WELLTOWER INC. - Quarter Report: 2015 June (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2015


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

For the transition period from to

Commission file number: 1-8923

HEALTH CARE REIT, INC.

(Exact name of registrant as specified in its charter)


Delaware		34-1096634

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

4500 Dorr Street, Toledo, Ohio		43615

(Address of principal executive offices)		(Zip Code)

(419) 247-2800

(Registrant’s telephone number, including area code)

Not Applicable

(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 such filing requirements for the past 90 days. Yes ☑ 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 ☑ 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 ☑

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

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

As of July 28, 2015, the registrant had 351,884,894 shares of common stock outstanding.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets — June 30, 2015 and December 31, 2014	3

Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2015 and 2014	4

Consolidated Statements of Equity — Six months ended June 30, 2015 and 2014	6

Consolidated Statements of Cash Flows — Six months ended June 30, 2015 and 2014	7

Notes to Unaudited Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3. Quantitative and Qualitative Disclosures About Market Risk	56

Item 4. Controls and Procedures	58

PART II. OTHER INFORMATION

Item 1. Legal Proceedings Item 1A. Risk Factors	58 58

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 5. Other Information	59

Item 6. Exhibits	59

Signatures	60

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

				June 30, 2015		December 31, 2014
				(Unaudited)		(Note)
Assets:
Real estate investments:
	Real property owned:
		Land and land improvements		$	2,244,048	$	2,046,541
		Buildings and improvements			24,097,963		21,799,313
		Acquired lease intangibles			1,214,628		1,135,936
		Real property held for sale, net of accumulated depreciation			352,113		323,818
		Construction in progress			159,352		186,327
			Gross real property owned		28,068,104		25,491,935
		Less accumulated depreciation and amortization			(3,363,834)		(3,020,908)
			Net real property owned		24,704,270		22,471,027
	Real estate loans receivable				760,543		380,169
	Net real estate investments				25,464,813		22,851,196
Other assets:
		Investments in unconsolidated entities			569,621		744,151
		Goodwill			68,321		68,321
		Deferred loan expenses			65,727		69,282
		Cash and cash equivalents			217,942		473,726
		Restricted cash			72,706		79,697
		Straight-line rent receivable			336,853		279,806
		Receivables and other assets			611,499		448,117
			Total other assets		1,942,669		2,163,100
Total assets				$	27,407,482	$	25,014,296

Liabilities and equity
Liabilities:
		Borrowings under primary unsecured credit facility		$	350,000	$	-
		Senior unsecured notes			8,060,493		7,766,251
		Secured debt			3,066,633		2,977,713
		Capital lease obligations			75,240		84,049
		Accrued expenses and other liabilities			650,437		626,825
Total liabilities					12,202,803		11,454,838
Redeemable noncontrolling interests					159,400		86,409
Equity:
		Preferred stock			1,006,250		1,006,250
		Common stock			351,651		328,835
		Capital in excess of par value			16,300,841		14,740,712
		Treasury stock			(41,693)		(35,241)
		Cumulative net income			3,378,096		2,842,022
		Cumulative dividends			(6,230,540)		(5,635,923)
		Accumulated other comprehensive income (loss)			(81,670)		(77,009)
		Other equity			4,238		5,507
			Total Health Care REIT, Inc. stockholders’ equity		14,687,173		13,175,153
		Noncontrolling interests			358,106		297,896
Total equity					15,045,279		13,473,049
Total liabilities and equity				$	27,407,482	$	25,014,296

NOTE: The consolidated balance sheet at December 31, 2014 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 COMPREHENSIVE INCOME (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands, except per share data)

			Three Months Ended				Six Months Ended
			June 30,				June 30,
			2015		2014		2015		2014
Revenues:
	Rental income		$	396,626	$	347,847	$	776,213	$	684,303
	Resident fees and services			535,553		467,639		1,028,063		923,904
	Interest income			20,576		8,933		37,570		17,527
	Other income			4,414		2,027		9,500		2,520
		Total revenues		957,169		826,446		1,851,346		1,628,254
Expenses:
	Interest expense			118,861		121,065		239,942		241,898
	Property operating expenses			398,354		343,754		774,815		685,185
	Depreciation and amortization			208,802		214,449		397,631		447,766
	General and administrative			38,474		51,660		73,612		84,524
	Transaction costs			12,491		7,040		61,045		7,993
	Loss (gain) on derivatives, net			-		351		(58,427)		351
	Loss (gain) on extinguishment of debt, net			18,887		531		34,288		383
	Impairment of assets			-		-		2,220		-
	Other expenses			10,583		-		10,583		-
		Total expenses		806,452		738,850		1,535,709		1,468,100

Income (loss) from continuing operations before income taxes
	and income from unconsolidated entities			150,717		87,596		315,637		160,154
Income tax (expense) benefit				(7,417)		(1,569)		(7,113)		(3,830)
Income (loss) from unconsolidated entities				(2,952)		(11,516)		(15,600)		(17,073)
Income (loss) from continuing operations				140,348		74,511		292,924		139,251
Discontinued operations:
	Gain (loss) on sales of discontinued properties, net			-		6,411		-		6,411
	Income (loss) from discontinued operations, net			-		264		-		724
		Discontinued operations, net		-		6,675		-		7,135

Gain (loss) on real estate dispositions, net				190,111		6,668		246,956		6,668
Net income				330,459		87,854		539,880		153,054
Less:		Preferred stock dividends		16,352		16,352		32,703		32,705
Less:		Net income (loss) attributable to noncontrolling interests⁽¹⁾		1,534		(327)		3,804		(1,502)
Net income (loss) attributable to common stockholders			$	312,573	$	71,829	$	503,373	$	121,851

Average number of common shares outstanding:
	Basic			350,399		296,256		343,624		293,046
	Diluted			351,366		297,995		344,623		294,590

Earnings per share:
	Basic:
	Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions		$	0.89	$	0.22	$	1.46	$	0.39
	Discontinued operations, net			-		0.02		-		0.02
	Net income (loss) attributable to common stockholders*		$	0.89	$	0.24	$	1.46	$	0.42

	Diluted:
	Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions		$	0.89	$	0.22	$	1.46	$	0.39
	Discontinued operations, net			-		0.02		-		0.02
	Net income (loss) attributable to common stockholders*		$	0.89	$	0.24	$	1.46	$	0.41

Dividends declared and paid per common share			$	0.825	$	0.795	$	1.65	$	1.59

* Amounts may not sum due to rounding

(1) Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

		Three Months Ended June 30,				Six Months Ended June 30,
		2015		2014		2015		2014
Net income		$	330,459	$	87,854	$	539,880	$	153,054

Other comprehensive income (loss):
	Unrecognized gain (loss) on equity investments		(3,413)		(160)		(15,100)		389
	Unrealized gains (losses) on cash flow hedges		462		432		(1,697)		872
	Foreign currency translation gain (loss)		32,384		13,109		3,187		3,220
Total other comprehensive income (loss)			29,433		13,381		(13,610)		4,481

Total comprehensive income (loss)			359,892		101,235		526,270		157,535
Less: Total comprehensive income (loss) attributable to noncontrolling interests⁽¹⁾			5,140		6,277		(5,145)		(2,910)
Total comprehensive income (loss) attributable to common stockholders		$	354,752	$	94,958	$	531,415	$	160,445

(1) Includes amounts attributable to redeemable noncontrolling interests.

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, 2015
														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		$	1,006,250	$	328,835	$	14,740,712	$	(35,241)	$	2,842,022	$	(5,635,923)	$	(77,009)	$	5,507	$	297,896	$	13,473,049
Comprehensive income:
	Net income (loss)										536,074								3,975		540,049
	Other comprehensive income														(4,661)				(8,949)		(13,610)
Total comprehensive income																					526,439
Net change in noncontrolling interests							(2,786)												65,184		62,398
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,189		154,463		(6,452)								(1,721)				148,479
Proceeds from issuance of common stock					19,550		1,403,714														1,423,264
Equity component of convertible debt					1,077		4,738														5,815
Option compensation expense																	452				452
Cash dividends paid:
	Common stock cash dividends												(561,914)								(561,914)
	Preferred stock cash dividends												(32,703)								(32,703)
Balances at end of period		$	1,006,250	$	351,651	$	16,300,841	$	(41,693)	$	3,378,096	$	(6,230,540)	$	(81,670)	$	4,238	$	358,106	$	15,045,279

		Six Months Ended June 30, 2014
														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		$	1,017,361	$	289,461	$	12,418,520	$	(21,263)	$	2,329,869	$	(4,600,854)	$	(24,531)	$	6,020	$	341,748	$	11,756,331
Comprehensive income:
	Net income (loss)										154,556								(1,351)		153,205
	Other comprehensive income														5,889				(1,408)		4,481
Total comprehensive income																					157,686
Net change in noncontrolling interests							(4,680)												(6,868)		(11,548)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures					2,561		147,486		(11,026)								(320)				138,701
Proceeds from issuance of common stock					16,100		952,417														968,517
Conversion of preferred stock			(11,111)		233		10,878														-
Option compensation expense																	459				459
Cash dividends paid:
	Common stock cash dividends												(462,551)								(462,551)
	Preferred stock cash dividends												(32,705)								(32,705)
Balances at end of period		$	1,006,250	$	308,355	$	13,524,621	$	(32,289)	$	2,484,425	$	(5,096,110)	$	(18,642)	$	6,159	$	332,121	$	12,514,890

See notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

HEALTH CARE REIT, INC. AND SUBSIDIARIES

(In thousands)

			Six Months Ended
			June 30,
			2015		2014
Operating activities:
Net income			$	539,880	$	153,054
Adjustments to reconcile net income to
	net cash provided from (used in) operating activities:
		Depreciation and amortization		397,631		447,766
		Other amortization expenses		2,458		3,065
		Impairment of assets		2,220		-
		Stock-based compensation expense		20,178		21,837
		Loss (gain) on derivatives, net		(58,427)		351
		Loss (gain) on extinguishment of debt, net		34,288		383
		Loss (income) from unconsolidated entities		15,600		17,073
		Rental income in excess of cash received		(57,047)		(26,414)
		Amortization related to above (below) market leases, net		870		365
		Loss (gain) on sales of properties, net		(246,956)		(13,079)
		Distributions by unconsolidated entities		282		7,155
		Increase (decrease) in accrued expenses and other liabilities		10,417		5,433
		Decrease (increase) in receivables and other assets		(42,048)		(21,455)
Net cash provided from (used in) operating activities				619,346		595,534

Investing activities:
	Cash disbursed for acquisitions			(2,153,970)		(488,066)
	Cash disbursed for capital improvements to existing properties			(67,086)		(54,688)
	Cash disbursed for construction in progress			(114,478)		(95,201)
	Capitalized interest			(4,446)		(3,305)
	Investment in real estate loans receivable			(416,588)		(54,877)
	Other investments, net of payments			(110,531)		(47,858)
	Principal collected on real estate loans receivable			37,342		20,941
	Contributions to unconsolidated entities			(117,047)		(246,794)
	Distributions by unconsolidated entities			116,288		22,925
	Proceeds from (payments on) derivatives			72,477		-
	Decrease in restricted cash			12,422		7,682
	Proceeds from sales of real property			523,175		140,819
Net cash provided from (used in) investing activities				(2,222,442)		(798,422)

Financing activities:
	Net increase (decrease) under unsecured credit facilities			350,000		(130,000)
	Proceeds from issuance of senior unsecured notes			743,407		-
	Payments to extinguish senior unsecured notes			(477,550)		(1)
	Net proceeds from the issuance of secured debt			136,801		10,690
	Payments on secured debt			(323,950)		(219,980)
	Net proceeds from the issuance of common stock			1,562,350		1,101,969
	Decrease (increase) in deferred loan expenses			(5,285)		(3,395)
	Contributions by noncontrolling interests⁽¹⁾			4,926		4,485
	Distributions to noncontrolling interests⁽¹⁾			(19,371)		(14,208)
	Acquisitions of noncontrolling interests			(4,741)		(1,175)
	Cash distributions to stockholders			(594,617)		(495,256)
	Other financing activities			(27,253)		(608)
Net cash provided from (used in) financing activities				1,344,717		252,521
Effect of foreign currency translation on cash and cash equivalents				2,595		(1,059)
Increase (decrease) in cash and cash equivalents				(255,784)		48,574
Cash and cash equivalents at beginning of period				473,726		158,780
Cash and cash equivalents at end of period			$	217,942	$	207,354

Supplemental cash flow information:
	Interest paid		$	208,885	$	224,544
	Income taxes paid			10,140		11,955

(1) Includes amounts attributable to redeemable noncontrolling interests.

See notes to unaudited consolidated financial statements

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 seniors housing and health care real estate. Our full service platform offers property management and development services to our customers. As of June 30, 2015, our diversified portfolio consisted of 1,411 properties in 46 states, the United Kingdom, and Canada. Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities.

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, 2015 are not necessarily an indication of the results that may be expected for the year ending December 31, 2015. For further information, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted beginning after December 15, 2016. We are currently evaluating the impact that the standard will have on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected. Upon adoption, we will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period presented to reflect the period-specific effects of applying the new guidance. The guidance is effective beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.

3. Real Property Acquisitions and Development

The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their respective fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 for information regarding our foreign currency policies.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Triple-net Activity

		Six Months Ended
(In thousands)		June 30, 2015⁽¹⁾			June 30, 2014
Land and land improvements			$	92,287		$	18,530
Buildings and improvements				744,515			230,126
Acquired lease intangibles				2,817			-
Restricted cash				6			-
Receivables and other assets				60			-
	Total assets acquired			839,685			248,656
Accrued expenses and other liabilities				(1,845)			-
	Total liabilities assumed			(1,845)			-
Non-cash acquisition related activity				(936)			(1,839)
	Cash disbursed for acquisitions			836,904			246,817
Construction in progress additions				74,694			55,535
Less:	Capitalized interest			(3,303)			(2,332)
	Foreign currency translation			240			(116)
Cash disbursed for construction in progress				71,631			53,087
Capital improvements to existing properties				19,029			10,381
	Total cash invested in real property, net of cash acquired		$	927,564		$	310,285

(1) Includes acquisitions with an aggregate purchase price of $688,288,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

Seniors Housing Operating Activity


		Six Months Ended
(In thousands)		June 30, 2015⁽¹⁾			June 30, 2014
Land and land improvements			$	94,294		$	3,546
Building and improvements				1,174,465			37,274
Acquired lease intangibles				71,089			5,569
Restricted cash				5,425			-
Receivables and other assets				23,645			33
	Total assets acquired⁽²⁾			1,368,918			46,422
Secured debt				(208,960)			(12,846)
Accrued expenses and other liabilities				(19,011)			(853)
	Total liabilities assumed			(227,971)			(13,699)
Noncontrolling interests				(86,842)			-
	Cash disbursed for acquisitions			1,054,105			32,723
Construction in progress additions				19,926			2,348
Less:	Capitalized interest			(715)			(75)
	Foreign currency translation			(40)			-
Cash disbursed for construction in progress				19,171			2,273
Capital improvements to existing properties				32,766			32,171
	Total cash invested in real property, net of cash acquired		$	1,106,042		$	67,167

(1) Includes acquisitions with an aggregate purchase price of $1,344,831,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
(2) Excludes $3,390,000 and $245,000 of cash acquired during the six months ended June 30, 2015 and 2014, respectively.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outpatient Medical Activity


		Six Months Ended
(In thousands)		June 30, 2015⁽¹⁾			June 30, 2014
Land and land improvements			$	737	$	1,655
Buildings and improvements				426,130		212,572
Acquired lease intangibles				19,372		1,525
Receivables and other assets				-		249
	Total assets acquired⁽²⁾			446,239		216,001
Secured debt				(112,000)		-
Accrued expenses and other liabilities				(2,743)		(7,475)
	Total liabilities assumed			(114,743)		(7,475)
Noncontrolling interests				(68,535)		-
	Cash disbursed for acquisitions			262,961		208,526
Construction in progress additions				26,025		49,805
Less:	Capitalized interest			(428)		(898)
	Accruals⁽³⁾			(1,921)		(9,584)
Cash disbursed for construction in progress				23,676		39,323
Capital improvements to existing properties				15,291		12,654
	Total cash invested in real property		$	301,928	$	260,503

(1) Includes acquisitions with an aggregate purchase price of $440,220,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
(2) Excludes $4,372,000 and $0 of cash acquired during the six months ended June 30, 2015 and 2014, respectively.
(3) Represents non-cash consideration accruals for amounts to be paid in future periods relating to properties that converted in the periods noted above.

