8-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934

December 13, 2010
Date of Report (Date of earliest event reported)

HCP, INC.
(Exact Name of Registrant as Specified in its Charter)

Maryland
(State of
Incorporation) 001-08895
(Commission
File Number) 33-0091377
(IRS Employer
Identification Number)

3760 Kilroy Airport Way
Suite 300
Long Beach, California 90806
(Address of principal executive offices) (Zip Code)

(562) 733-5100
(Registrant's telephone number, including area code)

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01    Other Events.

        As reported on its current report on Form 8-K filed on December 14, 2010, HCP, Inc. ("HCP") has signed a definitive purchase agreement, dated as of December 13, 2010, to acquire all of the outstanding interests in HCR Properties, LLC ("HCR ManorCare PropCo"), which owns substantially all of the post-acute, skilled nursing and assisted living facilities of HCR ManorCare, Inc. (with respect to the acquisition, the "HCR ManorCare Facilities Acquisition"). Also, on December 10, 2010, HCP signed a definitive agreement to acquire the remaining 65% interest in HCP Ventures II, a joint venture that owns 25 senior housing facilities (the "HCP Ventures II Purchase"). Upon the closing of the HCP Ventures II Purchase, HCP will become the sole owner of these facilities.

        HCP is filing this current report on Form 8-K to provide certain financial information with respect to the proposed HCR ManorCare Facilities Acquisition and HCP Ventures II Purchase. Specifically, this current report on Form 8-K provides: (1) HCP's unaudited pro forma condensed consolidated financial statements relating to the proposed HCR ManorCare Facilities Acquisition and HCP Ventures II Purchase, attached hereto as Exhibit 99.1; (2) HCR ManorCare PropCo's audited financial statements for the nine months ended September 30, 2010 and the two years ended December 31, 2009 and 2008, attached hereto as Exhibit 99.2; and (3) HCR ManorCare PropCo's unaudited financial statements for the three and nine months ended September 30, 2010 and 2009, attached hereto as Exhibit 99.3. The information in Exhibits 99.2 and 99.3 was provided by HCR ManorCare, Inc. The information in Exhibits 99.1, 99.2 and 99.3 is incorporated herein by reference.

Item 9.01    Financial Statements and Exhibits.

(d)

Exhibits. The following exhibits are being filed herewith:

No.		Description
	23.1	Consent of Ernst and Young LLP
	99.1	HCP Unaudited Pro Forma Condensed Consolidated Financial Statements as of September 30, 2010 and for the year ended December 31, 2009 and the nine months ended September 30, 2010
	99.2	HCR ManorCare PropCo Financial Statements as of September 30, 2010 and December 31, 2009 and 2008 and for the nine-month period ended September 30, 2010 and the two years in the period ended December 31, 2009
	99.3	HCR ManorCare PropCo Financial Statements as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009

2

SIGNATURES

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

Date: December 14, 2010

HCP, Inc.
By:	/s/ THOMAS M. HERZOG
	Thomas M. Herzog, Executive Vice President—Chief Financial Officer

3

EXHIBIT INDEX

No.		Description
	23.1	Consent of Ernst and Young LLP
	99.1	HCP Unaudited Pro Forma Condensed Consolidated Financial Statements as of September 30, 2010 and for the year ended December 31, 2009 and the nine months ended September 30, 2010
	99.2	HCR ManorCare PropCo Financial Statements as of September 30, 2010 and December 31, 2009 and 2008 and for the nine-month period ended September 30, 2010 and the two years in the period ended December 31, 2009
	99.3	HCR ManorCare PropCo Financial Statements as of September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009

4

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Item 8.01 Other Events.
Item 9.01 Financial Statements and Exhibits.

