HEALTHPEAK PROPERTIES, INC. - Annual Report: 2019 (Form 10-K)

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•	operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA lease structures;

•	the ability of our existing and future tenants, operators and borrowers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and manage their expenses in order to generate sufficient income to make rent and loan payments to us and our ability to recover investments made, if applicable, in their operations;

•	the financial condition of our existing and future tenants, operators, and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings, which may result in uncertainties regarding our ability to continue to realize the full benefit of such tenants’ and operators’ leases and borrowers’ loans;

•	our concentration in the healthcare property sector, particularly in senior housing, life sciences and medical office buildings, which makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries;

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the effect on us and our tenants and operators of legislation, executive orders and other legal requirements, including compliance with the Americans with Disabilities Act, fire, safety and health regulations, environmental laws, the Affordable Care Act, licensure, certification and inspection requirements, and laws addressing entitlement programs and related services, including Medicare and Medicaid, which may result in future reductions in reimbursements or fines for noncompliance;

•	our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;

•	the risks associated with property development and redevelopment, including costs above original estimates, project delays and lower occupancy rates and rents than expected;

•	the potential impact of uninsured or underinsured losses;

•	the risks associated with our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority and our reliance on our partners’ financial condition and continued cooperation;

•	competition for the acquisition and financing of suitable healthcare properties as well as competition for tenants and operators, including with respect to new leases and mortgages and the renewal or rollover of existing leases;

•	our, or our counterparties', ability to fulfill obligations, such as financing conditions and/or regulatory approval requirements, required to successfully consummate acquisitions, dispositions, transitions, developments, redevelopments, joint venture transactions, or other transactions;

•	our ability to achieve the benefits of acquisitions or other investments within expected time frames or at all, or within expected cost projections;

•	the potential impact on us and our tenants, operators and borrowers from current and future litigation matters, including the possibility of larger than expected litigation costs, adverse results, and related developments;

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•	changes in federal, state or local laws and regulations, including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations, of our tenants and operators;

•	our ability to foreclose on collateral securing our real estate-related loans;

•	volatility or uncertainty in the capital markets, the availability and cost of capital as impacted by interest rates, changes in our credit ratings, and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or consummate transactions, or reduce the earnings from potential transactions;

•	changes in global, national and local economic and other conditions;

•	our ability to manage our indebtedness level and changes in the terms of such indebtedness;

•	competition for skilled management and other key personnel;

•	our reliance on information technology systems and the potential impact of system failures, disruptions or breaches; and

•	our ability to maintain our qualification as a real estate investment trust (“REIT”).

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ITEM 1.	Business

(i)	Our real estate: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected private pay asset classes, senior housing, life science, and medical office, to provide stability through inevitable market cycles.

(ii)	Our financials: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt financing with staggered maturities to reduce our exposure to interest-rate volatility and refinancing risk.

(iii)	Our partnerships: We work with leading healthcare companies, operators, and service providers and are responsive to their space and capital needs. We provide high-quality management services to encourage tenants to renew, expand, and relocate into our properties, which drives increased occupancy, rental rates, and property values.

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(iv)	Our platform: We have a people-first culture that we believe attracts, develops, and retains top talent. We continually strive to create and maintain an industry-leading platform with systems and tools that allow us to effectively and efficiently manage our assets and investment activity.

•	Build and maintain long-term leasing and management relationships with quality tenants and operators. In choosing locations for our properties, we focus on the physical environment, adjacency to established businesses (e.g., hospital systems) and educational centers, proximity to sources of business growth, and other local demographic factors.

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Replace tenants and operators at the best available market terms and lowest possible transaction costs. We believe we are well-positioned to attract new tenants and operators and achieve attractive rental rates and operating cash flow as a result of the location, design, and maintenance of our properties, together with our reputation for high-quality building services and responsiveness to tenants, and our ability to offer space alternatives within our portfolio.

•	Extend and modify terms of existing leases prior to expiration. We structure lease extensions, early renewals, or modifications, which reduce the cost associated with lease downtime or the re-investment risk resulting from the exercise of tenants’ purchase options, while securing the tenancy and relationship of our high quality tenants and operators on a long-term basis.

•	our reputation gained through over 30 years of successful operations and the strength of our existing portfolio of properties;

•	our relationships with leading healthcare operators and systems, investment banks and other market intermediaries, corporations, private equity firms, not-for-profit organizations, and public institutions seeking to monetize existing assets or develop new facilities;

•	our relationships with institutional buyers and sellers of high-quality healthcare real estate;

•	our track record and reputation for executing acquisitions responsively and efficiently, which provides confidence to domestic and foreign institutions and private investors who seek to sell healthcare real estate in our market areas;

•	our relationships with nationally recognized financial institutions that provide capital to the healthcare and real estate industries; and

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•	our control of sites (including assets under contract with radius restrictions).

•	cash flow from operations;

•	sale or exchange of ownership interests in properties or other investments;

•	borrowings under our credit facility or commercial paper program;

•	issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or

•	issuance of common stock or preferred stock or its equivalent.

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Independent Living Facilities.  ILFs are designed to meet the needs of seniors who choose to live in an environment surrounded socially by their peers with services such as housekeeping, meals, and activities. Additionally, the programs and services may include transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, meals in a dining room setting, and other activities sought by residents. These residents generally do not need assistance with activities of daily living (“ADL”). However, in some of our facilities, residents have the option to contract for these services.

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Assisted Living Facilities.  ALFs are licensed care facilities that provide personal care services, support and housing for those who need help with ADL, such as bathing, eating, dressing and medication management, yet require limited medical care. These facilities are often in apartment-like buildings with private residences ranging from single rooms to large apartments. Certain ALFs may have a dedicated portion of a facility that offers higher levels of personal assistance for residents requiring memory care as a result of Alzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations.

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Memory Care Facilities.  MCFs address the unique challenges of residents with Alzheimer’s disease or other forms of dementia. Residents may live in semi-private apartments or private rooms and have structured activities delivered by staff members trained specifically on how to care for residents with memory impairment. These facilities offer programs that provide comfort and care in a secure environment.

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Continuing Care Retirement Communities.  CCRCs offer several levels of service, including independent living, assisted living, and skilled nursing home care. CCRCs are different from other housing and care options for seniors because they usually provide written agreements or long-term contracts between residents and the communities (frequently lasting the term of the resident’s lifetime), which offer a continuum of housing, services and healthcare on one campus or site. CCRCs are appealing as they allow residents to “age in place.” CCRCs typically require the individual to be in relatively good health and independent upon entry.

(1)	Excludes facilities operated by Brookdale in our SHOP segment, as discussed below. Percentages of segment and total revenues include partial-year revenue earned from senior housing triple-net facilities that were sold or transitioned during 2019. Accordingly, the percentages of segment and total revenues are expected to decrease in 2020 (see Note 3 to the Consolidated Financial Statements).

