarterly evaluation, we concluded that the allowance for loan losses at December 31, 2006 remained appropriate as of December 31, 2007, resulting in an allowance for loan losses of $7,406,000 relating to loans with outstanding balances of $113,886,000. Also at December 31, 2007, we had a loan with an outstanding balance of $799,000 on non-accrual status.

*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 twelve months ended December 31, 2007, we recorded $118,969,000, $16,287,000 and $14,370,000 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 32.0 years, 12.2 years and 4.7 years, respectively, for the year ended December 31, 2007.

*Impairment of Long-Lived Assets*
We review our long-lived assets for potential impairment in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. An impairment charge must be recognized when the carrying value of a long-lived asset is not recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.		The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful life and changes in the market that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely use of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held. We did not record any impairment charges for the year ended December 31, 2007.


Nature of Critical		Assumptions/
Accounting Estimate		Approach Used


*Fair Value of Derivative Instruments*
The valuation of derivative instruments is accounted for in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS133”), as amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS133, as amended, requires companies to record derivatives at fair market value on the balance sheet as assets or liabilities.		The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values for our derivatives are estimated by a third party consultant, which utilizes pricing models that consider forward yield curves and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates which may change in the future. At December 31, 2007, we participated in two forward-starting interest rate swap agreements. At December 31, 2007, the swaps were reported at their fair value of $7,990,000 and are included in other liabilities and accumulated other comprehensive income.

*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 twelve months ended December 31, 2007, we recognized $25,823,000 of interest income and $457,297,000 of rental income, including discontinued operations. Cash receipts on leases with deferred revenue provisions were $17,469,000 as compared to gross straight-line rental income recognized of $17,029,000 for the twelve months ended December 31, 2007. At December 31, 2007, our straight-line receivable balance was $52,756,000, net of reserves totaling $1,152,000. Also at December 31, 2007, we had a loan with an outstanding balance of $799,000 on non-accrual status.

Impact of Inflation

During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, our earnings are primarily long-term investments with fixed rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes and borrowings under our unsecured lines of credit arrangements. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us.


Item 8.	*Financial Statements and Supplementary Data*

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Health Care REIT, Inc.

We have audited the accompanying consolidated balance sheets of Health Care REIT, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedules listed in Item 15(a) (2) of the Annual Report onForm 10-K for the year ended December 31, 2007. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health Care REIT, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

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

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Health Care REIT, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2008 (not included herein) expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Toledo, Ohio

February 27, 2008,
except for Notes 2, 16 and 18, as to which the date is August 4, 2008

HEALTH CARE REIT, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
	2007			2006
	(In thousands)

ASSETS
Real estate investments:
Real property owned
Land and land improvements	$	447,029		$	386,693
Buildings and improvements		4,224,955			3,659,065
Acquired lease intangibles		131,312			84,082
Real property held for sale, net of accumulated depreciation		0			14,796
Construction in progress		313,709			138,222

		5,117,005			4,282,858
Less accumulated depreciation and amortization		(478,373	)		(347,007	)

Total real property owned		4,638,632			3,935,851
Loans receivable		381,394			194,448
Less allowance for losses on loans receivable		(7,406	)		(7,406	)

		373,988			187,042

Net real estate investments		5,012,620			4,122,893
Other assets:
Equity investments		1,408			4,700
Deferred loan expenses		30,499			20,657
Cash and cash equivalents		30,269			36,216
Receivables and other assets		139,060			96,144

		201,236			157,717

Total assets	$	5,213,856		$	4,280,610


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Borrowings under unsecured lines of credit arrangements	$	307,000		$	225,000
Senior unsecured notes		1,890,192			1,541,814
Secured debt		507,476			378,972
Liability to subsidiary trust issuing preferred securities		0			52,215
Accrued expenses and other liabilities		95,145			101,588

Total liabilities		2,799,813			2,299,589
Minority interests		9,687			2,228
Stockholders’ equity:
Preferred stock, $1.00 par value:		330,243			338,993
Authorized — 50,000,000 shares
Issued and outstanding — 12,879,189 in 2007 and 13,174,989 in 2006 at liquidation preference
Common stock, $1.00 par value:		85,412			73,152
Authorized — 225,000,000 shares
Issued — 85,600,333 shares in 2007 and 73,272,052 shares in 2006
Outstanding — 85,496,164 shares in 2007 and 73,192,128 shares in 2006
Capital in excess of par value		2,370,037			1,873,811
Treasury stock		(3,952	)		(2,866	)
Cumulative net income		1,074,255			932,853
Cumulative dividends		(1,446,959	)		(1,238,860	)
Accumulated other comprehensive income		(7,381	)		(135	)
Other equity		2,701			1,845

Total stockholders’ equity		2,404,356			1,978,793

Total liabilities and stockholders’ equity	$	5,213,856		$	4,280,610

See accompanying notes

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF INCOME


	Year Ended December 31,
	2007			2006			2005
	(In thousands, except per share data)

Revenues:
Rental income	$	430,041		$	271,767		$	217,629
Interest income		25,823			18,829			23,993
Other income		10,035			3,924			4,548

		465,899			294,520			246,170
Expenses:
Interest expense		129,113			86,625			69,084
Property operating expenses		37,475			1,115			0
Depreciation and amortization		141,198			83,731			66,263
General and administrative		37,653			26,004			16,163
Loan expense		5,977			3,255			2,710
Loss (gain) on extinguishment of debt		(1,081	)		0			21,484
Provision for loan losses		0			1,000			1,200

		350,335			201,730			176,904

Income before minority interests		115,564			92,790			69,266
Minority interests		(238	)		(13	)		0

Income from continuing operations		115,326			92,777			69,266
Discontinued operations:
Gain (loss) on sales of properties		14,437			1,267			3,227
Income from discontinued operations, net		11,639			8,706			11,793

		26,076			9,973			15,020

Net income		141,402			102,750			84,286
Preferred stock dividends		25,130			21,463			21,594

Net income available to common stockholders	$	116,272		$	81,287		$	62,692

Average number of common shares outstanding:
Basic		78,861			61,661			54,110
Diluted		79,409			62,045			54,499
Earnings per share:
Basic:
Income from continuing operations available to common stockholders	$	1.14		$	1.16		$	0.88
Discontinued operations, net		0.33			0.16			0.28

Net income available to common stockholders*	$	1.47		$	1.32		$	1.16

Diluted:
Income from continuing operations available to common stockholders	$	1.14		$	1.15		$	0.87
Discontinued operations, net		0.33			0.16			0.28

Net income available to common stockholders*	$	1.46		$	1.31		$	1.15


*		Amounts may not sum due to rounding

See accompanying notes

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


																	Accumulated
						Capital in											Other
	Preferred			Common		Excess of			Treasury			Cumulative		Cumulative			Comprehensive			Other
	Stock			Stock		Par Value			Stock			Net Income		Dividends			Income			Equity			Total
	(In thousands, except per share data)

Balances at December 31, 2004	$	283,751		$	52,860	$	1,139,723		$	(1,286	)	$	745,817	$	(884,890	)	$	1		$	(697	)	$	1,335,279
Comprehensive income:
Net income													84,286											84,286
Other comprehensive income:
Unrealized loss on equity investments																		(1	)					(1	)

Total comprehensive income																								84,285

Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					1,980		62,105			(768	)													63,317
Restricted stock amortization																					728			728
Option compensation expense																					312			312
Proceeds from issuance of common stock					3,000		97,977																	100,977
Conversion of preferred stock		(6,876	)		210		6,666																	0
Cash dividends:
Common stock-$2.46 per share															(132,548	)								(132,548	)
Preferred stock,Series D-$1.96875 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(375	)								(375	)
Preferred stock,Series F-$1.90625 per share															(13,344	)								(13,344	)

Balances at December 31, 2005		276,875			58,050		1,306,471			(2,054	)		830,103		(1,039,032	)		0			343			1,430,756
Comprehensive income:
Net income													102,750											102,750

Total comprehensive income																								102,750

Adjustment to adopt SFAS 158																		(135	)					(135	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,200		75,081			(812	)										(85	)		76,384
Option compensation expense																					1,066			1,066
Shares issued in Windrose Medical Properties Trust merger		62,118			9,679		386,255																	458,052
Net proceeds from sale of common stock					3,223		106,525																	109,748
SFAS 123(R) reclassification							(521	)													521			0
Cash dividends:
Common stock-$2.8809 per share															(178,365	)								(178,365	)
Preferred stock,Series D-$1.96875 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(112	)								(112	)
Preferred stock,Series F-$1.90625 per share															(13,344	)								(13,344	)
Preferred stock,Series G-$0.0625 per share															(132	)								(132	)

Balances at December 31, 2006		338,993			73,152		1,873,811			(2,866	)		932,853		(1,238,860	)		(135	)		1,845			1,978,793
Net income													141,402											141,402
Other comprehensive income:
Unrealized loss on equity investments																		(192	)					(192	)
Unrecognized actuarial gain/(loss)																		140						140
Cash flow hedge activity																		(7,194	)					(7,194	)

Total comprehensive income																								134,156

Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,223		85,080			(1,086	)										(250	)		85,967
Conversion of preferred stock		(8,750	)		212		8,538																	0
Option compensation expense																					1,106			1,106
Net proceeds from sale of common stock					9,825		402,608																	412,433
Cash dividends:
Common stock-$2.2791 per share															(182,969	)								(182,969	)
Preferred stock,Series D-$1.96875 per share															(7,875	)								(7,875	)
Preferred stock,Series E-$1.50 per share															(112	)								(112	)
Preferred stock,Series F-$1.90625 per share															(13,344	)								(13,344	)
Preferred stock,Series G-$1.875 per share															(3,799	)								(3,799	)

Balances at December 31, 2007	$	330,243		$	85,412	$	2,370,037		$	(3,952	)	$	1,074,255	$	(1,446,959	)	$	(7,381	)	$	2,701		$	2,404,356

See accompanying notes

HEALTH CARE REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2007			2006			2005
	(In thousands)

Operating activities
Net income	$	141,402		$	102,750		$	84,286
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation and amortization		149,626			97,564			84,828
Other amortization expenses		6,018			3,090			3,935
Stock-based compensation expense		7,050			6,980			2,948
Capitalized interest		(12,526	)		(4,470	)		(665	)
Provision for loan losses		0			1,000			1,200
Minority interests share of earnings		238			13			0
Loss (gain) on extinguishment of debt, net		(1,081	)		0			20,662
Gain on investment		(3,900	)		0			0
Amortization of above/below market leases, net		(792	)		(60	)		0
Rental income less than (in excess of) cash received		440			11,129			727
Loss (gain) on sales of properties		(14,437	)		(1,267	)		(3,227	)
Increase (decrease) in accrued expenses and other liabilities		(3,253	)		5,810			(3,375	)
Decrease (increase) in receivables and other assets		(4,902	)		(6,093	)		3,098

Net cash provided from (used in) operating activities		263,883			216,446			194,417
Investing activities
Investment in real property		(631,209	)		(429,183	)		(599,291	)
Investment in loans receivable		(235,894	)		(86,990	)		(40,387	)
Other investments, net of payments		(22,998	)		(11,761	)		328
Principal collected on loans receivable		52,346			82,255			98,638
Investment in Windrose, net of cash assumed		0			(182,571	)		0
Investment in Rendina/Paramount, net of cash assumed		(141,963	)		0			0
Proceeds from sales of properties		98,314			69,887			91,325
Other		(3,932	)		(2,452	)		318

Net cash provided from (used in) investing activities		(885,336	)		(560,815	)		(449,069	)
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements		82,000			30,000			44,000
Proceeds from derivative transactions		2,858			0			0
Proceeds from issuance of senior unsecured notes		388,943			337,517			544,053
Payments to extinguish senior unsecured notes		(52,500	)		0			(250,832	)
Payments to extinguish liability to subsidiary trust issuing preferred securities		(50,000	)		0			0
Principal payments on secured debt		(37,758	)		(3,033	)		(74,994	)
Net proceeds from the issuance of common stock		491,593			182,069			165,062
Contributions by minority interests		2,865			0			0
Distributions to minority interests		(419	)		0			0
Decrease (increase) in deferred loan expense		(3,977	)		(2,377	)		(2,021	)
Cash distributions to stockholders		(208,099	)		(199,828	)		(154,142	)

Net cash provided from (used in) financing activities		615,506			344,348			271,126

Increase (decrease) in cash and cash equivalents		(5,947	)		(21	)		16,474
Cash and cash equivalents at beginning of year		36,216			36,237			19,763

Cash and cash equivalents at end of year	$	30,269		$	36,216		$	36,237

Supplemental cash flow information — interest paid	$	116,044		$	94,461		$	85,123

Supplemental schedule of non-cash activities:
Assets and liabilities assumed from real property acquisitions:
Secured debt	$	19,731		$	25,049		$	22,309
Other liabilities		3,597			0			0
Other assets		712			0			0
Assets and liabilities assumed from business combinations:
Real estate investments	$	285,302		$	975,660			0
Other assets acquired		10,050			22,526			0
Secured debt		146,457			249,424			0
Liability to subsidiary trust issuing preferred securities		0			52,217			0
Other liabilities		6,932			40,025			0
Minority interests		0			6,989			0
Issuance of common stock		0			396,846			0
Issuance of preferred stock		0			62,118			0

See accompanying notes

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Accounting Policies and Related Matters

Industry

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

Principles of Consolidation

The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of our majority owned and controlled joint ventures. All material intercompany accounts and transactions have been eliminated.

Use of Estimates

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

Revenue Recognition

Revenue is recorded in accordance with Statement of Financial Accounting Standards No. 13, Accounting for Leases, and SEC Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements, as amended (“SAB 104”). SAB 104 requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectibility. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectibility risk. Substantially all of our operating leases contain either fixed or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectibility assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period.