SIGNATURES
EXHIBIT INDEX

EX-23.1

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Exhibit 23.1

Consent of Independent Auditors

        We consent to the reference to our firm under the caption "Experts" and to the incorporation by reference in the following Registration Statements of HCP, Inc. and in the related Prospectus and Prospectus Supplements of our report dated November 30, 2010, with respect to the consolidated financial statements of HCR Properties, LLC., included in the Current Report (Form 8-K) dated December 13, 2010:

•

Form S-3, File No. 333-161721, related to the unspecified indeterminate shelf registration of common stock, preferred stock, depository shares, debt securities, warrants or other rights, stock purchase contracts and units;

•

Form S-8, File No. 333-161720, related to the registration of additional securities related to the 2006 Performance Incentive Plan;

•

Form S-8, File No. 333-108838, related to the Health Care Property Investors, Inc. 2000 Stock Incentive Plan;

•

Form S-8, File No. 333-90353, related to the American Health Properties, Inc. 1994 Stock Incentive Plan, American Health Properties, Inc. Nonqualified Stock Option Plan For Nonemployee Directors, American Health Properties, Inc. 1990 Stock Incentive Plan and American Health Properties, Inc. 1988 Stock Option Plan;

•

Form S-8, File No. 333-54786, related to the Amended Stock Incentive Plan, Second Amended and Restated Stock Incentive Plan and Second Amended and Restated Directors Stock Incentive Plan;

•

Form S-8, File No. 333-54784, related to the 2000 Stock Incentive Plan;

•

Form S-8, File No. 333-135679, related to the Health Care Property Investors, Inc. 2006 Performance Incentive Plan;

•

Form S-3, File No. 333-99067, related to the registration of 738,923 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Utah II, LLC;

•

Form S-3, File No. 333-99063, related to the registration of 160,026 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Utah, LLC;

•

Form S-3, File No. 333-95487, related to the registration of 593,247 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Utah, LLC;

•

Form S-3, File No. 333-122456, related to the registration of 554,890 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Utah II, LLC;

•

Form S-3, File No. 333-119469, related to the registration of 2,129,078 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Tennessee, LLC;

•

Form S-3, File No. 333-124922, related to the registration of 53,602 shares of common stock to be issued upon conversion of non-managing member interests in HCPI/Utah, LLC;

•

Form S-3, File No. 333-136344, related to the registration of 699,454 shares of common stock to be issued upon conversion of non-managing member units in HCP DR California, LLC;

•

Form S-3, File No. 333-148899, related to the registration of 4,246,857 shares of common stock to be issued upon conversion of non-managing membership interests in HCP DR MCD, LLC.

/s/ Ernst & Young LLP

Toledo, OH
December 13, 2010

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Exhibit 23.1

Consent of Independent Auditors

EX-99.1

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Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2010 AND FOR THE YEAR ENDED DECEMBER 31, 2009 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 2010

	Page
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2010		3
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 2010		4
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2009		5
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements		6

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following is an excerpt of information contained in our Current Report on Form 8-K, as filed with the Securities and Exchange Commission ("SEC") on December 13, 2010 and incorporated herein by reference. You should read and consider the information in the documents to which we have referred you in "Incorporation by Reference" including the foregoing Current Report of Form 8-K, before purchasing these securities.

        The accompanying unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of HCP, HCR Properties, LLC ("HCR ManorCare PropCo") and HCP Ventures II as of and for the nine months ended September 30, 2010 and for the year ended December 31, 2009. The historical consolidated financial statements of HCP are contained in its Annual Report on Form 10-K for the year ended December 31, 2009, as updated by its Current Report on Form 8-K as filed with the SEC on November 2, 2010, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. The historical consolidated financial statements of HCR ManorCare PropCo are included as Exhibits 99.2 and 99.3 to this Current Report on Form 8-K.

        The accompanying unaudited pro forma condensed consolidated financial statements give effect to the proposed acquisition by HCP of all of the equity interest in HCR ManorCare PropCo (the "HCR ManorCare Facilities Acquisition") and the proposed purchase of the remaining 65 percent interest in HCP Ventures II (the "HCP Ventures II Purchase") (collectively, the "Acquisitions"). The unaudited pro forma condensed consolidated balance sheet as of September 30, 2010 has been prepared as if the Acquisitions had occurred as of that date. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2009 and for the nine months ended September 30, 2010 have been prepared as if the Acquisitions had occurred as of January 1, 2009. Such statements also reflect the incurrence of debt and give effect to certain capital transactions undertaken by HCP in order to finance the Acquisitions.

