UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from                     to                     

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter)

Delaware		34-1096634
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
4500 Dorr Street, Toledo, Ohio		43615
(Address of principal executive office)		(Zip Code)

(419) 247-2800
(Registrant’s telephone number, including area code)

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

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

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

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

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

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

As of July 31, 2011, the registrant had 177,446,904 shares of common stock outstanding.

 

 

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets — June 30, 2011 and December 31, 2010			3
Consolidated Statements of Income — Three and six months ended June 30, 2011 and 2010			4
Consolidated Statements of Equity — Six months ended June 30, 2011 and 2010			5
Consolidated Statements of Cash Flows — Six months ended June 30, 2011 and 2010			6
Notes to Unaudited Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			50
PART II. OTHER INFORMATION
Item 1A. Risk Factors			50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 6. Exhibits			51
Signatures			52
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS
HEALTH CARE REIT, INC. AND SUBSIDIARIES

		June 30,				December 31,
		2011				2010
		(Unaudited)				(Note)
		(In thousands)
Assets
Real estate investments:
Real property owned:
Land and land improvements		$	983,746			$	727,050
Buildings and improvements			11,497,863				7,627,132
Acquired lease intangibles			347,662				258,079
Real property held for sale, net of accumulated depreciation			18,202				23,441
Construction in progress			212,161				356,793
Gross real property owned			13,059,634				8,992,495
Less accumulated depreciation and amortization			(968,289	)			(836,966	)
Net real property owned			12,091,345				8,155,529
Real estate loans receivable:
Real estate loans receivable			326,651				436,580
Less allowance for losses on loans receivable			(1,692	)			(1,276	)
Net real estate loans receivable			324,959				435,304
Net real estate investments			12,416,304				8,590,833
Other assets:
Equity investments			250,933				237,107
Goodwill			51,207				51,207
Deferred loan expenses			48,808				32,960
Cash and cash equivalents			328,758				131,570
Restricted cash			42,497				79,069
Receivables and other assets			342,154				328,988
Total other assets			1,064,357				860,901
Total assets		$	13,480,661			$	9,451,734
Liabilities and equity
Liabilities:
Borrowings under unsecured line of credit arrangement		$	—			$	300,000
Senior unsecured notes			4,429,992				3,034,949
Secured debt			1,889,873				1,125,906
Capital lease obligations			83,794				8,881
Accrued expenses and other liabilities			325,550				244,345
Total liabilities			6,729,209				4,714,081
Redeemable noncontrolling interests			18,410				4,553
Equity:
Preferred stock			1,010,417				291,667
Common stock			177,290				147,155
Capital in excess of par value			6,314,692				4,932,468
Treasury stock			(13,493	)			(11,352	)
Cumulative net income			1,795,448				1,676,196
Cumulative dividends			(2,682,479	)			(2,427,881	)
Accumulated other comprehensive income (loss)			(10,145	)			(11,099	)
Other equity			6,460				5,697
Total Health Care REIT, Inc. stockholders’ equity			6,598,190				4,602,851
Noncontrolling interests			134,852				130,249
Total equity			6,733,042				4,733,100
Total liabilities and equity		$	13,480,661			$	9,451,734

NOTE: The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

See notes to unaudited consolidated financial statements

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(In thousands, except per share data)
Revenues:
Rental income		$	239,703			$	141,764			$	406,848			$	274,761
Resident fees and services			123,149				—				194,435				—
Interest income			12,866				9,335				24,575				18,383
Other income			5,341				2,650				8,165				3,646
Total revenues			381,059				153,749				634,023				296,790
Expenses:
Interest expense			83,961				35,478				142,347				63,403
Property operating expenses			100,197				11,970				164,126				23,761
Depreciation and amortization			110,382				44,037				183,186				84,042
Transaction costs			13,738				752				49,803				8,466
General and administrative			19,562				11,878				37,276				28,700
Loss (gain) on extinguishment of debt			—				7,035				—				25,072
Provision for loan losses			168				—				416				—
Total expenses			328,008				111,150				577,154				233,444
Income from continuing operations before income taxes and income from unconsolidated joint ventures			53,051				42,599				56,869				63,346
Income tax (expense) benefit			(211	)			(188	)			(340	)			(273	)
Income from unconsolidated joint ventures			971				1,828				2,514				2,596
Income from continuing operations			53,811				44,239				59,043				65,669
Discontinued operations:
Gain (loss) on sales of properties			30,224				3,314				56,380				10,033
Impairment of assets			—				—				(202	)			—
Income (loss) from discontinued operations, net			2,173				3,511				2,797				7,056
Discontinued operations, net			32,397				6,825				58,975				17,089
Net income			86,208				51,064				118,018				82,758
Less: Preferred stock dividends			17,353				5,484				26,033				10,993
Less: Net income (loss) attributable to noncontrolling interests(1)			(992	)			(66	)			(1,234	)			307
Net income attributable to common stockholders		$	69,847			$	45,646			$	93,219			$	71,458
Average number of common shares outstanding:
Basic			176,445				123,808				165,755				123,541
Diluted			177,488				124,324				166,458				124,059
Earnings per share:
Basic:
Income from continuing operations attributable to common stockholders		$	0.21			$	0.31			$	0.20			$	0.44
Discontinued operations, net			0.18				0.06				0.36				0.14
Net income attributable to common stockholders*		$	0.40			$	0.37			$	0.56			$	0.58
Diluted:
Income from continuing operations attributable to common stockholders		$	0.21			$	0.31			$	0.20			$	0.44
Discontinued operations, net			0.18				0.05				0.35				0.14
Net income attributable to common stockholders*		$	0.39			$	0.37			$	0.56			$	0.58
Dividends declared and paid per common share		$	0.715			$	0.68			$	1.405			$	1.36