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ITEM 1A.	Risk Factors

•	risks related to our business and operations;

•	risks related to our capital structure and market conditions;

•	risks related to other events; and

•	risks related to tax, including REIT-related risks.

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•	a development opportunity may be abandoned after expending significant resources resulting in the loss of deposits or failure to recover expenses already incurred;

•	the development and construction costs of a project may exceed original estimates due to increased interest rates and higher costs relating to materials, transportation, labor, leasing, negligent construction or construction defects, damage, vandalism or accidents, among others, which could make the completion of the development project less profitable;

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the project may not be completed on schedule as a result of a variety of factors that are beyond our control, including natural disasters, labor conditions, material shortages, regulatory hurdles, including the ability to obtain necessary zoning or land use permits, civil unrest and acts of war or terrorism, which result in increases in construction costs and debt service expenses or provide tenants or operators with the right to terminate pre-construction leases; and

•	demand for the new project may decrease prior to completion, due to competition or other developments, and occupancy rates and rents at a newly completed property may not meet expected levels and could be insufficient to make the property profitable.

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some of our tenants require significant funding for the research, development, clinical testing, manufacture and commercialization of their products and technologies, as well as to fund their obligations, including rent payments due to us, and our tenants’ ability to raise capital depends on the viability of their products and technologies, their financial and operating condition and outlook, and the overall financial, banking and economic environment. If venture capital firms, private investors, the public markets, companies in the life science industry, the government or other sources of funding are difficult to obtain or unavailable to support our tenants’ activities, including as a result of general economic conditions, adverse market conditions or government shutdowns that limit our tenants’ ability to raise capital, a tenant’s business would be adversely affected or fail;

•	the research, development, clinical testing, manufacture and marketing of some of our tenants’ products require federal, state and foreign regulatory approvals which may be costly or difficult to obtain, may take several years and be subject to delay, may not be obtained at all, require validation through clinical trials and the use of substantial resources, and may often be unpredictable;

•	even after a life science tenant gains regulatory approval and market acceptance, the product may still present significant regulatory and liability risks, including, among others, the possible later discovery of safety concerns and other defects and potential loss of approvals, competition from new products and the expiration of patent protection for the product;

•	our tenants with marketable products may be adversely affected by healthcare reform and the reimbursement policies of government or private healthcare payors;

•	our tenants with marketable products may be unable to successfully manufacture their drugs economically;

•	our tenants depend on the commercial success of certain products, which may be reliant on the efficacy of the product, as well as acceptance among doctors and patients; negative publicity or negative results or safety signals from the clinical trials of competitors may reduce demand or prompt regulatory actions; and

•	our tenants may be unable to adapt to the rapid technological advances in the industry and to adequately protect their intellectual property under patent, copyright or trade secret laws and defend against third-party claims of intellectual property violations.

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•	our joint venture partners could have investment and financing goals that are not consistent with our objectives, including the timing, terms and strategies for any investments, and what levels of debt to incur or carry;

•	we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend additional resources on resolving such impasses or potential disputes, including litigation or arbitration;

•	our joint venture partners may have competing interests in our markets that could create conflicts of interest;

•	our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited and/or valued lower than fair market value;

•	our joint venture partners may be structured differently than us for tax purposes, and this could create conflicts of interest and risks to our REIT status; and

•	our joint venture partners might become insolvent, fail to fund their share of required capital contributions or fail to fulfill their obligations as a joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite other competing uses for such capital.

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•	liabilities relating to the cleanup or remediation of undisclosed environmental conditions;

•	unasserted claims of vendors, residents, patients or other persons dealing with the seller;

•	liabilities, claims and litigation, whether or not incurred in the ordinary course of business, relating to periods prior to our acquisition;

•	claims for indemnification by general partners, directors, officers and others indemnified by the seller;

•	claims for return of government reimbursement payments; and

•	liabilities for taxes relating to periods prior to our acquisition.

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•	statutory and regulatory changes;

•	retroactive rate adjustments;

•	recovery of program overpayments or set-offs;

•	federal, state and local litigation and enforcement actions;

•	administrative proceedings;

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•	policy interpretations;

•	payment or other delays by fiscal intermediaries or carriers;

•	government funding restrictions (at a program level or with respect to specific properties);

•	interruption or delays in payments due to any ongoing governmental investigations and audits at such properties; and

•	reputational harm of publicly disclosed enforcement actions, audits or investigations related to billing and reimbursements.

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•	general availability of capital, including less favorable terms, rising interest rates and increased borrowing costs;

•	the market price of the shares of our equity securities and the credit ratings of our debt and any preferred securities we may issue;

•	the market’s perception of our growth potential and our current and potential future earnings and cash distributions;

•	our degree of financial leverage and operational flexibility;

•	the financial integrity of our lenders, which might impair their ability to meet their commitments to us or their willingness to make additional loans to us, and our inability to replace the financing commitment of any such lender on favorable terms, or at all;

•	the stability of the market value of our properties;

•	the financial performance and general market perception of our tenants and operators;

•	changes in the credit ratings on U.S. government debt securities or default or delay in payment by the United States of its obligations;

•	issues facing the healthcare industry, including, but not limited to, healthcare reform and changes in government reimbursement policies; and

•	the performance of the national and global economies generally.

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•	we will not be allowed a deduction for distributions to stockholders in computing our taxable income;

•	we will be subject to corporate-level income tax on our taxable income at regular corporate rates;

•	we will be subject to increased state and local income taxes; and

•	unless we are entitled to relief under relevant statutory provisions, we will be disqualified from taxation as a REIT for the four taxable years following the year during which we fail to qualify as a REIT.

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ITEM 1B.	Unresolved Staff Comments

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ITEM 2.	Properties

•	location, construction quality, age, condition, and design of the property;

•	geographic area, proximity to other healthcare facilities, type of property, and demographic profile, including new competitive supply;

•	whether the expected risk-adjusted return exceeds the incremental cost of capital;

•	whether the rent or operating income provides a competitive market return to our investors;

•	duration, rental rates, tenant and operator quality, and other attributes of in-place leases, including master lease structures and coverage;

•	current and anticipated cash flow and its adequacy to meet our operational needs;

•	availability of security such as letters of credit, security deposits and guarantees;

•	potential for capital appreciation;

•	expertise and reputation of the tenant or operator;

•	occupancy and demand for similar healthcare facilities in the same or nearby communities;

•	availability of qualified operators or property managers and whether we can manage the property;

•	potential alternative uses of the facilities;

•	the regulatory and reimbursement environment in which the properties operate;

•	tax laws related to REITs;

•	prospects for liquidity through financing or refinancing; and

•	our access to and cost of capital.

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(1)	Represents gross real estate and the carrying value of DFLs. Gross real estate represents the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes real estate held for sale with an aggregate gross asset value of $719 million.