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash, a component of other assets, primarily consists of amounts held by lenders to provide future payments for real estate taxes, insurance, tenant and capital improvements. Additionally, restricted cash includes amounts held in escrow relating to acquisitions we are entitled to receive over a period of time as outlined in the escrow agreement. Restricted cash balances as of December 31, 2007 and 2006 were $17,575,000 and $9,972,000, respectively.

Real Estate Loans Receivable

Real estate loans receivable consist of mortgage loans and other real estate loans. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectibility risks. The loans are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantiesand/or personal guaranties.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of these loans, including general economic conditions and estimated collectibility of loan payments. We evaluate the collectibility of our loans

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying collateral. If such factors indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. At December 31, 2007, we had loans with outstanding balances of $799,000 on non-accrual status ($10,529,000 at December 31, 2006). To the extent circumstances improve and the risk of collectibility is diminished, we will return these loans to full accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

Real Property Owned

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

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

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The estimated aggregate amortization expense for acquired lease intangibles is expected to be recognized over a weighted average period of 28.4 years and is as follows for the periods indicated (dollars in thousands):


2008	$	15,448
2009		10,552
2010		9,230
2011		7,319
2012		5,675
Thereafter		64,798

Totals	$	113,022

The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset. If these external factors and the projected undiscounted cash

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

flows of the asset over the remaining depreciation period indicate that the asset will not be recoverable, the carrying value may be reduced to the estimated fair market value.

Capitalization of Construction Period Interest

We capitalize interest costs associated with funds used to finance the construction of properties owned directly by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our cost of financing. We capitalized interest costs of $12,526,000, $4,470,000, and $665,000 during 2007, 2006 and 2005, respectively, related to construction of real property owned by us. Our interest expense reflected in the consolidated statements of income has been reduced by the amounts capitalized.

Deferred Loan Expenses

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

Equity Investments

Equity investments at December 31, 2007 consist of an investment in a public company that has a readily determinable fair market value. We classify this equity investment as available-for-sale and, accordingly, record this investment at its fair market value with unrealized gains and losses included in accumulated other comprehensive income, a separate component of stockholders’ equity. This investment represents a minimal ownership interest in the company. Equity investments at December 31, 2006 consisted of investments in private companies where we did not have the ability to exercise influence and were accounted for under the cost method. Under the cost method of accounting, investments in private companies are carried at cost and are adjusted only for other-than-temporary declines in fair value, distributions of earnings and additional investments. These investments represented a minimal ownership interest in these companies. Additionally, in connection with the Windrose merger, we assumed a $1,000,000 investment in an unconsolidated subsidiary that holds trust preferred securities and is accounted for under the cost method.

Segment Reporting

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

Accumulated Other Comprehensive Income

Accumulated other comprehensive income includes amounts related to our cash flow hedge activity, unrealized gains or losses on our equity investments and unrecognized actuarial gains/losses from the adoption of Financial Accounting Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans — An amendment of FASB Statements No. 87, 88, 106 and 132(R) on December 31, 2006.

Fair Value of Derivative Instruments

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may 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.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value hedges for accounting purposes and we utilized the short-cut method to assess effectiveness. The 2004 Swaps were with highly rated counterparties in which we received a fixed rate of 6.0% and paid a variable rate based on six-month LIBOR plus a spread. On September 12, 2007, we terminated the 2004 Swaps and we received a $2,125,000 cash settlement. The unamortized amount of this settlement at December 31, 2007 was $1,973,000 and is recorded as an adjustment to the hedged item. This amount will be amortized to interest expense over the life of the hedged debt using the effective interest method. For the year ended December 31, 2007, we generated $89,000 of savings related to the 2004 Swaps that was recorded as a reduction of interest expense. For the year ended December 31, 2006, we incurred $197,000 of losses related to the 2004 Swaps that was recorded as an addition to interest expense. For the year ended December 31, 2005, we generated $972,000 of savings related to the 2004 Swaps that was recorded as a reduction of 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 have 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 December 31, 2007 is $668,000. For the year ended December 31, 2007, we reclassified $65,000 out of AOCI as a reduction of interest expense.

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

Earnings Per Share

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

Federal Income Tax

No provision has been made for federal income taxes since we have elected to be treated as a real estate investment trust under the applicable provisions of the Internal Revenue Code, and we believe that we have met the

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

requirements for qualification as such for each taxable year. Our taxable REIT subsidiaries are subject to federal, state and local income taxes. See Note 12.

New Accounting Standards

On January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The Interpretation prescribes guidance for recognizing, measuring, reporting and disclosing a tax position taken or expected to be taken in a tax return. The adoption of the Interpretation did not have a material impact on our financial position or results of operations.

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

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which permits companies to elect to measure certain eligible items at fair value. Subsequent unrealized gains and losses on those items will be reported in earnings. Upfront costs and fees related to those items will be reported in earnings as incurred and not deferred. SFAS 159 will be effective for fiscal year 2008. If a company elects to apply the provisions of SFAS 159 to eligible items existing at that date, the effect of the remeasurement to fair value will be reported as a cumulative effect adjustment to the opening balance of retained earnings. Retrospective application will not be permitted. We are currently assessing whether we will elect to use the fair value option for any eligible items.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (“SFAS 141(R)”) and Statement of Financial Accounting Standard 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.

Reclassifications

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


2.	Business Combinations

Windrose Medical Properties Trust Merger

As discussed in our Annual Report onForm 10-K/A for the year ended December 31, 2006, we completed our merger with Windrose Medical Properties Trust on December 20, 2006. These operations are the principal component of our medical office building segment (see Note 18). During the year ended December 31, 2007, we finalized the purchase price allocation for the Windrose merger, as required by Statement of Financial Accounting Standards No. 141, Business Combinations. The updated purchase price allocation reflects reallocations between identifiable tangible and intangible assets. However, these adjustments did not have a significant impact on our consolidated results of operations.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the updated purchase price calculation and the allocation to assets acquired and liabilities assumed, based upon their estimated fair values (in thousands):


Common stock	$	396,846
Preferred stock		62,118
Cash consideration		183,139
Assumed debt		301,641
Assumed liabilities and minority interests		26,034
Acquisition costs		29,139

Purchase price		998,917
Merger-related expenses		5,213
Capitalized equity issuance costs		912

Net purchase price	$	992,792

Land and land improvements	$	126,079
Buildings and improvements		774,634
Acquired lease intangibles		42,595
Above market lease intangibles		32,352
Cash and cash equivalents		15,587
Receivables and other assets		22,526

Total assets acquired		1,013,773
Below market lease intangibles		20,981

Net purchase price		992,792
Secured debt		249,424
Liability to subsidiary trust issuing preferred securities		52,217
Accrued expenses and other liabilities		19,044

Total liabilities assumed		320,685
Minority interests		6,989

Net assets acquired	$	665,118

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


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

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Rendina/Paramount Acquisition

In May 2007, we completed the acquisition of 17 medical office buildings and Paramount Real Estate Services, a property management company, from affiliates of Rendina Companies. The results of operations for these properties and Paramount have been included in our consolidated results of operations from the date of acquisition. Allocation of the purchase price has been finalized. The following table presents the updated purchase price calculation and the allocation to assets acquired and liabilities assumed, based upon their estimated fair values (in thousands):


Cash consideration	$	141,967
Assumed debt		146,457
Assumed liabilities and minority interests		3,410

Net purchase price	$	291,834

Land and land improvements	$	6,657
Buildings and improvements		228,004
Acquired lease intangibles		33,474
Above market lease intangibles		17,167
Cash and cash equivalents		4
Receivables and other assets		10,050

Total assets acquired		295,356
Below market lease intangibles		3,522

Net purchase price		291,834
Secured debt		146,457
Accrued expenses and other liabilities		3,410

Total liabilities assumed		149,867

Net assets acquired	$	141,967


3.	Real Estate Loans Receivable

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


	December 31,
	2007		2006

Mortgage loans	$	143,091	$	177,615
Other real estate loans		238,303		16,833

Totals	$	381,394	$	194,448

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a summary of mortgage loans at December 31, 2007:


Final		Number			Principal
Payment		of			Amount at		Carrying
Due		Loans		Payment Terms	Inception		Amount
					(In thousands)

	2008		5	Monthly payments from $7,886 to $71,447, including interest from 15.21% to 19.26%	$	16,140	$	17,722
	2009		5	Monthly payments from $11,830 to $169,818, including interest from 9.63% to 19.26%		38,972		28,108
	2010		2	Monthly payments from $14,222 to $19,761, including interest from 9.00% to 19.00%		4,623		4,768
	2011		2	Monthly payments from $21,047 to $24,735, including interest from 19.00% to 19.26%		5,827		6,084
	2012		3	Monthly payments from $24,922 to $130,949, including interest from 7.00% to 19.26%		28,741		19,169
	2013		2	Monthly payments from $21,654 to $25,351, including interest from 7.25% to 11.63%		6,516		6,136
	2015		1	Monthly payments of $489, including interest of 9.00%		65		65
	2020		2	Monthly payments from $41,282 to $312,198, including interest of 10.14%		38,500		37,942
	2022		1	Monthly payments of $180,542, including interest of 9.38%		23,097		23,097

				Totals	$	162,481	$	143,091


4.	Allowance for Loan Losses

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


	Year Ended December 31,
	2007		2006			2005

Balance at beginning of year	$	7,406	$	6,461		$	5,261
Provision for loan losses		0		1,000			1,200
Charge-offs		0		(55	)		0

Balance at end of year	$	7,406	$	7,406		$	6,461

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


	December 31,
	2007		2006		2005

Balance of impaired loans at year end	$	799	$	10,529	$	16,770
Allowance for loan losses		7,406		7,406		6,461

Balance of impaired loans not reserved(1)	$	0	$	3,123	$	10,309

Average impaired loans for the year	$	5,664	$	13,650	$	26,344
Interest recognized on impaired loans		0		2,495		2,391


(1)		At December 31, 2007, the allowance for loan losses exceeds the balance of impaired loans. See Note 1 for additional information.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	Real Property Owned

The following table summarizes certain information about our real property owned as of December 31, 2007 (dollars in thousands):


					Building,				Accumulated
	Number of				Intangibles &		Gross		Depreciation
	Properties		Land		Improvements		Investment		and Amortization

Assisted Living Facilities:
Arizona		4	$	2,100	$	17,563	$	19,663	$	2,903
California		9		8,920		53,399		62,319		8,868
Colorado		1		940		3,721		4,661		606
Connecticut		5		8,030		36,800		44,830		5,481
Delaware		1		560		21,220		21,780		1,795
Florida		12		5,487		59,753		65,240		16,034
Georgia		2		1,080		3,688		4,768		560
Idaho		3		1,125		14,875		16,000		1,781
Illinois		3		7,077		15,300		22,377		404
Indiana		2		220		5,520		5,740		998
Kansas		1		600		10,590		11,190		912
Kentucky		1		490		7,610		8,100		922
Louisiana		1		1,100		10,161		11,261		4,106
Maryland		2		870		9,155		10,025		1,197
Massachusetts		7		8,160		62,481		70,641		6,549
Mississippi		2		1,080		13,465		14,545		1,878
Montana		3		1,460		14,772		16,232		2,072
Nevada		3		1,820		25,126		26,946		4,055
New Jersey		2		740		7,447		8,187		1,203
New York		4		2,400		40,447		42,847		2,273
North Carolina		41		15,863		181,381		197,244		28,640
Ohio		7		3,294		30,985		34,279		7,611
Oklahoma		15		1,784		22,890		24,674		7,406
Oregon		3		1,167		11,099		12,266		2,424
Pennsylvania		2		2,234		13,409		15,643		1,848
South Carolina		2		642		7,308		7,950		1,098
Tennessee		4		1,526		11,989		13,515		1,890
Texas		29		10,226		120,612		130,838		16,062
Utah		2		1,420		12,842		14,262		1,791
Virginia		4		2,300		40,785		43,085		3,863
Washington		9		6,880		49,235		56,115		3,630
Wisconsin		7		5,010		54,634		59,644		2,077
Construction in progress		12		0		0		61,576		0

		205		106,605		990,262		1,158,443		142,937

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Building,				Accumulated
	Number of				Intangibles &		Gross		Depreciation
	Properties		Land		Improvements		Investment		and Amortization

Skilled Nursing Facilities:
Alabama		7	$	2,520	$	36,990	$	39,510	$	5,202
Arizona		2		1,870		15,978		17,848		1,002
Colorado		4		3,460		31,246		34,706		3,529
Connecticut		6		2,700		22,354		25,054		1,216
Florida		42		23,312		280,502		303,814		40,908
Georgia		3		2,650		14,932		17,582		1,842
Idaho		2		1,410		13,279		14,689		3,922
Illinois		4		1,110		24,700		25,810		9,414
Indiana		7		2,034		37,829		39,863		6,661
Kansas		1		1,120		8,360		9,480		504
Kentucky		10		3,015		65,432		68,447		6,520
Louisiana		7		783		34,717		35,500		2,333
Maryland		2		840		14,760		15,600		872
Massachusetts		20		17,390		205,347		222,737		30,526
Mississippi		11		1,625		52,651		54,276		9,025
Missouri		3		1,247		23,827		25,074		6,999
Nevada		1		182		2,503		2,685		802
New Hampshire		1		340		4,360		4,700		310
New Jersey		1		1,850		3,050		4,900		380
Ohio		21		12,000		195,506		207,506		19,648
Oklahoma		3		1,464		21,884		23,348		3,156
Oregon		1		300		5,316		5,616		1,611
Pennsylvania		4		3,179		21,414		24,593		5,668
Tennessee		22		8,730		122,604		131,334		21,143
Texas		19		11,296		144,670		155,966		8,988
Utah		1		991		6,850		7,841		416
Virginia		5		4,321		38,482		42,803		1,951
Construction in progress		2		0		0		9,593		0