Construction Activity

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


			Six Months Ended
			June 30, 2015			June 30, 2014
	Development projects:
		Triple-net		$	72,775		$	71,570
		Senior housing - operating			19,869			-
		Outpatient medical			16,592			42,799
		Total development projects			109,236			114,369
	Expansion projects				38,808			10,849
Total construction in progress conversions				$	148,044		$	125,218

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2015		December 31, 2014
Assets:
	In place lease intangibles	$	1,049,407	$	988,290
	Above market tenant leases		82,298		65,684
	Below market ground leases		61,159		62,426
	Lease commissions		21,764		19,536
	Gross historical cost		1,214,628		1,135,936
	Accumulated amortization		(814,084)		(776,501)
	Net book value	$	400,544	$	359,435

	Weighted-average amortization period in years		16.2		17.8

Liabilities:
	Below market tenant leases	$	89,909	$	91,168
	Above market ground leases		7,860		7,859
	Gross historical cost		97,769		99,027
	Accumulated amortization		(42,940)		(40,891)
	Net book value	$	54,829	$	58,136

	Weighted-average amortization period in years		15.5		14.5

The following is a summary of real estate intangible amortization for the periods presented (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Rental income related to above/below market tenant leases, net	$	(424)	$	290	$	(217)	$	245
Property operating expenses related to above/below market ground leases, net		(334)		(299)		(653)		(610)
Depreciation and amortization related to in place lease intangibles and lease commissions		(31,973)		(59,603)		(56,297)		(138,996)

The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):


		Assets		Liabilities
2015	$	58,072	$	$3,364
2016		72,338		6,512
2017		43,880		6,052
2018		29,943		5,583
2019		23,946		5,325
Thereafter		172,365		27,993
Total	$	400,544	$	54,829

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Dispositions, Assets Held for Sale and Discontinued Operations

We periodically sell properties for various reasons, including favorable market conditions or the exercise of tenant purchase options. The following is a summary of our real property disposition activity for the periods presented (in thousands):


		Six Months Ended
		June 30, 2015			June 30, 2014
Real estate dispositions:
	Triple-net		$	105,274		$	41,124
	Outpatient medical⁽¹⁾			165,221			86,616
	Land parcels			5,724			-
	Total dispositions			276,219			127,740
Gain (loss) on real estate dispositions, net				246,956			13,079
Proceeds from real estate dispositions			$	523,175		$	140,819

(1) Primarily related to the disposition of an unconsolidated equity investment with Forest City Enterprises.

Dispositions and Assets Held for Sale

Pursuant to our adoption of ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”), operating results attributable to properties sold subsequent to or classified as held for sale after January 1, 2014 and which do not meet the definition of discontinued operations are no longer reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands):


			Three Months Ended				Six Months Ended
			June 30,				June 30,
		2015		2014		2015		2014
Revenues:
	Rental income	$	7,463	$	30,857	$	15,944	$	62,817
Expenses:
	Interest expense		1,463		6,020		2,744		13,875
	Property operating expenses		1,482		2,257		3,009		4,422
	Provision for depreciation		2,394		9,316		4,277		19,059
	Total expenses		5,339		17,593		10,030		37,356
Income (loss) from real estate dispositions, net		$	2,124	$	13,264	$	5,914	$	25,461

Discontinued Operations

We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at January 1, 2014 to discontinued operations in accordance with ASU 2014-08. The following illustrates the reclassification impact as reported in our Consolidated Statements of Comprehensive Income as a result of classifying these properties as discontinued operations for the periods presented (in thousands):


			Three Months Ended				Six Months Ended
			June 30,				June 30,
		2015		2014		2015		2014
Revenues:
	Rental income	$	-	$	298	$	-	$	881
Expenses:
	Interest expense		-		34		-		157
	Total expenses		-		34		-		157
Income (loss) from discontinued operations, net		$	-	$	264	$	-	$	724

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2015						June 30, 2014
				Outpatient						Outpatient
		Triple-net		Medical		Totals		Triple-net		Medical		Totals
Advances on real estate loans receivable:
	Investments in new loans	$	379,604	$	-	$	379,604	$	3,493	$	-	$	3,493
	Draws on existing loans		34,699		2,285		36,984		38,602		12,782		51,384
	Net cash advances on real estate loans		414,303		2,285		416,588		42,095		12,782		54,877
Receipts on real estate loans receivable:
	Loan payoffs		25,656		-		25,656		3,950		-		3,950
	Principal payments on loans		11,686		-		11,686		16,951		40		16,991
	Net cash receipts on real estate loans		37,342		-		37,342		20,901		40		20,941

Net cash advances (receipts) on real estate loans			376,961		2,285		379,246		21,194		12,742		33,936
Change in balance due to foreign currency translation			1,127		-		1,127		1,104		-		1,104
Net change in real estate loans receivable		$	378,088	$	2,285	$	380,373	$	22,298	$	12,742	$	35,040

We recorded no provision for loan losses during the six months ended June 30, 2015. At June 30, 2015, we had real estate loans with outstanding balances of $21,000,000 on non-accrual status with an allowance for loan losses of $0.

7. Investments in Unconsolidated Entities

We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. The results of operations for these properties have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities. The following is a summary of our investments in unconsolidated entities (dollars in thousands):


	Percentage Ownership⁽¹⁾	June 30, 2015		December 31, 2014
Triple-net	10% to 49%	$	26,243	$	31,511
Seniors housing operating	10% to 50%		506,092		539,147
Outpatient medical	36% to 49%		37,286		173,493
Total		$	569,621	$	744,151


(1) Excludes ownership of in-substance real estate.

At June 30, 2015, the aggregate unamortized basis difference of our joint venture investments of $166,000,000 is primarily attributable to appreciation of the underlying properties and transaction costs. This difference will be amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.

8. Credit Concentration

We use net operating income from continuing operations (“NOI”) as our credit concentration metric. See Note 17 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the six month period ending June 30, 2015, excluding our share of NOI in unconsolidated entities (dollars in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


		Number of	Total		Percent of
Concentration by relationship:⁽¹⁾		Properties	NOI		NOI⁽²⁾
	Genesis Healthcare	180	$	179,790	17%
	Sunrise Senior Living⁽³⁾	144		148,317	14%
	Brookdale Senior Living	146		83,547	8%
	Revera⁽³⁾	71		47,995	4%
	Benchmark Senior Living	50		47,406	4%
	Remaining portfolio	759		569,476	53%
	Totals	1,350	$	1,076,531	100%

(1) Genesis Healthcare is in our triple-net segment. Sunrise Senior Living and Revera are in our seniors housing operating segment. Benchmark Senior Living and Brookdale Senior Living are in both our triple-net and seniors housing operating segments.

(2) NOI with our top five relationships comprised 49% of total NOI for the year ending December 31, 2014.

(3) Revera owns a controlling interest in Sunrise.

9. Borrowings Under Credit Facilities and Related Items

At June 30, 2015, we had a primary unsecured credit facility with a consortium of 28 banks that includes a $2,500,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000 and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary unsecured credit facility also allows us to borrow up to $500,000,000 in alternate currencies (none outstanding at June 30, 2015). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (1.112% at June 30, 2015). The applicable margin is based on certain of our debt ratings and was 0.925% at June 30, 2015. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on certain of our debt ratings and was 0.15% at June 30, 2015. The primary unsecured credit facility is scheduled to expire October 31, 2018 and can be extended for an additional year at our option.

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


		Three Months Ended June 30,				Six Months Ended June 30,
		2015		2014		2015		2014
Balance outstanding at quarter end⁽¹⁾		$	350,000	$	-	$	350,000	$	-
Maximum amount outstanding at any month end		$	535,000	$	637,000	$	535,000	$	637,000
Average amount outstanding (total of daily
	principal balances divided by days in period)	$	501,758	$	375,824	$	455,608	$	331,602
Weighted average interest rate (actual interest
	expense divided by average borrowings outstanding)		1.13%		1.37%		1.17%		1.36%


(1) As of June 30, 2015, letters of credit in the aggregate amount of $61,882,000 have been issued, which reduces the borrowing capacity on the unsecured revolving credit facility.

10. Senior Unsecured Notes and Secured Debt

We may repurchase, redeem or refinance convertible and non-convertible senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The non-convertible senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (1) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (2) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At June 30, 2015, the annual principal payments due on these debt obligations were as follows (in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Senior		Secured
	Unsecured Notes^(1,2)		Debt ^(1,3)		Totals
2015⁽⁴⁾	$	56,975	$	227,775	$	284,750
2016		400,000		486,908		886,908
2017		450,000		400,621		850,621
2018		450,000		557,849		1,007,849
2019^(5,6)		1,300,417		373,126		1,673,543
Thereafter^(7,8)		5,452,070		987,592		6,439,662
Totals	$	8,109,462	$	3,033,871	$	11,143,333

(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(2) Annual interest rates range from 1.162% to 6.5%.
(3) Annual interest rates range from 1.0% to 7.98%. Carrying value of the properties securing the debt totaled $5,405,240,000 at June 30, 2015.
(4) Senior unsecured notes amount represents our 3.00% Convertible Senior Notes due 2029. On July 17, 2015, we announced that we will redeem all outstanding notes ($22,415,000, which amount does not include notes surrendered for conversion prior to July 17, 2015) on August 17, 2015.
(5) On July 25, 2014, we refinanced the funding on a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $200,417,000 based on the Canadian/U.S. Dollar exchange rate on June 30, 2015). The loan matures on October 31, 2018 (with an option to extend for an additional year at our discretion) and bears interest at the Canadian Dealer Offered Rate plus 97.5 basis points (2.0% at June 30, 2015).
(6) On July 25, 2014, we refinanced the funding on a $500,000,000 unsecured term credit facility. The loan matures on October 31, 2018 (with an option to extend for one additional year at our discretion) and bears interest at LIBOR plus 97.5 basis points (1.16% at June 30, 2015).
(7) On November 20, 2013, we completed the sale of £550,000,000 (approximately $865,370,000 based on the Sterling/U.S. Dollar exchange rate in effect on June 30, 2015) of 4.8% senior unsecured notes due 2028.
(8) On November 25, 2014, we completed the sale of £500,000,000 (approximately $786,700,000 based on the Sterling/U.S. Dollar exchange rate in effect on June 30, 2015) of 4.5% senior unsecured notes due 2034.

The following is a summary of our senior unsecured notes principal activity during the periods presented (dollars in thousands):


	Six Months Ended
	June 30, 2015			June 30, 2014
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	7,817,154	4.385%	$	7,421,707	4.400%
Debt issued		750,000	4.000%		-	0.000%
Debt extinguished		(300,000)	6.200%		-	0.000%
Debt redeemed		(158,990)	3.000%		(1)	3.000%
Foreign currency		1,298	3.601%		28,401	4.865%
Ending balance	$	8,109,462	4.252%	$	7,450,107	4.402%

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):


	Six Months Ended
		June 30, 2015		June 30, 2014
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	2,941,765	4.94%	$	3,010,711	5.10%
Debt issued		136,801	2.84%		10,690	3.54%
Debt assumed		317,897	3.22%		12,005	4.15%
Debt extinguished		(290,984)	4.21%		(188,722)	5.73%
Foreign currency		(38,642)	3.99%		(31,258)	4.98%
Principal payments		(32,966)	4.77%		(1,200)	3.94%
Ending balance	$	3,033,871	4.75%	$	2,812,226	5.04%

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, 2015, we were in compliance with all of the covenants under our debt agreements.

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. In addition, non-U.S. investments expose us to the potential losses associated with adverse changes in foreign currency to U.S. Dollar exchange rates. We may elect to manage this risk through the use of forward contracts and issuing debt in foreign currencies.

I nterest Rate Swap Contracts and Foreign Currency Forward Contracts Designated as 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 $441,000 of gains, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.

Foreign Currency Hedges

For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. During the six months ended June 30, 2015, we settled certain net investment hedges generating cash proceeds of $72,477,000. The balance of the cumulative translation adjustment will be reclassified to earnings when the hedged investment is sold or substantially liquidated.

The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


		June 30, 2015		December 31, 2014
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	1,175,000	$	900,000
Denominated in Pounds Sterling	£	550,000	£	350,000

Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars	$	250,000	$	250,000
Denominated in Pounds Sterling	£	1,050,000	£	1,050,000

Derivatives designated as cash flow hedges
Denominated in U.S. Dollars	$	57,000	$	57,000
Denominated in Canadian Dollars	$	61,000	$	58,000
Denominated in Pounds Sterling	£	60,000	£	40,000

Derivative instruments not designated:⁽¹⁾
Denominated in Canadian Dollars	$	700,000	$	12,000


(1) These non-designated instruments represent off-setting forward exchange contracts to manage against adverse movements in exchange rates with regards to the purchase price on pending foreign acquisitions.

The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):


		Three Months Ended				Six Months Ended
		June 30,				June 30,
	Location		2015		2014		2015		2014
Gain (loss) on interest rate swap recognized in OCI (effective portion)	OCI	$	(1)	$	(4)	$	(1)	$	(7)

Gain (loss) on interest rate swaps reclassified from AOCI into income (effective portion)	Interest expense		(462)		(436)		(928)		(879)

Gain (loss) on forward exchange contracts recognized in income	Interest expense		1,191		-		3,938		-

Gain (loss) on forward exchange contracts recognized in income	Loss (gain) on derivatives, net		-		(351)		-		(351)

Loss (gain) on option exercise⁽¹⁾	Loss (gain) on derivatives, net		-		-		(58,427)		-

Gain (loss) on foreign exchange contracts and term loans designated as net investment hedge recognized in OCI	OCI		(149,436)		(67,899)		34,615		(49,410)


(1) In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12. Commitments and Contingencies

At June 30, 2015, we had eight outstanding letter of credit obligations totaling $75,553,000 and expiring between 2015 and 2018. At June 30, 2015, we had outstanding construction in progress of $159,352,000 and were committed to providing additional funds of approximately $402,894,000 to complete construction. Purchase obligations include contingent purchase obligations totaling $39,941,000. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. 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 Accounting Standards Codification (“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, 2015, we had operating lease obligations of $944,824,000 relating to certain ground leases and company office space and capital lease obligations of $100,935,000 relating primarily to certain investment properties. Regarding 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, 2015, aggregate future minimum rentals to be received under these noncancelable subleases totaled $27,976,000.