(2)	Represent the combined amount of rental and related revenues, resident fees and services, and income from DFLs.

(3)	Represents income from DFLs that were transitioned or sold in 2019.

(4)	Includes leased properties that are classified as DFLs.

(5)	Represents revenues generated from a real estate asset that was sold in October 2019.

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(1)

Average annual rent is presented as a ratio of real estate revenues (comprised of rental and related revenues, resident fees and services, and income from DFLs) divided by the average capacity or average occupied square feet of the facilities. Average annual rent for leased properties (including DFLs) excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and the impact of deferred community fee income).

(2)	Our previous investments in the U.K. were deconsolidated in June 2018. We then sold our remaining unconsolidated investments in the U.K. in December 2019 (see Note 4 to the Consolidated Financial Statements).

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(1)	Includes month-to-month leases.

(2)

The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors and cash income from DFLs, annualized for 12 months. Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest and deferred revenues).

ITEM 3.	Legal Proceedings

ITEM 4.	Mine Safety Disclosures

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

(1)	For the year ended December 31, 2019 all $0.7633 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164 of qualified dividend income for purposes of Code Section 1(h)(11).

(1)	Represents restricted shares withheld under our equity incentive plans to offset tax withholding obligations that occur upon vesting of restricted shares. The value of the shares withheld is based on the closing price of our common stock on the last trading day prior to the date the relevant transaction occurred.

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ITEM 6.	Selected Financial Data

(1)	Includes bank line of credit, commercial paper, term loans, senior unsecured notes, mortgage debt and other debt. Excludes mortgage debt on assets held for sale.

(2)	Represents cash dividends. Additionally, in October 2016 we issued $6.17 per common share of stock dividends related to the spin-off of Quality Care Properties, Inc.

(3)	For a more detailed discussion and reconciliation of NAREIT FFO, FFO as Adjusted and FAD, see "Results of Operations" and “Non-GAAP Financial Measure Reconciliations” in Item 7 of this report.

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

•	2019 Transaction Overview

•	Dividends

•	Results of Operations

•	Liquidity and Capital Resources

•	Contractual Obligations

•	Off-Balance Sheet Arrangements

•	Inflation

•	Non-GAAP Financial Measure Reconciliations

•	Critical Accounting Policies

•	Recent Accounting Pronouncements

•	Healthpeak, which owns a 49% interest in the CCRC JV, agreed to purchase Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);

•	The management agreements related to the CCRC Acquisition communities will be terminated, with management transitioned (under new management agreements) from Brookdale to Life Care Services LLC (“LCS”) simultaneous with closing the CCRC Acquisition;

•	We will pay a $100 million management termination fee to Brookdale upon closing the CCRC Acquisition; and

•	The remaining two CCRCs will be jointly marketed for sale to third parties.

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•	Brookdale will acquire 18 of the properties (the “Brookdale Acquisition Assets”) from us for cash proceeds of $385 million;

•	We will terminate the triple-net lease related to one property and transition it to a RIDEA structure with LCS as the manager;

•	The remaining 24 properties will be restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);

•	A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets will be reallocated to the remaining properties under the 2019 Amended Master Lease;

•	Upon sale of the Brookdale Acquisition Assets, Brookdale will pay down $20 million of future rent under the 2019 Amended Master Lease; and

•	We will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which will increase rent by 7% of the amount spent, per annum.

•	In April 2019, we acquired a portfolio of nine senior housing properties, with a total of 1,242 units, for $445 million. The properties are located across Florida, Georgia, and Texas and are operated by Discovery Senior Living, LLC.

•	In May 2019, we acquired three newly-built, senior housing communities in California for $113 million. The portfolio is operated by Oakmont Senior Living LLC (“Oakmont”) and includes 132 assisted living units and 68 memory care units with an average occupancy of 96% at closing.

•	In July 2019, we acquired five additional senior housing communities in California for $284 million. The portfolio is operated by Oakmont and includes 430 units. The properties are located in the Los Angeles, San Jose, and San Francisco markets.

•	In June 2019, we completed the acquisition of two life science buildings in South San Francisco, California adjacent to our The Shore at Sierra Point development, for $245 million.

•	In July 2019, we acquired a life science campus in the suburban Boston submarket of Lexington, Massachusetts, for $228 million. The 277,000 square foot campus, comprised of four buildings, is 100% leased to seven biopharmaceutical and medical diagnostics tenants.

•	In January and February 2019, we acquired a life science facility for $71 million and development rights at an adjacent undeveloped land parcel for consideration of up to $27 million. The existing facility and land parcel are located in Cambridge, Massachusetts.

•	In December 2019, we acquired one life science building, adjacent to our existing properties in Cambridge, Massachusetts, for $333 million.

•	In December 2019, we formed a new joint venture with a sovereign wealth fund ("SWF SH JV") that owns 19 SHOP assets operated by Brookdale. We own 53.5% of the joint venture and contributed all 19 assets with a fair value of $790 million. The joint venture partner owns the other 46.5% and purchased its interest for cash of $367 million.

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•	In December 2019, we sold our remaining 49% interest in our United Kingdom investments (the “U.K. JV”) for proceeds of £70 million ($91 million), net of debt assumed. We no longer own any real estate in the United Kingdom.

•	In May 2019, we acquired one medical office building (“MOB”) in Kansas for $15 million.

•	In June 2019, we acquired the outstanding equity interests of, and began consolidating, a senior housing joint venture structure (which owned one senior housing facility), in which we previously held an unconsolidated equity investment, for $24 million.

•	In July 2019, we acquired a $16 million, Class A two-story building in the Sorrento Mesa submarket of San Diego. The 56,000 square foot property is located on our Directors Place life science campus and is adjacent to our future development site.

•	In September 2019, we sold 13 senior housing facilities under DFLs for $274 million.

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During the year ended December 31, 2019, we transitioned 35 senior housing triple-net assets, including a 14-property DFL portfolio, to a RIDEA structure, with Sunrise Senior Living, LLC (“Sunrise”) as the operator. Those 35 assets generated revenue of $67 million during the year ended 2018. We expect to transition two additional senior housing triple-net assets to a RIDEA structure with Sunrise in 2020.

•	During the year ended December 31, 2019, we sold 18 SHOP assets for $181 million, 2 senior housing triple-net assets for $26 million, 10 MOBs for $23 million, 1 life science asset for $7 million, 1 undeveloped life science land parcel for $35 million, and 2 facilities from the other non-reportable segment for $20 million.

•	In January 2020, we sold six SHOP assets for $36 million.

•	In January 2020, we entered into definitive agreements to acquire a life science campus in Waltham, Massachusetts, for $320 million. We made a $20 million nonrefundable deposit upon completing due diligence and expect to close the transaction in the second quarter of 2020.

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In February 2019, we terminated our previous at-the-market equity program established in February 2018 (the “2018 ATM Program”) and established a new at-the-market program (the “2019 ATM Program”) pursuant to which shares of our common stock having an aggregate gross sales price of up to $1.0 billion may be sold (i) by Healthpeak through a consortium of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement.