		212		111,739		1,449,543		1,570,875		194,548
Independent Living / CCRC Facilities:
Arizona		1		950		9,087		10,037		1,843
California		7		17,960		123,544		141,504		6,234
Colorado		2		7,629		29,128		36,757		933
Florida		4		9,772		108,840		118,612		12,596
Georgia		3		3,256		24,759		28,015		10,001
Idaho		1		550		14,740		15,290		2,093
Illinois		1		670		6,780		7,450		1,152
Indiana		2		750		31,325		32,075		799
Kansas		1		1,400		11,000		12,400		282
Missouri		1		510		5,490		6,000		143
Nevada		1		1,144		10,831		11,975		4,718
New York		1		1,510		9,490		11,000		1,513
North Carolina		2		3,120		20,309		23,429		1,081
South Carolina		4		7,190		64,072		71,262		4,113
Texas		2		5,670		16,620		22,290		3,624
Washington		1		620		4,780		5,400		535
Construction in progress		9		0		0		194,834		0

		43		62,701		490,795		748,330		51,660

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


					Building,				Accumulated
	Number of				Intangibles		Gross		Depreciation
	Properties		Land		& Improvements		Investment		and Amortization

Medical Office Buildings:
Alabama		5	$	2,902	$	43,949	$	46,851	$	1,847
Alaska		1		217		30,476		30,693		898
Arizona		3		2,724		77,243		79,967		4,185
California		7		7,545		123,943		131,488		5,396
Colorado		1		877		6,711		7,588		28
Florida		27		42,052		262,530		304,582		12,918
Georgia		15		17,507		75,992		93,499		4,351
Illinois		3		4,762		13,557		18,319		710
Missouri		1		336		17,247		17,583		435
Nevada		9		16,804		103,891		120,695		4,197
New Jersey		3		6,404		24,252		30,656		981
New York		7		4,009		60,501		64,510		2,119
North Carolina		10		7,788		18,196		25,984		1,557
Ohio		1		610		7,419		8,029		323
Oklahoma		1		132		12,829		12,961		285
South Carolina		1		171		18,282		18,453		605
Tennessee		7		10,824		67,356		78,180		2,325
Texas		17		13,426		181,308		194,734		8,035
Construction in progress		2		0		0		14,688		0

		121		139,090		1,145,682		1,299,460		51,195
Specialty Care Facilities:
Illinois		1		3,650		19,325		22,975		4,819
Indiana		1		170		8,232		8,402		0
Louisiana		1		1,928		10,483		12,411		414
Massachusetts		3		3,375		62,101		65,476		23,279
Ohio		1		3,020		27,445		30,465		3,590
Oklahoma		2		3,149		9,879		13,028		617
Texas		7		6,902		121,851		128,753		5,281
Wisconsin		1		4,700		20,669		25,369		33
Construction in progress		3		0		0		33,018		0

		20		26,894		279,985		339,897		38,033

Total Real Property Owned		601	$	447,029	$	4,356,267	$	5,117,005	$	478,373

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2007, future minimum lease payments receivable under operating leases are as follows (in thousands):


2008	$	435,393
2009		428,090
2010		424,569
2011		411,215
2012		395,895
Thereafter		2,486,023

Totals	$	4,581,185

We purchased $0, $11,204,000 and $3,908,000 of real property that had previously been financed by the Company with loans in 2007, 2006 and 2005, respectively. Additionally, $132,028,000, $24,330,000 and $29,238,000 of completed construction projects were placed in service and began earning rent during the years ended December 31, 2007, 2006 and 2005, respectively. We acquired properties which included the assumption of mortgages totaling $166,188,000, $274,473,000 and $22,309,000 in 2007, 2006 and 2005, respectively. Certain of our acquisitions included deferred acquisition payments totaling $0, $2,000,000 and $18,125,000 for 2007, 2006 and 2005, respectively. These non-cash activities are appropriately not reflected in the accompanying statements of cash flows. See the accompanying statement of cash flows for non-cash investing activity related to the Windrose merger.

At December 31, 2007, 2006 and 2005, we had $0, $14,796,000 and $11,912,000, respectively, related to assets held for sale. See Note 16 for further discussion of discontinued operations.


6.	Concentration of Risk

As of December 31, 2007, long-term care facilities, which include skilled nursing, independent living/continuing care retirement communities and assisted living facilities, comprised 68% (72% at December 31, 2006) of our real estate investments and were located in 38 states. The following table summarizes certain information about our customer concentration as of December 31, 2007 (dollars in thousands):


	Number of		Total		Percent of
	Properties		Investment		Investment(1)

Concentration by investment:
Emeritus Corporation		50	$	355,147		7	%
Signature Healthcare LLC		34		325,744		6	%
Brookdale Senior Living, Inc		84		258,990		5	%
Life Care Centers of America, Inc		25		255,168		5	%
Senior Living Communities, LLC		8		187,437		4	%
Remaining portfolio		437		3,637,540		73	%

Totals		638	$	5,020,026		100	%

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Number of		Total		Percent of
	Properties		Revenue(2)		Revenue(3)

Concentration by revenue(4):
Emeritus Corporation		50	$	39,546		8	%
Brookdale Senior Living, Inc		84		37,791		8	%
Home Quality Management, Inc		35		24,512		5	%
Life Care Centers of America, Inc		25		23,854		5	%
Tara Cares, LLC		33		18,982		4	%
Remaining portfolio		411		338,435		68	%
Other income		n/a		10,035		2	%

Totals		638	$	493,155		100	%


(1)		Investments with top five customers comprised 32% of total investments at December 31, 2006.

(2)		Revenues include gross revenues and revenues from discontinued operations for the year ended December 31, 2007.

(3)		Revenues from top five customers were 43% and 43% for the years ended December 31, 2006 and 2005, respectively.

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


7.	Borrowings Under Line of Credit Arrangement and Related Items

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


	Year Ended December 31,
	2007			2006			2005

Balance outstanding at December 31	$	307,000		$	225,000		$	195,000
Maximum amount outstanding at any month end	$	434,000		$	276,000		$	318,000
Average amount outstanding (total of daily principal balances divided by days in year)	$	234,392		$	164,905		$	181,232
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)		6.68	%		6.91	%		5.19	%


8.	Senior Unsecured Notes and Secured Debt

We have $1,890,192,000 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 $1,887,330,000 adjusted for any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative instruments. See Note 1 for further discussion regarding derivative instruments.

In July 2007, we issued $400,000,000 of 4.75% senior unsecured convertible notes due July 2027, generating net proceeds of $388,943,000. The notes will be convertible, in certain circumstances, into cash and, if applicable,

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

shares of our common stock at an initial conversion rate of 20.0000 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately $50.00 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion value of such note, cash up to the principal amount of such note and common stock for the note’s conversion value in excess of such principal amount.

We have mortgage loans totaling $507,476,000, collateralized by owned properties, with annual interest rates ranging from 4.89% to 8.21%. The carrying amounts of the mortgages represent the par value of $506,973,000 adjusted for any unamortized fair value adjustments. The carrying values of the properties securing the mortgage loans totaled $969,543,000 at December 31, 2007.

In November 2007, we repurchased $50,000,000 in aggregate liquidation amount of preferred securities that had been issued by Windrose Capital Trust I, a subsidiary trust, on March 24, 2006. In December 2007, we surrendered these securities for cancellation along with $1,000,000 liquidation amount of common securities of this trust, which resulted in the satisfaction and discharge in 2007 of $51,000,000 in aggregate principal amount of junior subordinated notes issued by an operating partnership due March 30, 2036. In connection with this transaction, we recorded a $1,081,000 gain on extinguishment of debt.

At December 31, 2007, the annual principal payments on these debt obligations are as follows (in thousands):


	Senior		Mortgage
	Unsecured Notes		Loans		Totals

2008	$	42,330	$	27,941	$	70,271
2009		0		53,752		53,752
2010		0		15,480		15,480
2011		0		52,641		52,641
2012		250,000		21,841		271,841
Thereafter		1,595,000		335,318		1,930,318

Totals	$	1,887,330	$	506,973	$	2,394,303


9.	Stock Incentive Plans

Our 2005 Long-Term Incentive Plan authorizes up to 2,200,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. The 2005 Plan replaced the 1995 Stock Incentive Plan and the Stock Plan for Non-Employee Directors. The options granted to officers and key salaried employees under the 1995 Plan continue to vest through 2016 and expire ten years from the date of grant. Our non-employee directors, officers and key salaried employees are eligible to participate in the 2005 Plan. The 2005 Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock units and dividend equivalent rights.

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 the grant. We granted 223,000, 98,000 and 85,000 restricted shares during 2007, 2006 and 2005, respectively, including 11,000, 13,000 and 16,000 shares to non-employee directors in 2007, 2006 and 2005, respectively. Expense, which is recognized as the shares vest based on the market value at the date of the award, totaled $7,050,000, $6,980,000 and $2,948,000, in 2007, 2006 and 2005, respectively.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Option Award Activity

The following table summarizes information about stock option activity for the periods indicated (shares in thousands):


	Year Ended December 31,
	2007					2006					2005
	Number			Weighted Average		Number			Weighted Average		Number			Weighted Average
Stock Options	of Shares			Exercise Price		of Shares			Exercise Price		of Shares			Exercise Price

Options at beginning of year		917		$	30.79		685		$	26.87		1,015		$	24.86
Options granted		124			45.73		460			32.42		60			34.88
Options exercised		(402	)		27.82		(227	)		22.24		(380	)		22.84
Options terminated		(2	)		39.72		(1	)		36.50		(10	)		25.24

Options at end of year		637		$	35.54		917		$	30.79		685		$	26.87

Options exercisable at end of year		256		$	32.26		462		$	28.83		257		$	23.16
Weighted average fair value of options granted during the year				$	8.31				$	5.26				$	12.48

Option Valuation Assumptions

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


	2007			2006			2005

Dividend yield(1)		5.6	%		6.79	%		6.88	%
Expected volatility		19.9	%		20.3	%		22.8	%
Risk-free interest rate		4.74	%		4.35	%		4.25	%
Expected life (in years)		5			5			7
Weighted-average fair value(1)	$	8.31		$	5.26		$	12.48


(1)		Certain options granted to employees include dividend equivalent rights. The fair value of options with DERs also includes the net present value of projected future dividend payments over the expected life of the option discounted at the dividend yield rate. In 2005, substantially all options granted included DERs, while in 2006, approximately 19.5% of options granted included DERs, and in 2007, approximately 25.2% of options granted included DERs.

The following table summarizes information about stock options outstanding at December 31, 2007 (options in thousands):


	Options Outstanding						Options Exercisable
					Weighted
Range of Per			Weighted		Average				Weighted
Share Exercise	Number		Average		Remaining		Number		Average
Prices	Outstanding		Exercise Price		Contract Life		Exercisable		Exercise Price

$16-$20		8	$	16.81		3.0		9	$	16.81
$20-$30		125		25.77		5.7		66		25.72
$30-$40		381		35.85		8.2		181		35.34
$40 +		123		45.73		10.0		0		n/a

Totals		637	$	35.54		8.0		256	$	32.26

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock for the options that were in-the-money at December 31, 2007. During the years ended December 31, 2007, 2006 and 2005, the aggregate intrinsic value of options exercised under our stock incentive plans was $6,600,000, $3,140,000 and $4,705,000, respectively, determined as of the date of option exercise. Cash received from option exercises under our stock incentive plans for the years ended December 31, 2007, 2006 and 2005 was $17,775,000, $4,872,000 and $8,690,000.

As of December 31, 2007, there was approximately $2,524,000 of total unrecognized compensation cost related to unvested stock options granted under our stock incentive plans. That cost is expected to be recognized over a weighted average period of three years. As of December 31, 2007, there was approximately $11,146,000 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 December 31, 2007 and changes for the year ended December 31, 2007:


	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, 2006		478		$	5.35		248		$	34.07
Vested		(218	)		3.78		(120	)		35.21
Granted		124			8.31		272			44.66
Terminated		(2	)		7.63		(2	)		28.84

Non-vested at December 31, 2007		382		$	7.20		398		$	40.99

We adopted the fair value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Currently, we use the Black-Scholes-Merton option pricing model to estimate the value of stock option grants and expect to continue to use this acceptable option valuation model. Because we adopted Statement No. 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date of Statement No. 123), compensation cost for some previously granted awards that were not recognized under Statement No. 123 will now be recognized effective with the adoption of Statement No. 123(R) on January 1, 2006. In addition, we previously amortized compensation cost for share-based payments to the date that the awards became fully vested or to the expected retirement date, if sooner. Effective with the adoption of Statement No. 123(R), we began recognizing compensation cost to the date the awards become fully vested or to the retirement eligible date, if sooner. Compensation cost totaled $7,050,000 and $6,980,000 for the years ended December 31, 2007 and 2006, respectively.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table illustrates the effect on net income available to common stockholders for the year ended December 31, 2005 if we had applied the fair value recognition provisions of Statement 123 to stock-based compensation for options granted since 1995 but prior to adoption at January 1, 2003 (in thousands, except per share data):


Numerator:
Net income available to common stockholders — as reported	$	62,692
Deduct: Additional stock-based employee compensation expense determined under fair value based method for all awards		181

Net income available to common stockholders — pro forma	$	62,511

Denominator:
Basic weighted average shares — as reported and pro forma		54,110
Effect of dilutive securities:
Employee stock options — pro forma		0
Non-vested restricted shares		208

Dilutive potential common shares		208

Diluted weighted average shares — pro forma		54,318

Net income available to common stockholders per share — as reported
Basic	$	1.16

Diluted	$	1.15

Net income available to common stockholders per share — pro forma
Basic	$	1.16

Diluted	$	1.15


10.	Other Equity

Other equity consists of the following (in thousands):


	December 31,
	2007		2006		2005

Accumulated compensation expense related to stock options	$	2,701	$	1,845	$	864
Unamortized restricted stock		0		0		(521	)

Totals	$	2,701	$	1,845	$	343

Other equity consists of accumulated option compensation expense which represents the amount of amortized compensation costs related to stock options awarded to employees and directors subsequent to January 1, 2003. Expense, which is recognized as the options vest based on the market value at the date of the award, totaled $1,106,000, $1,066,000 and $312,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


11.	Preferred Stock

In July 2003, we closed a public offering of 4,000,000 shares of 7.875% Series D Cumulative Redeemable Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after July 9, 2008.