See notes to unaudited consolidated financial statements

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

		Six Months Ended June 30, 2011
																										Accumulated
										Capital in																Other
		Preferred				Common				Excess of				Treasury				Cumulative				Cumulative				Comprehensive				Other				Noncontrolling
		Stock				Stock				Par Value				Stock				Net Income				Dividends				Income (Loss)				Equity				Interests				Total
Balances at beginning of period		$	291,667			$	147,155			$	4,932,468			$	(11,352	)		$	1,676,196			$	(2,427,881	)		$	(11,099	)		$	5,697			$	130,249			$	4,733,100
Comprehensive income:
Net income (loss)																			119,252																(1,396	)			117,856
Other comprehensive income:
Unrealized gain (loss) on equity investments																											86												86
Cash flow hedge activity																											868												868
Total comprehensive income																																							118,810
Contributions by noncontrolling interests											6,017																								22,226				28,243
Distributions to noncontrolling interests																																			(16,227	)			(16,227	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures							1,385				69,524				(2,141	)															(888	)							67,880
Proceeds from issuance of common stock							28,750				1,328,996																												1,357,746
Proceeds from issuance of preferred stock			718,750								(22,313	)																											696,437
Option compensation expense																															1,651								1,651
Cash dividends paid:
Common stock cash dividends																							(228,565	)															(228,565	)
Preferred stock cash dividends																							(26,033	)															(26,033	)
Balances at end of period		$	1,010,417			$	177,290			$	6,314,692			$	(13,493	)		$	1,795,448			$	(2,682,479	)		$	(10,145	)		$	6,460			$	134,852			$	6,733,042

CONSOLIDATED STATEMENTS OF EQUITY

		Six Months Ended June 30, 2010
																										Accumulated
										Capital in																Other
		Preferred				Common				Excess of				Treasury				Cumulative				Cumulative				Comprehensive				Other				Noncontrolling
		Stock				Stock				Par Value				Stock				Net Income				Dividends				Income (Loss)				Equity				Interests				Total
Balances at beginning of period		$	288,683			$	123,385			$	3,900,666			$	(7,619	)		$	1,547,669			$	(2,057,658	)		$	(2,891	)		$	4,804			$	10,412			$	3,807,451
Comprehensive income:
Net income (loss)																			82,451																307				82,758
Other comprehensive income:
Unrealized gain (loss) on equity investments																											(137	)											(137	)
Cash flow hedge activity																											(5,498	)											(5,498	)
Total comprehensive income																																							77,123
Contributions by noncontrolling interests																																			2,271				2,271
Distributions to noncontrolling interests																																			(2,594	)			(2,594	)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures							1,080				44,290				(3,696	)															(243	)							41,431
Conversion of preferred stock			(2,273	)			55				2,218																												—
Equity component of convertible debt											(9,689	)																											(9,689	)
Option compensation expense																															1,194								1,194
Cash dividends paid:
Common stock cash dividends																							(169,069	)															(169,069	)
Preferred stock cash dividends																							(10,993	)															(10,993	)
Balances at end of period		$	286,410			$	124,520			$	3,937,485			$	(11,315	)		$	1,630,120			$	(2,237,720	)		$	(8,526	)		$	5,755			$	10,396			$	3,737,125