13. Stockholders’ Equity

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


	June 30, 2015	December 31, 2014
Preferred Stock:
Authorized shares	50,000,000	50,000,000
Issued shares	25,875,000	25,875,000
Outstanding shares	25,875,000	25,875,000

Common Stock, $1.00 par value:
Authorized shares	700,000,000	700,000,000
Issued shares	352,350,728	329,487,615
Outstanding shares	351,573,700	328,790,066

Preferred Stock. The following is a summary of our preferred stock activity during the periods indicated:


	Six Months Ended
	June 30, 2015		June 30, 2014
		Weighted Avg.		Weighted Avg.
	Shares	Dividend Rate	Shares	Dividend Rate
Beginning balance	25,875,000	6.500%	26,108,236	6.496%
Shares converted	-	0.000%	(233,236)	6.000%
Ending balance	25,875,000	6.500%	25,875,000	6.500%

Common Stock. The following is a summary of our common stock issuances during the six months ended June 30, 2015 and 2014 (dollars in thousands, except per share amounts):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds
June 2014 public issuance	16,100,000	$	62.35	$	1,003,835	$	968,517
2014 Dividend reinvestment plan issuances	2,132,427		58.73		125,232		125,232
2014 Option exercises	175,699		46.78		8,220		8,220
2014 Stock incentive plans, net of forfeitures	124,723				-		-
2014 Senior note conversions	1				-		-
2014 Preferred stock conversions	233,236				-		-
2014 Totals	18,766,086			$	1,137,287	$	1,101,969

February 2015 public issuance	19,550,000	$	75.50	$	1,476,025	$	1,423,935
2015 Dividend reinvestment plan issuances	1,766,585		72.83		128,653		128,653
2015 Option exercises	211,041		46.26		9,762		9,762
2015 Stock incentive plans, net of forfeitures	179,037				-		-
2015 Senior note conversions	1,076,971				-		-
2015 Totals	22,783,634			$	1,614,440	$	1,562,350

Dividends. The increase in dividends is primarily attributable to increases in our common shares outstanding as described above and an increase in common dividends per share. The following is a summary of our dividend payments (in thousands, except per share amounts):


	Six Months Ended
	June 30, 2015				June 30, 2014
	Per Share		Amount		Per Share		Amount
Common Stock	$	1.6500	$	561,914	$	1.5900	$	462,551
Series H Preferred Stock		-		-		0.0079		1
Series I Preferred Stock		1.6250		23,359		1.6250		23,360
Series J Preferred Stock		0.8126		9,344		0.8126		9,344
Totals			$	594,617			$	495,256

Accumulated Other Comprehensive Income. The following is a summary of accumulated other comprehensive income (loss) for the periods presented (in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


		Unrecognized gains (losses) related to:
		Foreign Currency Translation		Available for Sale Securities		Actuarial Losses		Cash Flow Hedges		Total
Balance at December 31, 2014	$	(74,770)	$	-	$	(1,589)	$	(650)	$	(77,009)
Other comprehensive income before reclassification adjustments		12,136		(15,100)		-		(2,625)		(5,589)
Reclassification amount to net income		-		-		-		928 ⁽¹⁾		928
Net current-period other comprehensive income		12,136		(15,100)		-		(1,697)		(4,661)
Balance at June 30, 2015	$	(62,634)	$	(15,100)	$	(1,589)	$	(2,347)	$	(81,670)

Balance at December 31, 2013	$	(17,631)	$	(389)	$	(1,452)	$	(5,059)	$	(24,531)
Other comprehensive income before reclassification adjustments		4,628		389		-		(7)		5,010
Reclassification amount to net income		-		-		-		879 ⁽¹⁾		879
Net current-period other comprehensive income		4,628		389		-		872		5,889
Balance at June 30, 2014	$	(13,003)	$	-	$	(1,452)	$	(4,187)	$	(18,642)

(1) Please see note 11 for additional information.

14. Stock Incentive Plans

Our Amended and Restated 2005 Long-Term Incentive Plan (“2005 Plan”) authorizes up to 6,200,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Our non-employee directors, officers and key employees are eligible to participate in the 2005 Plan. The 2005 Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to five years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $11,124,000 and $20,178,000 for the three and six months ended June 30, 2015, respectively, and $14,170,000 and $21,837,000 for the same periods in 2014.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

15. Earnings Per Share

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


		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2015		2014		2015		2014
Numerator for basic and diluted earnings
	per share - net income (loss) attributable
	to common stockholders	$	312,573	$	71,829	$	503,373	$	121,851

Denominator for basic earnings per
	share - weighted average shares		350,399		296,256		343,624		293,046
Effect of dilutive securities:
	Employee stock options		153		191		176		170
	Non-vested restricted shares		471		472		444		506
	Convertible senior unsecured notes		343		1,076		379		868
Dilutive potential common shares			967		1,739		999		1,544
Denominator for diluted earnings per
	share - adjusted weighted average shares		351,366		297,995		344,623		294,590

Basic earnings per share		$	0.89	$	0.24	$	1.46	$	0.42
Diluted earnings per share		$	0.89	$	0.24	$	1.46	$	0.41

The Series I Cumulative Convertible Perpetual Preferred Stock was not included in the calculations as the effect of conversions into common stock was anti-dilutive.

16. Disclosure about Fair Value of Financial Instruments

U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

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

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information.

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

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

Mortgage Loans and Other Real Estate Loans Receivable — The fair value of mortgage loans and other real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

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

Available-for-sale Equity Investments — Available-for-sale equity investments are recorded at their fair value based on Level 1 publicly available trading prices.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Borrowings Under Primary Unsecured Credit Facility — The carrying amount of the primary unsecured credit facility approximates fair value because the borrowings are interest rate adjustable.

Senior Unsecured Notes — The fair value of the fixed rate senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of variable rate senior unsecured notes payable approximates fair value because the borrowings are interest rate adjustable.

Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable.

Foreign Currency Forward Contracts — Foreign currency forward contracts are recorded in other assets or other liabilities on the balance sheet at fair market value. Fair market value is determined using Level 2 inputs by estimating the future value of the currency pair based on existing exchange rates, comprised of current spot and traded forward points, and calculating a present value of the net amount using a discount factor based on observable traded interest rates.

Redeemable OP Unitholder Interests — The fair value of our redeemable unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances.

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


		June 30, 2015				December 31, 2014
		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
	Mortgage loans receivable	$	564,056	$	592,280	$	188,651	$	194,935
	Other real estate loans receivable		196,487		196,793		191,518		195,375
	Available-for-sale equity investments		43,326		43,326		-		-
	Cash and cash equivalents		217,942		217,942		473,726		473,726
	Foreign currency forward contracts		35,377		35,377		57,087		57,087

Financial liabilities:
	Borrowings under unsecured credit facilities	$	350,000	$	350,000	$	-	$	-
	Senior unsecured notes		8,060,493		8,639,898		7,766,251		8,613,702
	Secured debt		3,066,633		3,117,499		2,977,713		3,053,067
	Foreign currency forward contracts		16,465		16,465		1,495		1,495
Redeemable OP unitholder interests			109,187		109,187		46,722		46,722

Items Measured at Fair Value on a Recurring Basis

The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Fair Value Measurements as of June 30, 2015
	Total		Level 1		Level 2		Level 3
Available-for-sale equity investments⁽¹⁾	$	43,326	$	43,326	$	-	$	-
Foreign currency forward contracts, net⁽²⁾		18,912		-		18,912		-
Redeemable OP unitholder interests		109,187		-		109,187		-
Totals	$	171,425		43,326	$	128,099	$	-

(1) Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date.
(2) Please see Note 11 for additional information.

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired/assumed in business combinations (see Note 3) and asset impairments (if applicable, see Note 5 for impairments of real property and Note 6 for impairments of loans receivable). We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally reside within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of secured debt assumed in business combinations using current interest rates at which similar borrowings could be obtained on the transaction date.

17. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our four operating segments: triple-net, seniors housing operating, outpatient medical and life science. During the quarter ended March 31, 2015, we changed the names of our seniors housing triple-net segment to triple-net and our medical facilities segment to outpatient medical.

Our triple-net properties include long-term/post-acute care facilities, hospitals, assisted living facilities, independent living/continuing care retirement communities, care homes (United Kingdom), independent support living facilities (Canada), care homes with nursing (United Kingdom) and combinations thereof. Under the triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our seniors housing operating properties include the seniors housing communities referenced above that are owned and/or operated through RIDEA structures (see Notes 3 and 18).

Our outpatient medical properties include medical office buildings and life science buildings which are aggregated into our outpatient medical reportable segment. Our medical office buildings are typically leased to multiple tenants and generally require a certain level of property management. During the three months ended June 30, 2015, we disposed of our life science investments.

We evaluate performance based upon NOI by segment. We define NOI as total revenues, including tenant reimbursements, less property level operating expenses. We believe NOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

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

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

are components of the appropriate segments. There are no intersegment sales or transfers.

Summary information for the reportable segments is as follows for the periods presented (in thousands):


Three Months Ended June 30, 2015:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	279,990	$	-	$	116,636	$	-	$	396,626
Resident fees and services		-		535,553		-		-		535,553
Interest income		18,189		1,042		1,345		-		20,576
Other income		970		3,210		195		39		4,414
Total revenues		299,149		539,805		118,176		39		957,169

Property operating expenses		-		360,569		37,785		-		398,354
Net operating income from continuing operations		299,149		179,236		80,391		39		558,815

Reconciling items:
Interest expense		2,679		38,796		7,184		70,202		118,861
Depreciation and amortization		72,402		88,844		47,556		-		208,802
General and administrative		-		-		-		38,474		38,474
Transaction costs		7,579		3,937		975		-		12,491
Loss (gain) on extinguishment of debt, net		(102)		-		-		18,989		18,887
Other expenses		-		-		-		10,583 ⁽¹⁾		10,583
Income (loss) from continuing operations before income taxes and income from unconsolidated entities		216,591		47,659		24,676		(138,209)		150,717
Income tax expense		(3,121)		(3,449)		(161)		(686)		(7,417)
(Loss) income from unconsolidated entities		1,453		(6,083)		1,678		-		(2,952)
Income (loss) from continuing operations		214,923		38,127		26,193		(138,895)		140,348
Gain (loss) on real estate dispositions, net		-		-		190,111		-		190,111
Net income (loss)	$	214,923	$	38,127	$	216,304	$	(138,895)	$	330,459

Total assets	$	12,191,264	$	10,432,990	$	4,701,830	$	81,398	$	27,407,482


(1) Due to termination of our investment in a strategic medical office partnership and costs associated with the retirement of an executive officer.

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Three Months Ended June 30, 2014:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	248,134	$	-	$	99,713	$	-	$	347,847
Resident fees and services		-		467,639		-		-		467,639
Interest income		7,980		11		942		-		8,933
Other income		325		1,264		362		76		2,027
Total revenues		256,439		468,914		101,017		76		826,446

Property operating expenses		447		310,029		33,278		-		343,754
Net operating income from continuing operations		255,992		158,885		67,739		76		482,692

Reconciling items:
Interest expense		8,655		28,833		8,346		75,231		121,065
Loss (gain) on derivatives, net		73		278		-		-		351
Depreciation and amortization		67,372		109,644		37,433		-		214,449
General and administrative		-		-		-		51,660		51,660
Transaction costs		4,007		1,660		1,373		-		7,040
Loss (gain) on extinguishment of debt, net		-		531		-		-		531
Income (loss) from continuing operations before income taxes and income from unconsolidated entities		175,885		17,939		20,587		(126,815)		87,596
Income tax expense		(438)		(801)		(330)		-		(1,569)
(Loss) income from unconsolidated entities		1,423		(15,496)		2,557		-		(11,516)
Income (loss) from continuing operations		176,870		1,642		22,814		(126,815)		74,511
Income (loss) from discontinued operations		6,675		-		-		-		6,675
Gain (loss) on real estate dispositions, net		5,762		-		906		-		6,668
Net income (loss)	$	189,307	$	1,642	$	23,720	$	(126,815)	$	87,854


Six Months Ended June 30, 2015:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	544,396	$	-	$	231,817	$	-	$	776,213
Resident fees and services		-		1,028,063		-		-		1,028,063
Interest income		32,888		2,073		2,609		-		37,570
Other income		4,853		4,229		356		62		9,500
Total revenues		582,137		1,034,365		234,782		62		1,851,346

Property operating expenses		-		699,076		75,739		-		774,815
Net operating income from continuing operations		582,137		335,289		159,043		62		1,076,531

Reconciling items:
Interest expense		12,706		73,255		14,809		139,172		239,942
Loss (gain) on derivatives, net		(58,427)		-		-		-		(58,427)
Depreciation and amortization		142,434		165,479		89,718		-		397,631
General and administrative		-		-		-		73,612		73,612
Transaction costs		43,750		15,979		1,316		-		61,045
Loss (gain) on extinguishment of debt, net		10,235		-		-		24,053		34,288
Impairment of assets		2,220		-		-		-		2,220
Other expenses		-		-		-		10,583		10,583
Income (loss) from continuing operations before income taxes and income from unconsolidated entities		429,219		80,576		53,200		(247,358)		315,637
Income tax expense		(2,703)		(3,982)		305		(733)		(7,113)
(Loss) income from unconsolidated entities		2,846		(21,156)		2,710		-		(15,600)
Income (loss) from continuing operations		429,362		55,438		56,215		(248,091)		292,924
Gain (loss) on real estate dispositions, net		54,097		-		192,859		-		246,956
Net income (loss)	$	483,459	$	55,438	$	249,074	$	(248,091)	$	539,880

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended June 30, 2014:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	485,852	$	-	$	198,451	$	-	$	684,303
Resident fees and services		-		923,904		-		-		923,904
Interest income		15,700		11		1,816		-		17,527
Other income		468		1,318		643		91		2,520
Total revenues		502,020		925,233		200,910		91		1,628,254

Property operating expenses		690		618,213		66,282		-		685,185
Net operating income from continuing operations		501,330		307,020		134,628		91		943,069

Reconciling items:
Interest expense		17,769		56,312		17,730		150,087		241,898
Loss (gain) on derivatives, net		73		278		-		-		351
Depreciation and amortization		134,640		238,806		74,320		-		447,766
General and administrative		-		-		-		84,524		84,524
Transaction costs		4,283		2,290		1,420		-		7,993
Loss (gain) on extinguishment of debt, net		-		383		-		-		383
Income (loss) from continuing operations before income taxes and income from unconsolidated entities		344,565		8,951		41,158		(234,520)		160,154
Income tax expense		(793)		(2,444)		(593)		-		(3,830)
(Loss) income from unconsolidated entities		2,804		(23,457)		3,580		-		(17,073)
Income (loss) from continuing operations		346,576		(16,950)		44,145		(234,520)		139,251
Income (loss) from discontinued operations		7,135		-		-		-		7,135
Gain (loss) on real estate dispositions, net		5,762		-		906		-		6,668
Net income (loss)	$	359,473	$	(16,950)	$	45,051	$	(234,520)	$	153,054

Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for our operations for the periods presented (dollars in thousands):


		Three Months Ended						Six Months Ended
		June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Revenues:		Amount	%		Amount	%		Amount	%		Amount	%
United States	$	771,031	80.6%	$	695,922	84.2%	$	1,516,168	81.9%	$	1,371,021	84.2%
International		186,138	19.4%		130,524	15.8%		335,178	18.1%		257,233	15.8%
Total	$	957,169	100.0%	$	826,446	100.0%	$	1,851,346	100.0%	$	1,628,254	100.0%


		As of
		June 30, 2015			December 31, 2014
Assets:		Amount	%		Amount	%
United States	$	22,273,463	81.3%	$	20,728,477	82.9%
International		5,134,019	18.7%		4,285,819	17.1%
Total	$	27,407,482	100.0%	$	25,014,296	100.0%

HEALTH CARE REIT, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

18. Income Taxes and Distributions

We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of current year taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, a REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such TRS by a person who qualifies as an “eligible independent contractor.” Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property.” A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA. Resident level rents and related operating expenses for these facilities are reported in the unaudited consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in TRS entities. Certain net operating loss carryforwards could be utilized to offset taxable income in future years.