In September 2003, we issued 1,060,000 shares of 6% Series E Cumulative Convertible and Redeemable Preferred Stock as partial consideration for an acquisition of assets by the Company, with the shares valued at $26,500,000 for such purposes. The shares were issued to Southern Assisted Living, Inc. and certain of its stockholders without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended. The shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after August 15, 2008. The preferred shares are convertible into common stock at a conversion price of $32.66 per share at any time. During the year ended December 31, 2005, certain holders of our Series E Preferred Stock converted 275,056 shares into 210,541 shares of our common stock, leaving 74,989 of such shares outstanding at December 31, 2007 and 2006.

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

In conjunction with the acquisition of Windrose Medical Properties Trust in December 2006, we issued 2,100,000 shares of 7.5% Series G Cumulative Convertible Preferred Stock. These shares have a liquidation value of $25.00 per share. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after June 30, 2010. Each Series G Preferred Share is convertible by the holder into our common stock at a conversion price of $34.93, equivalent to a conversion rate of 0.7157 common shares per Series G Preferred Share. The Series G Preferred Shares require cumulative distributions. During the year ended December 31, 2007, certain holders of our Series G Preferred Stock converted 295,800 shares into 211,702 shares of our common stock, leaving 1,804,200 of such shares outstanding at December 31, 2007.


12.	Income Taxes and Distributions

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

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


	Year Ended December 31,
	2007		2006		2005

Per Share:
Ordinary income	$	1.8295	$	1.7461	$	1.266
Return of capital		0.3596		1.1348		1.194
1250 gains		0.0900		0.0000		0.000

Totals	$	2.2791	$	2.8809	$	2.460

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


13.	Commitments and Contingencies

At December 31, 2007, we had outstanding construction financings of $313,709,000 for leased properties and were committed to providing additional financing of approximately $800,697,000 to complete construction. At December 31, 2007, we had contingent purchase obligations totaling $25,621,000. These contingent purchase obligations primarily relate to deferred acquisition fundings and capital improvements. Deferred acquisition fundings are contingent upon an operator satisfying certain conditions such as payment coverage and value tests. Amounts due from the tenant are increased to reflect the additional investment in the property.

At December 31, 2007, we had operating lease obligations of $54,993,000 relating to certain ground leases and Company office space. We incurred rental expense relating to our Company office space of $678,000, $939,000 and $283,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Regarding the property leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At December 31, 2007, aggregate future minimum rentals to be received under these noncancelable subleases totaled $12,756,000.

At December 31, 2007, future minimum lease payments due under operating leases are as follows (in thousands):


2008	$	3,148
2009		3,031
2010		2,865
2011		2,681
2012		2,742
Thereafter		40,526

Totals	$	54,993

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


14.	Earnings Per Share

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


	Year Ended December 31,
	2007		2006		2005

Numerator for basic and diluted earnings per share — net income available to common stockholders	$	116,272	$	81,287	$	62,692

Denominator for basic earnings per share — weighted average shares		78,861		61,661		54,110
Effect of dilutive securities:
Employee stock options		150		136		181
Non-vested restricted shares		398		248		208

Potentially dilutive common shares		548		384		389

Denominator for diluted earnings per share — adjusted weighted average shares		79,409		62,045		54,499

Basic earnings per share	$	1.47	$	1.32	$	1.16

Diluted earnings per share	$	1.46	$	1.31	$	1.15

The diluted earnings per share calculation excludes the dilutive effect of 123,000, 0 and 112,000 options for 2007, 2006 and 2005, respectively, because the exercise price was greater than the average market price. The Series E Cumulative Convertible and Redeemable Preferred Stock was not included in the calculations for 2007, 2006 and 2005 as the effect of the conversions was anti-dilutive. The $345,000,000 Convertible Senior Notes due December 2026 and the Series G Cumulative Convertible Preferred Stock were not included in the calculation for 2007 and 2006 as the effect of the conversion was anti-dilutive. The $400,000,000 Convertible Senior Notes due July 2027 were not included in the calculation for 2007 as the effect of the conversion was anti-dilutive.


15.	Disclosure about Fair Value of Financial Instruments

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

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

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

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

Borrowings Under Unsecured Lines of Credit Arrangements — The carrying amount of the unsecured line of credit arrangement approximates fair value because the borrowings are interest rate adjustable.

Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on publicly available trading prices.

Secured Debt — The fair value of all secured debt is estimated by discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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


	December 31, 2007						December 31, 2006
	Carrying			Fair			Carrying		Fair
	Amount			Value			Amount		Value

Financial Assets:
Mortgage loans receivable	$	143,091		$	149,144		$	177,615	$	180,537
Other real estate loans receivable		238,303			239,951			16,833		16,833
Equity investments(1)		1,408			1,408			4,700		4,700
Cash and cash equivalents		30,269			30,269			36,216		36,216
Interest rate swap agreements		(7,990	)		(7,990	)		902		902
Financial Liabilities:
Borrowings under unsecured lines of credit arrangements	$	307,000		$	307,000		$	225,000	$	225,000
Senior unsecured notes(2)		1,890,192			1,902,031			1,541,814		1,575,532
Secured debt		507,476			515,989			378,972		378,972
Trust preferred liability		n/a			n/a			52,215		52,215


(1)		Equity investments at December 31, 2006 were accounted for under the cost method which was a reasonable approximation of fair value. See Note 1 for additional information.

(2)		The Company previously used a discounted cash flow model to estimate the fair value of senior unsecured notes and reported a fair value estimate of $1,895,672,000 in itsForm 10-K for the year ended December 31, 2006.


16.	Discontinued Operations

During the years ended December 31, 2007, 2006 and 2005, we sold properties with carrying values of $83,877,000, $75,789,000 and $88,098,000 for net gains of $14,437,000, $1,267,000 and $3,227,000, respectively. During the six months ended June 30, 2008, we sold 19 assisted living facilities, two independent living facilities, two skilled nursing facilities and one parcel of land for net gains of $118,194,000. Also, at June 30, 2008, we had ten assisted living facilities and one skilled nursing facility held for sale. In accordance with Statement No. 144, we have reclassified the income and expenses attributable to these properties to discontinued operations. Expenses include an allocation of interest expense based on property carrying values and our weighted average cost of debt. The following illustrates the reclassification impact of Statement No. 144 as a result of classifying the properties as discontinued operations (in thousands):


	Year Ended December 31,
	2007		2006		2005

Revenues:
Rental Income	$	27,256	$	33,868	$	44,985
Expenses:
Interest expense		7,189		10,209		13,541
Depreciation and amortization		8,428		13,833		18,565
General and adminstrative		0		1,120		1,086

Income (loss) from discontinued operations, net	$	11,639	$	8,706	$	11,793


17.	Retirement Arrangements

Under the retirement plan and trust (the “401(k) Plan”), eligible employees may make contributions, and we may make matching contributions and a profit sharing contribution. Our contributions to the 401(k) Plan totaled $441,000, $413,000 and $337,000 in 2007, 2006 and 2005, respectively.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We have a Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined benefit pension plan, which provides certain executive officers with supplemental deferred retirement benefits. The SERP provides an opportunity for participants to receive retirement benefits that cannot be paid under our tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and length of service and the SERP is unfunded. No contributions by the Company are anticipated for the 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 $1,915,000 at December 31, 2007 ($1,597,000 at December 31, 2006).

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


	Year Ended December 31,
	2007			2006

Reconciliation of benefit obligation:
Obligation at January 1	$	1,597		$	1,255
Service cost		362			352
Interest cost		96			72
Actuarial (gain)/loss		(140	)		(82	)

Obligation at December 31	$	1,915		$	1,597


	December 31,
	2007			2006

Funded status:
Funded status at December 31	$	(1,915	)	$	(1,597	)
Unrecognized (gain)/loss		0			0

Prepaid/(accrued) benefit cost	$	(1,915	)	$	(1,597	)

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

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


	Year Ended December 31,
	2007		2006

Service cost	$	362	$	352
Interest cost		96		72
Net actuarial loss		0		8

Net periodic benefit cost	$	458	$	432

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	December 31,
	2007		2006

Projected benefit obligation	$	1,915	$	1,597
Accumulated benefit obligation		1,420		1,121
Fair value of assets		n/a		n/a

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

Benefit

Net Periodic Benefit Cost

Obligations

Year Ended

December 31,

2007

2006

2007

2006

Discount rate

6.00

6.00

6.00

5.75

Rate of compensation increase

4.25

4.25

4.25

4.00

Expected long-term return on plan assets

n/a

n/a

n/a

n/a


18.	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 undertriple-net leases and we are not involved in the management of the property. Our primary investment property types include skilled nursing facilities, assisted living facilities, independent living/continuing care retirement communities and specialty care facilities. Under the medical office building segment, our properties are typically leased under gross leases, modified gross leases ortriple-net leases, to multiple tenants, and generally require a certain level of property management. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). There are no intersegment sales or transfers. We evaluate performance based upon net operating income of the combined properties in each segment.

Non-segment revenue consists mainly of revenues from our Development Services Group (“DSG”), interest income on non-real estate investments and other income. Non-segment assets consist of DSG and corporate assets including cash, accounts receivable and deferred financing costs among others. Non-property specific revenues and expenses are not allocated to individual segments in determining 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 relevant amounts herein to be consistent with the new classification. Additionally, we have reclassified certain non-segment/corporate assets and revenues to be included in the related business segments to be consistent with the new classification.

Summary information for the reportable segments during the years ended December 31, 2007 and 2006 is as follows (in thousands):


									Property		Net		Real Estate
	Rental		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income(1)		Income		Income		Revenues		Expenses		Income(2)		Amortization		Expense		Assets

Year ended December 31, 2007:
Investment Properties	$	345,683	$	25,823	$	8,010	$	379,516	$	0	$	379,516	$	103,236	$	8,763	$	3,864,296
Medical Office Buildings		111,614		0		497		112,111		37,475		74,636		46,390		22,884		1,276,330
Non-segment/Corporate		0		0		1,528		1,528		0		1,528		0		104,655		73,230

	$	457,297	$	25,823	$	10,035	$	493,155	$	37,475	$	455,680	$	149,626	$	136,302	$	5,213,856

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


									Property		Net		Real Estate
	Rental		Interest		Other		Total		Operating		Operating		Depreciation/		Interest		Total
	Income(1)		Income		Income		Revenues		Expenses		Income(2)		Amortization		Expense		Assets

Year ended December 31, 2006:
Investment Properties	$	302,388	$	18,829	$	3,262	$	324,479	$	0	$	324,479	$	96,452	$	9,041	$	3,297,871
Medical Office Buildings		3,247		0		0		3,247		1,115		2,132		1,112		600		915,722
Non-segment/Corporate		0		0		662		662		0		662		0		87,193		67,017

	$	305,635	$	18,829	$	3,924	$	328,388	$	1,115	$	327,273	$	97,564	$	96,834	$	4,280,610


(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, interest expense and discontinued operations. 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.

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


19.	Quarterly Results of Operations (Unaudited)

The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2007 and 2006 (in thousands, except per share data):

Year Ended December 31, 2007

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter(2)

Revenues — as reported

112,645

119,252

125,076

133,532

Discontinued operations

(7,285

)

(6,509

)

(5,707

)

(5,105

)

Revenues — as adjusted(1)

105,360

112,743

119,369

128,427

Net income available to common stockholders

23,356

25,620

24,529

42,767

Net income available to common stockholders per share:

Basic

0.32

0.30

0.52

Diluted

0.32

0.30

0.52


	Year Ended December 31, 2006
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter(3)

Revenues — as reported	$	77,413		$	80,176		$	80,745		$	87,787
Discontinued operations		(8,444	)		(8,547	)		(7,359	)		(7,251	)

Revenues — as adjusted(1)	$	68,969		$	71,629		$	73,386		$	80,536

Net income available to common stockholders	$	19,645		$	22,668		$	21,480		$	17,494

Net income available to common stockholders per share:
Basic	$	0.34		$	0.37		$	0.34		$	0.27
Diluted		0.34			0.37			0.34			0.27


(1)		In accordance with FASB Statement No. 144, we have reclassified the income attributable to the properties sold subsequent to January 1, 2002 through June 30, 2008 and attributable to the properties held for sale at June 30, 2008 to discontinued operations. See Note 16.

HEALTH CARE REIT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(2)		The increase in net income and amounts per share are primarily attributable to gains on sales of real property ($11,662,000), additional other income related to the payoff of a warrant equity investment ($3,900,000) and gains on extinguishment of debt ($1,081,000).

(3)		The decrease in net income and amounts per share are primarily attributable to costs associated with the Windrose merger ($5,213,000) and the write-off of a straight-line rent receivable ($5,143,000), offset by the favorable impact of prior period adjustments resulting from reassessment of straight-line rent revenue recognition policies ($3,266,000).

HEALTH CARE REIT, INC.

SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2007


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Assisted Living Facilities:
Alhambra, CA	$	0	$	420	$	2,534	$	0	$	420	$	2,534	$	481		1999		1999
Amarillo, TX		0		390		5,100		0		390		5,100		437		2004		1996
Asheboro, NC(3)		3,472		290		5,032		166		290		5,198		608		2003		1998
Asheville, NC		0		204		3,490		0		204		3,490		899		1999		1999
Asheville, NC		0		280		1,955		351		280		2,306		307		2003		1992
Auburn, MA(1)		0		1,050		7,950		0		1,050		7,950		959		2003		1997
Azusa, CA		0		570		3,141		0		570		3,141		624		1998		1988
Baltimore, MD		0		510		4,515		0		510		4,515		615		2003		1999
Bartlesville, OK		0		100		1,380		0		100		1,380		472		1996		1995
Beaumont, TX		0		520		6,050		0		520		6,050		546		2004		1997
Bellevue, WI		0		1,740		18,260		0		1,740		18,260		729		2006		2004
Bellingham, WA		0		300		3,200		0		300		3,200		372		2003		1994
Bradenton, FL		0		252		3,298		0		252		3,298		1,146		1996		1995
Bradenton, FL		0		100		1,700		942		100		2,642		1,039		1999		1996
Brandon, FL		0		860		7,140		0		860		7,140		796		2003		1990
Bremerton, WA		0		390		2,210		94		390		2,304		58		2006		1999
Burlington, NC		0		280		4,297		707		280		5,004		583		2003		2000
Burlington, NC(3)		2,736		460		5,467		0		460		5,467		658		2003		1997
Butte, MT		0		550		3,957		43		550		4,000		778		1998		1999
Canton, OH		0		300		2,098		0		300		2,098		543		1998		1998
Cape Coral, FL		0		530		3,281		0		530		3,281		529		2002		2000
Cary, NC		0		1,500		4,350		986		1,500		5,336		1,244		1998		1996
Cedar Hill, TX		0		171		1,490		0		171		1,490		481		1997		1996
Chapel Hill, NC		0		354		2,646		783		354		3,429		495		2002		1997
Chelmsford, MA(2)		8,765		1,040		10,951		0		1,040		10,951		1,235		2003		1997
Chickasha, OK		0		85		1,395		0		85		1,395		470		1996		1996
Chubbuck, ID		0		125		5,375		0		125		5,375		638		2003		1996
Claremore, OK		0		155		1,428		0		155		1,428		456		1996		1996
Clarksville, TN		0		330		2,292		0		330		2,292		587		1998		1998
Cleburne, TX		0		520		5,411		0		520		5,411		74		2006		2007
Coeur D’ Alene, ID		0		530		7,570		0		530		7,570		891		2003		1987
Columbia, TN		0		341		2,295		0		341		2,295		587		1999		1999
Concord, NC(3)		4,587		550		3,921		55		550		3,976		529		2003		1997
Corpus Christi, TX		0		155		2,935		15		155		2,950		1,401		1997		1996
Corpus Christi, TX		0		420		4,796		139		420		4,935		2,761		1996		1997
Danville, VA		0		410		3,954		722		410		4,676		567		2003		1998
Dayton, OH		0		690		2,970		1,428		690		4,398		1,007		2003		1994
DeForest, WI		0		250		5,350		0		250		5,350		106		2007		2006
Desoto, TX		0		205		1,383		0		205		1,383		434		1996		1996
Duncan, OK		0		103		1,347		0		103		1,347		447		1995		1996
Durham, NC		0		1,476		10,659		2,197		1,476		12,856		5,132		1997		1999
Eden, NC(3)		2,975		390		4,877		0		390		4,877		606		2003		1998
Edmond, OK		0		175		1,564		0		175		1,564		509		1995		1996
Elizabeth City, NC		0		200		2,760		2,011		200		4,771		950		1998		1999
Encinitas, CA		0		1,460		7,721		0		1,460		7,721		1,651		2000		2000
Enid, OK		0		90		1,390		0		90		1,390		475		1995		1995
Everett, WA		0		1,400		5,476		0		1,400		5,476		1,312		1999		1999
Fairfield, CA		0		1,460		14,040		0		1,460		14,040		2,307		2002		1998
Fairhaven, MA		0		770		6,230		0		770		6,230		621		2004		1999
Fayetteville, NY		0		410		3,962		500		410		4,462		704		2001		1997
Federal Way, WA		0		540		3,960		0		540		3,960		460		2003		1978
Findlay, OH		0		200		1,800		0		200		1,800		539		1997		1997
Flagstaff, AZ		0		540		4,460		0		540		4,460		531		2003		1999
Florence, NJ		0		300		2,978		0		300		2,978		477		2002		1999
Forest City, NC(3)		3,048		320		4,497		0		320		4,497		560		2003		1999
Fort Worth, TX		0		65		3,790		91		65		3,881		1,884		1996		1984
Fredericksburg, VA(5)		7,151		1,000		20,000		303		1,000		20,303		1,444		2005		1999
Gastonia, NC(3)		4,055		470		6,129		0		470		6,129		731		2003		1998
Gastonia, NC(3)		1,908		310		3,096		22		310		3,118		399		2003		1994
Gastonia, NC(3)		3,844		400		5,029		120		400		5,149		612		2003		1996
Georgetown, TX		0		200		2,100		0		200		2,100		614		1997		1997


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Grand Terrace, CA	$	0	$	530	$	2,770	$	0	$	530	$	2,770	$	282		2004		1982
Greenfield, WI		0		600		6,626		0		600		6,626		74		2006		2006
Greensboro, NC		0		330		2,970		554		330		3,524		438		2003		1996
Greensboro, NC		0		560		5,507		1,013		560		6,520		804		2003		1997
Greenville, NC(3)		3,561		290		4,393		168		290		4,561		533		2003		1998
Greenville, SC		0		310		4,750		0		310		4,750		454		2004		1997
Hagerstown, MD		0		360		4,640		0		360		4,640		582		2003		1999
Hamden, CT		0		1,470		4,530		0		1,470		4,530		854		2002		1998
Hamilton, NJ		0		440		4,469		0		440		4,469		726		2001		1998
Harlingen, TX		0		92		2,057		127		92		2,184		1,001		1997		1989
Hattiesburg, MS		0		560		5,790		0		560		5,790		997		2002		1998
Hemet, CA		0		870		3,405		0		870		3,405		65		2007		1996
Henderson, NV		0		380		9,220		66		380		9,286		2,207		1998		1998
Henderson, NV		0		380		4,360		41		380		4,401		844		1999		2000
Hickory, NC		0		290		987		232		290		1,219		203		2003		1994
High Point, NC		0		560		4,443		793		560		5,236		639		2003		2000
High Point, NC		0		370		2,185		410		370		2,595		339		2003		1999
High Point, NC(3)		2,593		330		3,395		28		330		3,423		422		2003		1994
High Point, NC(3)		2,925		430		4,143		0		430		4,143		506		2003		1998
Highlands Ranch, CO		0		940		3,721		0		940		3,721		606		2002		1999
Hopedale, MA		0		130		8,170		0		130		8,170		633		2005		1999
Houston, TX		0		360		2,640		0		360		2,640		401		2002		1999
Houston, TX		0		360		2,640		0		360		2,640		396		2002		1999
Hutchinson, KS		0		600		10,590		0		600		10,590		912		2004		1997
Jackson, TN		0		540		1,633		3,015		540		4,648		318		2003		1998
Jonesboro, GA		0		460		1,304		0		460		1,304		168		2003		1992
Kalispell, MT		0		360		3,282		0		360		3,282		829		1998		1998
Kenner, LA		0		1,100		10,036		125		1,100		10,161		4,106		1998		2000
Kent, WA		0		940		20,318		0		940		20,318		4		2007		2000
Kirkland, WA(2)		4,798		1,880		4,315		0		1,880		4,315		518		2003		1996
Knoxville, TN		0		314		2,755		0		315		2,754		398		2002		1998
Lake Havasu City, AZ		0		450		4,223		0		450		4,223		992		1998		1999
Lake Havasu City, AZ		0		110		2,244		136		110		2,380		598		1998		1994
Lakeland, FL		0		520		4,580		0		520		4,580		536		2003		1991
Lakewood, NY		0		470		8,530		0		470		8,530		968		2003		1999
Lecanto, FL		0		200		6,900		0		200		6,900		633		2004		1986
Lenoir, NC		0		190		3,748		641		190		4,389		533		2003		1998
Lexington, NC		0		200		3,900		1,015		200		4,915		693		2002		1997
Longview, TX		0		320		4,440		0		320		4,440		405		2004		1997
Longview, TX		0		610		5,520		0		610		5,520		87		2006		2007
Louisville, KY		0		490		7,610		0		490		7,610		922		2003		1997
Lubbock, TX		0		280		6,220		1,660		280		7,880		801		2003		1996
Manassas, VA(2)		3,651		750		7,446		0		750		7,446		854		2003		1996
Mansfield, TX		0		660		5,251		0		660		5,251		84		2006		2007
Margate, FL		0		500		7,303		2,459		500		9,762		4,835		1998		1972
Martinsville, NC		0		349		0		0		349		0		0		2003
Marysville, CA		0		450		4,172		44		450		4,216		822		1998		1999
Matthews, NC(3)		3,719		560		4,738		0		560		4,738		610		2003		1998
McHenry, IL		0		1,632		0		0		1,632		0		0		2006
McHenry, IL		0		3,550		15,300		0		3,550		15,300		404		2006		2004
Menomonee Falls, WI		0		1,020		6,984		0		1,020		6,984		47		2006		2007
Middleburg Heights, OH		0		960		7,780		0		960		7,780		683		2004		1998
Middleton, WI		0		420		4,006		600		420		4,606		630		2001		1991
Midland, TX		0		400		4,930		0		400		4,930		438		2004		1997
Midwest City, OK		0		95		1,385		0		95		1,385		474		1996		1995
Missoula, MT(4)		6,363		550		7,490		0		550		7,490		465		2005		1998
Monroe, NC		0		470		3,681		648		470		4,329		539		2003		2001
Monroe, NC		0		310		4,799		857		310		5,656		663		2003		2000
Monroe, NC(3)		3,295		450		4,021		114		450		4,135		508		2003		1997
Morehead City, NC		0		200		3,104		1,648		200		4,752		936		1999		1999
Moses Lake, WA		0		260		5,940		0		260		5,940		701		2003		1986
Mt. Vernon, WA		0		400		2,200		132		400		2,332		60		2006		2001
Nacogdoches, TX		0		390		5,754		0		390		5,754		79		2006		2007
New York, NY		0		1,440		21,460		976		1,440		22,436		559		2006		1959
Newark, DE		0		560		21,220		0		560		21,220		1,795		2004		1998
Newburyport, MA		0		960		8,290		0		960		8,290		1,272		2002		1999
Norman, OK		0		55		1,484		0		55		1,484		584		1995		1995
North Augusta, SC		0		332		2,558		0		332		2,558		644		1999		1998
North Miami Beach, FL		0		300		5,709		2,006		300		7,715		3,669		1998		1987


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

North Oklahoma City, OK	$	0	$	87	$	1,508	$	0	$	87	$	1,508	$	475		1996		1996
Ocean Shores, WA		0		770		1,390		0		770		1,390		146		2004		1996
Ogden, UT		0		360		6,700		0		360		6,700		595		2004		1998
Oklahoma City, OK		0		130		1,350		0		130		1,350		450		1995		1996
Oklahoma City, OK		0		220		2,943		0		220		2,943		681		1999		1999
Oneonta, NY		0		80		5,020		0		80		5,020		43		2007		1996
Ontario, OR		0		90		2,110		0		90		2,110		246		2003		1985
Oshkosh, WI		0		900		3,800		3,687		900		7,487		273		2006		2005
Owasso, OK		0		215		1,380		0		215		1,380		440		1996		1996
Palestine, TX		0		173		1,410		0		173		1,410		451		1996		1996
Palestine, TX		0		180		4,320		0		180		4,320		174		2006		2005
Paris, TX		0		490		5,452		0		490		5,452		423		2005		2006
Paso Robles, CA		0		1,770		8,630		0		1,770		8,630		1,408		2002		1998
Phoenix, AZ		0		1,000		6,500		0		1,000		6,500		782		2003		1999
Pinehurst, NC		0		290		2,690		484		290		3,174		409		2003		1998
Piqua, OH		0		204		1,885		0		204		1,885		513		1997		1997
Pittsburgh, PA		0		1,750		8,572		115		1,750		8,687		671		2005		1998
Pocatello, ID		0		470		1,930		0		470		1,930		252		2003		1991
Ponca City, OK		0		114		1,536		0		114		1,536		520		1995		1995
Portland, OR		0		628		3,585		232		628		3,817		893		1998		1999
Quincy, MA		0		2,690		15,411		0		2,690		15,411		1,218		2004		1999
Reidsville, NC		0		170		3,830		857		170		4,687		671		2002		1998
Reno, NV		0		1,060		11,440		0		1,060		11,440		1,004		2004		1998
Ridgeland, MS(2)		4,637		520		7,675		0		520		7,675		882		2003		1997
Rocky Hill, CT		0		1,460		7,040		0		1,460		7,040		1,202		2002		1998
Rocky Hill, CT		0		1,090		6,710		0		1,090		6,710		819		2003		1996
Romeoville, IL		0		1,895		0		0		1,895		0		0		2006
Roswell, GA		0		620		2,200		184		620		2,384		392		2002		1997
Salem, OR		0		449		5,172		0		449		5,172		1,284		1999		1998
Salisbury, NC(3)		3,570		370		5,697		168		370		5,865		691		2003		1997
Salt Lake City, UT		0		1,060		6,142		0		1,060		6,142		1,196		1999		1986
San Angelo, TX		0		260		8,800		0		260		8,800		757		2004		1997
San Juan Capistrano, CA		0		1,390		6,942		0		1,390		6,942		1,226		2000		2001
Sarasota, FL		0		475		3,175		0		475		3,175		1,104		1996		1995
Sarasota, FL		0		1,190		4,810		0		1,190		4,810		595		2003		1988
Seven Fields, PA		0		484		4,663		59		484		4,722		1,176		1999		1999
Shawnee, OK		0		80		1,400		0		80		1,400		475		1996		1995
Sheboygan, WI		0		80		5,320		0		80		5,320		219		2006		2006
Sherman, TX		0		700		5,220		0		700		5,220		141		2005		2006
Smithfield, NC(3)		3,471		290		5,680		0		290		5,680		691		2003		1998
Statesville, NC		0		150		1,447		266		150		1,713		220		2003		1990
Smithfield, NC(3)		2,842		310		6,183		7		310		6,190		721		2003		1996
Smithfield, NC(3)		2,434		140		3,627		0		140		3,627		445		2003		1999
Staunton, VA		0		140		8,359		0		140		8,359		997		2003		1999
Stillwater, OK		0		80		1,400		0		80		1,400		478		1995		1995
Tewksbury, MA		0		1,520		5,480		0		1,520		5,480		612		2003		1989
Texarkana, TX		0		192		1,403		0		192		1,403		446		1996		1996
Troy, OH		0		200		2,000		0		200		2,000		588		1997		1997
Tyler, TX		0		650		5,267		0		650		5,267		84		2006		2007
Valparaiso, IN		0		112		2,558		0		112		2,558		468		2001		1998
Valparaiso, IN		0		108		2,962		0		108		2,962		530		2001		1999
Vero Beach, FL		0		263		3,187		0		263		3,187		565		2001		1999
Vero Beach, FL		0		296		3,263		0		296		3,263		584		2001		1996
W. Hartford, CT		0		2,650		5,980		0		2,650		5,980		637		2004		1905
Waco, TX		0		180		4,500		0		180		4,500		426		2004		1997
Wake Forest, NC		0		200		3,003		1,742		200		4,745		1,010		1998		1999
Waterford, CT		0		1,360		12,539		0		1,360		12,539		1,968		2002		2000
Waxahachie, TX		0		154		1,429		0		154		1,429		457		1996		1996
Weatherford, TX		0		660		5,261		0		660		5,261		84		2006		2007
Westerville, OH		0		740		8,287		2,736		740		11,023		3,738		1998		2001
Wichita Falls, TX		0		470		3,010		0		470		3,010		297		2004		1997
Wilmington, NC		0		210		2,991		0		210		2,991		736		1999		1999
Winston-Salem, NC		0		360		2,514		459		360		2,973		369		2003		1996