        The allocation of the purchase price of HCR ManorCare PropCo and HCP Ventures II reflected in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. A final determination of the fair values of HCR ManorCare PropCo's and HCP Ventures II's assets and liabilities, which cannot be made prior to the completion of the transactions, will be based on the actual valuation of the tangible and intangible assets and liabilities of HCR ManorCare PropCo and HCP Ventures II that exist as of the date of completion of the transactions. Consequently, amounts preliminarily allocated to identifiable tangible and intangible assets and liabilities could change significantly from those used in the pro forma condensed consolidated financial statements presented below and could result in a material change in amortization of tangible and intangible assets and liabilities.

        In the opinion of HCP's management, the pro forma financial statements include all significant necessary adjustments that can be factually supported to reflect the effects of the Acquisitions. The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The completion of the valuation, the allocation of the purchase price, the impact of ongoing integration activities, the timing of completion of the transactions and other changes in HCR ManorCare PropCo and HCP Ventures II tangible and intangible assets and liabilities that occur prior to completion of the transactions could cause material differences in the information presented. Furthermore, following consummation of the transactions, HCP expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the transaction, which may differ from those reflected in HCR ManorCare PropCo's and HCP Ventures II's historical financial statements and the pro forma financial statements.

2

HCP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2010

(In thousands)

					HCP Historical			HCR ManorCare PropCo Historical (A)			HCR ManorCare PropCo Pro Forma Adjustments (B)			HCP Ventures II Historical (A)			HCP Ventures II Pro Forma Adjustments (P)			HCP Pro Forma
ASSETS
Real estate:
	Buildings, improvements and development				$	8,260,220		$	—		$	—		$	936,957		$	(249,404	)(Q)	$	8,947,773
	Land					1,558,947			—			—			108,907			(14,835	)(Q)		1,653,019
	Accumulated depreciation and amortization					(1,189,998	)		—			—			(105,085	)		105,085	(Q)		(1,189,998	)
			Net real estate			8,629,169			—			—			940,779			(159,154	)		9,410,794
	Net investment in direct financing leases					607,392			3,123,630			2,883,005	(C)		—			—			6,614,027
	Loans receivable, net					1,852,521			—			(1,578,697	)(D)		—			—			273,824
	Investments in and advances to unconsolidated joint ventures					197,697			—			—			—			(65,651	)(R)		132,046
	Accounts receivable, net					38,414			—			—			—			—			38,414
	Cash, cash equivalents and restricted cash					86,858			3,420			—			9,054			—			99,332
	Intangible assets, net					325,859			—			13,500	(E)		36,530			41,845	(S)		417,734
	Real estate held for sale, net					12,554			—			—			—			—			12,554
	Other assets, net					494,835			35,609			(6,946	)(F)		6,242			(5,742	)(T)		523,998
		Total assets			$	12,245,299		$	3,162,659		$	1,310,862		$	992,605		$	(188,702	)	$	17,522,723
LIABILITIES AND EQUITY
	Bank line of credit				$	318,000		$	—		$	3,313	(G)	$	—		$	—		$	321,313
	Bridge loan					—			—			2,870,000	(G)		—			—			2,870,000
	Senior unsecured notes					3,324,975			—			200,000	(G)		—			—			3,524,975
	Mortgage and other secured debt					1,682,740			—			(424,720	)(G)		652,036			314	(U)		1,910,370
	Long-term debt					—			4,595,942			(4,595,942	)(G)		—			—			—
	Other debt					93,990			—			—			—			—			93,990
	Intangible liabilities, net					153,522			—			—			989			(989	)(V)		153,522
	Accounts payable and accrued expenses and deferred revenues					418,288			1,048,549			(931,259	)(H)		7,781			(543	)(R)		542,816
			Total liabilities			5,991,515			5,644,491			(2,878,608	)		660,806			(1,218	)		9,416,986
Equity:
	Preferred stock					285,173			—			—			—			—			285,173
	Common stock					310,507			—			26,616	(I)		—			4,384	(I)		367,216
												25,709	(J)
	Additional paid-in capital					6,237,663			—			803,576	(I)		—			132,419	(I)		7,999,349
												825,691	(J)
	Cumulative dividends in excess of earnings					(761,036	)		—			44,921	(D)		—			7,662	(R)		(727,478	)
						—			—			(18,875	)(B)		—			(150	)(P)		—
	Accumulated other comprehensive loss					(7,426	)		—			—			—			—			(7,426	)
	Total members' equity (deficit)					—			(2,481,832	)		2,481,832	(B)		331,799			(331,799	)(P)		—
			Total stockholders' equity			6,064,881			(2,481,832	)		4,189,470			331,799			(187,484	)		7,916,834
			Total noncontrolling interests			188,903			—			—			—			—			188,903
				Total equity		6,253,784			(2,481,832	)		4,189,470			331,799			(187,484	)		8,105,737
		Total liabilities and equity			$	12,245,299		$	3,162,659		$	1,310,862		$	992,605		$	(188,702	)	$	17,522,723