Income tax expense reflected in the financial statements primarily represents U.S. federal and state and local income taxes as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. In 2014, we established certain wholly-owned direct and indirect subsidiaries in Luxembourg and Jersey and transferred interests in certain foreign investments into this holding company structure. The structure includes a property holding company that is tax resident in the United Kingdom. No material adverse current tax consequences in Luxembourg, Jersey or the United Kingdom resulted from the creation of this holding company structure and all of the subsidiary entities in the structure are treated as disregarded entities of the company for U.S. federal income tax purposes. The company reflects current and deferred tax liabilities for any such withholding taxes incurred as a result of this holding company structure in its consolidated financial statements.

The income tax expense for the three and six month periods ended June 30, 2015 and 2014 is due primarily to operating income or losses at our TRS entities. Net deferred tax liabilities with respect to our TRS entities totaled $13,516,000 and $12,451,000 as of June 30, 2015 and December 31, 2014, respectively, and related primarily to differences between the financial reporting and tax bases of fixed and intangible assets.

Generally, given current statutes of limitations, we are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2011 and subsequent years and by state taxing authorities for the year ended December 31, 2010 and subsequent years. The company and its subsidiaries are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to our initial investments in Canada in May 2012, by HM Revenue & Customs for periods subsequent to our initial investments in the United Kingdom in August 2012 and by Luxembourg taxing authorities generally for periods subsequent to our establishment of certain Luxembourg-based subsidiaries during 2014.

The balance of our unrecognized tax benefits as of June 30, 2015 and December 31, 2014 was $857,000. The unrecognized tax benefits and related penalties, as currently accrued for, have an immaterial impact on the effective tax rate to the extent that they would be recognized.

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

	EXECUTIVE SUMMARY

	Company Overview Business Strategy Capital Market Outlook Key Transactions in 2015 Key Performance Indicators, Trends and Uncertainties Corporate Governance	29 29 30 30 31 33

	LIQUIDITY AND CAPITAL RESOURCES

	Sources and Uses of Cash Off-Balance Sheet Arrangements Contractual Obligations Capital Structure	34 34 35 35

	RESULTS OF OPERATIONS

	Summary Triple-net Seniors Housing Operating Outpatient Medical Non-Segment/Corporate	36 37 39 41 44

	OTHER

	Non-GAAP Financial Measures Other Disclosures Critical Accounting Policies	45 52 56
	Cautionary Statement Regarding Forward-Looking Statements	56

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

The following discussion and analysis is based primarily on the unaudited consolidated financial statements of Health Care REIT, Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2014, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” References herein to “we,” “us,” “our,” or the “company” refer to Health Care REIT, Inc. and its subsidiaries unless specifically noted otherwise.

Executive Summary

Company Overview

Health Care REIT, Inc. is a real estate investment trust (“REIT”) that has been at the forefront of seniors housing and health care real estate since the company was founded in 1970. We are an S&P 500 company headquartered in Toledo, Ohio. Our portfolio spans the full spectrum of seniors housing and health care real estate, including seniors housing communities, long-term/post-acute care facilities, outpatient medical buildings, and inpatient and outpatient medical centers. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets.

The following table summarizes our consolidated portfolio for the three months ended June 30, 2015 (dollars in thousands):

			Percentage of	Number of
Type of Property	NOI⁽¹⁾		NOI	Properties
Triple-net	$	299,149	53.5%	750
Seniors housing operating		179,236	32.1%	348
Outpatient medical		80,391	14.4%	252
Totals	$	558,776	100.0%	1,350

(1) Excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.

Business Strategy

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

Substantially all of our revenues are derived from operating lease rentals, resident fees and services, and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our customers/partners experience operating difficulties and become unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the outpatient medical portfolio with a comprehensive process including tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.

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

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

For the six months ended June 30, 2015, rental income and resident fees and services represented 42% and 56%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.

We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also possible that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our primary unsecured credit facility. At June 30, 2015, we had $217,942,000 of cash and cash equivalents, $72,706,000 of restricted cash and $2,088,118,000 of available borrowing capacity under our primary unsecured credit facility.

Capital Market Outlook

We believe the capital markets remain supportive of our investment strategy. In July 2014, we closed on a new primary unsecured credit facility that further enhances our access to efficient capital and financial flexibility. For the 18 months ended June 30, 2015, we raised $5,534,814,000 in aggregate gross proceeds through the issuance of common stock and unsecured debt. The capital raised, in combination with available cash and borrowing capacity under our primary unsecured credit facility, supported pro rata gross new investments of $3,579,831,000 during 2014 and $2,856,485,000 during the six months ended June 30, 2015. We expect attractive investment opportunities to remain available in the future as we continue to leverage the benefits of our relationship investment strategy.

Key Transactions in 2015

Capital. In February 2015, we completed the public issuance of 19,550,000 shares of common stock at a price of $75.50 per share for approximate gross proceeds of $1,476,025,000. This was the largest overnight common stock offering and the highest offering price in our history. In May 2015, we issued $750,000,000 of 4.0% senior unsecured notes due 2025, generating approximately $743,407,000 of net proceeds. This was the largest single tranche U.S. debt offering in our history. Also, during the six months ended June 30, 2015, we raised $128,653,000 through our dividend reinvestment program.

Investments. The following summarizes our acquisitions and joint venture investments completed during the six months ended June 30, 2015 (dollars in thousands):

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

	Properties		Investment Amount⁽¹⁾	Capitalization Rates⁽²⁾		Book Amount⁽³⁾
Triple-net	34	$	847,981	6.9%	$	839,685
Seniors housing operating	42		1,188,904	6.1%		1,368,918
Outpatient medical	9		134,999	5.9%		446,239
Totals	85	$	2,171,884	6.4%	$	2,654,842

(1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(2) Represents annualized contractual or projected income to be received in cash divided by investment amounts.
(3) Represents amounts recorded on our books including fair value adjustments pursuant to U.S. GAAP. See Notes 3 and 7 to our unaudited consolidated financial statements for additional information.

Dispositions. The following summarizes our property dispositions completed during the six months ended June 30, 2015 (dollars in thousands):

	Properties		Proceeds⁽¹⁾	Capitalization Rates⁽²⁾		Book Amount⁽³⁾
Triple-net	11	$	165,095	8.4%	$	110,998
Outpatient medical	8		584,049	5.1%		165,221
Totals	19	$	749,144	5.8%	$	276,219

(1) Represents pro rata proceeds received upon disposition including any seller financing.
(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds.
(3) Represents carrying value of assets at time of disposition. See Note 5 to our unaudited consolidated financial statements for additional information.

Dividends. Our Board of Directors increased the annual cash dividend to $3.30 per common share ($0.825 per share quarterly), as compared to $3.18 per common share for 2014, beginning in February 2015. The dividend declared for the quarter ended June 30, 2015 represents the 177^th consecutive quarterly dividend payment.

Key Performance Indicators, Trends and Uncertainties

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

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

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

		Three Months Ended
		March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
		2014		2014		2014		2014			2015	2015

Net income (loss) attributable to common stockholders		$	50,022	$	71,829	$	136,255	$	188,636	$	190,799	$	312,573
Funds from operations			288,803		284,245		316,512		284,516		344,250		340,588
Net operating income from continuing operations			460,376		482,692		492,366		504,754		517,716		558,815
Same store cash net operating income			407,131		420,125		428,268		425,669		419,110		427,310

Per share data (fully diluted):
	Net income (loss) attributable to common stockholders	$	0.17	$	0.24	$	0.44	$	0.57	$	0.56	$	0.89
	Funds from operations		0.99		0.95		1.01		0.86		1.02		0.97

Concentration Risk. We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to experience downturns. Property mix measures the portion of our NOI that relates to our various property types. Relationship mix measures the portion of our NOI that relates to our top five relationships. Geographic mix measures the portion of our NOI that relates to our top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by NOI for the three month periods indicated below:

		March 31,	June 30,	September 30,	December 31,	March 31,	June 30,
		2014	2014	2014	2014	2015	2015

Property mix:⁽¹⁾
	Triple-net	53%	53%	53%	53%	55%	54%
	Seniors housing operating	32%	33%	33%	32%	30%	32%
	Outpatient medical	15%	14%	14%	15%	15%	14%

Relationship mix:⁽¹⁾
	Genesis Healthcare	15%	16%	16%	16%	17%	17%
	Sunrise Senior Living⁽²⁾	15%	15%	16%	15%	14%	14%
	Brookdale Senior Living	9%	9%	8%	8%	8%	7%
	Revera⁽²⁾	4%	4%	5%	4%	4%	5%
	Benchmark Senior Living	4%	4%	4%	4%	4%	5%
	Remaining relationships	53%	52%	51%	53%	53%	52%

Geographic mix:⁽¹⁾
	United Kingdom	7%	6%	7%	7%	8%	10%
	California	10%	10%	10%	10%	10%	9%
	New Jersey	8%	8%	9%	8%	8%	8%
	Texas	7%	7%	7%	7%	7%	7%
	Pennsylvania	5%	5%	5%	5%	6%	6%
	Remaining geographic areas	63%	64%	62%	63%	61%	60%

(1) Excludes our share of investments in unconsolidated entities. Entities in which the company has a joint venture with a minority partner are shown at 100% of the joint venture amount.
(2) Revera owns a controlling interest in Sunrise.

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain compliance with our debt covenants. The coverage ratios are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) which is discussed in further detail, and reconciled to net income, below in

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

“Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:

		Three Months Ended
		March 31,	June 30,	September 30,	December 31,	March 31,	June 30,
		2014	2014	2014	2014	2015	2015

Debt to book capitalization ratio		48%	45%	43%	45%	42%	43%
Debt to undepreciated book
	capitalization ratio	43%	40%	38%	40%	38%	39%
Debt to market capitalization ratio		37%	33%	32%	29%	28%	32%

Interest coverage ratio		3.45x	3.51x	3.86x	4.29x	4.21x	5.32x
Fixed charge coverage ratio		2.74x	2.77x	3.07x	3.39x	3.34x	4.19x

Lease Expirations. The following table sets forth information regarding lease expirations for certain portions of our portfolio as of June 30, 2015 (dollars in thousands):

			Expiration Year
			2015		2016		2017		2018		2019		2020		2021		2022		2023		2024		Thereafter

Triple-net:
	Properties		13		-		33		51		3		12		26		41		14		21		505
	Base rent⁽¹⁾	$	26,584	$	-	$	14,907	$	37,421	$	2,973	$	14,900	$	38,640	$	36,750	$	19,628	$	45,784	$	915,686
	% of base rent		2.3%		0.0%		1.3%		3.2%		0.3%		1.3%		3.4%		3.2%		1.7%		4.0%		79.4%
	Units/beds		1,052		-		1,467		3,151		235		1,076		3,805		5,144		1,464		2,254		54,491
	% of Units/beds		1.4%		0.0%		2.0%		4.3%		0.3%		1.5%		5.1%		6.9%		2.0%		3.0%		73.5%



Outpatient medical:
	Square feet		953,336		872,751		1,099,414		943,532		1,081,494		1,138,968		1,151,873		2,138,411		1,174,370		1,349,719		3,322,534
	Base rent⁽¹⁾	$	24,141	$	19,531	$	25,911	$	25,692	$	28,907	$	26,484	$	27,692	$	43,886	$	23,313	$	36,916	$	78,327
	% of base rent		6.7%		5.4%		7.2%		7.1%		8.0%		7.3%		7.7%		12.2%		6.5%		10.2%		21.8%
	Leases		261		233		258		256		234		172		137		173		88		103		149
	% of Leases		12.6%		11.3%		12.5%		12.4%		11.3%		8.3%		6.6%		8.4%		4.3%		5.0%		7.2%


(1) The most recent monthly base rent including straight line for leases with fixed escalators or annual cash rents for leases with contingent escalators. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles.

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Cautionary Statement Regarding Forward-Looking Statements” and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2014, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

Corporate Governance

Maintaining investor confidence and trust is important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at www.hcreit.com/investor-relations/governance. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only.

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

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows (dollars in thousands):

		Six Months Ended				Change
		June 30, 2015		June 30, 2014		$		%

Cash and cash equivalents at beginning of period		$	473,726	$	158,780	$	314,946	198%
Cash provided from (used in):
Operating activities			619,346		595,534		23,812	4%
Investing activities			(2,222,442)		(798,422)		(1,424,020)	178%
Financing activities			1,344,717		252,521		1,092,196	433%
Effect of foreign currency translation on cash and cash equivalents			2,595		(1,059)		3,654	n/a
	Cash and cash equivalents at end of period	$	217,942	$	207,354	$	10,588	5%

Operating Activities. The change in net cash provided from operating activities is primarily attributable to increases in NOI, which is primarily due to acquisitions. Please see “Results of Operations” for further discussion. For the six months ended June 30, 2015 and 2014, cash flow provided from operations exceeded cash distributions to stockholders.

Investing Activities. The changes in net cash used in investing activities are primarily attributable to net changes in real property investments, real estate loans receivable and investments in unconsolidated entities, which are summarized above in “Key Transactions in 2015” and Notes 3, 6 and 7 of our unaudited consolidated financial statements. The following is a summary of cash used in non-acquisition capital improvement activities (dollars in thousands):


	Six Months Ended				Change
	June 30,		June 30,
	2015		2014		$		%
New development	$	114,478	$	95,201	$	19,277	20%
Recurring capital expenditures, tenant improvements and lease commissions		25,599		26,188		(589)	-2%
Renovations, redevelopments and other capital improvements		41,487		28,500		12,987	46%
Total	$	181,564	$	149,889	$	31,675	21%

The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods. Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization. Generally, these expenditures have increased as a result of acquisitions, primarily in our seniors housing operating segment.

Financing Activities. The changes in net cash provided from financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuance/conversion of common and preferred stock and dividend payments. Please refer to Notes 9, 10 and 13 of our unaudited consolidated financial statements for additional information.