Total Assisted Living Facilities:		90,400		106,604		948,084		42,179		106,605		990,262		142,937
Skilled Nursing Facilities:
Agawam, MA		0		880		16,112		2,135		880		18,247		2,598		2002		1993
Akron, OH		0		290		8,219		491		290		8,710		509		2005		1961


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Akron, OH	$	0	$	630	$	7,535	$	184	$	630	$	7,719	$	322		2006		1915
Alliance, OH(6)		4,954		270		7,723		107		270		7,830		399		2006		1982
Amarillo, TX		0		540		7,260		0		540		7,260		532		2005		1986
Arcadia, LA		0		240		5,460		0		240		5,460		315		2006		2006
Atlanta, GA		0		460		5,540		0		460		5,540		441		2005		1972
Auburndale, FL		0		750		5,950		0		750		5,950		451		2005		1983
Austin, TX		0		730		18,970		0		730		18,970		384		2007		2006
Baltic, OH(6)		4,061		50		8,709		189		50		8,898		439		2006		1983
Baytown, TX		0		450		6,150		0		450		6,150		965		2002		2000
Beachwood, OH		0		1,260		23,478		0		1,260		23,478		3,917		2001		1990
Beattyville, KY		0		100		6,900		0		100		6,900		448		2005		1972
Bernice, LA		0		16		1,017		0		16		1,017		133		2005		1969
Birmingham, AL		0		390		4,902		0		390		4,902		697		2003		1977
Birmingham, AL		0		340		5,734		0		340		5,734		761		2003		1974
Boise, ID		0		810		5,401		0		810		5,401		1,723		1998		1966
Boonville, IN		0		190		5,510		0		190		5,510		879		2002		2000
Bountiful, UT		0		991		6,850		0		991		6,850		416		2005		1987
Boynton Beach, FL		0		980		8,112		0		980		8,112		809		2004		1999
Braintree, MA		0		170		7,157		1,290		170		8,447		4,400		1997		1968
Brandon, MS		0		115		9,549		0		115		9,549		1,286		2003		1963
Bridgewater, NJ		0		1,850		3,050		0		1,850		3,050		380		2004		1970
Brighton, MA		0		240		3,859		2,097		240		5,956		408		2005		1982
Broadview Heights, OH		0		920		12,400		0		920		12,400		2,074		2001		1984
Bunnell, FL		0		260		7,118		0		260		7,118		751		2004		1985
Butler, AL		0		90		3,510		0		90		3,510		399		2004		1960
Byrdstown, TN		0		0		2,414		0		0		2,414		603		2004		1982
Canton, MA		0		820		8,201		263		820		8,464		1,400		2002		1993
Carrollton, TX		0		730		2,770		0		730		2,770		254		2005		1976
Centerville, MA		0		1,490		9,650		3,946		1,490		13,596		968		2004		1982
Cheswick, PA		0		384		6,041		1,293		384		7,334		2,015		1998		1933
Clarksville, TN		0		480		5,020		0		480		5,020		219		2006		1989
Clearwater, FL		0		160		7,218		0		160		7,218		690		2004		1961
Clearwater, FL		0		1,260		2,740		0		1,260		2,740		270		2005		1983
Cleveland, MS		0		0		1,850		0		0		1,850		833		2003		1977
Cleveland, TN		0		350		5,000		122		350		5,122		921		2001		1987
Coeur d’Alene, ID		0		600		7,878		0		600		7,878		2,199		1998		1996
Colorado Springs, CO		0		310		6,290		0		310		6,290		490		2005		1985
Columbia, TN		0		590		3,787		0		590		3,787		592		2003		1974
Columbus, IN		0		530		5,170		1,540		530		6,710		936		2002		2001
Columbus, OH		0		1,070		11,726		1,197		1,070		12,923		693		2005		1968
Columbus, OH(6)		4,652		1,010		4,931		91		1,010		5,022		281		2006		1983
Columbus, OH(6)		10,475		1,860		16,624		1,077		1,860		17,701		855		2006		1978
Corpus Christi, TX		0		307		443		0		307		443		92		2005		1985
Corpus Christi, TX		0		400		1,916		0		400		1,916		172		2005		1985
Dade City, FL		0		250		7,150		0		250		7,150		700		2004		1975
Daytona Beach, FL		0		470		5,930		0		470		5,930		632		2004		1986
Daytona Beach, FL		0		490		5,710		0		490		5,710		631		2004		1961
Daytona Beach, FL		0		1,850		2,650		0		1,850		2,650		271		2005		1964
DeBary, FL		0		440		7,460		0		440		7,460		727		2004		1965
Dedham, MA		0		1,360		9,830		0		1,360		9,830		1,719		2002		1996
Defuniak Springs, FL		0		1,350		10,250		0		1,350		10,250		393		2006		1980
DeLand, FL		0		220		7,080		0		220		7,080		696		2004		1967
Denton, MD		0		390		4,010		0		390		4,010		647		2003		1982
Denver, CO		0		2,530		9,514		0		2,530		9,514		561		2005		1986
Douglasville, GA		0		1,350		7,471		0		1,350		7,471		1,067		2003		1975
Easton, PA		0		285		6,315		0		285		6,315		2,884		1993		1959
Eight Mile, AL		0		410		6,110		0		410		6,110		909		2003		1973
El Paso, TX		0		539		8,961		0		539		8,961		661		2005		1970
El Paso, TX		0		642		3,958		0		642		3,958		350		2005		1969
Elizabethton, TN		0		310		4,604		336		310		4,940		938		2001		1980
Erin, TN		0		440		8,060		134		440		8,194		1,413		2001		1981
Eugene, OR		0		300		5,316		0		300		5,316		1,611		1998		1972
Fairfield, AL		0		530		9,134		0		530		9,134		1,237		2003		1965
Fall River, MA		0		620		5,829		4,857		620		10,686		2,644		1996		1973
Farmerville, LA		0		147		4,087		0		147		4,087		309		2005		1984
Florence, AL		0		320		3,975		0		320		3,975		636		2003		1972
Fort Myers, FL		0		636		6,026		0		636		6,026		2,491		1998		1984
Fort Pierce, FL		0		440		3,560		0		440		3,560		253		2005		1973
Gardnerville, NV		0		182		1,718		785		182		2,503		802		2004		2000


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated			Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation			Acquired		Built
							(Dollars in thousands)

Goshen, IN	$	0	$	210	$	6,120	$	0	$	210	$	6,120	$	277			2005		2006
Graceville, FL		0		150		13,000		0		150		13,000		485			2006		1980
Grand Prairie, TX		0		574		3,426		0		574		3,426		304			2005		1982
Granite City, IL		0		610		7,143		842		610		7,985		3,287			1998		1973
Granite City, IL		0		400		4,303		707		400		5,010		2,012			1999		1964
Greeneville, TN		0		400		8,290		0		400		8,290		904			2004		1979
Hanover, IN		0		210		4,430		0		210		4,430		456			2004		2000
Hardin, IL		0		50		5,350		135		50		5,485		1,950			2002		1996
Harriman, TN		0		590		8,060		158		590		8,218		1,509			2001		1972
Herculaneum, MO		0		127		10,373		393		127		10,766		3,690			2002		1984
Hilliard, FL		0		150		6,990		0		150		6,990		1,868			1999		1990
Homestead, FL		0		2,750		11,750		0		2,750		11,750		448			2006		1994
Houston, TX		0		600		2,700		0		600		2,700		251			2005		1974
Houston, TX		0		860		18,715		0		860		18,715		127			2007		2006
Houston, TX		0		630		5,970		750		630		6,720		1,008	��		2002		1995
Huron, OH		0		160		6,088		252		160		6,340		360			2005		1983
Indianapolis, IN		0		75		925		0		75		925		157			2004		1942
Jackson, MS		0		410		1,814		0		410		1,814		301			2003		1968
Jackson, MS		0		0		4,400		0		0		4,400		1,980			2003		1980
Jackson, MS		0		0		2,150		0		0		2,150		968			2003		1970
Jamestown, TN		0		0		6,707		0		0		6,707		1,677			2004		1966
Jefferson City, MO		0		370		6,730		301		370		7,031		2,397			2002		1982
Jefferson, OH		0		80		9,120		0		80		9,120		515			2006		1984
Jonesboro, GA		0		840		1,921		0		840		1,921		335			2003		1992
Kalida, OH		0		480		8,173		0		480		8,173		62			2006		2007
Kent, OH		0		215		3,367		0		215		3,367		1,413			1989		1983
Kissimmee, FL		0		230		3,854		0		230		3,854		382			2004		1972
LaBelle, FL		0		60		4,946		0		60		4,946		532			2004		1986
Lake Placid, FL		0		150		12,850		0		150		12,850		1,286			2004		1984
Lakeland, FL		0		696		4,843		0		696		4,843		2,019			1998		1984
Lee, MA		0		290		18,135		926		290		19,061		2,962			2002		1998
Littleton, MA		0		1,239		2,910		0		1,239		2,910		549			1996		1975
Longview, TX		0		293		1,707		0		293		1,707		176			2005		1971
Longwood, FL		0		480		7,520		0		480		7,520		750			2004		1980
Louisville, KY		0		490		10,010		0		490		10,010		883			2005		1978
Louisville, KY		0		430		7,135		163		430		7,298		1,311			2002		1974
Louisville, KY		0		350		4,675		109		350		4,784		879			2002		1975
Lowell, MA		0		370		7,450		1,012		370		8,462		615			2004		1977
Lufkin, TX		0		416		1,184		0		416		1,184		177			2005		1919
Manchester, NH		0		340		4,360		0		340		4,360		310			2005		1984
Marianna, FL		0		340		8,910		0		340		8,910		331			2006		1997
McComb, MS		0		120		5,786		0		120		5,786		761			2003		1973
Memphis, TN		0		970		4,246		0		970		4,246		650			2003		1981
Memphis, TN		0		480		5,656		0		480		5,656		802			2003		1982
Memphis, TN		0		940		5,963		0		940		5,963		743			2004		1951
Merrillville, IN		0		643		7,084		3,526		643		10,610		3,557			1997		1999
Mesa, AZ		0		940		2,579		0		940		2,579		233			2005		1985
Midwest City, OK		0		470		5,673		0		470		5,673		2,261			1998		1958
Midwest City, OK		0		484		5,516		0		484		5,516		426			2005		1987
Millbury, MA		0		930		4,570		0		930		4,570		540			2004		1972
Mobile, AL		0		440		3,625		0		440		3,625		562			2003		1982
Monteagle, TN		0		310		3,318		0		310		3,318		482			2003		1980
Monterey, TN		0		0		4,195		0		0		4,195		1,049			2004		1977
Monticello, FL		0		140		4,471		0		140		4,471		495			2004		1986
Morgantown, KY		0		380		3,705		0		380		3,705		509			2003		1965
Moss Point, MS		0		120		7,280		0		120		7,280		741			2004		1933
Mountain City, TN		0		220		5,896		660		220		6,556		1,949			2001		1976
Naples, FL		0		550		5,450		0		550		5,450		519			2004		1968
Natchitoches, LA		0		190		4,096		0		190		4,096		294			2005		1975
Needham, MA		0		1,610		13,715		366		1,610		14,081		2,403			2002		1994
New Haven, CT		0		160		4,778		1,134		160		5,912		159			2006		1958
New Haven, IN		0		176		3,524		0		176		3,524		399			2004		1981
New Port Richey, FL		0		624		7,307		0		624		7,307		3,002			1998		1984
North Miami, FL		0		430		3,918		0		430		3,918		530			2004		1968
North Miami, FL		0		440		4,830		0		440		4,830		534			2004		1963
Norwalk, CT		0		410		2,118		2,201		410		4,319		329			2004		1971
Oklahoma City, OK		0		510		10,694		0		510		10,694		469			1998		1979
Ormond Beach, FL		0		0		2,739		73		0		2,812		792			2002		1983
Overland Park, KS		0		1,120		8,360		0		1,120		8,360		504			2005		1970