See notes to unaudited consolidated financial statements

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

		Six Months Ended
		June 30,
		2011				2010
		(In thousands)
Operating activities
Net income		$	118,018			$	82,758
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization			185,821				91,032
Other amortization expenses			7,900				8,047
Provision for loan losses			416				—
Impairment of assets			202				—
Stock-based compensation expense			7,274				8,747
Loss (gain) on extinguishment of debt			—				25,072
Income from unconsolidated joint ventures			(2,514	)			(2,596	)
Rental income in excess of cash received			(9,304	)			(4,530	)
Amortization related to above (below) market leases, net			(1,056	)			(1,296	)
Loss (gain) on sales of properties			(56,380	)			(10,033	)
Increase (decrease) in accrued expenses and other liabilities			38,416				5,552
Decrease (increase) in receivables and other assets			(47,195	)			(11,247	)
Net cash provided from (used in) operating activities			241,598				191,506
Investing activities
Investment in real property, net of cash acquired			(3,370,597	)			(389,873	)
Capitalized interest			(6,979	)			(12,352	)
Investment in real estate loans receivable			(28,467	)			(41,784	)
Other investments, net of payments			1,743				(10,051	)
Principal collected on real estate loans receivable			138,396				9,420
Contributions to unconsolidated joint ventures			(779	)			(174,574	)
Distributions from unconsolidated joint ventures			1,069				—
Decrease (increase) in restricted cash			42,023				(36,418	)
Proceeds from sales of real property			208,692				54,492
Net cash provided from (used in) investing activities			(3,014,899	)			(601,140	)
Financing activities
Net increase (decrease) under unsecured lines of credit arrangements			(300,000	)			66,000
Proceeds from issuance of senior unsecured notes			1,381,086				932,412
Payments to extinguish senior unsecured notes			—				(495,542	)
Net proceeds from the issuance of secured debt			58,470				79,127
Payments on secured debt			(13,081	)			(7,704	)
Net proceeds from the issuance of common stock			1,421,495				37,560
Net proceeds from the issuance of preferred stock			696,437				—
Decrease (increase) in deferred loan expenses			(11,603	)			(1,887	)
Contributions by noncontrolling interests(1)			9,087				2,271
Distributions to noncontrolling interests(1)			(16,804	)			(2,594	)
Cash distributions to stockholders			(254,598	)			(180,062	)
Net cash provided from (used in) financing activities			2,970,489				429,581
Increase (decrease) in cash and cash equivalents			197,188				19,947
Cash and cash equivalents at beginning of period			131,570				35,476
Cash and cash equivalents at end of period		$	328,758			$	55,423
Supplemental cash flow information:
Interest paid		$	112,711			$	71,027
Income taxes paid			31				149

See notes to unaudited consolidated financial statements

HEALTH CARE REIT, INC.

1. Business

     Health Care REIT, Inc., an S&P 500 company with headquarters in Toledo, Ohio, is an equity real estate investment trust (“REIT”) that invests in senior housing and health care real estate. Our full service platform also offers property management and development services to our customers. As of June 30, 2011, our broadly diversified portfolio consisted of 868 properties in 45 states. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities. More information is available on our website at www.hcreit.com.

2. Accounting Policies and Related Matters

Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2011 are not necessarily an indication of the results that may be expected for the year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010, as updated by our Current Report on Form 8-K filed May 10, 2011.

New Accounting Standards

     In April 2011, FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“TDR”). It intended to provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Early adoption is permitted. We are continuing to evaluate the impact of adoption of this ASU.

     In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Statement of Comprehensive Income” (“ASU 2011-05”), which requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU 2011-05 will only impact the company’s financial presentation as the company currently presents items of other comprehensive income in the statement of changes in equity. ASU 2011-05 will be effective for our fiscal year beginning January 1, 2012.

3. Real Property Acquisition and Development

Genesis Acquisition

     On April 1, 2011, we completed the acquisition of substantially all of the real estate assets (147 properties) of privately-owned Genesis HealthCare Corporation. The total purchase price of approximately $2,475,144,000 is comprised of the $2,400,000,000 cash consideration and the fair value of capital lease obligations totaling approximately $75,144,000 and has been allocated on a preliminary basis in the amounts of $144,091,000 to land and land improvements and $2,331,053,000 to buildings and improvements. We funded the cash consideration and other associated costs of the acquisition primarily through the proceeds of the offerings of common stock, preferred stock and senior unsecured notes completed in March 2011. Effective April 1, 2011, we began leasing the acquired facilities to Genesis pursuant to a master lease. In addition to rent, the triple net master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under the ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC, which was spun-off by Genesis prior to closing the acquisition. The initial term is fifteen years. Genesis has one option to renew for an additional term of fifteen years. The master lease provides that the base rent for the first year is $198,000,000 and will increase at least 1.75% but no more than 3.50% (subject to CPI changes) for each of the years two through six during the initial term and at least 1.50% but no more than 3.00% per year thereafter (subject to CPI changes). We expect to recognize rental income based on the minimum rent escalators during the initial term.

     The following unaudited pro forma consolidated results of operations have been prepared as if the Genesis acquisition had occurred as of January 1, 2010 based on the preliminary purchase price allocations discussed above. Amounts are in thousands, except per share data:

HEALTH CARE REIT, INC.

