ACQUISITIONS OF REAL ESTATE PROPERTY

3 Months Ended

Mar. 31, 2012

ACQUISITIONS OF REAL ESTATE PROPERTY

ACQUISITIONS OF REAL ESTATE PROPERTY

NOTE 4—ACQUISITIONS OF REAL ESTATE PROPERTY

        We engage in acquisition activity primarily to invest in additional seniors housing and healthcare properties and achieve an expected yield on investment, to grow and diversify our portfolio and revenue base, and to reduce our dependence on any single tenant, operator or manager, geographic area, asset type, business model or revenue source.

2012 Acquisitions

        During the first quarter of 2012, we invested approximately $56.8 million, including the assumption of $16.5 million in debt, in one MOB and one seniors housing community.

ASLG Acquisition

        In May 2011, we acquired 117 private pay seniors housing communities and one development land parcel located primarily in affluent coastal markets such as the New York metropolitan area, New England and California and the working capital of privately-owned Atria Senior Living Group, Inc. (together with its affiliates, "ASLG"). Prior to the closing, ASLG spun off its management operations to a newly formed entity, Atria, which continues to operate the acquired assets under long-term management agreements with us.

        We are accounting for the ASLG acquisition under the acquisition method in accordance with ASC Topic 805, Business Combinations ("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 (in thousands):

Land and improvements	$	341,540
Buildings and improvements		2,876,717
Acquired lease intangibles		159,610
Other assets		216,851
Total assets acquired		3,594,718
Notes payable and other debt		1,629,212
Deferred tax liability		44,608
Other liabilities		202,279
Total liabilities assumed		1,876,099
Net assets acquired		1,718,619
Cash acquired		77,718
Equity issued		1,376,437
Total cash used	$	264,464

        The allocation of fair values of the assets acquired and liabilities assumed differs from the allocation reported in "Note 4—Acquisitions of Real Estate Property" of the Notes to Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 22, 2012, and is subject to further adjustment, due primarily to adjustments to certain of our valuation assumptions based on more accurate information concerning the subject assets and liabilities. None of these changes had a material impact on our Consolidated Financial Statements.

        Included in other assets is $81.6 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.

        As partial consideration for the ASLG acquisition, the sellers received the right to earn additional amounts ("contingent consideration") based upon the achievement of certain performance metrics, including the future operating results of the acquired assets, and other factors. The contingent consideration, if any, will be payable to the sellers following the applicable measurement date for the period ending December 31, 2014 or December 31, 2015, at the election of the sellers. We cannot determine the actual amount of contingent consideration, if any, that may become due to the sellers because it is dependent on various factors, such as the future performance of the acquired assets and our equity multiple, which are subject to many risks and uncertainties beyond our control. We are also unable to estimate a range of potential outcomes for the same reason. As of March 31, 2012, December 31, 2011 and the acquisition date, the estimated discounted fair value of contingent consideration was $44.2 million and was included in accounts payable and other liabilities on our Consolidated Balance Sheets.

NHP Acquisition

        In July 2011, we acquired NHP in a stock-for-stock transaction. The NHP acquisition added 643 seniors housing and healthcare properties to our portfolio (including properties owned through joint ventures).

        We are accounting for the NHP acquisition 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 (in thousands):

Land and improvements	$	704,499
Buildings and improvements		6,216,741
Acquired lease intangibles		502,383
Investment in unconsolidated entities		93,553
Other assets		749,891
Total assets acquired		8,267,067
Notes payable and other debt		1,882,752
Other liabilities		735,951
Total liabilities assumed		2,618,703
Redeemable OP unitholder interests assumed		100,888
Noncontrolling interest assumed		76,657
Net assets acquired		5,470,819
Cash acquired		29,205
Equity issued		5,365,819
Total cash used	$	75,795

        The allocation of fair values of the assets acquired and liabilities assumed differs from the allocation reported in "Note 4—Acquisitions of Real Estate Property" of the Notes to Consolidated Financial Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 22, 2012, and is subject to further adjustment, due primarily to reclassification adjustments for presentation, adjustments to our valuation assumptions and acquiring additional information not readily available at the date of acquisition. The changes to our valuation assumptions were based on more accurate information concerning the subject assets and liabilities.

        Included in other assets is $350.0 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. We have allocated $294.9 million and $55.1 million of the goodwill balance to our triple-net leased properties and MOB operations reportable business segments, respectively, based on relative fair value. We do not expect to deduct any of the goodwill balance for tax purposes.

Other 2011 Acquisitions

        During 2011, we also invested approximately $329.5 million, including the assumption of $134.9 million in debt, in MOBs and seniors housing communities.

Subsequent Acquisition

        On April 2, 2012, we acquired Cogdell Spencer Inc. (together with its subsidiaries, "Cogdell"), including its 72 MOBs (one which is still being developed) and its MOB property management business, which has existing agreements to manage 44 MOBs, in an all-cash transaction. At closing, our investment in Cogdell, including our share of debt, was approximately $760 million. In addition, our joint venture partners' share of net debt assumed was $36.6 million at the time of the acquisition.

        Pursuant to the terms of, and subject to the conditions set forth in, the agreement and plan of merger, at the effective time of the merger, (a) each outstanding share of Cogdell common stock and each outstanding unit of limited partnership interest in Cogdell's operating partnership, Cogdell Spencer LP, that was not owned by subsidiaries of Cogdell was converted into the right to receive $4.25 in cash, and (b) each outstanding share of Cogdell's 8.500% Series A Cumulative Redeemable Perpetual Preferred Stock was converted into the right to receive an amount in cash equal to $25.00, plus accrued and unpaid dividends through the date of closing. We financed our acquisition of Cogdell through the assumption of $203.8 million of existing Cogdell mortgage debt (including $36.6 million of our joint venture partners' share) and borrowings under our unsecured revolving credit facility. Prior to the closing, Cogdell completed the sale of its design-build and development business to an unaffiliated third party.

        We are accounting for the Cogdell acquisition under the acquisition method in accordance with ASC 805. Because the Cogdell transaction was consummated after March 31, 2012, our initial accounting for this business combination is a preliminary assessment only. Our assessment of fair value and the allocation of the Cogdell purchase price to the identified tangible and intangible assets is our current best estimate of fair value.

Pending Acquisition

        In April 2012, we entered into a definitive agreement to acquire sixteen seniors housing communities currently managed by Sunrise for approximately $362 million in an all-cash transaction. Sunrise will continue to manage the acquired assets under assumed existing long-term management agreements. We expect to close this transaction in the second quarter of 2012, although we cannot provide any assurance as to whether or when the transaction will occur.