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Owensboro, KY	$	0	$	240	$	6,760	$	0	$	240	$	6,760	$	542		1993		1966
Owensboro, KY		0		225		13,275		0		225		13,275		971		2005		1964
Owenton, KY		0		100		2,400		0		100		2,400		216		2005		1979
Panama City, FL		0		300		9,200		0		300		9,200		923		2004		1992
Pasadena, TX		0		720		24,080		0		720		24,080		480		2007		2005
Pigeon Forge, TN		0		320		4,180		117		320		4,297		826		2001		1986
Pikesville, MD		0		450		10,750		0		450		10,750		226		2007		1983
Plano, TX		0		1,305		9,095		0		1,305		9,095		687		2005		1977
Plymouth, MA		0		440		6,220		931		440		7,151		539		2004		1968
Port St. Joe, FL		0		370		2,055		0		370		2,055		370		2004		1982
Prospect, CT		0		820		1,441		2,407		820		3,848		255		2004		1970
Pueblo, CO		0		370		6,051		0		370		6,051		1,900		1998		1989
Pueblo, CO		0		250		9,391		0		250		9,391		578		2005		1985
Quincy, FL		0		200		5,333		0		200		5,333		595		2004		1983
Quitman, MS		0		60		10,340		0		60		10,340		991		2004		1976
Rheems, PA		0		200		1,575		0		200		1,575		225		2003		1996
Richmond, VA		0		1,211		2,889		0		1,211		2,889		550		2003		1995
Richmond, VA		0		760		12,640		0		760		12,640		271		2007		1969
Ridgely, TN		0		300		5,700		97		300		5,797		1,024		2001		1990
Ringgold, LA		0		30		4,174		0		30		4,174		289		2005		1984
Rochdale, MA		0		675		11,847		2,024		800		13,746		1,945		2002		1995
Rockledge, FL		0		360		4,117		0		360		4,117		958		2001		1970
Rockwood, TN		0		500		7,116		741		500		7,857		1,423		2001		1979
Rogersville, TN		0		350		3,278		0		350		3,278		478		2003		1980
Royal Palm Beach, FL		0		980		8,320		0		980		8,320		854		2004		1984
Ruleville, MS		0		0		50		0		0		50		23		2003		1978
Ruston, LA		0		130		9,403		0		130		9,403		577		2005		1965
San Antonio, TX		0		560		7,315		0		560		7,315		1,156		2002		2000
San Antonio, TX		0		640		13,360		0		640		13,360		278		2007		2004
Sandwich, MA		0		1,140		11,190		279		1,140		11,469		843		2004		1987
Sarasota, FL		0		560		8,474		0		560		8,474		1,940		1999		2000
Sarasota, FL		0		600		3,400		0		600		3,400		361		2004		1982
Scituate, MA		0		1,740		10,640		0		1,740		10,640		593		2005		1976
Seville, OH		0		230		1,770		0		230		1,770		176		2005		1981
Shelby, MS		0		60		5,340		0		60		5,340		528		2004		1979
Shelbyville, KY		0		630		3,870		0		630		3,870		286		2005		1965
South Boston, MA		0		385		2,002		5,218		385		7,220		1,882		1995		1961
South Pittsburg, TN		0		430		5,628		0		430		5,628		663		2004		1979
Southbridge, MA		0		890		8,110		2,793		890		10,903		958		2004		1976
Spring City, TN		0		420		6,085		2,579		420		8,664		1,468		2001		1987
St. Louis, MO		0		750		6,030		0		750		6,030		914		1995		1994
Starke, FL		0		120		10,180		0		120		10,180		1,013		2004		1990
Staunton, VA		0		310		11,090		0		310		11,090		240		2007		1959
Stuart, FL		0		390		8,110		0		390		8,110		800		2004		1985
Swanton, OH		0		330		6,370		0		330		6,370		574		2004		1950
Tampa, FL		0		830		6,370		0		830		6,370		783		2004		1968
Torrington, CT		0		360		1,261		829		360		2,090		171		2004		1966
Troy, OH		0		470		16,730		0		470		16,730		1,451		2004		1971
Tucson, AZ		0		930		13,399		0		930		13,399		769		2005		1985
Tupelo, MS		0		740		4,092		0		740		4,092		615		2003		1980
Uhrichsville, OH		0		24		6,716		0		24		6,716		351		2006		1977
Venice, FL		0		500		6,000		0		500		6,000		562		2004		1987
Vero Beach, FL		0		660		9,040		1,461		660		10,501		4,189		1998		1984
Wareham, MA		0		875		10,313		1,701		875		12,014		1,817		2002		1989
Warren, OH		0		240		3,810		0		240		3,810		300		2005		1973
Waterbury, CT		0		370		2,166		1,163		370		3,329		86		2006		1972
Webster, TX		0		360		5,940		0		360		5,940		935		2002		2000
West Haven, CT		0		580		1,620		1,235		580		2,855		217		2004		1971
West Palm Beach, FL		0		696		8,037		0		696		8,037		3,820		1998		1984
West Worthington, OH		0		510		5,090		0		510		5,090		285		2006		1980
Westlake, OH		0		1,330		17,928		0		1,330		17,928		3,038		2001		1985
Westlake, OH		0		571		5,411		0		571		5,411		1,635		1998		1957
Westmoreland, TN		0		330		1,822		2,634		330		4,456		806		2001		1994
White Hall, IL		0		50		5,550		670		50		6,220		2,165		2002		1971
Whitemarsh, PA		0		2,310		6,190		0		2,310		6,190		544		2005		1967
Williamsburg, VA		0		1,360		7,440		0		1,360		7,440		162		2007		1970
Williamstown, KY		0		70		6,430		0		70		6,430		475		2005		1987
Winnfield, LA		0		31		6,480		0		31		6,480		417		2005		1964
Woodbridge, VA		0		680		4,423		0		680		4,423		729		2002		1977


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Worcester, MA	$	0	$	1,100	$	5,400	$	2,497	$	1,100	$	7,897	$	739		2004		1962

Total Skilled Nursing Facilities		24,142		111,614		1,384,450		65,218		111,739		1,449,543		194,548
Independent Living Facilities/CCRCs:
Amelia Island, FL		0		3,290		24,310		1,938		3,290		26,248		1,294		2005		1998
Anderson, SC		0		710		6,290		0		710		6,290		770		2003		1986
Atlanta, GA		0		2,059		14,914		0		2,059		14,914		5,729		1997		1999
Aurora, CO		0		2,600		5,906		8,036		2,600		13,942		443		2006		1988
Aurora, CO		0		1,379		0		0		1,379		0		0		2006
Austin, TX		0		880		9,520		0		880		9,520		2,423		1999		1998
Columbia, SC		0		2,120		4,860		2,185		2,120		7,045		802		2003		2000
Denver, CO		0		3,650		14,906		280		3,650		15,186		490		2006		1987
Douglasville, GA		0		90		217		0		90		217		32		2003		1985
Fremont, CA		0		3,400		25,300		0		3,400		25,300		1,335		2005		1987
Gardnerville, NV		0		1,144		10,831		0		1,144		10,831		4,718		1998		1999
Gilroy, CA		0		760		13,880		40		760		13,920		389		2006		2007
Houston, TX		0		4,790		7,100		0		4,790		7,100		1,201		2003		1974
Indianapolis, IN		0		495		6,287		22,565		495		28,852		628		2006		1981
Indianapolis, IN		0		255		2,473		0		255		2,473		171		2006		1981
Lauderhill, FL		0		1,836		25,216		0		1,836		25,216		1,694		2002		1976
Manteca, CA		0		1,300		12,125		0		1,300		12,125		658		2005		1985
Marysville, WA		0		620		4,780		0		620		4,780		535		2003		1998
Mesa, AZ		0		950		9,087		0		950		9,087		1,843		1999		2000
Mount Airy, NC		0		270		6,430		0		270		6,430		340		2005		1998
Naples, FL		0		1,716		17,306		0		1,716		17,306		9,177		1997		1999
Ossining, NY		0		1,510		9,490		0		1,510		9,490		1,513		2002		1967
Pawleys Island, SC		0		1,010		32,590		1,862		1,010		34,452		1,716		2005		1997
Raytown, MO		0		510		5,490		0		510		5,490		143		2006		2000
Rohnert Park, CA		0		6,500		18,700		0		6,500		18,700		1,001		2005		1985
Roswell, GA		0		1,107		9,627		0		1,107		9,627		4,241		1997		1999
Sonoma, CA		0		1,100		18,400		0		1,100		18,400		978		2005		1988
Spartanburg, SC		0		3,350		15,750		535		3,350		16,285		824		2005		1997
Twin Falls, ID		0		550		14,740		0		550		14,740		2,093		2002		1991
Urbana, IL		0		670		6,780		0		670		6,780		1,153		2002		1998
Vacaville, CA		0		900		17,100		0		900		17,100		915		2005		1986
Vallejo, CA		0		4,000		18,000		0		4,000		18,000		958		2005		1989
Vero Beach, FL		0		2,930		40,070		0		2,930		40,070		431		2007		2003
Wichita, KS		0		1,400		11,000		0		1,400		11,000		282		2006		1997
Winston-Salem, NC		0		2,850		13,550		329		2,850		13,879		740		2005		1997

Total Independent Living Facilities/CCRCs		0		62,701		453,025		37,770		62,701		490,795		51,660
Specialty Care Facilities:
Amarillo, TX		0		72		11,928		0		72		11,928		779		2005		1986
Bellaire, TX		0		4,028		45,900		75		4,028		45,975		1,338		2006		2005
Braintree, MA		0		350		13,731		0		300		13,781		4,864		1998		1918
Chicago, IL		0		3,650		7,505		11,820		3,650		19,325		4,819		2002		1979
Corpus Christi, TX		0		77		3,923		0		77		3,923		297		2005		1968
El Paso, TX		0		112		15,888		0		112		15,888		1,027		2005		1994
Ft. Wayne, IN		0		170		8,232		0		170		8,232		0		2006		2006
Lafayette, LA		0		1,928		10,483		0		1,928		10,483		414		2006		1993
Midwest City, OK		0		146		3,854		0		146		3,854		284		2005		1996
New Albany, OH		0		3,020		27,445		0		3,020		27,445		3,590		2002		2003
Plano, TX		0		195		14,805		0		195		14,805		957		2005		1995
San Antonio, TX		0		0		17,303		0		0		17,303		364		2007		2007
Springfield, MA		0		2,100		22,913		160		2,100		23,073		8,715		1996		1952
Stoughton, MA		0		975		25,247		0		975		25,247		9,701		1996		1958
Tulsa, OK		0		3,003		6,025		0		3,003		6,025		332		2006		1992
Waukesha, WI		0		4,700		20,670		0		4,700		20,670		33		2007
Webster, TX		0		2,418		12,028		0		2,418		12,028		519		2006		1991

Total Specialty Care Facilities		0		26,944		267,880		12,055		26,894		279,985		38,033
Medical Office Buildings:
Arcadia, CA(7)		10,676		5,408		23,219		456		5,604		23,479		1,117		2006		1984
Atlanta, GA		0		4,931		18,720		103		4,983		18,771		1,038		2006		1992
Aurora, IL		0		540		9,023		0		540		9,023		334		2006		1996
Aurora, IL		0		2,803		1,711		0		2,803		1,711		220		2006		1989
Austell, GA(7)		4,496		2,223		8,362		0		2,223		8,362		811		2006		1999