		Six Months Ended June 30,
		2011				2010
Revenues		$	689,630			$	408,005
Income from continuing operations attributable to common stockholders		$	50,550			$	73,928
Income from continuing operations attributable to common stockholders per share:
Basic		$	0.29			$	0.49
Diluted		$	0.29			$	0.48

Silverado Partnership

     During the three months ended March 31, 2011, we completed the formation of our partnership with Silverado Senior Living, Inc. to own and operate a portfolio of 18 combination senior housing and care communities located in California, Texas, Arizona and Utah. We own a 95.4% partnership interest and Silverado owns the remaining 4.6% interest and continues to manage the communities. The partnership owns and operates six communities previously owned by us and 12 additional communities previously owned by Silverado. The transaction took advantage of the structure authorized by the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”). The results of operations for this partnership have been included in our consolidated results of operations beginning as of January 1, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

     In conjunction with the formation of the partnership, we contributed $163,368,000 of cash and the six properties previously owned by us. Silverado contributed the remaining 12 properties to the partnership and the secured debt relating to these properties in exchange for its 4.6% interest in the partnership. The six properties are recorded at their historical carrying values and the noncontrolling interest was established based on such values. The difference between the fair value of the consideration received relating to these properties and the historical allocation of the 4.6% noncontrolling interest was recorded in capital in excess of par value. The total purchase price for the 12 communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values in accordance with the company’s accounting policies. Such allocations have not been finalized as we await final asset valuations and, as such, the allocation of the purchase consideration included in the accompanying Consolidated Balance Sheet at June 30, 2011 is preliminary and subject to adjustment. The 4.6% noncontrolling interest relating to the acquired 12 properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):

Land and land improvements		$	11,170
Buildings and improvements			173,841
Acquired lease intangibles			19,305
Investment in unconsolidated subsidiary			14,960
Cash and cash equivalents			4,084
Total assets acquired			223,360
Secured debt			60,667
Total liabilities assumed			60,667
Capital in excess of par			6,017
Noncontrolling interests			7,836
Net assets acquired		$	148,840

HEALTH CARE REIT, INC.

Benchmark Partnership

     During the three months ended March 31, 2011, we completed the formation of our partnership with Benchmark Senior Living to own and operate a portfolio of 34 senior housing communities located in New England. We own a 95% partnership interest and Benchmark owns the remaining 5% interest and continues to manage the communities. The 34 communities included in the partnership were previously owned by The GPT Group and Benchmark. The transaction took advantage of the structure authorized by RIDEA. The results of operations for this partnership have been included in our consolidated results of operations beginning as of March 28, 2011 and are a component of our senior housing operating segment. Consolidation is based on a combination of ownership interest and operational decision-making control authority.

     In conjunction with the formation of the partnership, we contributed $380,278,000 of cash and the partnership assumed the secured debt relating to these properties. Benchmark contributed the 34 properties to the partnership and the secured debt relating to these properties in exchange for its 5% interest in the partnership. The total purchase price for the communities acquired has been allocated to the tangible and identifiable intangible assets and liabilities based upon their respective fair values in accordance with the company’s accounting policies. Such allocations have not been finalized as we await final asset valuations and, as such, the allocation of the purchase consideration included in the accompanying Consolidated Balance Sheet at June 30, 2011 is preliminary and subject to adjustment. The 5% noncontrolling interest relating to the acquired properties is also reflected at estimated fair value. The following table presents the preliminary allocation of the purchase price to assets acquired and liabilities assumed, based on their estimated fair values (in thousands):

Land and land improvements		$	60,440
Buildings and improvements			792,394
Acquired lease intangibles			68,980
Cash and cash equivalents			28,258
Restricted cash			5,451
Total assets acquired			955,523
Secured debt			524,989
Accrued expenses and other liabilities			17,412
Entrance fee liability			13,269
Total liabilities assumed			555,670
Noncontrolling interests			19,575
Net assets acquired		$	380,278

HEALTH CARE REIT, INC.

Real Property Investment Activity

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

		Six Months Ended
		June 30, 2011								June 30, 2010
		Properties				Amount				Properties				Amount
Real property acquisitions:
Senior housing operating			46			$	1,126,130				—			$	—
Senior housing triple-net			165				2,849,603				10				109,492
Medical facilities			6				65,599				19				246,582
Land parcels			1				6,770				—				—
Total acquisitions			218				4,048,102				29				356,074
Less: Assumed debt							(721,632	)							(117,892	)
Assumed other items, net(1)							(147,500	)							(31,690	)
Cash disbursed for acquisitions							3,178,970								206,492
Construction in progress additions:
Senior housing triple-net							75,999								50,726
Medical facilities							124,150								129,568
Total construction in progress additions							200,149								180,294
Less: Capitalized interest							(6,979	)							(11,983	)
Accruals(2)							(30,736	)							(5,775	)
Cash disbursed for construction in progress							162,434								162,536
Capital improvements to existing properties							29,193								20,845
Total cash invested in real property						$	3,370,597							$	389,873

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

		Six Months Ended
		June 30, 2011				June 30, 2010
Development projects:
Senior housing triple-net		$	—			$	269,260
Medical facilities			325,563				110,481
Total development projects			325,563				379,741
Expansion projects			19,218				1,502
Total construction in progress conversions		$	344,781			$	381,243

     Transaction costs for the six months ended June 30, 2011 primarily represent costs incurred with the Genesis, Silverado and Benchmark transactions (including due diligence costs, fees for legal and valuation services, and termination of a pre-existing relationship computed based on the fair value of the assets acquired), lease termination fees and costs incurred in connection with the new property acquisitions.