Off-Balance Sheet Arrangements

At June 30, 2015, we had investments in unconsolidated entities with our ownership ranging from 10% to 50%. Please see Note 7 to our unaudited consolidated financial statements for additional information. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. Please see Note 11 to our unaudited consolidated financial statements for

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

additional information. At June 30, 2015, we had eight outstanding letter of credit obligations. Please see Note 12 to our unaudited consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of June 30, 2015 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		2015		2016-2017		2018-2019		Thereafter
Unsecured revolving credit facility⁽¹⁾	$	350,000	$	-	$	-	$	350,000	$	-
Senior unsecured notes and credit facilities:⁽²⁾
U.S. Dollar senior unsecured notes		5,756,975		56,975		850,000		1,050,000		3,800,000
Pounds Sterling senior unsecured notes⁽³⁾		1,652,070		-		-		-		1,652,070
U.S. Dollar term credit facility		500,000		-		-		500,000		-
Canadian Dollar term credit facility⁽³⁾		200,417		-		-		200,417		-
Secured debt:^(2,3)
Consolidated		3,033,871		227,775		887,529		930,975		987,592
Unconsolidated		513,055		21,039		60,948		21,984		409,084
Contractual interest obligations:⁽⁴⁾
Unsecured revolving credit facility		14,521		1,978		7,910		4,633		-
Senior unsecured notes and term loans⁽³⁾		3,721,579		212,504		678,912		611,913		2,218,250
Consolidated secured debt⁽³⁾		649,900		70,916		226,334		127,932		224,718
Unconsolidated secured debt⁽³⁾		149,925		9,554		34,447		30,847		75,077
Capital lease obligations⁽⁵⁾		100,935		2,366		9,464		9,012		80,093
Operating lease obligations⁽⁵⁾		944,824		7,508		30,227		30,362		876,727
Purchase obligations⁽⁵⁾		442,835		31,778		402,172		6,656		2,229
Other long-term liabilities⁽⁶⁾		6,391		738		2,950		2,703		-
Total contractual obligations	$	18,037,298	$	643,131	$	3,190,893	$	3,877,434	$	10,325,840

(1) Relates to unsecured revolving credit facility with an aggregate commitment of $2,500,000,000. See Note 9 to our unaudited consolidated financial statements for additional information.
(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(3) Based on foreign currency exchange rates in effect as of balance sheet date.
(4) Based on variable interest rates in effect as of balance sheet date.
(5) See Note 12 to our unaudited consolidated financial statements for additional information.
(6) Primarily relates to payments to be made under our Supplemental Executive Retirement Plan.

Capital Structure

Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. 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, 2015, we were in compliance with all of the covenants under our debt agreements. Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. A summary of certain covenants and our results as of June 30, 2015 is as follows:

	Per Agreement
	Primary Unsecured Credit Facility	Senior Unsecured Notes	Actual at
Covenant	Primary Unsecured Credit Facility	Senior Unsecured Notes	June 30, 2015
Total Indebtedness to Book Capitalization Ratio maximum	60%	n/a	44%
Secured Indebtedness to Total Assets Ratio maximum	30%	40%	11%
Total Indebtedness to Total Assets maximum	n/a	60%	42%
Unsecured Debt to Unencumbered Assets maximum	60%	n/a	37%
Adjusted Interest Coverage Ratio minimum	n/a	1.50x	4.58x
Adjusted Fixed Charge Coverage minimum	1.50x	n/a	3.62x

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

We plan to manage the company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

On May 1, 2015, we filed with the Securities and Exchange Commission (the “SEC”) (1) an open-ended automatic or “universal” shelf registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan under which we may issue up to 15,000,000 shares of common stock. As of July 28, 2015, 13,962,480 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with each of UBS Securities LLC, KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $630,015,000 aggregate amount of our common stock (“Equity Shelf Program”). As of July 28, 2015, we had $457,112,000 of remaining capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our primary unsecured credit facility.

Results of Operations

Summary

Our primary sources of revenue include rent and resident fees and services. Our primary expenses include interest expense, depreciation and amortization, property operating expenses, transaction costs and general and administrative expenses. We evaluate our business and make resource allocations on our three business segments: triple-net, seniors housing operating and outpatient medical. The primary performance measures for our properties are NOI and SSCNOI, which are discussed below. Please see Note 17 to our unaudited consolidated financial statements for additional information. The following is a summary of our results of operations (dollars in thousands, except per share amounts):

	Three Months Ended				Change			Six Months Ended				Change
	June 30,		June 30,					June 30,		June 30,
	2015		2014		Amount		%	2015		2014		Amount		%
Net income (loss) attributable to common stockholders	$	312,573	$	71,829	$	240,744	335%	$	503,373	$	121,851	$	381,522	313%
Funds from operations		340,588		284,245		56,343	20%		684,839		573,049		111,790	20%
EBITDA		665,539		424,971		240,568	57%		1,184,566		846,705		337,861	40%
Net operating income from continuing operations (NOI)		558,815		482,692		76,123	16%		1,076,531		943,069		133,462	14%
Same store cash NOI		427,310		420,125		7,185	2%		842,250		827,257		14,993	2%

Per share data (fully diluted):
Net income (loss) attributable to common stockholders	$	0.89	$	0.24	$	0.65	271%	$	1.46	$	0.41	$	1.05	256%
Funds from operations	$	0.97	$	0.95	$	0.02	2%	$	1.99	$	1.95	$	0.04	2%

Interest coverage ratio		5.32x		3.51x		1.81x	52%		4.77x		3.48x		1.29x	37%
Fixed charge coverage ratio		4.19x		2.77x		1.42x	51%		3.77x		2.76x		1.01x	37%

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

Triple-net

The following is a summary of our NOI for the triple-net segment (dollars in thousands):

	Three Months Ended					Change			Six Months Ended					Change
		June 30,		June 30,						June 30,		June 30,
		2015		2014		$		%		2015		2014		$		%
SSCNOI⁽¹⁾		$	208,359		201,719	$	6,640	3%		$	413,914		400,058	$	13,856	3%
Non-cash NOI attributable to same store properties⁽¹⁾			22,849		19,372		3,477	18%			45,107		32,400		12,707	39%
NOI attributable to non same store properties⁽²⁾			67,941		34,901		33,040	95%			123,116		68,872		54,244	79%
NOI		$	299,149	$	255,992	$	43,157	17%		$	582,137	$	501,330	$	80,807	16%

(1) Change is due to increases in cash and non-cash NOI (described below) related to 585 same store properties.
(2) Change is primarily due to the acquisition of 138 properties and the conversion of 9 construction projects into revenue-generating properties subsequent to January 1, 2014.

The following is a summary of our results of operations for the triple-net segment (dollars in thousands):

			Three Months Ended				Change			Six Months Ended				Change
			June 30,		June 30,					June 30,		June 30,
			2015		2014		$		%	2015		2014		$		%
Revenues:
	Rental income		$	279,990	$	248,134	$	31,856	13%	$	544,396	$	485,852	$	58,544	12%
	Interest income			18,189		7,980		10,209	128%		32,888		15,700		17,188	109%
	Other income			970		325		645	198%		4,853		468		4,385	937%
				299,149		256,439		42,710	17%		582,137		502,020		80,117	16%
Property operating expenses				-		447		(447)	-100%		-		690		(690)	-100%
		Net operating income from continuing operations (NOI)		299,149		255,992		43,157	17%		582,137		501,330		80,807	16%
Other expenses:
	Interest expense			2,679		8,655		(5,976)	-69%		12,706		17,769		(5,063)	-28%
	Loss (gain) on derivatives, net			-		73		(73)	-100%		(58,427)		73		(58,500)	n/a
	Depreciation and amortization			72,402		67,372		5,030	7%		142,434		134,640		7,794	6%
	Transaction costs			7,579		4,007		3,572	89%		43,750		4,283		39,467	921%
	Loss (gain) on extinguishment of debt, net			(102)		-		(102)	n/a		10,235		-		10,235	n/a
	Impairment of assets			-		-		0	n/a		2,220		-		2,220	n/a
				82,558		80,107		2,451	3%		152,918		156,765		(3,847)	-2%
Income from continuing operations before income taxes and income (loss) from unconsolidated entities				216,591		175,885		40,706	23%		429,219		344,565		84,654	25%
Income tax benefit (expense)				(3,121)		(438)		(2,683)	613%		(2,703)		(793)		(1,910)	241%
Income (loss) from unconsolidated entities				1,453		1,423		30	2%		2,846		2,804		42	1%
Income from continuing operations				214,923		176,870		38,053	22%		429,362		346,576		82,786	24%
Discontinued operations, net⁽¹⁾				-		6,675		(6,675)	-100%		-		7,135		(7,135)	-100%
Gain (loss) on real estate dispositions, net⁽¹⁾				-		5,762		(5,762)	-100%		54,097		5,762		48,335	839%
Net income				214,923		189,307		25,616	14%		483,459		359,473		123,986	34%
Less: Net income (loss) attributable to noncontrolling interests				548		482		66	14%		1,001		992		9	1%
Net income attributable to common stockholders			$	214,375	$	188,825	$	25,550	14%	$	482,458	$	358,481	$	123,977	35%

(1) See Note 5 to our unaudited consolidated financial statements.

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

The increase in rental income is primarily attributable to the acquisitions of new properties, the conversion of newly constructed triple-net properties from which we receive rent and the modification of our lease with Genesis Healthcare to replace the CPI-based component of an annual increaser with a fixed annual increaser effective April 1, 2014 and extend the term. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended June 30, 2015, we had no lease renewals but we had 13 leases with rental rate increasers ranging from 0.11% to 0.31% in our triple-net portfolio.

The change in interest income is due to a higher loan volume in the current year, which includes a first mortgage loan to Genesis Healthcare to facilitate their merger with Skilled Healthcare Group. The increase in other income year-to-date over the prior year includes the receipt of an early prepayment fee related to a real estate loan receivable.

During the six months ended June 30, 2015, we completed three triple-net construction projects representing $72,775,000 or $298,260 per bed/unit plus expansion projects totaling $38,808,000. The following is a summary of triple-net construction projects pending as of June 30, 2015 (dollars in thousands):

Location	Units/Beds		Commitment		Balance	Est. Completion
Derby, UK	74		11,616		10,213	3Q15
Frederick, MD	130		19,000		16,990	4Q15
Edmond, OK	142		24,500		5,186	2Q16
Carrollton, TX	104		18,900		3,904	3Q16
Bracknell, UK	64		15,828		6,812	3Q16
Tulsa, OK	145		25,800		2,684	4Q16
Piscataway, NJ	124		30,600		16,228	4Q16
Livingston, NJ	120		51,440		13,872	1Q17
Raleigh, NC	225		93,000		25,469	1Q17
Total	1,128	$	290,684	$	101,358

Interest expense for the six months ended June 30, 2015 and 2014 represents secured debt interest expense offset by interest allocated to discontinued operations. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, extinguishments and principal amortizations. The following is a summary of our triple-net property secured debt principal activity (dollars in thousands):

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
			Wtd. Avg.			Wtd. Avg.			Wtd. Avg.			Wtd. Avg.
	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	568,108	5.562%	$	584,363	5.391%	$	670,769	5.337%	$	587,136	5.394%
Debt extinguished		(21,398)	5.739%		-	0.000%		(112,207)	4.404%		-	0.000%
Foreign Currency		1,478	5.316%		-	0.000%		(6,856)	5.316%		-	0.000%
Principal payments		(2,982)	5.559%		(2,623)	5.843%		(6,500)	5.593%		(5,396)	5.871%
Ending balance	$	545,207	5.408%	$	581,740	5.389%	$	545,207	5.408%	$	581,740	5.389%

Monthly averages	$	550,659	5.411%	$	582,625	5.391%	$	564,669	5.453%	$	583,990	5.391%

In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature. We elected to exercise our option during the three months ended March 31, 2015 which resulted in a $58,427,000 gain.

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

Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions of newly constructed triple-net properties. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

Transaction costs represent costs incurred with property acquisitions including due diligence costs, fees for legal and valuation services, the termination of pre-existing relationships, lease termination expenses and other similar costs. The increase in transaction costs over the prior year includes a charge related to the termination of pre-existing relationships, the termination of a lease obligation and overall higher transaction volume. The fluctuation in losses/gains on debt extinguishment is primarily attributable to the volume of extinguishments and the terms of the related secured debt.

Changes in the gain on sales of properties are related to property sales which totaled 11 and five for the six months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2015, we recorded an impairment of $2,200,000 related to a triple-net property and land parcel, both of which are considered held for sale.

Seniors Housing Operating

The following is a summary of our NOI for the seniors housing operating segment (dollars in thousands):

	Three Months Ended					Change			Six Months Ended				Change
		June 30,		June 30,					June 30,		June 30,
		2015		2014		$		%	2015		2014		$		%
SSCNOI⁽¹⁾		$	156,334	$	157,446	$	(1,112)	-1%	$	303,605	$	305,730	$	(2,125)	-1%
Non-cash NOI attributable to same store properties			(253)		(266)		13	-5%	$	(504)	$	(532)	$	28	-5%
NOI attributable to non same store properties⁽²⁾			23,155		1,705		21,450	1258%		32,188		1,822		30,366	1667%
NOI		$	179,236	$	158,885	$	20,351	13%	$	335,289	$	307,020	$	28,269	9%

(1) Relates to 279 same store properties. Decrease is primarily due to unfavorable changes in USD/CAD and GBP/USD rates.
(2) Change is primarily due to the acquisition of 69 properties subsequent to January 1, 2014.

The following is a summary of our seniors housing operating results of operations (dollars in thousands):

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

		Three Months Ended				Change			Six Months Ended				Change
		June 30,		June 30,					June 30,		June 30,
		2015		2014		$		%	2015		2014		$		%
Revenues:
	Resident fees and services	$	535,553	$	467,639	$	67,914	15%	$	1,028,063	$	923,904	$	104,159	11%
	Interest income		1,042		11		1,031	9373%		2,073		11		2,062	18745%
	Other income		3,210		1,264		1,946	154%		4,229		1,318		2,911	221%
			539,805		468,914		70,891	15%		1,034,365		925,233		109,132	12%
Property operating expenses			360,569		310,029		50,540	16%		699,076		618,213		80,863	13%
	Net operating income from continuing operations (NOI)		179,236		158,885		20,351	13%		335,289		307,020		28,269	9%
Other expenses:
	Interest expense		38,796		28,833		9,963	35%		73,255		56,312		16,943	30%
	Loss (gain) on derivatives, net		-		278		(278)	-100%		-		278		(278)	-100%
	Depreciation and amortization		88,844		109,644		(20,800)	-19%		165,479		238,806		(73,327)	-31%
	Transaction costs		3,937		1,660		2,277	137%		15,979		2,290		13,689	598%
	Loss (gain) on extinguishment of debt, net		-		531		(531)	-100%		-		383		(383)	-100%
			131,577		140,946		(9,369)	-7%		254,713		298,069		(43,356)	-15%
Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities			47,659		17,939		29,720	166%		80,576		8,951		71,625	800%
Income tax benefit (expense)			(3,449)		(801)		(2,648)	331%		(3,982)		(2,444)		(1,538)	63%
Income (loss) from unconsolidated entities			(6,083)		(15,496)		9,413	-61%		(21,156)		(23,457)		2,301	-10%
Net income (loss)			38,127		1,642		36,485	2222%		55,438		(16,950)		72,388	-427%
Less: Net income (loss) attributable to noncontrolling interests			1,520		(892)		2,412	n/a		2,793		(2,713)		5,506	-203%
Net income (loss) attributable to common stockholders		$	36,607	$	2,534	$	34,073	1345%	$	52,645	$	(14,237)	$	66,882	-470%

Fluctuations in revenues and property operating expenses are primarily a result of acquisitions and the movement of U.S. and foreign currency exchange rates. The fluctuations in depreciation and amortization are due to acquisitions and variations in amortization of short-lived intangible assets. The decrease in depreciation and amortization for the three and six month periods ended June 30, 2015 as compared to the prior year are due primarily to a number of short lived intangible assets which became fully amortized. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.