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During the year ended December 31, 2019, we directly issued or settled previous forward sales agreements for 26.7 million shares, resulting in net proceeds of $782 million. Total net proceeds were comprised of: (i) $422 million of net proceeds from the settlement of 15.3 million shares under a 2018 forward sales agreement at a weighted average net price of $27.66 per share, after commissions, (ii) $171 million of net proceeds from the settlement of 5.5 million shares under ATM forward sales agreements at a weighted average net price of $30.91 per share, after commissions, and (iii) $189 million of net proceeds from the direct issuance of 5.9 million shares on the ATM at a weighted average net price of $31.84 per share, after commissions.

•	An aggregate of 30.4 million shares of our common stock, sold at an initial weighted average net price of $33.05 per share, after commissions, remain available for issuance under forward sales agreements as of December 31, 2019.

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In May 2019, we entered into a new $2.5 billion unsecured revolving line of credit facility (the “Revolving Facility”) maturing on May 23, 2023. The Revolving Facility contains two, six-month extension options, subject to certain customary conditions. Borrowings under the Revolving Facility accrue interest at LIBOR plus a margin that depends on our credit ratings (0.825% as of December 31, 2019). We pay a facility fee on the entire revolving commitment that depends on our credit ratings (0.15% as of December 31, 2019).

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In May 2019, we entered into a new $250 million unsecured term loan facility (the “2019 Term Loan” and, together with the Revolving Facility, the “Facilities”), and borrowed the full $250 million capacity in June 2019. The 2019 Term Loan matures on May 23, 2024 and accrues interest at LIBOR plus a margin that depends on our credit ratings (0.90% as of December 31, 2019). The Facilities include a feature that allows us to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments.

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In July 2019, we completed a public offering of $650 million aggregate principal amount of 3.25% senior unsecured notes due 2026 (the “2026 Notes”) and $650 million aggregate principal amount of 3.50% senior unsecured notes due 2029 (the “2029 Notes” and, together with the 2026 Notes, the “Notes”). The proceeds were used to: (i) redeem all of our $800 million, 2.63% senior unsecured notes due February 2020 (the “2020 Notes”), (ii) repurchase $250 million aggregate principal amount of our 4.25% senior notes due 2023 (the “2023 Notes”), and (iii) repurchase $250 million aggregate principal amount of our 4.00% senior notes due 2022 (the “2022 Notes”).

•	In September 2019, we established an unsecured commercial paper program (the “Commercial Paper Program”) under which we may issue, from time to time, unsecured short-term debt securities with a maximum aggregate face or principal amount outstanding at any one time not exceeding $1.0 billion.

•	In November 2019, we completed a public offering of $750 million aggregate principal amount of 3.00% senior unsecured notes due 2030 (the “2030 Notes”). The proceeds were used to repurchase the remaining $350 million aggregate principal amount of our 2022 Notes.

•	As part of the previously-announced development program with HCA, during the year ended December 31, 2019, we commenced the development of seven MOBs, six of which will be on-campus, with an aggregate estimated cost of approximately $166 million.

•	At December 31, 2019, we had eight life science development projects in process with an aggregate total estimated cost of approximately $1.1 billion.

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(1)	For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.

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•	a reduction in NOI as a result of asset sales during 2018 and 2019;

•	a larger net gain on sales of real estate during 2018 compared to 2019, primarily related to the sale of our Shoreline Technology Center life science campus in November 2018;

•	increased depreciation and amortization expense as a result of: (i) assets acquired during 2018 and 2019, (ii) development and redevelopment projects placed into operations during 2018 and 2019, and (iii) the conversion of 14 senior housing triple-net assets from a DFL to a RIDEA structure in 2019, partially offset by decreased depreciation and amortization from asset sales during 2018 and 2019;

•	an increase in loss on debt extinguishments, resulting from redemptions and repurchases of senior unsecured notes in 2019; and

•	increased impairment charges on real estate asset recognized during 2019 compared to 2018.

•	increased NOI from: (i) annual rent escalations, (ii) 2018 and 2019 acquisitions, and (iii) development and redevelopment projects placed in service during 2018 and 2019;

•	a reduction in interest expense as a result of debt repayments during 2018 and 2019; and

•	an increase in other income, primarily resulting from: (i) a gain on deconsolidation of 19 SHOP assets in 2019, and (ii) a loss on consolidation of seven care homes in the U.K. during the first quarter of 2018, partially offset by a gain on consolidation related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018.

•	gains on sales of real estate, including related tax impacts;

•	depreciation and amortization expense;

•	impairments charges on real estate assets; and

•	gains and losses on change in control.

•	a larger net gain on sales of real estate during 2018 compared to 2017, primarily related to the sale of our Shoreline Technology Center life science campus in November 2018;

•	increased NOI from: (i) annual rent escalations, (ii) 2017 and 2018 acquisitions, and (iii) development and redevelopment projects placed in service during 2017 and 2018;

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•	a gain on consolidation related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018;

•	impairments of our mezzanine loan facility to Tandem Health Care (the “Tandem Mezzanine Loan”) in 2017;

•	a net charge to NOI from the November 2017 transactions with Brookdale (the “2017 Brookdale Transactions”)(See Note 3 to the Consolidated Financial Statements);

•	a reduction in interest expense as a result of debt repayments, primarily in the second and third quarters of 2017 and throughout 2018, partially offset by an increased average balance under our Revolving Facility during 2018;

•	higher income tax expense in 2017 related to the impact of new tax rate legislation, partially offset by tax benefits from higher sales volume during 2017;

•	a reduction in litigation-related costs from securities class action litigation, and a one-time legal settlement in 2017;

•	a reduction in loss on debt extinguishment related to repurchases of our senior unsecured notes in July 2018 compared to July 2017; and

•	casualty-related charges incurred due to hurricanes in the third quarter of 2017.

•	a reduction in NOI in our senior housing triple-net segment, primarily as a result of the sale of senior housing triple-net assets and the transition of senior housing triple-net assets to SHOP during 2017 and 2018;

•	a reduction in NOI in our SHOP segment, primarily as a result of occupancy declines and higher labor costs;

•	a loss on consolidation of seven care homes in the U.K. during the first quarter of 2018;

•	a reduction in income related to the gain on sale of our £138.5 million par value Four Seasons Health Care’s senior notes (the “Four Seasons Notes”) during 2017;

•	increased impairment charges on real estate asset recognized during 2018 compared to 2017;

•	a reduction in income as a result of: (i) asset sales during 2017 and 2018 and (ii) selling interests into the U.K. JV and a joint venture with Morgan Stanley Real Estate Investments ("MSREI MOB JV")(see Note 4 to the Consolidated Financial Statements);

•	a reduction in interest income due to the: (i) payoff of our HC-One mezzanine loan (the "HC-One Facility") in June 2017 and (ii) sale of our Tandem Mezzanine Loan in March 2018;

•	increased depreciation and amortization expense as a result of: (i) assets acquired during 2017 and 2018 and (ii) development and redevelopment projects placed into operations during 2017 and 2018, primarily in our life science and medical office segments, partially offset by decreased depreciation and amortization from asset sales during 2017 and 2018;

•	a reduction in equity income from unconsolidated joint ventures as a result of the sale of our equity method investment in RIDEA II in June 2018, partially offset by additional equity income from the U.K. JV; and

•	an increase in severance and related charges during 2018 primarily related to the departure of our former Executive Chairman compared to severance and related charges primarily related to the departure of our former Chief Accounting Officer ("CAO") in 2017.

