NOTE 4—ACQUISITIONS OF REAL ESTATE PROPERTY

The following summarizes our acquisition and development activities during 2017, 2016 and 2015. We acquire and invest in seniors housing and healthcare properties primarily to achieve an expected yield on our investment, to grow and diversify our portfolio and revenue base, and to reduce our dependence on any single tenant, operator or manager, geographic location, asset type, business model or revenue source.

2017 Acquisitions

During the year ended December 31, 2017, we acquired 15 triple-net leased properties (including six assets previously owned by an equity method investee), four properties reported within our office operations reportable business segment (three life science, research and medical assets and one MOB) and three seniors housing communities (reported within our senior living operations reportable business segment) for an aggregate purchase price of $691.3 million. Each of these acquisitions was accounted for as an asset acquisition.

During the year ended December 31, 2017, we completed the development of one triple-net leased property, representing $6.9 million of net real estate property on our Consolidated Balance Sheets.

2016 Acquisitions

Life Sciences Acquisition

In September 2016, we completed the acquisition of substantially all of the university affiliated life science and innovation real estate assets of Wexford from Blackstone for total consideration of $1.5 billion. The properties acquired will continue to be managed by Wexford, which will remain a separate management company owned and operated by the existing Wexford management team. We have exclusive rights to fund and own future life science projects developed by Wexford.

Other 2016 Acquisitions

During the year ended December 31, 2016, we made other investments totaling approximately $42.3 million, including the acquisition of one triple-net leased property and two MOBs.

Completed Developments

During 2016, we completed the development of three triple-net leased properties (two of which were expansions of existing seniors housing assets), representing $31.9 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2016.

Estimated Fair Value

We accounted for our 2016 acquisitions under the acquisition method in accordance with ASC 805, Business Combinations (“ASC 805”). The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed in our 2016 real estate acquisitions, which we determined using level two and level three inputs:



		Triple-Net Leased Properties		Office Operations		Total
	(In thousands)
Land and improvements		$	1,579	$	63,526	$	65,105
Buildings and improvements		12,558		1,311,676		1,324,234
Acquired lease intangibles		163		200,022		200,185
Other assets		—		99,777		99,777
Total assets acquired		14,300		1,675,001		1,689,301
Notes payable and other debt		—		47,641		47,641
Intangible liabilities		—		103,769		103,769
Other liabilities		380		64,792		65,172
Total liabilities assumed		380		216,202		216,582
Noncontrolling interest assumed		—		24,656		24,656
Net assets acquired		13,920		1,434,143		1,448,063
Cash acquired		—		19,119		19,119
Total cash used		$	13,920	$	1,415,024	$	1,428,944

For certain acquisitions, the determination of fair values of the assets acquired and liabilities assumed has changed. We made certain adjustments during 2017 due primarily to reclassification adjustments for presentation and adjustments to our valuation assumptions. The changes to our valuation assumptions were based on more accurate information concerning the subject assets and liabilities. None of these changes had a material impact on our Consolidated Financial Statements.

Aggregate Revenue and NOI

For the year ended December 31, 2016, aggregate revenue and NOI derived from our completed 2016 acquisitions during our period of ownership were $55.7 million and $37.7 million, respectively.

Transaction Costs

2015 Acquisitions

HCT Acquisition

In January 2015, we acquired American Realty Capital Healthcare Trust, Inc. (“HCT”) in a stock and cash transaction, which added 152 properties to our portfolio. At the effective time of the merger, each share of HCT common stock outstanding (other than shares held by us, HCT or our respective subsidiaries, which shares were canceled) was converted into the right to receive either 0.1688 shares of our common stock (with cash paid in lieu of fractional shares) or $11.33 per share in cash, at the election of each HCT shareholder. Shares of HCT common stock for which a valid election was not made were converted into the stock consideration. We funded the transaction through the issuance of approximately 28.4 million shares of our common stock and 1.1 million limited partnership units that were redeemable for shares of our common stock and the payment of approximately $11 million in cash (excluding cash in lieu of fractional shares). In addition, we assumed approximately $167 million of mortgage debt and repaid approximately $730 million of debt, net of HCT cash on hand. In August 2015, 20 of the properties that we acquired in the HCT acquisition were disposed of as part of the CCP Spin-Off.

Ardent Health Services Acquisition

On August 4, 2015, we completed our acquisition of Ardent Medical Services, Inc. and simultaneous separation and sale of the Ardent hospital operating company to a consortium composed of an entity controlled by Equity Group Investments, Ardent’s management team and us (collectively the “Ardent Transaction”). As of the acquisition date, we recorded the estimated fair value of our investment in owned hospital and other real estate of approximately $1.3 billion. At closing, we paid $26.3 million for our 9.9% interest in Ardent which represents our estimate of the acquisition date fair value of this interest. Upon closing, we entered into a long-term triple-net master lease with Ardent to operate the ten hospital campuses and other real estate we acquired.

Other 2015 Acquisitions

In 2015, we made other investments totaling approximately $612 million, including the acquisition of eleven triple-net

leased properties; nine MOBs (including eight MOBs that we had previously accounted for as investments in unconsolidated entities; see “NOTE 7—INVESTMENTS IN UNCONSOLIDATED ENTITIES”) and 12 skilled nursing facilities (all of which were disposed of as part of the CCP Spin-Off).

Completed Developments

During 2015, we completed the development of one triple-net leased seniors housing community, representing $9.3 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2015.

Estimated Fair Value

We accounted for our 2015 acquisitions under the acquisition method in accordance with ASC 805. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using level two and level three inputs:



	Triple-Net Leased Properties		Senior Living Operations		Office Operations		Total
	(In thousands)
Land and improvements	$	190,566	$	70,713	$	173,307	$	434,586
Buildings and improvements	1,726,063		703,080		1,214,546		3,643,689
Acquired lease intangibles	169,362		83,867		184,540		437,769
Other assets	174,093		272,888		402,734		849,715
Total assets acquired	2,260,084		1,130,548		1,975,127		5,365,759
Notes payable and other debt	—		77,940		99,917		177,857
Other liabilities	45,924		45,408		46,565		137,897
Total liabilities assumed	45,924		123,348		146,482		315,754
Net assets acquired	$	2,214,160	$	1,007,200	$	1,828,645	5,050,005
Redeemable OP unitholder interests assumed							88,085
Cash acquired							59,584
Equity issued							2,216,355
Total cash used							$	2,685,981

Included in other assets above is $746.9 million of goodwill, which represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed as of the acquisition date. A substantial amount of this goodwill was due to an increase in our stock price between the announcement date and closing dates of the HCT acquisition. Goodwill has been allocated to our reportable business segments based on the respective fair value of the net assets acquired, as follows: triple-net leased properties - $133.6 million; senior living operations - $219.1 million; and office operations - $394.2 million.

Aggregate Revenue and NOI

For the year ended December 31, 2015, aggregate revenue and NOI derived from our 2015 real estate acquisitions during our period of ownership were $327.0 million and $201.9 million, respectively, excluding revenue and NOI for any assets contributed in the CCP Spin-Off.

Transaction Costs

Prior to our adoption of ASU 2017-01, transaction costs are expensed as incurred and included in merger-related expenses and deal costs in our Consolidated Statements of Income. For the year ending December 31, 2015, we expensed as incurred $99.0 million of costs related to our completed 2015 transactions, $4.1 million of which is reported within discontinued operations. These transaction costs exclude any separation costs associated with the CCP Spin-Off (refer to “NOTE 5—DISPOSITIONS”).