HEALTH CARE REIT, INC.

4. Real Estate Intangibles

     The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the dates indicated (dollars in thousands):

		June 30, 2011				December 31, 2010
Assets:
In place lease intangibles		$	269,915			$	182,030
Above market tenant leases			24,480				24,089
Below market ground leases			46,992				46,992
Lease commissions			6,275				4,968
Gross historical cost			347,662				258,079
Accumulated amortization			(91,591	)			(49,145	)
Net book value		$	256,071			$	208,934
Weighted-average amortization period in years			17.2				18.2
Liabilities:
Below market tenant leases		$	57,695			$	57,261
Above market ground leases			5,020				5,020
Gross historical cost			62,715				62,281
Accumulated amortization			(18,523	)			(15,992	)
Net book value		$	44,192			$	46,289
Weighted-average amortization period in years			12.5				14.0

5. Dispositions, Assets Held for Sale and Discontinued Operations

     During the six months ended June 30, 2011, we sold 38 properties for net gains of $56,380,000. At June 30, 2011, we had one medical facility and three senior housing triple-net facilities that satisfied the requirements for held for sale treatment and such properties were properly recorded at the lesser of their estimated fair values less costs to sell or carrying values. During the six months ended June 30, 2011, we recorded an impairment charge of $202,000 related to two senior housing triple-net facilities to adjust the carrying values to estimated fair values less costs to sell based on current sales price expectations. The following is a summary of our real property disposition activity for the periods presented (in thousands):

		Six Months Ended
		June 30, 2011				June 30, 2010
Real property dispositions:
Senior housing triple-net		$	117,074			$	38,361
Medical facilities			35,238				7,568
Total dispositions			152,312				45,929
Add: Gain on sales of real property			56,380				10,033
Seller financing on sales of real property			—				(1,470	)
Proceeds from real property sales		$	208,692			$	54,492

     We have reclassified the income and expenses attributable to all properties sold and attributable to properties held for sale at June 30, 2011 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 as a result of classifying properties as discontinued operations for the periods presented (in thousands):

HEALTH CARE REIT, INC.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues:
Rental income		$	4,486			$	10,030			$	9,403			$	21,139
Expenses:
Interest expense			812				2,072				1,756				4,132
Property operating expenses			830				1,033				2,215				2,961
Provision for depreciation			671				3,414				2,635				6,990
Income (loss) from discontinued operations, net		$	2,173			$	3,511			$	2,797			$	7,056

6. Real Estate Loans Receivable

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

		Six Months Ended
		June 30, 2011												June 30, 2010
		Senior Housing				Medical								Senior Housing				Medical
		Triple-net				Facilities				Totals				Triple-net				Facilities				Totals
Advances on real estate loans receivable:
Investments in new loans		$	11,807			$	—			$	11,807			$	8,617			$	15,799			$	24,416
Draws on existing loans			8,824				7,836				16,660				18,838				—				18,838
Sub-total			20,631				7,836				28,467				27,455				15,799				43,254
Less: Seller financing on property sales			—				—				—				—				(1,470	)			(1,470	)
Net cash advances on real estate loans			20,631				7,836				28,467				27,455				14,329				41,784
Receipts on real estate loans receivable:
Loan payoffs			129,860				—				129,860				1,599				—				1,599
Principal payments on loans			5,164				3,372				8,536				7,705				116				7,821
Total receipts on real estate loans			135,024				3,372				138,396				9,304				116				9,420
Net advances (receipts) on real estate loans		$	(114,393	)		$	4,464			$	(109,929	)		$	18,151			$	14,213			$	32,364

     We recorded $416,000 of provision for loan losses during the six months ended June 30, 2011, resulting in an allowance for loan losses of $1,692,000 relating to real estate loans with outstanding balances of $9,287,000, all of which were on non-accrual status at June 30, 2011.

7. Investments in Unconsolidated Joint Ventures

     During the six months ended June 30, 2010, we entered into a joint venture investment with Forest City Enterprises (NYSE:FCE.A and FCE.B). We acquired a 49% interest in a seven-building life science campus located in University Park in Cambridge, MA, which is immediately adjacent to the campus of the Massachusetts Institute of Technology. Six buildings closed on February 22, 2010 and the seventh closed on June 30, 2010. The portfolio is 100% leased. In connection with these transactions, we invested $174,692,000 of cash which is recorded as an equity investment on the balance sheet. Our share of the non-recourse secured debt assumed by the joint venture was approximately $156,729,000 with weighted-average interest rates of 7.1%. The aggregate remaining unamortized basis difference of our investment in this joint venture of $11,304,000 at June 30, 2011 is primarily attributable to real estate and related intangible assets and will be amortized over the life of the related properties and included in the reported amount of income from unconsolidated joint ventures.

