ACQUISITIONS OF REAL ESTATE PROPERTY

6 Months Ended

Jun. 30, 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.

Cogdell Acquisition

        On April 2, 2012, we acquired Cogdell Spencer Inc. (together with its subsidiaries, "Cogdell"), including its 71 assets (one of which is still being developed and including properties owned through joint ventures) and its MOB property management business, which has existing agreements with third parties 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 $36.3 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 $36.3 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 Topic 805, Business Combinations ("ASC 805"), and we have completed our initial accounting for this acquisition, which is subject to further adjustment. 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	$	93,235
Buildings and improvements		615,488
Construction in progress		24,117
Acquired lease intangibles		117,088
Other assets		24,241
Total assets acquired		874,169
Notes payable and other debt		213,430
Other liabilities		40,795
Total liabilities assumed		254,225
Noncontrolling interest assumed		28,283
Net assets acquired		591,661
Cash acquired		12,202
Total cash used	$	579,459

        As of June 30, 2012, we had incurred a total of $30.6 million of acquisition-related costs related to the Cogdell acquisition, all of which were expensed as incurred and included in merger-related expenses and deal costs in our Consolidated Statements of Income for the applicable periods. For the three and six months ended June 30, 2012, we expensed $27.4 million and $29.4 million, respectively, of acquisition-related costs related to the Cogdell acquisition.

Other 2012 Acquisitions

        On May 1, 2012, we acquired sixteen seniors housing communities managed by Sunrise for approximately $362 million in an all-cash transaction. Sunrise continues to manage the acquired assets under existing long-term management agreements. We are accounting for this acquisition under the acquisition method in accordance with ASC 805.

        During the first six months of 2012, we also invested approximately $155 million, including the assumption of $34.8 million in debt, in eight seniors housing communities and one MOB.

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 accounted for the ASLG 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	$	341,540
Buildings and improvements		2,876,717
Acquired lease intangibles		159,610
Other assets		215,708
Total assets acquired		3,593,575
Notes payable and other debt		1,629,212
Deferred tax liability		43,466
Other liabilities		202,278
Total liabilities assumed		1,874,956
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 I, Item 1 of our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, filed with the SEC on April 27, 2012, 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 $80.5 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, nor can we estimate a range of potential outcomes, because they are 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. As of June 30, 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 accounted 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	$	701,154
Buildings and improvements		6,147,737
Acquired lease intangibles		493,125
Investment in unconsolidated entities		93,553
Other assets		815,968
Total assets acquired		8,251,537
Notes payable and other debt		1,882,752
Other liabilities		720,420
Total liabilities assumed		2,603,172
Redeemable OP unitholder interests assumed		100,888
Noncontrolling interest assumed		76,658
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 I, Item 1 of our Quarterly Report on Form 10-Q for the three months ended March 31, 2012, filed with the SEC on April 27, 2012, 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 $399.0 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 $338.5 million and $60.5 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, in addition to the ASLG and NHP acquisitions, we invested approximately $329.5 million, including the assumption of $134.9 million in debt, in MOBs and seniors housing communities.