•	gains on sales of real estate, including related tax impacts;

•	depreciation and amortization expense;

•	impairments of facilities within our senior housing triple-net and SHOP segments; and

•	net gain on consolidation.

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•	the net charge to NOI from the 2017 Brookdale Transactions;

•	the impact of tax rate legislation during the fourth quarter of 2017;

•	severance and related charges;

•	losses on debt extinguishments;

•	litigation-related costs;

•	casualty-related charges;

•	the gain on sale of our Four Seasons Notes during the first quarter of 2017; and

•	the impairments of our Tandem Mezzanine Loan in 2017 and an undeveloped life science land parcel in 2018.

(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	Represents rental and related revenues and income from DFLs.

(3)	From our 2018 presentation of SPP, we removed 15 senior housing triple-net properties that were sold, 45 senior housing triple-net properties that were transitioned or we agreed to transition to our SHOP segment, and 27 senior housing triple-net properties that were classified as held for sale.

(4)	Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the periods presented.

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•	the transfer of 22 and 41 senior housing triple-net facilities to our SHOP segment during 2018 and 2019, respectively, and

•	senior housing triple-net facilities sold during 2018 and 2019.

(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	Represents rental and related revenues and income from DFLs.

(3)	From our 2017 presentation of SPP, we removed 11 senior housing triple-net properties that were sold and 22 senior housing triple-net properties that were transitioned to our SHOP segment.

(4)	Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the periods presented.

•	decreased NOI from senior housing triple-net facilities sold during 2017 and 2018; and

•	decreased NOI from the transfer of 25 and 22 senior housing triple-net facilities to our SHOP segment during 2017 and 2018, respectively.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2018 presentation of SPP, we removed 16 SHOP properties that were deconsolidated, 3 SHOP properties that were sold, 1 SHOP property that was placed into redevelopment and 8 SHOP properties that were classified as held for sale.

(3)	Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the periods presented.

•	higher labor costs and

•	a temporary decline in performance of facilities that transitioned between operators within the SHOP segment, partially offset by

•	increased community fees received and

•	increased occupancy and rates for resident fees and services

•	increased NOI from: (i) 2019 acquisitions and (ii) the transfer of 22 and 41 senior housing triple-net assets to our SHOP segment during 2018 and 2019, respectively, partially offset by

•	lost NOI from: (i) assets sold in 2018 and 2019 and (ii) the deconsolidation of 16 assets in 2019 upon formation of the Sovereign Wealth Fund Senior Housing Joint Venture.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2017 presentation of SPP, we removed nine properties that were sold, eight SHOP properties that were placed into redevelopment and three SHOP properties that were classified as held for sale.

(3)	Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the periods presented.

•	occupancy declines and higher labor costs; partially offset by

•	increased rates for resident fees and services.

•	decreased NOI from our partial sale of RIDEA II in the first quarter of 2017; and

•	decreased NOI from SHOP assets sold in 2017 and 2018; partially offset by

•	increased NOI from the transfer of 25 and 22 senior housing triple-net assets to our SHOP segment during 2017 and 2018, respectively.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2018 presentation of SPP, we removed one life science facility that was sold, two life science facilities that were placed into redevelopment, and one life science facility related to a casualty event.

•	new leasing activity;

•	mark-to-market lease renewals;

•	increased occupancy; and

•	specific to Adjusted NOI, annual rent escalations.

•	increased NOI from: (i) increased occupancy in former development and redevelopment facilities placed into service in 2018 and 2019 and (ii) acquisitions in 2019; and

•	lost NOI from: (i) facilities sold in 2018 and 2019 and (ii) the placement of facilities into redevelopment in 2019.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2017 presentation of SPP, we removed 12 life science facilities that were sold and 3 life science facilities that were placed into redevelopment.

•	new leasing activity; and

•	specific to Adjusted NOI, annual rent escalations; partially offset by

•	a mark-to-market rent decrease on a 147,000 square foot lease in South San Francisco.

•	increased NOI from: (i) increased occupancy in portions of a development placed into operations in 2017 and 2018 and (ii) acquisitions in 2017; partially offset by

•	decreased NOI from: (i) sales of life science facilities in 2017 and 2018 and (ii) the placement of life science facilities into redevelopment in 2017 and 2018.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2018 presentation of SPP, we removed seven MOBs that were sold, two MOBs that were placed into redevelopment, two MOBs that were classified as held for sale, and one MOB that we intend to demolish.

•	mark-to-market lease renewals;

•	increased percentage-based rents; and

•	specific to adjusted NOI, annual rent escalations.

•	NOI from our 2018 and 2019 acquisitions; and

•	increased occupancy in former development and redevelopment properties placed into service; partially offset by

•	lost NOI from dispositions during 2018 and 2019.

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(1)	Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.

(2)	From our 2017 presentation of SPP, we removed four MOBs that were sold and three MOBs that were placed into redevelopment.

•	mark-to-market lease renewals;

•	increased percentage-based rents; and

•	specific to adjusted NOI, annual rent escalations.

•	NOI from our 2017 and 2018 acquisitions and

•	increased occupancy in former development and redevelopment properties placed into service in 2017 and 2018, partially offset by

•	lost NOI from dispositions during 2017 and 2018.

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•	fund capital expenditures, including tenant improvements and leasing costs and

•	fund future acquisition, transactional and development activities.

•	cash flow from operations;

•	sale or exchange of ownership interests in properties or other investments;

•	borrowings under our Facilities and Commercial Paper Program;

•	issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or

•	issuance of common or preferred stock or its equivalent.

•	received net proceeds of $976 million primarily from: (i) sales of real estate assets (including real estate assets under DFLs), (ii) the sale of our investment in the U.K. JV, and (iii) the sale of a 46.5% interest in 19 previously consolidated SHOP assets; and

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•	made investments of $2.4 billion primarily related to the (i) acquisition, development, and redevelopment of real estate and (ii) funding of loan investments.

•	received net proceeds of $2.9 billion primarily from: (i) sales of real estate assets, (ii) the sale of RIDEA II, (iii) the sale of the Tandem Mezzanine Loan, and (iv) the U.K. JV transaction; and

•	made investments of $1.1 billion primarily related to the acquisition, development, and redevelopment of real estate.