     In December 2010, we entered into a strategic joint venture relationship with a national medical office building company. In connection with this transaction, we invested $21,321,000 of cash which is recorded as an equity investment on the balance sheet. Our share of the non-recourse secured debt assumed by the joint venture relationship was approximately $24,609,000 with weighted-average interest rates of 6.06%. During the first six months of 2011, we invested an additional $729,000 and assumed our share of non-recourse secured debt of approximately $3,668,000 with a weighted average interest rate of 4.5% for completion of construction in two medical office buildings. The aggregate remaining unamortized basis difference of our investment in this joint venture of $231,000 at June 30, 2011 is primarily attributable to real estate and related intangible assets and will be amortized over the life of the related properties and included in the reported amount of income from unconsolidated joint ventures.

HEALTH CARE REIT, INC.

     In addition, in January 2011, we completed the formation of a partnership with Silverado Senior Living, Inc. See Note 3 for additional information.

     The results of operations for these investments have been included in our consolidated results of operations from the date of acquisition by the joint venture and are reflected in our income statement as income from unconsolidated joint ventures.

8. Customer Concentration

     The following table summarizes certain information about our customer concentration as of June 30, 2011 (dollars in thousands):

		Number of				Total				Percent of
		Properties(2)				Investment(2)				Investment(3)
Concentration by investment:(1)
Genesis HealthCare Corporation			148			$	2,479,070				20	%
Benchmark Senior Living, LLC			34				908,290				7	%
Merrill Gardens, LLC			38				709,874				6	%
Senior Living Communities, LLC			12				606,056				5	%
Brandywine Senior Living, LLC			19				605,383				5	%
Remaining portfolio			604				7,109,323				57	%
Totals			855			$	12,417,996				100	%

9. Borrowings Under Line of Credit Arrangement and Related Items

     At June 30, 2011, we had an unsecured line of credit arrangement with a consortium of sixteen banks in the amount of $1,150,000,000. On January 24, 2011, we provided notice to KeyBank National Association, as administrative agent, of our desire to extend the line of credit. Under the terms of the loan agreement, we had the right to extend the revolving line of credit for one year if we were in compliance with all covenants and paid an extension fee of $1,725,000. As a result of the extension, the line of credit was set to expire on August 6, 2012. Borrowings under the agreement were 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 (0.79% at June 30, 2011). The applicable margin was based on certain of our debt ratings and was 0.6% at June 30, 2011. In addition, we paid a facility fee annually to each bank based on the bank’s commitment amount. The facility fee depended on certain of our debt ratings and was 0.15% at June 30, 2011. We also paid an annual agent’s fee of $50,000. Principal was due upon expiration of the agreement. In July 2011, we expanded and extended the facility. See Note 18 for additional information.

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Balance outstanding at quarter end		$	—			$	206,000			$	—			$	206,000
Maximum amount outstanding at any month end		$	20,000			$	431,000			$	495,000			$	431,000
Average amount outstanding (total of daily principal balances divided by days in period)		$	253			$	293,505			$	158,856			$	288,337
Weighted average interest rate (actual interest expense divided by average borrowings outstanding)			n/a				1.63	%			2.17	%			1.55	%

10. Senior Unsecured Notes and Secured Debt

     We have $4,429,992,000 of senior unsecured notes with annual stated interest rates ranging from 3.00% to 8.00%. The carrying amounts of the senior unsecured notes represent the par value of $4,464,930,000 adjusted for any unamortized premiums or discounts and other basis adjustments related to hedging the debt with derivative instruments. See Note 11 for further discussion regarding derivative instruments.

     During the three months ended December 31, 2006, we issued $345,000,000 of 4.75% senior unsecured convertible notes due December 2026. The notes are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at an initial

HEALTH CARE REIT, INC.

conversion rate of 20.8833 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately $47.89 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion value of such note, cash up to the principal amount of such note and common stock for the note’s conversion value in excess of such principal amount. In addition, on each of December 1, 2011, December 1, 2016 and December 1, 2021, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. During the three months ended March 31, 2009, we extinguished $5,000,000 of these notes and recognized a gain of $446,000. During the six months ended June 30, 2010, we extinguished $214,412,000 of these notes, recognized a loss of $8,837,000 and paid $18,552,000 to reacquire the equity component of convertible debt. As of June 30, 2011, we had $125,588,000 of these notes outstanding.