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Bartlett, TN(8)	$	8,860	$	0	$	15,015	$	285	$	187	$	15,113	$	398		2007		2004
Bellaire, TX		0		2,972		33,445		10		2,972		33,455		1,106		2006		2005
Birmingham, AL		0		651		39,552		748		651		40,300		1,518		2006		1971
Boca Raton, FL(7)		14,519		109		34,002		237		109		34,239		1,319		2006		1995
Boynton Beach, FL(7)		4,405		0		6,574		390		214		6,750		145		2007		2004
Boynton Beach, FL(7)		4,840		2,048		7,692		0		2,048		7,692		419		2006		1995
Boynton Beach, FL(8)		4,341		2,048		7,403		48		2,048		7,451		345		2006		1997
Boynton Beach, FL(8)		6,484		0		11,235		234		109		11,360		458		2007		1996
Claremore, OK(8)		8,603		0		12,829		132		132		12,829		285		2007		2005
Coral Springs, FL		0		1,598		10,627		85		1,600		10,710		603		2006		1993
Dallas, TX(7)		16,331		137		29,357		27		137		29,384		2,234		2006		1995
Decatur, GA		0		934		1,837		10		934		1,847		335		2006		1971
Delray Beach, FL(7)		14,232		1,882		34,767		194		1,882		34,961		1,712		2006		1985
Denton, TX(8)		12,690		0		19,407		0		0		19,407		352		2007		2005
Durham, NC(7)		6,710		6,814		10,825		399		6,826		11,212		1,092		2006		1980
Durham, NC		0		0		0		10		0		10		0		2006		1980
Edinburg, TX(7)		6,300		431		4,791		0		431		4,791		178		2006		1996
El Paso, TX		0		1,083		6,427		72		1,083		6,499		583		2006		1982
El Paso, TX(7)		10,930		677		17,075		0		677		17,075		689		2006		1997
Fayetteville, GA(7)		3,488		959		7,540		107		959		7,647		362		2006		1999
Franklin, TN		0		2,338		12,138		0		2,338		12,138		276		2007		1988
Frisco, TX(8)		9,739		0		18,635		0		0		18,635		402		2007		2004
Frisco, TX		0		0		15,309		12		0		15,321		331		2007		2004
Germantown, TN		0		3,049		12,456		0		3,049		12,456		454		2006		2002
Glendale, CA(8)		8,771		0		18,558		37		37		18,558		450		2007		2002
Greeley, CO		0		877		6,711		0		877		6,711		28		2007		1997
Jupiter, FL(7)		7,628		2,252		11,415		0		2,252		11,415		488		2006		2001
Jupiter, FL(8)		4,755		0		5,858		2,825		2,825		5,858		159		2007		2004
Lakeway, TX		0		2,801		0		0		2,801		0		0		2007
Lakewood, CA		0		146		14,885		44		146		14,929		566		2006		1993
Las Vegas , NV(7)		6,391		74		15,287		87		74		15,374		711		2006		2000
Las Vegas, NV		0		6,127		0		0		6,127		0		0		2007
Las Vegas, NV(7)		8,347		6,734		54,886		0		6,734		54,886		1,826		2006		1991
Las Vegas, NV(7)		4,728		2,319		4,612		10		2,319		4,622		284		2006		1991
Las Vegas, NV(8)		3,270		0		6,921		429		433		6,917		162		2007		1997
Lawrenceville, GA		0		2,279		10,732		0		2,279		10,732		434		2006		2001
Lawrenceville, GA(7)		2,476		1,054		4,974		0		1,054		4,974		209		2006		2002
Lewisville, TX		0		142		5,030		130		142		5,160		171		2006		1997
Los Alamitos, CA(8)		8,909		0		18,635		39		39		18,635		412		2007		2003
Los Gatos, CA		0		488		22,832		45		488		22,877		1,692		2006		1993
Loxahatchee, FL(7)		3,463		1,340		6,509		0		1,340		6,509		252		2006		1993
Loxahatchee, FL(7)		2,847		1,553		4,694		31		1,562		4,716		157		2006		1994
Loxahatchee, FL		0		1,637		5,048		9		1,646		5,048		163		2006		1997
Middletown, NY		0		1,756		20,364		0		1,756		20,364		1,336		2006		1998
Morrow, GA		0		818		8,064		0		818		8,064		33		2007		1990
Mount Juliet, TN(10)		6,373		1,566		12,885		0		1,566		12,885		33		2007		2005
Nashville , TN		0		1,806		7,165		64		1,806		7,229		420		2006		1986
Niagra Falls, NY		0		1,335		17,702		0		1,335		17,702		448		2007		1990
Ocala, FL		0		885		4,982		0		885		4,982		339		2006		1991
Okatie, SC(8)		8,402		0		18,282		171		171		18,282		605		2007		1998
Orange Village, OH		0		610		7,419		0		610		7,419		323		2007		1985
Palm Bay, FL(7)		2,033		1,476		3,432		52		1,484		3,476		1,031		2006		1997
Palm Springs , CA		0		365		12,396		312		365		12,708		658		2006		1998
Palm Springs, FL(7)		2,917		733		4,078		2		739		4,074		191		2006		1993
Palm Springs, FL		0		1,174		7,834		33		1,182		7,859		491		2006		1997
Palmer, AK(8)		19,980		0		29,705		988		217		30,476		898		2007		2006
Pearland, TX(7)		2,513		781		5,522		0		781		5,522		265		2006		2000
Pearland, TX(7)		1,635		948		4,599		0		948		4,599		269		2006		2002
Pelham, AL		0		915		1,455		11		915		1,466		124		2006		1990
Phoenix, AZ(7)		30,878		1,149		49,586		1		1,149		49,587		3,447		2006		1998
Pineville, NC		0		961		6,974		0		961		6,974		466		2006		1988
Plantation, FL(7)		10,346		8,563		10,666		21		8,563		10,687		571		2006		1997
Plantation, FL(7)		9,654		8,848		9,423		—		8,848		9,423		1,060		2006		1996
Reno, NV		0		1,117		22,090		0		1,117		22,090		1,214		2006		1991
Sacramento, CA(7)		5,161		866		12,756		0		866		12,756		500		2006		1990
San Antonio, TX(7)		6,789		2,050		16,251		67		2,050		16,318		968		2006		1999
St. Louis, MO(8)		8,023		0		17,247		336		336		17,247		435		2007		2001
Suwanee, GA		0		1,776		5,804		4		1,776		5,808		478		2006		1998
Suwanee, GA		0		1,437		4,941		51		1,437		4,992		391		2006		2001


									Gross Amount at Which
			Initial Cost to Company				Cost Capitalized		Carried at Close of Period
					Buildings &		Subsequent to				Buildings &		Accumulated		Year		Year
Description	Encumbrances		Land		Improvements		Acquisition		Land		Improvements		Depreciation		Acquired		Built
							(Dollars in thousands)

Suwanee, GA	$	0	$	1,046	$	4,786	$	10	$	1,046	$	4,796	$	260		2006		2003
Tempe, AZ(8)		5,804		0		9,112		1,487		1,487		9,112		346		2007		1996
Tomball, TX(7)		3,074		1,404		5,142		0		1,404		5,142		486		2006		1982
Trussville, AL		0		1,336		2,177		8		1,336		2,185		205		2006		1990
Tucson, AZ(8)		10,814		89		18,339		207		89		18,546		392		2007		2004
Union City, TN		0		1,878		7,535		0		1,878		7,535		744		2006		1999
Voorhees, NJ		0		6,404		24,251		3		6,405		24,253		981		2006		1997
Wellington , Fl(8)		6,689		0		13,697		381		381		13,697		296		2007		2003
Wellington, FL(7)		7,458		107		16,933		0		107		16,933		661		2006		2000
West Palm Beach, FL(7)		7,660		628		14,740		35		628		14,775		559		2006		1993
West Palm Beach, FL(7)		7,075		610		14,618		0		610		14,618		683		2006		1991
West Palm Beach, FL(7)		6,405		950		15,183		151		988		15,296		817		2006		1995
West Seneca, NY(9)		13,519		917		22,435		0		917		22,435		335		2007		1990
Yorkville, IL		0		1,419		2,816		5		1,419		2,821		156		2006		1980

Total Medical Office Building		392,431		132,181		1,140,946		11,645		139,090		1,145,682		51,195
Construction in Progress		0		0		313,709		0		0		313,709		0

Total Investment in Real Property Owned	$	506,973	$	440,044	$	4,508,094	$	168,867	$	447,029	$	4,669,976	$	478,373


(1)		In June 2003, three wholly-owned subsidiaries of the Company completed the acquisitions of three assisted living facilities from Emeritus Corporation. The properties were subject to existing mortgage debt of $13,981,000. The three wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(2)		In September 2003, four wholly-owned subsidiaries of the Company completed the acquisitions of four assisted living facilities from Emeritus Corporation. The properties were subject to existing mortgage debt of $24,291,000. The four wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(3)		In September 2003, 17 wholly-owned subsidiaries of the Company completed the acquisitions of 17 assisted living facilities from Southern Assisted Living, Inc. The properties were subject to existing mortgage debt of $59,471,000. The 17 wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(4)		In September 2005, one wholly-owned subsidiary of the Company completed the acquisition of one assisted living facility from Emeritus Corporation. The property was subject to existing mortgage debt of $6,705,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(5)		In January 2005, one wholly-owned subsidiary of the Company completed the acquisition of one assisted living facility from Emeritus Corporation. The property was subject to existing mortgage debt of $7,875,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(6)		In March 2006, four wholly-owned subsidiaries of the Company completed the acquisition of four skilled nursing facilities from Provider Services, Inc. The properties was subject to existing mortgage debt of $25,049,000. The wholly-owned subsidiaries are included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.


(7)		In December 2006, the Company completed the acquisition of Windrose Medical Properties Trust. Certain of the properties were subject to existing mortgage debt of $248,844,000. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries related to the aforementioned properties be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(8)		In May 2007, a wholly-owned subsidiary of the Company completed the acquisition of 17 medical office buildings from Rendina Companies. Certain of the properties were subject to existing mortgage debt of $146,335,000. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiaries related to the aforementioned properties be separate legal entities wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

(9)		In August 2007, a wholly-owned subsidiary of the Company completed the acquisition of a medical office building from C06 Holdings, LLC. The property was subject to existing mortgage debt of $13,623,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.


(10)		In December 2007, a wholly-owned subsidiary of the Company completed the acquisition of a medical office building from Sports Docs, L.L.C. The property was subject to existing mortgage debt of $6,374,000. The wholly-owned subsidiary is included in the Company’s consolidated financial statements. Notwithstanding consolidation for financial statement purposes, it is the Company’s intention that the subsidiary be a separate legal entity wherein the assets and liabilities are not available to pay other debts or obligations of the consolidated Company.

HEALTH CARE REIT, INC.


	Year Ended December 31,
	2007			2006			2005
	(In thousands)

Investment in real estate:
Balance at beginning of year	$	4,282,858		$	2,936,800		$	2,409,963
Additions:
Acquisitions		435,473			913,160			568,660
Improvements		333,520			169,811			31,422
Conversions from loans receivable		0			11,204			3,908
Deferred acquisition payments		0			2,000			18,125
Assumed other assets/(liabilities), net		2,432			24,488			0
Assumed debt		166,188			326,690			22,309
SFAS 141 adjustments		2,189			0			0

Total additions		939,802			1,447,353			644,424
Deductions:
Cost of real estate sold		(105,655	)		(94,466	)		(115,179	)
Reclassification of accumulated depreciation for assets held for sale		0			(6,829	)		(2,408	)

Total deductions		(105,655	)		(101,295	)		(117,587	)

Balance at end of year(1)	$	5,117,005		$	4,282,858		$	2,936,800

Accumulated depreciation:
Balance at beginning of year	$	347,007		$	274,875		$	219,536
Additions:
Depreciation and amortization expenses		149,626			97,638			84,828
Amortization of above market leases		3,518			0			0

Total additions		153,144			97,638			84,828
Deductions:
Sale of properties		(21,778	)		(18,677	)		(27,081	)
Reclassification of accumulated depreciation for assets held for sale		0			(6,829	)		(2,408	)

Total deductions		(21,778	)		(25,506	)		(29,489	)

Balance at end of year	$	478,373		$	347,007		$	274,875


(1)		The aggregate cost for tax purposes for real property equals $5,110,696,000, $4,049,675,000 and $2,389,766,000 at December 31, 2007, 2006 and 2005, respectively.

HEALTH CARE REIT, INC.

SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE

December 31, 2007


										(In thousands)
												Principal Amount
												of Loans Subject
			Final		Periodic					Carrying		to Delinquent
	Interest		Maturity		Payment	Prior		Face Amount		Amount of		Principal or
Description	Rate		Date		Terms	Liens		of Mortgages		Mortgages		Interest(1)

First mortgage loan relating to		10.14%		09/30/20	Monthly Payments	$	0	$	34,000	$	33,560	$	0
two skilled nursing facilities in Florida					$312,198
First mortgage loan relating to		9.380%		04/01/22	Monthly Payments		0		23,097		23,097		0
five skilled nursing facilities in Virginia					$180,542
First mortgage loan relating to		11.73%		09/01/12	Monthly Payments		0		12,700		12,332		0
one skilled nursing facility in Florida					$130,949
First mortgage loan relating to		13.95%		09/07/09	Monthly Payments		0		12,000		11,550		0
one specialty care facility in Massachusetts					$70,744
First mortgage loan relating to		15.21%		07/01/08	Monthly Payments		0		7,400		7,145		0
one skilled nursing facility in Pennsylvania					$71,447
First mortgage loan relating to		9.63%		05/01/09	Monthly Payments		0		18,800		6,949		0
one specialty care facility in California					$169,818
Second mortgage loan realting to		19.26%		09/09/09	Monthly Payments		16,414		5,700		5,700		323
one independent living facility in Massachusetts					$48,165
First mortgage loan realting to		19.26%		12/01/08	Monthly Payments		0		4,895		4,768		111
one independent living facility in Massachusetts					$40,291
First mortgage loan realting to		10.14%		06/30/20	Monthly Payments		0		4,500		4,382		0
one skilled nursing facility in Michigan					$41,282
Six first mortgage loans		From		From	Monthly Payments		0		15,731		15,232		71
relating to three independent		7.00% to		09/1/10 to	from $489
living facilities, one assisted living facility, and seven skilled nursing facilities		19.00%		12/01/15	to $76,514
Six second mortgage loans		From		From	Monthly Payments		15,394		18,442		15,369		254
relating to six independent		19.00% to		05/01/08 to	from $7,886
living facilities		19.26%		01/31/12	to $24,922
Two third mortgage loans		From		From	Monthly Payments		7,392		3,109		3,007		230
relating to two independent		19.00% to		09/01/08 to	from $10,715
living facilities		19.26%		01/01/09	to $11,830

Totals						$	39,200	$	160,374	$	143,091	$	989


(1)		Represents allocation of allowance for losses on loans receivable, if applicable.

HEALTH CARE REIT, INC.


	Year Ended December 31,
	2007			2006			2005
	(In thousands)

Reconciliation of mortgage loans:
Balance at beginning of year	$	177,615		$	141,467		$	155,266
Additions:
New mortgage loans		55,692			87,563			36,055
Reclass from non real estate loans		1,607			0			0

Total additions		57,299			87,563			36,055
Deductions:
Collections of principal(1)		(19,296	)		(40,155	)		(45,946	)
Conversions to real property		0			(11,204	)		(3,908	)
Charge-offs		0			(56	)		0
Reclass to other real estate loans(2)		(72,527	)		0			0

Total deductions		(91,823	)		(51,415	)		(49,854	)

Balance at end of year	$	143,091		$	177,615		$	141,467


(1)		Includes collection of negative principal amortization.

(2)		In 2007, the Company reclassified all loans that did not have a first, second or third mortgage lien to other real estate loans.

Welltower (WELL) 8-KOther Events