•	received net proceeds of $1.8 billion from sales of real estate, including the sale and recapitalization of RIDEA II;

•	received net proceeds of $559 million primarily from: (i) the sale of our Four Seasons Notes, (ii) the repayment of our HC-One Facility, and (iii) a DFL repayment; and

•	made net borrowings of $573 million primarily under our bank line of credit, commercial paper, term loan, senior unsecured notes (including debt extinguishment costs);

•	paid cash dividends on common stock of $720 million; and

•	issued common stock of $796 million.

•	repaid $2.4 billion of debt under our: (i) bank line of credit, (ii) term loan, (iii) senior unsecured notes (including debt extinguishment costs) and (iv) mortgage debt;

•	paid cash dividends on common stock of $697 million;

•	paid $83 million for distributions to and purchases of noncontrolling interests, primarily related to our acquisition of Brookdale’s noncontrolling interest in RIDEA I;

•	raised net proceeds of $218 million from the issuances of common stock, primarily from our at-the-market equity program; and

•	received proceeds of $300 million for issuances of noncontrolling interests, primarily related to the MSREI MOB JV.

•	repaid $1.4 billion of debt under our: (i) term loans, (ii) senior unsecured notes (including debt extinguishment costs) and (iii) mortgage debt, partially offset by net borrowings under our bank line of credit; and

•	paid cash dividends on common stock of $695 million.

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(1)	Excludes $85 million of life care bonds and demand notes that have no scheduled maturities and are classified as other debt in our consolidated balance sheets.

(2)	Excludes mortgage debt on assets held for sale and mortgage debt from unconsolidated joint ventures.

(3)	Represents commitments to finance development projects.

(4)

Represents our commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant improvements and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements (recognized in the "Development commitments" line).

(5)	Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $88 million that we have provided as a lessor.

(6)	Interest on variable-rate debt is calculated using rates in effect at December 31, 2019.

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(1)

For the year ended December 31, 2019, primarily relates to the gain related to the deconsolidation of 19 previously consolidated SHOP assets that were contributed into a new unconsolidated senior housing joint venture with a sovereign wealth fund. For the year ended December 31, 2019, also includes the gain related to the acquisition of the outstanding equity interests in a previously unconsolidated senior housing joint venture. For the year ended December 31, 2018, represents the gain related to the acquisition of our partner's interests in four previously unconsolidated life science assets, partially offset by the loss on consolidation of seven U.K. care homes.

(2)	For the year ended December 31, 2016, represents income tax expense associated with the state built-in gain tax payable upon the disposition of specific real estate assets, of which $49 million relates to the HCR ManorCare, Inc. ("HCRMC") real estate portfolio that we spun-off in 2016.

(3)	For the year ended December 31, 2019, includes a $6 million impairment charge related to depreciable real estate held by the CCRC JV, which we recognized in equity income (loss) from unconsolidated joint ventures in the consolidated statements of operations.

(4)	For the year ended December 31, 2017, includes $55 million of net non-cash charges related to the right to terminate certain triple-net leases and management agreements in conjunction with the 2017 Brookdale Transactions. For the year ended December 31, 2016, primarily relates to the spin-off of Quality Care Properties, Inc.

(5)

For the year ended December 31, 2019, represents the impairment of 13 senior housing triple-net facilities under DFLs recognized as a result of entering into sales agreements. For the year ended December 31, 2018, primarily relates to the impairment of an undeveloped life science land parcel classified as held for sale, partially offset by an impairment recovery upon the sale of a mezzanine loan investment in March 2018. For the year ended December 31, 2017, relates to $144 million of impairments on our Tandem Mezzanine Loan, net of a $51 million impairment recovery upon the sale of our Four Seasons Notes. For the year ended December 31, 2015, include impairment charges of: (i) $1.3 billion related to our HCRMC DFL investments, (ii) $112 million related to our Four Seasons Notes and (iii) $46 million related to our equity investment in HCRMC, partially offset by an impairment recovery of $6 million related to a loan payoff.

(6)

For the year ended December 31, 2018, primarily relates to the departure of our former Executive Chairman and corporate restructuring activities. For the year ended December 31, 2017, primarily relates to the departure of our former CAO. For the year ended December 31, 2016, primarily relates to the departure of our former President and Chief Executive Officer. For the year ended December 31, 2015, relates to the departure of our former Chief Investment Officer.

(7)	For all periods presented, represents the premium associated with the prepayment of senior unsecured notes and mortgage debt.

(8)	For all periods presented, relates to costs from securities class action litigation and a legal settlement. See Note 11 to the Consolidated Financial Statements for additional information.

(9)	For the year ended December 31, 2019, represents incremental insurance proceeds related to hurricanes in 2017, net of evacuation costs related to hurricanes in 2019.

(10)	Represents the remeasurement of deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act that was signed into legislation on December 22, 2017.

(11)	Excludes amounts related to the acceleration of deferred compensation for restricted stock units that vested upon the departure of certain former employees, which have already been excluded from FFO as Adjusted in severance and related charges.

(12)	Represents our 49% share of our CCRC JV's non-refundable entrance fees collected in excess of amortization.

(13)	Excludes $17 million of deferred tax expenses, which is included in tax rate legislation impact for the year ended December 31, 2017. Additionally, the year ended December 31, 2017, excludes $1 million of deferred tax benefit from the casualty-related charges, which is included in casualty-related charges (recoveries), net.

(14)

Primarily includes our share of FAD capital expenditures from unconsolidated joint ventures, partially offset by noncontrolling interests' share of FAD capital expenditures from consolidated joint ventures. Our equity investment in HCRMC was accounted for using the equity method, which required an elimination of DFL income that was proportional to our ownership in HCRMC. Further, our share of earnings from HCRMC (equity income) increased for the corresponding elimination of related lease expense recognized at the HCRMC entity level, which we presented as a non-cash joint venture FAD adjustment. Beginning in January 2016, as a result of placing our equity investment in HCRMC on a cash basis method of accounting, we no longer eliminated our proportional ownership share of income from DFLs to equity income (loss) from unconsolidated joint ventures.

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•	which activities most significantly impact the entity’s economic performance, and our ability to direct those activities;

•	our ability and the rights of other investors to participate in policy making decisions, replace the manager, and/or liquidate the entity, if applicable.

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ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk

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ITEM 8.	Financial Statements and Supplementary Data

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•	We tested the effectiveness of the controls in place to identify transactions requiring evaluation and assessed the application of the consolidation principles of the real estate ventures based on accounting principles generally accepted in the United States.