During the year ended June 30, 2015, we completed one seniors housing operating construction project representing $19,869,000 or $283,843 per unit. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of June 30, 2015 (dollars in thousands):

Location	Units/Beds		Commitment		Balance	Est. Completion
Chertsey, UK	93	$	48,934	$	11,987	3Q17
Camberley, UK	102		21,830		16,946	4Q15
Total	195	$	70,764	$	28,933

Interest expense represents secured debt interest expense as well as interest expense related to our $250,000,000 Canadian-denominated unsecured term credit facility and Sterling-denominated senior unsecured notes. The increase in interest expense from the prior year is attributed primarily to the £500,000,000 Sterling-denominated senior unsecured notes issued in November 2014. Please refer to Note 10 to our unaudited consolidated financial statements for additional information. The following is a summary of our seniors housing operating property secured debt principal activity (dollars in thousands):

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

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
			Weighted Avg.			Weighted Avg.			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	1,810,437	4.356%	$	1,627,768	4.529%	$	1,654,531	4.422%	$	1,714,714	4.622%
Debt issued		54,077	3.623%		-	0.000%		136,801	2.845%		10,690	3.544%
Debt assumed		-	0.000%		12,005	4.147%		205,897	3.976%		12,005	4.147%
Debt extinguished		(37,004)	3.386%		(8,444)	5.934%		(119,965)	3.517%		(81,662)	5.888%
Foreign currency		9,552	3.590%		14,705	3.896%		(31,786)	3.709%		(1,200)	3.936%
Principal payments		(9,939)	4.101%		(8,526)	4.253%		(18,355)	4.204%		(17,039)	4.365%
Ending balance	$	1,827,123	4.353%	$	1,637,508	4.530%	$	1,827,123	4.353%	$	1,637,508	4.530%

Monthly averages	$	1,828,513	4.351%	$	1,626,739	4.538%	$	1,725,752	4.391%	$	1,657,156	4.567%

The increase in transaction costs in the current year is a result of increased acquisition and transaction volume in the current year. The majority of our seniors housing operating properties are formed through partnership interests. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures. The fluctuations in income (loss) from unconsolidated entities is primarily due to depreciation and amortization of short-lived intangible assets and the timing of additional investments in unconsolidated entities.

Outpatient Medical

The following is a summary of our NOI for the outpatient medical segment (dollars in thousands):

	Three Months Ended					Change			Six Months Ended				Change
		June 30,		June 30,					June 30,		June 30,
		2015		2014		$		%	2015		2014		$		%
SSCNOI⁽¹⁾		$	62,617	$	60,960	$	1,657	3%	$	124,731	$	121,469	$	3,262	3%
Non-cash NOI attributable to same store properties⁽¹⁾			1,577		2,190		(613)	-28%		2,838		4,416		(1,578)	-36%
NOI attributable to non same store properties⁽²⁾			16,197		4,589		11,608	253%		31,474		8,743		22,731	260%
NOI		$	80,391	$	67,739	$	12,652	19%	$	159,043	$	134,628	$	24,415	18%

(1) Change is due to increases in cash NOI and decreases in non-cash NOI related to 178 same store properties.
(2) Change is primarily due to acquisitions of 41 properties and conversions of construction projects into 11 revenue-generating properties subsequent to January 1, 2014.

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

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

		Three Months Ended				Change			Six Months Ended				Change
		June 30,		June 30,					June 30,		June 30,
		2015		2014		$		%	2015		2014		$		%
Revenues:
	Rental income	$	116,636	$	99,713	$	16,923	17%	$	231,817	$	198,451	$	33,366	17%
	Interest income		1,345		942		403	43%		2,609		1,816		793	44%
	Other income		195		362		(167)	-46%		356		643		(287)	-45%
			118,176		101,017		17,159	17%		234,782		200,910		33,872	17%
Property operating expenses			37,785		33,278		4,507	14%		75,739		66,282		9,457	14%
	Net operating income from continuing operations (NOI)		80,391		67,739		12,652	19%		159,043		134,628		24,415	18%
Other expenses:
	Interest expense		7,184		8,346		(1,162)	-14%		14,809		17,730		(2,921)	-16%
	Depreciation and amortization		47,556		37,433		10,123	27%		89,718		74,320		15,398	21%
	Transaction costs		975		1,373		(398)	-29%		1,316		1,420		(104)	-7%
			55,715		47,152		8,563	18%		105,843		93,470		12,373	13%
Income from continuing operations before income taxes and income from unconsolidated entities			24,676		20,587		4,089	20%		53,200		41,158		12,042	29%
Income tax (expense) benefit			(161)		(330)		169	-51%		305		(593)		898	n/a
Income from unconsolidated entities			1,678		2,557		(879)	-34%		2,710		3,580		(870)	-24%
Income from continuing operations			26,193		22,814		3,379	15%		56,215		44,145		12,070	27%
Gain (loss) on real estate dispositions, net⁽¹⁾			190,111		906		189,205	20884%		192,859		906		191,953	21187%
Net income (loss)			216,304		23,720		192,584	812%		249,074		45,051		204,023	453%
Less: Net income (loss) attributable to noncontrolling interests			(534)		83		(617)	n/a		10		219		(209)	-95%
Net income (loss) attributable to common stockholders		$	216,838	$	23,637	$	193,201	817%	$	249,064	$	44,832	$	204,232	456%

(1) See Note 5 to our unaudited consolidated financial statements.

The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed outpatient medical properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended June 30, 2015, our consolidated outpatient medical portfolio signed 88,323 square feet of new leases and 344,455 square feet of renewals. The weighted-average term of these leases was seven years, with a rate of $27.79 per square foot and tenant improvement and lease commission costs of $17.89 per square foot. Substantially all of these leases during the referenced quarter contain an annual fixed or contingent escalation rent structure ranging from the change in CPI to 5%.

During the six months ended June 30, 2015, we completed one outpatient medical construction project representing $16,592,000 or $325 per square foot. The following is a summary of the outpatient medical construction projects, excluding expansions, pending as of June 30, 2015 (dollars in thousands):

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

Location	Square Feet		Commitment		Balance	Est. Completion
Bel Air, MD	99,184	$	26,386	$	9,144	1Q16
Richmond, TX	36,475		11,670		3,477	1Q16
Stamford, CT	92,345		41,735		2,290	3Q16
Brooklyn, NY	140,955		103,624		9,714	1Q17
Total	368,959	$	183,415	$	24,625

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

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
			Weighted Avg.			Weighted Avg.			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate

Beginning balance	$	587,235	5.841%	$	655,696	6.036%	$	609,268	5.838%	$	700,427	5.999%
Debt assumed		112,000	1.837%		-	0.000%		112,000	1.837%		-	0.000%
Debt extinguished		(40,154)	5.176%		(66,194)	5.736%		(58,812)	5.341%		(107,060)	5.604%
Principal payments		(4,091)	6.098%		(4,341)	5.953%		(7,466)	5.870%		(8,206)	5.647%
Ending balance	$	654,990	5.193%	$	585,161	6.067%	$	654,990	5.193%	$	585,161	6.067%

Monthly averages	$	592,911	5.671%	$	627,455	6.045%	$	596,570	5.677%	$	653,158	5.954%

The increase in property operating expenses and depreciation and amortization is primarily attributable to acquisitions and construction conversions of new outpatient medical facilities for which we incur certain property operating expenses.

Transaction costs represent costs incurred with property acquisitions (including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of assets acquired), lease termination fees and other similar costs. The fluctuations in transaction costs are primarily due to acquisition volumes in the relevant periods.

Income from unconsolidated entities represents our share of net income or losses related to our joint venture investment with Forest City Enterprises and certain unconsolidated property investments related to our strategic joint venture with a national medical office building company.

Gain on real estate dispositions is due to the disposition of our interest in the joint venture with Forest City Enterprises in the second quarter of 2015.

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

Non-Segment/Corporate

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

		Three Months Ended				Change			Six Months Ended				Change
		June 30,		June 30,					June 30,		June 30,
		2015		2014		$		%	2015		2014		$		%
Revenues:
	Other income	$	39	$	76	$	(37)	-49%	$	62	$	91	$	(29)	-32%
Expenses:
	Interest expense		70,202		75,231		(5,029)	-7%		139,172		150,087		(10,915)	-7%
	General and administrative		38,474		51,660		(13,186)	-26%		73,612		84,524		(10,912)	-13%
	Loss on extinguishment of debt, net		18,989		-		18,989	n/a		24,053		-		24,053	n/a
	Other expenses		10,583		-		10,583	n/a		10,583		-		10,583	n/a
			138,248		126,891		11,357	9%		247,420		234,611		12,809	5%
Loss from continuing operations before income taxes			(138,209)		(126,815)		(11,394)	9%		(247,358)		(234,520)		(12,838)	5%
Income tax (expense) benefit			(686)		-		(686)	n/a		(733)		-		(733)	n/a
Loss from continuing operations			(138,895)		(126,815)		(12,080)	10%		(248,091)		(234,520)		(13,571)	6%
Less: Preferred stock dividends			16,352		16,352		-	0%		32,703		32,705		(2)	0%
Net loss attributable to common stockholders		$	(155,247)	$	(143,167)	$	(12,080)	8%	$	(280,794)	$	(267,225)	$	(13,569)	5%

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

	Three Months Ended				Change			Six Months Ended				Change
	June 30,		June 30,					June 30,		June 30,
	2015		2014		$		%	2015		2014		$		%
Senior unsecured notes	$	65,674	$	70,579	$	(4,905)	-7%	$	130,073	$	141,280	$	(11,207)	-8%
Secured debt		99		118		(19)	-16%		187		222		(35)	-16%
Primary unsecured credit facility		2,716		2,823		(107)	-4%		5,764		5,124		640	12%
Capitalized interest		(1,519)		(1,664)		145	-9%		(3,359)		(3,217)		(142)	4%
Swap loss (savings)		(9)		(4)		-	0%		(12)		(7)		(5)	71%
Loan expense		3,241		3,379		(138)	-4%		6,519		6,685		(166)	-2%
Totals	$	70,202	$	75,231	$	(5,029)	-7%	$	139,172	$	150,087	$	(10,915)	-7%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, excluding our Sterling-denominated senior unsecured notes, both of which are in our seniors housing operating segment. Please refer to Note 10 to our unaudited consolidated financial statements for additional information. We capitalize certain interest costs associated with funds used for the construction of properties owned directly by us. The amount capitalized is based upon the balances outstanding during the construction period using the rate of interest that approximates our cost of financing. Our interest expense is reduced by the amount capitalized. Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. Loan expense changes are due to amortization of charges for costs incurred in connection with senior unsecured note issuances. The change in interest expense on the primary unsecured credit facility is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 9 of our unaudited consolidated financial statements for additional information regarding our primary unsecured credit facility.

General and administrative expenses for the three and six months ended June 30, 2014 included $19,688,000 related to CEO transition costs. Excluding these costs, general and administrative expenses as a percentage of consolidated revenues for the three months ended June 30, 2015 and 2014 were 4.02% and 3.87%, respectively. The increase in general and administrative expenses excluding the CEO transition costs is primarily related to costs associated with our initiatives to attract and retain appropriate personnel to achieve our business objectives. The loss on extinguishment of debt is due primarily to the early extinguishment of the 2016 senior unsecured notes. The increase in other expenses in the current year is due to costs associated with the retirement of an executive officer and the termination of our investment in a strategic medical office partnership.

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

Other

Non-GAAP Financial Measures

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

Net operating income from continuing operations (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our seniors housing operating and medical facility properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations or transaction costs. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store cash NOI (“SSCNOI”) is used to evaluate the cash-based operating performance of our properties under a consistent population which eliminates changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the reporting period subsequent to January 1, 2014. Any properties acquired, developed, transitioned, sold or classified as held for sale during that period are excluded from the same store amounts. We believe NOI and SSCNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSCNOI to make decisions about resource allocations and to assess the property level performance of our properties.

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

A covenant in our primary unsecured credit facility contains a financial ratio based on a definition of EBITDA that is specific to that agreement. Failure to satisfy these covenants could result in an event of default that could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these debt agreements and the financial covenants, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above and adjusted for stock-based compensation expense, provision for loan losses and gain/loss on extinguishment of debt. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge coverage ratio of at least 1.50 times.

Other than Adjusted EBITDA, our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. Adjusted EBITDA is used solely to determine our compliance with a financial covenant in our primary unsecured credit facility and is not being presented for use by investors for any other purpose. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

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

The table below reflects the reconciliation of FFO to net income attributable to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. Noncontrolling interest and unconsolidated entity amounts represent adjustments to reflect our share of depreciation and amortization. Amounts are in thousands except for per share data.

		Three Months Ended
		March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
FFO Reconciliations:		2014		2014		2014		2014		2015		2015
Net income (loss) attributable to common stockholders		$	50,022	$	71,829	$	136,255	$	188,636	$	190,799	$	312,573
Depreciation and amortization			233,318		214,449		200,970		195,393		188,829		208,802
Impairment of assets			-		-		-		-		2,220		-
Loss (gain) on sales of properties, net			-		(13,079)		(29,604)		(110,839)		(56,845)		(190,111)
Noncontrolling interests			(10,520)		(9,741)		(9,359)		(8,234)		(7,249)		(10,467)
Unconsolidated entities			15,983		20,787		18,250		19,560		26,496		19,791
Funds from operations		$	288,803	$	284,245	$	316,512	$	284,516	$	344,250	$	340,588

Average common shares outstanding:
	Basic		289,606		296,256		311,117		327,492		336,754		350,399
	Diluted		290,917		297,995		312,812		329,130		337,812		351,366

Per share data:
Net income attributable to
	common stockholders
	Basic	$	0.17	$	0.24	$	0.44	$	0.58	$	0.57	$	0.89
	Diluted		0.17		0.24		0.44		0.57		0.56		0.89

Funds from operations
	Basic	$	1.00	$	0.96	$	1.02	$	0.87	$	1.02	$	0.97
	Diluted		0.99		0.95		1.01		0.86		1.02		0.97

		Six Months Ended
		June 30,		June 30,
FFO Reconciliations:		2014		2015
Net income attributable to common stockholders		$	121,851	$	503,373
Depreciation and amortization			447,766		397,631
Impairment of assets			-		2,220
Loss (gain) on sales of properties, net			(13,079)		(246,956)
Noncontrolling interests			(20,259)		(17,716)
Unconsolidated entities			36,770		46,287
Funds from operations		$	573,049	$	684,839

Average common shares outstanding:
	Basic		293,046		343,624
	Diluted		294,590		344,623

Per share data:
Net income attributable to
	common stockholders
	Basic	$	0.42	$	1.46
	Diluted		0.41		1.46

Funds from operations
	Basic	$	1.96	$	1.99
	Diluted		1.95		1.99

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

The table below reflects the reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Interest expense includes discontinued operations. Dollars are in thousands.