     In July 2007, we issued $400,000,000 of 4.75% senior unsecured convertible notes due July 2027. The notes are convertible, in certain circumstances, into cash and, if applicable, 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. In addition, on each of July 15, 2012, July 15, 2017 and July 15, 2022, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. During the three months ended March 31, 2009, we extinguished $5,000,000 of these notes and recognized a gain of $594,000. During the six months ended June 30, 2010, we extinguished $226,914,000 of these notes, recognized a loss of $16,235,000 and paid $21,062,000 to reacquire the equity component of convertible debt. As of June 30, 2011, we had $168,086,000 of these notes outstanding.

     During the year ended December 31, 2010, we issued $494,403,000 of 3.00% senior unsecured convertible notes due December 2029. The notes are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at an initial conversion rate of 19.5064 shares per $1,000 principal amount of notes, which represents an initial conversion price of approximately $51.27 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. In addition, on each of December 1, 2014, December 1, 2019 and December 1, 2024, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. In connection with this issuance, we recognized $29,925,000 of equity component of convertible debt.

     During the three months ended June 30, 2010, we issued $450,000,000 of 6.125% senior unsecured notes due 2020, generating net proceeds of $446,328,000. During the three months ended September 30, 2010, we issued $450,000,000 of 4.70% senior unsecured notes due 2017, generating net proceeds of $445,768,000. During the three months ended March 31, 2011, we issued $400,000,000 of 3.625% senior unsecured notes due 2016, $600,000,000 of 5.25% senior unsecured notes due 2022 and $400,000,000 of 6.50% senior unsecured notes due 2041, generating net proceeds of $1,381,086,000.

     We have secured debt totaling $1,889,873,000, collateralized by owned properties, with annual interest rates ranging from 4.60% to 10.00%. The carrying amounts of the secured debt represent the par value of $1,869,129,000 adjusted for any unamortized fair value adjustments on loan assumptions. The carrying values of the properties securing the debt totaled $3,215,570,000 at June 30, 2011. During the six months ended June 30, 2010, we assumed $106,140,000 of first mortgage loans principal with an average rate of 7.35% secured by 17 properties. During the six months ended June 30, 2011, we assumed $689,876,000 of first mortgage loans principal with an average rate of 5.388% secured by 35 properties. During the six months ended June 30, 2011, we issued $58,470,000 of first mortgage loans principal with an average rate of 5.78% secured by 32 properties.

     Our debt agreements contain various covenants, restrictions and events of default. Certain agreements 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 June 30, 2011, we were in compliance with all of the covenants under our debt agreements.

     At June 30, 2011, the annual principal payments due on these debt obligations are as follows (in thousands):

HEALTH CARE REIT, INC.

		Senior				Secured
		Unsecured Notes(1)				Debt (1)				Totals
2011		$	—			$	14,545			$	14,545
2012			76,853				101,796				178,649
2013			300,000				274,860				574,860
2014			—				186,539				186,539
2015			250,000				181,087				431,087
Thereafter			3,838,077				1,110,302				4,948,379
Totals		$	4,464,930			$	1,869,129			$	6,334,059

11. 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 manage the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. Derivates are recorded at fair 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 of our derivatives are estimated by pricing models that consider the 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.

     The following is a summary of the fair value of our derivative instruments (dollars in thousands):

		Balance Sheet		Fair Value
		Location		June 30, 2011				December 31, 2010
Cash flow hedge interest rate swaps		Other liabilities		$	1,414			$	482

Cash Flow Hedges

     For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings. Approximately $1,983,000 of losses, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.

     The following presents the impact of derivative instruments on the statement of operations and OCI for the periods presented (dollars in thousands):

				Three Months Ended								Six Months Ended
		Location		June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010
Gain (loss) on interest rate swap recognized in OCI (effective portion)		n/a		$	949			$	(4,962	)		$	1,841			$	(7,016	)
Gain (loss) reclassified from AOCI into income (effective portion)		Interest expense			563				(794	)			973				(1,598	)
Gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing)		Realized loss			—				—				—				—

     On August 7, 2009, we entered into an interest rate swap (the “August 2009 Swap”) for a total notional amount of $52,198,000 to hedge seven years of interest payments associated with long-term LIBOR based borrowings. This swap was terminated on September 30, 2010 for a cash payment of $6,645,000 which has been deferred and included as a component of accumulated other comprehensive income. The effective portion is being amortized over the remaining term of the original swap as an adjustment to the yield on our LIBOR-based debt. The August 2009 Swap had an effective date of August 12, 2009 and a maturity date of September 1, 2016. The August 2009 Swap had the economic effect of fixing $52,198,000 at 3.93% plus a credit spread for seven years. The August 2009 Swap

HEALTH CARE REIT, INC.

had been designated as a cash flow hedge and we expected it to be highly effective at offsetting changes in cash flows of interest payments on $52,198,000 of long-term debt due to changes in the LIBOR swap rate.