•	We evaluated the Company’s accounting conclusion relating to the rights acquired and obligations assumed upon execution of the 2019 MTCA concerning the impending acquisition of the 13 communities in the CCRC JV that contained terms leading to subjective judgments by:

–	Reading the 2019 MTCA and the existing CCRC JV agreements and evaluating the structure and terms of the agreements to determine if the Company’s acquisition of the 13 communities in the CCRC JV should be recorded upon execution of the 2019 MTCA.

–

Evaluating the judgments made in following areas, among others: 1) whether the 2019 MTCA qualifies as a reconsideration event, 2) whether the 2019 MTCA resulted in control rights shifting upon execution but before anticipated closing of the acquisition in a future period, including an evaluation of forward starting rights (such as call options and put options conveyed pursuant to contracts in existence as of the balance sheet date) upon execution, and 3) whether certain potential rights upon the resolution of a contingency are substantive.

•	We utilized professionals in our firm having expertise in accounting for consolidations to assist in our evaluation of the Company’s conclusion not to consolidate the 13 communities in the CCRC JV upon signing the 2019 MTCA.

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•	We tested the effectiveness of controls over impairment of real estate, including those over the determination of the forecasted sales price for real estate assets.

•

We evaluated the forecasted sales prices for a sample of real estate assets, which may have included estimates of property hold periods, market capitalization rates, market prices per unit, and/or forecasted cash flow streams used in the determination of fair value for each selected real estate asset by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the direct capitalization model.

•	We performed a retrospective review of impairment charges and real estate assets that were classified as held for sale to evaluate the changing facts and circumstances that led to the timing and recognition of impairment and/or change in classification during the period and how such compared to the facts that were considered in previous periods.

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(1)	On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.

(2)	On January 1, 2019, the Company adopted a series of ASUs related to accounting for leases, and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.

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NOTE 1.	Business

NOTE 2.	Summary of Significant Accounting Policies

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•	which party to the arrangement retains legal title to the tenant improvements upon lease expiration;

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•	Level 1—quoted prices for identical instruments in active markets;

•	Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•	Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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•

Prior to the adoption of the Revenue ASUs, the Company recognized a gain on sale of real estate using the full accrual method when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient, and other profit recognition criteria had been satisfied. The Company deferred all or a portion of a gain on sale of real estate if the requirements for gain recognition were not met at the time of sale. Subsequent to adopting the Revenue ASUs on January 1, 2018, the Company began recognizing a gain on sale of real estate upon transferring control of the asset to the purchaser, which is generally satisfied at the time of sale. In conjunction with its adoption of the Revenue ASUs, the Company reassessed its historical partial sale of real estate transactions to determine which transactions, if any, were not completed contracts (i.e., the transaction did not qualify for sale treatment under previous guidance). The Company concluded that it had one such material transaction, its partial sale of RIDEA II in the first quarter of 2017 (which was not a completed sale under historical guidance as of the Company's adoption date due to a minor obligation related to the interest sold). In accordance with the Revenue ASUs, the Company recorded its retained 40% equity investment at fair value as of the sale date. As a result, the Company recorded an adjustment to equity as of January 1, 2018 (under the modified retrospective transition approach) representing a step-up in the fair value of its equity investment in RIDEA II of $107 million (to a carrying value of $121 million as of January 1, 2018) and a $30 million impairment charge to decrease the carrying value to the sales price of the investment (see Note 4). The Company completed the sale of its equity investment in June 2018 and no longer holds an economic interest in RIDEA II.

•	The Company generally expects that the Revenue ASUs will result in certain transactions qualifying as sales of real estate at an earlier date than under historical accounting guidance.

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NOTE 3.	Master Transactions and Cooperation Agreement with Brookdale

•	The Company, which owns a 49% interest in the CCRC JV, agreed to purchase Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);

•	The management agreements related to the CCRC Acquisition communities will be terminated, with management transitioned (under new management agreements) from Brookdale to Life Care Services LLC (“LCS”) simultaneous with closing the CCRC Acquisition;

•	The Company will pay a $100 million management termination fee to Brookdale upon closing the CCRC Acquisition; and

•	The remaining two CCRCs will be jointly marketed for sale to third parties.

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•	Brookdale will acquire 18 of the properties from the Company (the “Brookdale Acquisition Assets”) for cash proceeds of $385 million;

•	The Company will terminate the triple-net lease related to one property and transition it to a RIDEA structure with LCS as the manager;

•	The remaining 24 properties will be restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);

•	A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets will be reallocated to the remaining properties under the 2019 Amended Master Lease;

•	Upon sale of the Brookdale Acquisition Assets, Brookdale will pay down $20 million of future rent under the 2019 Amended Master Lease; and

•	The Company will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which will increase rent by 7% of the amount spent, per annum.

•

The Company, which owned 90% of the interests in its RIDEA I and RIDEA III joint ventures with Brookdale at the time the 2017 MTCA was executed, agreed to purchase Brookdale’s 10% noncontrolling interest in each joint venture. At the time the 2017 MTCA was executed, these joint ventures collectively owned and operated 58 independent living, assisted living, memory care, and/or skilled nursing facilities (the “RIDEA Facilities”). The Company completed its acquisitions of the RIDEA III noncontrolling interest for $32 million in December 2017 and the RIDEA I noncontrolling interest for $63 million in March 2018;

•

The Company received the right to sell, or transition to other operators, 32 of the 78 total assets under an Amended and Restated Master Lease and Security Agreement (the “2017 Amended Master Lease”) with Brookdale and 36 of the RIDEA Facilities (and terminate related management agreements with an affiliate of Brookdale without penalty), certain of which were sold during 2018 and 2019 and are included in the disposition transactions discussed in Note 4;

•	The Company provided an aggregate $5 million annual reduction in rent on three assets, effective January 1, 2018; and

•	Brookdale agreed to purchase two of the assets under the 2017 Amended Master Lease for $35 million and four of the RIDEA Facilities for $240 million, all of which were sold in 2018 and are included in the 2018 disposition transactions discussed in Note 4.

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NOTE 4.	Real Estate Transactions

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NOTE 5.	Impairments

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NOTE 6.	Leases

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(1)	Represents the most recent month’s base rent including additional rent floors and cash income from DFLs annualized for 12 months. Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest and deferred revenues).

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(1)	Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s consolidated statements of operations.

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NOTE 7.	Loans Receivable

(1)	At December 31, 2019, the Company had $25 million remaining of commitments to fund $174 million of senior housing development projects. At December 31, 2018, the Company had $73 million remaining of commitments to fund a $115 million senior housing development project.

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(1)	Represents future contractual principal payments to be received on loans receivable secured by real estate.

(2)	Contains a participation feature that allows the Company to participate in up to 20% of the appreciation of the asset through the time the loan is refinanced or repaid.

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NOTE 8.	Investments in and Advances to Unconsolidated Joint Ventures

(1)	These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.

(2)	In December 2019, the Company formed the SWF SH JV with a sovereign wealth fund. See Note 4 for discussion of the formation of the SWF SH JV.