		Three Months Ended
		March 31,		June 30,		September 30,		December 31,		March 31,			June 30,
EBITDA Reconciliations:		2014		2014		2014		2014		2015			2015
Net income		$	65,200	$	87,854	$	152,771	$	206,474	$	209,422	$	330,459
Interest expense			120,956		121,099		118,435		120,707		121,080		118,861
Income tax expense (benefit)			2,260		1,569		(10,198)		5,101		(304)		7,417
Depreciation and amortization			233,318		214,449		200,970		195,393		188,829		208,802
EBITDA		$	421,734	$	424,971	$	461,978	$	527,675	$	519,027	$	665,539

Interest Coverage Ratio:
Interest expense		$	120,956	$	121,099	$	118,435	$	120,707	$	121,080	$	118,861
Non-cash interest expense			(330)		(1,649)		(547)		100		(119)		4,202
Capitalized interest			1,605		1,700		1,779		2,066		2,387		2,060
	Total interest		122,231		121,150		119,667		122,873		123,348		125,123
EBITDA		$	421,734	$	424,971	$	461,978	$	527,675	$	519,027	$	665,539
	Interest coverage ratio		3.45x		3.51x		3.86x		4.29x		4.21x		5.32x

Fixed Charge Coverage Ratio:
Total interest		$	122,231	$	121,150	$	119,667	$	122,873	$	123,348	$	125,123
Secured debt principal payments			15,455		15,803		14,549		16,473		15,630		17,336
Preferred dividends			16,353		16,352		16,352		16,352		16,352		16,352
	Total fixed charges		154,039		153,305		150,568		155,698		155,330		158,811
EBITDA		$	421,734	$	424,971	$	461,978	$	527,675	$	519,027	$	665,539
	Fixed charge coverage ratio		2.74x		2.77x		3.07x		3.39x		3.34x		4.19x

		Six Months Ended
		June 30,		June 30,
EBITDA Reconciliations:		2014			2015
Net income		$	153,054	$	539,880
Interest expense			242,055		239,942
Income tax expense (benefit)			3,830		7,113
Depreciation and amortization			447,766		397,631
EBITDA		$	846,705	$	1,184,566

Interest Coverage Ratio:
Interest expense		$	242,055	$	239,942
Non-cash interest expense			(1,980)		4,082
Capitalized interest			3,305		4,446
	Total interest		243,380		248,470
EBITDA		$	846,705	$	1,184,566
	Interest coverage ratio		3.48x		4.77x

Fixed Charge Coverage Ratio:
Total interest		$	243,380	$	248,470
Secured debt principal payments			31,258		32,966
Preferred dividends			32,705		32,703
	Total fixed charges		307,343		314,139
EBITDA		$	846,705	$	1,184,566
	Fixed charge coverage ratio		2.76x		3.77x

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

The table below reflects the reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Interest expense includes discontinued operations. Dollars are in thousands.


		Twelve Months Ended
Adjusted EBITDA		March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
Reconciliations:		2014		2014		2014		2014		2015		2015
Net income		$	131,682	$	212,355	$	331,524	$	512,300	$	656,518	$	899,126
Interest expense			472,827		483,082		484,975		481,197		481,321		479,083
Income tax expense (benefit)			6,987		7,341		(5,934)		(1,267)		(3,832)		2,016
Depreciation and amortization			920,156		934,128		892,117		844,130		799,641		793,994
Stock-based compensation expense			17,336		29,320		29,635		32,075		33,462		30,416
Provision for loan losses			2,110		2,110		2,110		-		-		-
Loss (gain) on extinguishment of debt, net			(749)		(218)		6,542		9,558		25,108		43,464
Adjusted EBITDA		$	1,550,349	$	1,668,118	$	1,740,969	$	1,877,993	$	1,992,218	$	2,248,099

Adjusted Fixed Charge Coverage Ratio:
Interest expense		$	472,827	$	483,082	$	484,975	$	481,197	$	481,321	$	479,083
Capitalized interest			6,700		7,014		7,087		7,150		7,931		8,292
Non-cash interest expense			(880)		(1,292)		(2,790)		(2,427)		(2,215)		3,636
	Total interest		478,647		488,804		489,272		485,920		487,037		491,011
Adjusted EBITDA		$	1,550,349	$	1,668,118	$	1,740,969	$	1,877,993	$	1,992,218	$	2,248,099
	Adjusted interest coverage ratio		3.24x		3.41x		3.56x		3.86x		4.09x		4.58x

Total interest		$	478,647	$	488,804	$	489,272	$	485,920	$	487,037	$	491,011
Secured debt principal payments			60,341		62,867		62,119		62,280		62,455		63,988
Preferred dividends			66,088		65,838		65,588		65,408		65,408		65,408
	Total fixed charges		605,076		617,509		616,979		613,608		614,900		620,407
Adjusted EBITDA		$	1,550,349	$	1,668,118	$	1,740,969	$	1,877,993	$	1,992,218	$	2,248,099
	Adjusted fixed charge coverage ratio		2.56x		2.70x		2.82x		3.06x		3.24x		3.62x

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

The following tables reflect the reconciliation of NOI and SSCNOI to net income attributable to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. Dollars are in thousands.

			Three Months Ended
			March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
NOI Reconciliations:			2014		2014		2014		2014		2015		2015
Total revenues:
	Triple-net		$	245,580	$	256,439	$	259,248	$	266,600	$	282,988	$	299,149
	Seniors housing operating			456,319		468,914		483,791		488,546		494,561		539,805
	Outpatient medical			99,893		101,017		104,378		112,144		116,606		118,176
	Non-segment/corporate			15		76		106		479		22		39
		Total revenues		801,807		826,446		847,523		867,769		894,177		957,169
Property operating expenses:
	Triple-net			243		447		41		-		-		-
	Seniors housing operating			308,184		310,029		320,895		327,200		338,507		360,569
	Outpatient medical			33,004		33,278		34,221		35,815		37,954		37,785
		Total property operating expenses		341,431		343,754		355,157		363,015		376,461		398,354
Net operating income:
	Triple-net			245,337		255,992		259,207		266,600		282,988		299,149
	Seniors housing operating			148,135		158,885		162,896		161,346		156,054		179,236
	Outpatient medical			66,889		67,739		70,157		76,329		78,652		80,391
	Non-segment/corporate			15		76		106		479		22		39
		NOI		460,376		482,692		492,366		504,754		517,716		558,815
Reconciling items:
	Interest expense			(120,833)		(121,065)		(118,435)		(120,707)		(121,080)		(118,861)
	Gain (loss) on derivatives, net			-		(351)		(49)		1,895		58,427		-
	Depreciation and amortization			(233,318)		(214,449)		(200,970)		(195,393)		(188,829)		(208,802)
	General and administrative			(32,865)		(51,660)		(30,803)		(27,616)		(35,138)		(38,474)
	Transaction costs			(952)		(7,040)		(13,554)		(47,991)		(48,554)		(12,491)
	Gain (loss) on extinguishment of debt, net			148		(531)		(2,692)		(6,484)		(15,401)		(18,887)
	Impairment of assets			-		-		-		-		(2,220)		-
	Other expenses			-		-		(10,262)		-		-		(10,583)
	Income tax benefit (expense)			(2,260)		(1,569)		10,198		(5,101)		304		(7,417)
	Income (loss) from unconsolidated entities			(5,556)		(11,516)		(2,632)		(7,722)		(12,648)		(2,952)
	Income (loss) from discontinued operations, net			460		6,675		-		-		-		-
	Gain (loss) on real estate dispositions, net			-		6,668		29,604		110,839		56,845		190,111
	Preferred dividends			(16,353)		(16,352)		(16,352)		(16,352)		(16,352)		(16,352)
	Loss (income) attributable to noncontrolling interests			1,175		327		(164)		(1,486)		(2,271)		(1,534)
				(410,354)		(410,863)		(356,111)		(316,118)		(326,917)		(246,242)
Net income (loss) attributable to common stockholders			$	50,022	$	71,829	$	136,255	$	188,636	$	190,799	$	312,573

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

			Six Months Ended
			June 30,		June 30,
NOI Reconciliations:			2014		2015
Total revenues:
	Triple-net		$	502,020	$	582,137
	Seniors housing operating			925,233		1,034,365
	Outpatient medical			200,910		234,782
	Non-segment/corporate			91		62
		Total revenues		1,628,254		1,851,346
Property operating expenses:
	Triple-net			690		-
	Seniors housing operating			618,213		699,076
	Outpatient medical			66,282		75,739
		Total property operating expenses		685,185		774,815
Net operating income:
	Triple-net			501,330		582,137
	Seniors housing operating			307,020		335,289
	Outpatient medical			134,628		159,043
	Non-segment/corporate			91		62
		NOI		943,069		1,076,531
Reconciling items:
	Interest expense			(241,898)		(239,942)
	Gain (loss) on derivatives, net			(351)		58,427
	Depreciation and amortization			(447,766)		(397,631)
	General and administrative			(84,524)		(73,612)
	Transaction costs			(7,993)		(61,045)
	Gain (loss) on extinguishment of debt, net			(383)		(34,288)
	Impairment of assets			-		(2,220)
	Other expenses			-		(10,583)
	Income tax benefit (expense)			(3,830)		(7,113)
	Income (loss) from unconsolidated entities			(17,073)		(15,600)
	Income (loss) from discontinued operations, net			7,135		-
	Gain (loss) on real estate dispositions, net			6,668		246,956
	Preferred dividends			(32,705)		(32,703)
	Loss (income) attributable to noncontrolling interests			1,502		(3,804)
				(821,218)		(573,158)
Net income (loss) attributable to common stockholders			$	121,851	$	503,373

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

					Three Months Ended
					March 31,		June 30,		September 30,		December 31,		March 31,		June 30,
Same Store Cash NOI Reconciliations:					2014		2014		2014		2014		2015		2015
Net operating income from continuing operations:
	Triple-net				$	245,337	$	255,992	$	259,207	$	266,600	$	282,988	$	299,149
	Seniors housing operating					148,135		158,885		162,896		161,346		156,054		179,236
	Outpatient medical					66,889		67,739		70,157		76,329		78,652		80,391
			Total			460,361		482,616		492,260		504,275		517,694		558,776
Adjustments:
	Triple-net:
		Non-cash NOI on same store properties				(13,027)		(19,371)		(20,207)		(19,705)		(22,258)		(22,849)
		NOI attributable to non same store properties				(33,971)		(34,902)		(36,212)		(42,651)		(55,175)		(67,941)
			Subtotal			(46,998)		(54,273)		(56,419)		(62,356)		(77,433)		(90,790)
	Seniors housing operating:
		Non-cash NOI on same store properties				266		266		261		252		251		253
		NOI attributable to non same store properties				(117)		(1,705)		(2,432)		(5,386)		(9,034)		(23,155)
			Subtotal			149		(1,439)		(2,171)		(5,134)		(8,783)		(22,902)
	Outpatient medical:
		Non-cash NOI on same store properties				(2,226)		(2,190)		(1,745)		(1,560)		(1,262)		(1,577)
		NOI attributable to non same store properties				(4,155)		(4,588)		(7,569)		(13,461)		(15,277)		(16,196)
			Subtotal			(6,381)		(6,778)		(9,314)		(15,021)		(16,539)		(17,773)
Same store cash net operating income:				Properties
	Triple-net			585		198,339		201,719		202,788		204,244		205,555		208,359
	Seniors housing operating			279		148,284		157,446		160,725		156,212		147,271		156,334
	Outpatient medical			178		60,508		60,960		60,844		61,308		62,114		62,617
			Total	1,042	$	407,131	$	420,125	$	428,268	$	425,669	$	419,110	$	427,310

Same Store Cash NOI Property Reconciliation:
	Total Properties			1,350
	Acquisitions			(248)
	Developments			(20)
	Held-for-sale			(26)
	Other⁽¹⁾			(14)
		Same store properties		1,042

(1) Includes eleven land parcels and three loans.

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

					Six Months Ended
						June 30,		June 30,
Same Store Cash NOI Reconciliations:						2014		2015
Net operating income from continuing operations:
	Triple-net					$	501,330	$	582,137
	Seniors housing operating						307,020		335,289
	Outpatient medical						134,628		159,043
			Total				942,978		1,076,469
Adjustments:
	Triple-net:
		Non-cash NOI on same store properties					(32,400)		(45,107)
		NOI attributable to non same store properties					(68,872)		(123,116)
			Subtotal				(101,272)		(168,223)
	Seniors housing operating:
		Non-cash NOI on same store properties					532		504
		NOI attributable to non same store properties					(1,822)		(32,190)
			Subtotal				(1,290)		(31,686)
	Outpatient medical
		Non-cash NOI on same store properties					(4,416)		(2,838)
		NOI attributable to non same store properties					(8,744)		(31,473)
			Subtotal				(13,160)		(34,311)
Same store cash net operating income:				Properties
	Triple-net			585			400,058		413,914
	Seniors housing operating			279			305,730		303,605
	Outpatient medical			178			121,469		124,731
			Total	1,042		$	827,257	$	842,250

Other Disclosures

United States of America

Health Care Reimbursements

Policy and legislative changes that increase or decrease government reimbursement impact our operators and tenants that participate in Medicare, Medicaid, or other government programs. The reimbursement methodologies applied to health care facilities continue to evolve. To the extent that policy or legislative changes, or new reimbursement methodologies decrease government reimbursement to our operators and tenants, our revenue and operations may be adversely affected.

Medicare Reimbursement and Physicians. Historically, the Centers for Medicare and Medicaid Services (“CMS”) annually adjusted the Medicare Physician Fee Schedule payment rates based on an update formula that included application of the Sustainable Growth Rate (“SGR”). On April 1, 2014, President Obama signed into law the Protecting Access to Medicare Act of 2014, which provided for a 0% update to the 2015 Medicare Physician Fee Schedule through March 31, 2015. On November 13, 2014, CMS published the calendar year 2015 Physician Fee Schedule final rule, which, consistent with the Protecting Access to Medicare Act of 2014, called for a 0% update from January 1, 2015 through March 31, 2015 and a negative 21.2% update under the statutory SGR formula for April 1, 2015 through December 31, 2015. However, on April 16, 2015, President Obama signed and enacted into law H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, which, among other things:

· Repeals the SGR.

· Institutes a 0% update to the single conversion factor under the Medicare Physician Fee Schedule from January 1 through June 30, 2015, a 0.5% update for July 2015 through the end of 2019, and a 0% update for 2020 through 2025. For 2026 and subsequent years, the update will be either 0.75% or 0.25%, depending in which Alternate Payment Model (“APM”) the physician participates.

· Delays the Geographic Practice Cost Indices (“GPCI”) payment adjustment until January 1, 2018.

· Extends the therapy cap exceptions process through December 31, 2017.

· Imposes a market basket update of 1% for skilled nursing providers for FY 2018.

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

Additionally, on April 6, 2015, CMS announced final 2016 payment rates for Medicare Advantage, with an expected average payment impact of 3.25%. Changes in Medicare Advantage plan payments may indirectly affect our operators and tenants that contract with Medicare Advantage plans.

CMS also issued several proposed rules which, if finalized, could impact our tenants and operators.

· On April 15, 2015, CMS issued a proposed rule regarding fiscal year 2016 (“FY16”) Medicare payment rates for skilled nursing facilities (“SNFs”). If finalized, CMS projects that aggregate payments to SNFs will increase by $500 million, or 1.4%, from payments in fiscal year 2015.

· On April 30, 2015, CMS issued a proposed rule regarding FY16 Medicare payment rates for Long-Term Care Hospitals (“LTCHs”). Under the rule, standard LTCH Prospective Payment System rates would increase 1.9%. If finalized, CMS projects overall payments to LTCHs under the rule would decrease by 4.6%, or $250 million, due to the statutory decrease in payment rates for site neutral LTCH PPS cases. Site neutral LTCH PPS cases do not meet the clinical criteria to qualify for the higher standard LTCH PPS payment rates.

· On July 8, 2015, CMS issued a proposed rule regarding 2016 Medicare payment rates for hospital outpatient departments (“HOPDs”) and ambulatory surgery centers (“ASCs”). Under the rule, CMS proposes to reduce payments HOPDs by 0.1% and increase payments to ASCs by 1.1%. The proposed rule also included updates to the “Two-Midnight” rule regarding when inpatient admissions are appropriate for payment under Medicare Part A. If finalized, an inpatient admission lasting less than two midnights would be payable under Medicare Part A on a case-by-case basis based on the judgment of the admitting physician, supported by documentation in the medical record.