     On September 28, 2009, we entered into an interest rate swap (the “September 2009 Swap”) for a total notional amount of $48,155,000 to hedge seven years of interest payments associated with long-term LIBOR based borrowings. This swap was terminated on September 30, 2010 for a cash payment of $4,365,000 which has been deferred and included as a component of accumulated other comprehensive income. The effective portion is being amortized over the remaining term of the original swap as an adjustment to the yield on our LIBOR-based debt. The September 2009 Swap had an effective date of September 30, 2009 and a maturity date of October 1, 2016. The September 2009 Swap had the economic effect of fixing $48,155,000 at 3.2675% plus a credit spread for seven years. The September 2009 Swap had been designated as a cash flow hedge and we expected it to be highly effective at offsetting changes in cash flows of interest payments on $48,155,000 of long-term debt due to changes in the LIBOR swap rate.

     On December 31, 2010, we assumed an interest rate swap (the “December 2010 Swap”) for a total notional amount of $12,650,000 to hedge interest payments associated with long-term LIBOR based borrowings. The December 2010 Swap has an effective date of December 31, 2010 and a maturity date of December 31, 2013. The December 2010 Swap has the economic effect of fixing $12,650,000 at 5.50% plus a credit spread through the swap’s maturity. In January 2011, the December 2010 Swap was designated as a cash flow hedge and we expect it to be highly effective at offsetting changes in cash flows of interest payments on $12,650,000 of long-term debt due to changes in the LIBOR swap rate.

     On April 15, 2011, we assumed three interest rate swaps (the “April 2011 Swaps”) for a total notional amount of $33,795,000 to hedge interest payments associated with long-term LIBOR based borrowings. One swap with an effective date of December 20, 2010 and a maturity date of September 1, 2013 has the economic effect of fixing $13,095,000 of debt at 3.05%. The other two swaps have an effective date of October 15, 2010 and a maturity date of December 31, 2012 and have the economic effect of fixing $20,700,000 of debt at 2.73%. In June 2011, the April swaps were designated as cash flow hedges and we expect them to be highly effective at offsetting changes in cash flows of interest payments on $33,795,000 of long-term debt due to changes in the LIBOR swap rate.

Fair Value Hedges

     For derivative instruments that are designated as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged risk are recognized in current earnings. There were no outstanding fair value hedges at June 30, 2011 or December 31, 2010.

12. Commitments and Contingencies

     We have two outstanding letters of credit issued for the benefit of certain insurance companies that provide workers’ compensation insurance to one of our operators. Our obligation to provide the letters of credit terminates in 2013. At June 30, 2011, our obligation under the letters of credit was $4,200,000.

     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 June 30, 2011, our obligation under the letter of credit was $1,000,000.

     We have an outstanding letter of credit issued for the benefit of a city in Wisconsin that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in October 2013. At June 30, 2011, our obligation under the letter of credit was $215,000.

     We have an outstanding letter of credit issued for the benefit of a village in Illinois that secures the completion and installation of certain public improvements by one of our tenants in connection with the development of a property. Our obligation to provide the letter of credit terminates in August 2011. At June 30, 2011, our obligation under the letter of credit was $67,932.

     At June 30, 2011, we had outstanding construction in process of $212,161,000 for leased properties and were committed to providing additional funds of approximately $219,306,000 to complete construction. At June 30, 2011, we had contingent purchase obligations totaling $80,151,000. These contingent purchase obligations relate to unfunded capital improvement obligations. Rents due from the tenant are increased to reflect the additional investment in the property.

     We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840 “Leases.” A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90% of the fair value of the leased asset. Certain leases contain bargain purchase options and have been classified as capital leases. At June 30, 2011, we had operating lease obligations of $220,688,000 relating to certain ground leases and company office space. We incurred rental expense relating to company office space of $615,000 and $1,130,000 for

HEALTH CARE REIT, INC.

the three and six months ended June 30, 2011, respectively, as compared to $303,000 and $635,000 for the same period in 2010. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At June 30, 2011, aggregate future minimum rentals to be received under these noncancelable subleases totaled $30,354,000.

     At June 30, 2011, future minimum lease payments due under operating and capital leases are as follows (in thousands):

		Operating Leases				Capital Leases(1)
2011		$	2,662			$	3,803
2012			5,322				7,622
2013			5,333				73,003
2014			5,353				660
2015			5,100				8,425
Thereafter			196,918				—
Totals		$	220,688			$	93,513

13. Stockholders’ Equity

     The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:

		June 30, 2011				December 31, 2010
Preferred Stock:
Authorized shares			50,000,000				50,000,000
Issued shares			25,724,854				11,349,854
Outstanding shares			25,724,854				11,349,854
Common Stock, $1.00 par value:
Authorized shares			400,000,000				225,000,000
Issued shares			177,656,452				147,381,191
Outstanding shares			177,327,590				147,097,381