(3)	See Note 3 for discussion of the 2019 MTCA with Brookdale, including the pending acquisition of Brookdale’s interest in the CCRC JV.

(4)	See Note 4 for discussion of the formation of the U.K. JV in 2018 and subsequent sale of the Company’s equity method investment in 2019.

(5)

In June 2019, the Company acquired the outstanding equity interests in, and began consolidating, the Vintage Park JV (see Note 4). Remaining unconsolidated SHOP joint ventures (and the Company's ownership percentage) include: (i) Waldwick JV (85%); (ii) Otay Ranch JV (90%); (iii) MBK Development JV (50%); (iv) Discovery Naples JV (41%); and (v) Discovery Sarasota JV (47%). The Company’s investments in the Discovery Naples JV and the Discovery Sarasota JV are preferred equity investments earning a 10% per annum fixed-rate return.

(6)	Includes three unconsolidated medical office joint ventures (and the Company’s ownership percentage): (i) Ventures IV (20%); (ii) Ventures III (30%); and (iii) Suburban Properties, LLC (67%).

(7)	At December 31, 2019, includes one unconsolidated joint venture. In October 2019, the Company sold its interest in one of the K&Y joint ventures for $4 million. In January 2020, the Company sold its interest in the remaining K&Y joint venture for $12 million. At December 31, 2018, includes three unconsolidated joint ventures.

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NOTE 9.	Intangibles

(1)	The amortization of net below market lease intangibles is recorded as an increase to rental and related revenues.

(2)	The amortization of lease-up intangibles is recorded to depreciation and amortization expense.

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NOTE 10.	Debt

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(1)	The Company recognized a $22 million loss on debt extinguishment related to the repurchase of senior notes.

(2)	Upon completing the redemption of the 2.625% senior unsecured notes due February 2020 and repurchasing a portion of the 4.250% senior unsecured notes due 2023 and the 4.000% senior unsecured notes due 2022, the Company recognized a $35 million loss on debt extinguishment.

(3)	The Company recognized a $44 million loss on debt extinguishment related to the repurchase of senior notes.

(4)	The Company recognized a $54 million loss on debt extinguishment related to the repurchase of senior notes.

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(1)	Effective interest rates on the senior notes range from 3.14% to 6.87% with a weighted average effective interest rate of 3.94% and a weighted average maturity of seven years.

(2)	Excluding mortgage debt on assets held for sale, effective interest rates on the mortgage debt range from 2.22% to 5.91% with a weighted average effective interest rate of 4.09% and a weighted average maturity of 13 years.

(3)	Excludes $85 million of other debt that has no scheduled maturities. Other debt represents (i) $52 million of non-interest bearing life care bonds and occupancy fee deposits at certain of the Company's senior housing facilities and (ii) $33 million of on-demand notes from the CCRC JV which bear interest at a rate of 3.6%.

(4)	Represents mortgage debt on assets held for sale with interest rates that ranged from 3.45% to 6.80% and matures in 2026, 2028, and 2044.

NOTE 11.	Commitments and Contingencies

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(1)	Represents commitments to finance development projects.

(2)

Represents the Company's commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant improvements and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which the Company has executed an agreement with a general contractor to complete the tenant improvements (recognized in the "Development commitments" line).

(3)	Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $88 million that the Company has provided as a lessor.

NOTE 12.	Equity

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(1)	See Notes 4, 8, and 21 for a discussion of the U.K. JV transaction.

NOTE 13.	Earnings Per Common Share

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(1)	Represents the current dilutive impact of 30 million shares of common stock under forward sales agreements that have not been settled as of December 31, 2019. Based on the forward price of each agreement as of December 31, 2019, issuance of all 30 million shares would result in approximately $1.00 billion of net proceeds.

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NOTE 14.	Compensation Plans

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NOTE 15.	Segment Disclosures

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net, and termination fees.

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net, and termination fees.

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net, and termination fees.

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(1)	For the year ended December 31, 2019 all $0.7633 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164 of qualified dividend income for purposes of Code Section 1(h)(11).

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NOTE 17.	Supplemental Cash Flow Information

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NOTE 18.	Variable Interest Entities

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(1)	The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).

(2)	The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default.

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NOTE 19.	Concentration of Credit Risk

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NOTE 20.	Fair Value Measurements

(1)	Level 1: Fair value calculated based on quoted prices in active markets.

(2)

Level 2: Fair value based on (i) for marketable debt securities, quoted prices for similar or identical instruments in active or inactive markets, respectively, or (ii) for loans receivable, net, mortgage debt, and swaps, calculated utilizing standardized pricing models in which significant inputs or value drivers are observable in active markets. For bank line of credit, commercial paper, term loans and other debt, the carrying values are a reasonable estimate of fair value because the borrowings are primarily based on market interest rates and the Company’s credit rating.

(3)	During the years ended December 31, 2019 and 2018, there were no material transfers of financial assets or liabilities within the fair value hierarchy.

NOTE 21.	Derivative Financial Instruments

(1)	Derivative liabilities are recorded in accounts payable and accrued liabilities on the consolidated balance sheets.

(2)	Represents three interest-rate swap contracts, which hedge fluctuations in interest payments on variable-rate secured debt due to overall changes in hedged cash flows.

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NOTE 22.	Selected Quarterly Financial Data (Unaudited)

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(1)	Includes allowance for doubtful accounts, straight-line rent reserves, and allowances for loan and direct financing lease losses (see Note 6 to the Consolidated Financial Statements).

(2)

In conjunction with adopting ASU 2016-02 (see Note 2 to the Consolidated Financial Statements) on January 1, 2019, the Company wrote-off certain previously reserved tenant receivables (accounts receivable and straight-line rent receivable) through a cumulative effect adjustment to equity. These amounts are included in the end of year balance for 2018, but removed from the beginning of the year balance for 2019.

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(1)	At December 31, 2019, the tax basis of the Company’s net real estate assets is less than the reported amounts by $897 million (unaudited).

(2)	Buildings and improvements are depreciated over useful lives ranging up to 60 years.

(3)	Assets with no initial cost to the Company represent development projects in process or completed on land that the Company leases from a third party.

(1)	Represents real estate and accumulated depreciation related to fully depreciated assets, foreign exchange translation, or changes in lease classification.

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(1)	Includes the conversion of loans into equity ownership in real estate.

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

ITEM 9A.	Controls and Procedures

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ITEM 9B.	Other Information

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ITEM 10.	Directors, Executive Officers and Corporate Governance

ITEM 11.	Executive Compensation

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

ITEM 13.	Certain Relationships and Related Transactions, and Director Independence

ITEM 14.	Principal Accounting Fees and Services

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ITEM 15.	Exhibits, Financial Statement Schedules

(a) 3.	Exhibits

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*	Management Contract or Compensatory Plan or Arrangement.

†	Filed herewith.

††	Furnished herewith.

ITEM 16.	Form 10-K Summary

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