· On July 14, 2015, CMS issued a proposal to bundle the costs for Lower Extremity Joint Replacement (“LEJR”) procedures in certain geographic areas. The bundle would begin with the hospital admission and continue for 90 days following hospital discharge. The following services, among others, would be included: physician services, inpatient hospital services (including readmission), LTCH, inpatient rehabilitation, SNF, and/or home health services, hospital outpatient services, outpatient therapy, clinical lab and hospice. Hospitals subject to the bundling requirements with spending below an established target price that meet the threshold on certain quality measures could earn a reconciliation payment from Medicare. Hospitals with spending that exceeds the target would need to pay the difference to Medicare.

· On July 15, 2015, CMS issued a proposed rule regarding 2016 Medicare payment rates under the Physician Fee Schedule (“PFS”). Among other proposals, CMS plans to initiate implementation of the new payment system for physicians and other practitioners, the Merit-Based Incentive Payment System (“MIPS”), required by the legislation that repealed the SGR.

· On July 16, 2015, CMS issued a proposed rule that, for the first time in nearly 25 years, would comprehensively update the SNF requirements for participation under Medicare and Medicaid. Among other things, the proposed rule addresses requirements relating to quality of care and quality of life, facility responsibilities and staffing considerations, resident assessments, and compliance and ethics programs. CMS estimates that this rule would result in an estimated first-year cost of approximately $46,491 per facility and a subsequent-year cost of $40,685 per facility on 15,691 LTC facilities.

Other Health Care Initiatives

Recent Quality Initiatives. Recent government proposals have resulted in an increased emphasis by the government on the quality of care provided by providers. For example, on February 27, 2015, CMS announced the establishment of a Health Care Payment Learning and Action Network as part of its plan to shift the Medicare program, and the healthcare system at large, toward paying providers based on quality, rather than the quantity of care they provide to patients. Through the Learning and Action Network, CMS will work with private payers, employers, consumers, providers, states and state Medicaid programs, and other partners to expand alternative payment models into their programs. To the extent this and similar measures impose additional obligations on our operators or tenants, or decrease the reimbursements that they receive, our revenues and operations may be indirectly adversely affected.

The Department of Health and Human Services, Office of Inspector General (“OIG”) Recommendations Addressing SNF Billing. In the OIG’s March 2015 Compendium of Priority Recommendations, a report that highlights the OIG’s previous recommendations for which corrective action has not been completed, the OIG cited its prior November 2012 report addressing questionable billing practices by SNFs. The OIG recommended, among other things, changing the current method for determining how much therapy is needed to ensure appropriate payments, monitoring compliance with new therapy assessments, and improving accuracy of data submitted by SNFs. Similarly, in June 2015, the OIG issued a report analyzing CMS’ assessments related to changes in the amount of therapy that a beneficiary receives during stays. The OIG concluded that CMS’ new policies create challenges for oversight and that SNFs’ use of these assessments cost Medicare $143 million over 2 years. The OIG recommended, among other things, that CMS should (1) reduce the financial incentive for SNFs to use assessments differently when decreasing and increasing therapy and (2) accelerate its efforts to implement a new method for paying for therapy. If followed, these reports and recommendations may impact our operators and tenants.

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

Challenges to the Health Reform Laws. Since the enactment of the Patient Protection and Affordable Care Act of 2010, as modified by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Laws”), there have been multiple attempts through legislative action and legal challenge to repeal or amend the Health Reform Laws, including the case that was recently pending before the U.S. Supreme Court, King v. Burwell. Although the Supreme Court in Burwell upheld the use of subsidies to individuals in federally-facilitated health care exchanges on June 25, 2015, which ultimately did not disrupt significantly the implementation of the Health Care Reform Laws, we cannot predict whether other current or future efforts to repeal or amend the Health Reform Laws will be successful, nor can we predict the impact that such a repeal or amendment would have on our operators or tenants and their ability to meet their obligations to us.

Canada

Licensing and Regulation

Ontario

Retirement homes in Ontario are regulated under the Retirement Homes Act, 2010 (the “Act”). A license is required to operate a retirement home. Licenses must be applied for and are non-transferable. Applications for licenses are directed to the Registrar of the Retirement Homes Regulatory Authority (“RHRA”).

The Act requires a report to the RHRA when any person has reasonable grounds to suspect abuse of a resident by anyone, or neglect of a resident by staff. Following a report to the RHRA, there is a mandatory inspection carried out by the RHRA, which results in a report that is posted on the RHRA’s public website. The most recent report must also be posted in the subject home, and be readily available for review if requested thereafter. The Registrar of the RHRA can receive complaints about a retirement home contravening a provision of the Act, and if such a complaint is received, it must be reviewed promptly. The Registrar may ask the retirement home that is the subject of the complaint to provide information relevant to the complaint, and has the power to conduct an inspection, issue a written warning or take other action as prescribed in the regulations.

British Columbia

The Community Care and Assisted Living Act, the Residential Care Regulation, and the Community Care and Assisted Living Regulation (together, the “B.C. Act”) regulate “community care facilities” (long-term care facilities) in substantially the same manner as retirement homes are regulated under the Ontario Act. The B.C. Act defines such a facility as premises used for the purpose of supervising vulnerable persons who require three or more prescribed services (from a list that includes regular assistance with activities of daily living; distribution of medication; management of cash resources; monitoring of food intake; structured behavior management and intervention; and psychosocial or physical rehabilitative therapy).

United Kingdom

Registration

In England, care home services are principally regulated by the Health and Social Care Act 2008 (the “Act”) and associated Regulations. The Act requires all persons carrying out “Regulated Activities” in England, and the managers of such persons, to be registered. Regulated Activities are defined in the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, as amended (the “2014 Regulations”), and include (among other activities):

· The provision of personal care for persons who, by reason of old age, illness or disability are unable to provide it for themselves, and which is provided in a place where those persons are living at the time the care is provided; and

· The provision of residential accommodation, together with nursing or personal care.

From April 1, 2015, the 2014 Regulations fully revoked the Health and Social Care Act 2008 (Regulated Activities) Regulations 2010 (the “2010 Regulations”) and while the 2014 Regulations introduce certain modifications with regard to service standards, the registration obligations under the Act remain.

Service Standards and Notification Obligations

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

The 2014 Regulations aim to streamline the legal obligations in the 2010 Regulations, and replace them with a set of more broadly-phrased, legally binding “Fundamental Standards”. The 2014 Regulations list the standards that must be met when providing care services. The service providers’ legal obligations include:

· Care and treatment must be appropriate and reflect service user needs and preferences;

· Service users must be treated with dignity and respect;

· Care and treatment must only be provided with consent;

· Care and treatment must be provided in a safe way for service users;

· Service users must be protected from abuse and improper treatment;

· Service users nutritional and hydration needs must be met;

· All premises and equipment must be clean, secure, suitable and used properly;

· Complaints must be investigated and appropriate action taken;

· Systems and processes must be established to ensure compliance with fundamental standards;

· Sufficient numbers of suitably qualified, competent, skilled and experienced staff must be deployed;

· Persons employed must be of good character, having the necessary qualifications, skills and experience, and be able to perform the work for which they are employed; and

· Health service bodies must be open and transparent with service users about their care and treatment.

Failure to comply with certain provisions of the above Regulations is an offense, with a person guilty of the offense liable on summary conviction to a fine. Monetary penalty notices may also be issued.

The Regulations also include:

· Requirements around fit and proper persons being employed for the purposes of carrying of a regulated activity. Such persons must be of good character, have the qualifications, competence, skills and experience necessary and be able by reason of their health to perform their tasks. Recruitment procedures must also be established and effectively operated with certain specified information being available in relation to each person employed and registered where required;

· A new “duty of candour” to notify and apologize to affected persons, in the event of certain incidents having actually or potentially led to the death of the service user, where the death relates directly to the incident rather than to the natural course of the service user's illness or underlying condition, or severe harm, moderate harm or prolonged psychological harm to the service user;

· A requirement for a service provider to display a performance assessment received as a rating of its performance by the Care Quality Commission (the “CQC”); and

· A requirement that registered persons have regard to guidance issued by the CQC and any code of practice from the Secretary of State in relation to prevention or control of health care associated infections.

Under the Care Quality Commission (Registration) Regulations 2009 certain matters must be notified to the CQC, the government regulatory body overseeing the provision of nursing and other care services in England. Failure to comply with notification obligations is an offense and a person guilty of an offense is liable on summary conviction to a fine of up to £2,500.

Regulatory Oversight and Inspections

The Act also sets out the powers and responsibilities of the CQC. Among other powers, the CQC administers the compulsory registration system and issues guidance to care service providers on how to comply with applicable standards set out in legislation.

The Care Act 2014 sets out certain provisions concerning (among others):

· The duty of a local authority to meet the needs of an adult for care and support and a carer’s needs where the registered care provider is unable to carry on a regulated activity because of business failure;

· The duty of the CQC to assess the financial sustainability of providers subject to its regulatory regime with a view to identifying any threats that such providers may face to their financial sustainability. Where the CQC identifies a significant risk to financial sustainability it can require the provider to develop a sustainability plan setting out the provider’s plan to mitigate or eliminate risk or require the provider to organize an independent review of the business with the costs being recovered from the provider;

· The CQC informing local authorities where a registered care provider is likely to become unable to carry on a regulated activity; and

· A new offense where certain registered care providers supply, publish or make available information that is false or misleading in a material respect which can also apply to a director, manager or person purporting to act as such of a company.

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

Critical Accounting Policies

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

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

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

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2015.

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. When the company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. In particular, these forward-looking statements include, but are not limited to, those relating to the company’s opportunities to acquire, develop or sell properties; the company’s ability to close its anticipated acquisitions, investments or dispositions on currently anticipated terms, or within currently anticipated timeframes; the expected performance of the company’s operators/tenants and properties; the company’s expected occupancy rates; the company’s ability to declare and to make distributions to shareholders; the company’s investment and financing opportunities and plans; the company’s continued qualification as a real estate investment trust (“REIT”); the company’s ability to access capital markets or other sources of funds; and the company’s ability to meet its earnings guidance. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the company’s actual results to differ materially from the company’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the company’s ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting the company’s properties; the company’s ability to re-lease space at similar rates as vacancies occur; the company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting the company’s properties; changes in rules or practices governing the company’s financial reporting; the movement of U.S. and foreign currency exchange rates; the company’s ability to maintain its qualification as a REIT; and key management personnel recruitment and retention. Other important factors are identified in the company’s Annual Report on Form 10-K for the year ended December 31, 2014, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments

with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates.

We historically borrow on our primary unsecured credit facility to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our primary unsecured credit facility. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.

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

	June 30, 2015				December 31, 2014
	Principal		Change in		Principal		Change in
	balance		fair value		balance		fair value
Senior unsecured notes	$	7,409,045	$	(525,806)	$	7,101,655	$	(547,358)
Secured debt		2,631,652		(83,416)		2,673,480		(93,580)
Totals	$	10,040,697	$	(609,222)	$	9,775,135	$	(640,938)

Our variable rate debt, including our primary unsecured credit facility, is reflected at fair value. At June 30, 2015, we had $1,452,636,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $14,526,000. At December 31, 2014, we had $983,783,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $9,838,000.

We are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of the Canadian Dollar or Pounds Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in Canada and the United Kingdom. Based solely on our results for the three months ended June 30, 2015, if these exchange rates were to increase or decrease by 100 basis points, our net income from these investments would decrease or increase, as applicable, by less than $1,000,000 annualized. We seek to mitigate these underlying foreign currency exposures with non-U.S. denominated borrowings and gains and losses on derivative contracts hedging these exposures. If we increase our international presence through investments in, or acquisitions or development of, seniors housing and health care properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. Dollars, Canadian Dollars or Pounds Sterling. To illustrate the impact of changes in foreign currency markets, we performed a sensitivity analysis on our derivative portfolio whereby we modeled the change in net present values arising from a hypothetical 1% increase in foreign currency exchange rates to determine the instruments’ change in fair value. The following table summarizes the results of the analysis performed (dollars in thousands):

	June 30, 2015				December 31, 2014
	Carrying		Change in		Carrying		Change in
	Value		fair value		Value		fair value
Foreign currency forward contracts⁽¹⁾	$	17,951	$	2,987	$	54,247	$	4,242
Debt designated as hedges		1,852,487		13,000		1,851,189		13,000
Totals	$	1,870,438	$	15,987	$	1,905,436	$	17,242


(1) Amounts exclude cross currency hedge activity.

For additional information regarding fair values of financial instruments, see “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Notes 11 and 16 to our unaudited consolidated financial statements.

Item 4. Controls and Procedures

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, there are various legal proceedings pending to which we are a party or to which some of our properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

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

On June 3, 2015, we issued 17,241 shares of our common stock to a national medical office partner pursuant to the terms of our strategic partnership. The shares were issued without registration in reliance upon the federal statutory exemption of Section 4(2) of the Securities Act of 1933, as amended, upon such partnership earning acquisition fees in connection with the acquisition of medical office buildings and completion and success fees in connection with the development of new projects.


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2015 through April 30, 2015	5,990	$	77.20
May 1, 2015 through May 31, 2015	4,636		68.84
June 1, 2015 through June 30, 2015	351		67.03
Totals	10,977	$	73.34

(1) During the three months ended June 30, 2015, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2) No shares were purchased as part of publicly announced plans or programs.

Item 5. Other Information

None.

Item 6. Exhibits

4.1 Indenture, dated as of March 15, 2010, between the company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”) (filed with the Securities and Exchange Commission as Exhibit 4.1 to the company’s Form 8-K filed March 15, 2010, and incorporated herein by reference thereto).

4.2 Supplemental Indenture No. 11, dated as of May 26, 2015, between the company and the Trustee (filed with the Securities and Exchange Commission as Exhibit 4.2 to the company’s Form 8-K filed May 27, 2015, and incorporated herein by reference thereto).

10.1 Executive Retirement Agreement, effective July 1, 2015, between the company and Charles J. Herman, Jr.*

10.2 Consulting Agreement, effective July 1, 2015, between the company and Charles J. Herman, Jr.*

10.3 Health Care REIT, Inc. 2015-2017 Long-Term Incentive Program.*

10.4 Form of Performance Restricted Stock Unit Award Agreement under the 2015-2017 Long-Term Incentive Program.*

12 Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Unaudited).

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1 Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.

32.2 Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.

101.INS XBRL Instance Document**

101.SCH XBRL Taxonomy Extension Schema Document**

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**

101.LAB XBRL Taxonomy Extension Label Linkbase Document**

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**

101.DEF XBRL Taxonomy Extension Definition Linkbase Document**

*			Management Contract or Compensatory Plan or Arrangement.
**			Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014, (iii) the Consolidated Statements of Equity for the six months ended June 30, 2015 and 2014, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 and (v) the Notes to Unaudited Consolidated Financial Statements.

SIGNATURES

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


	HEALTH CARE REIT, INC.
Date: August 4, 2015	By:	/s/ THOMAS J. DEROSA
	Thomas J. DeRosa,
	Chief Executive Officer (Principal Executive Officer)


Date: August 4, 2015	By:	/s/ SCOTT A. ESTES
	Scott A. Estes,
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)


Date: August 4, 2015	By:	/s/ PAUL D. NUNGESTER, JR.
	Paul D. Nungester, Jr.,
	Senior Vice President and Controller (Principal Accounting Officer)