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

3

HCP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Nine Months Ended September 30, 2010

(In thousands, except per share data)

			HCP Historical			HCR ManorCare PropCo Historical (A)			HCR ManorCare PropCo Pro Forma Adjustments			HCP Ventures II Historical (A)			HCP Ventures II Pro Forma Adjustments (P)			HCP Pro Forma
Revenues and other income:
	Rental and related revenues		$	697,802		$	—		$	—		$	58,003		$	(7,216	)(W)	$	748,589
	Tenant recoveries			67,262			—			—			—			—			67,262
	Income from direct financing leases			37,238			331,865			143,334	(K)		—			—			512,437
	Interest income			108,004			—			(83,819	)(L)		1			—			24,186
	Investment management fee income			3,755			—			—			—			(1,965	)(X)		1,790
		Total revenues		914,061			331,865			59,515			58,004			(9,181	)		1,354,264
Costs and expenses:
	Depreciation and amortization			234,008			—			—			20,760			3,345	(Y)		258,113
	Interest expense			220,303			116,183			18,080	(M)		28,637			(454)	(Z)		382,749
	Operating			152,028			1,274			(1,159	)(N)		15			—			152,158
	General and administrative			65,039			—			—			3,330			(3,209	)(X)		65,160
	Impairments (recoveries)			(11,900	)		—			—			54,500			(54,500	)(AA)		(11,900	)
		Total costs and expenses		659,478			117,457			16,921			107,242			(54,818	)		846,280
Other income, net				7,151			(10,921	)		10,921			—			—			7,151
Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures				261,734			203,487			53,515			(49,238	)		45,637			515,135
	Income taxes			(1,809	)		(76,923	)		76,923	(O)		—			—			(1,809	)
	Equity income from unconsolidated joint ventures			4,078			—			—			—			(2,749	)(BB)		1,329
	Impairments of investments in unconsolidated joint ventures			(71,693	)		—			—			—			71,693	(BB)		—
Income from continuing operations				192,310			126,564			130,438			(49,238	)		114,581			514,655
	Noncontrolling interests' share of earnings			(10,077	)		—			—			—			—			(10,077	)
Income from continuing operations applicable to HCP, Inc.				182,233			126,564			130,438			(49,238	)		114,581			504,578
	Preferred stock dividends			(15,848	)		—			—			—			—			(15,848	)
	Participating securities' share in earnings			(1,648	)		—			—			—			—			(1,648	)
Income from continuing operations applicable to common shares			$	164,737		$	126,564		$	130,438		$	(49,238	)	$	114,581		$	487,082
	Income from continuing operations per common share—basic(CC)		$	0.55														$	1.37
	Income from continuing operations per common share—diluted(CC)		$	0.55														$	1.36
Weighted average shares used to calculate income per common share:
	Basic(CC)			299,243						52,325	(DD)					4,384	(DD)		355,952
	Diluted(CC)			300,468						52,325	(DD)					4,384	(DD)		357,177

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

4

HCP, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2009

(In thousands, except per share data)

			HCP Historical			HCR ManorCare PropCo Historical (A)			HCR ManorCare PropCo Pro Forma Adjustments			HCP Ventures II Historical (A)		HCP Ventures II Pro Forma Adjustments (P)			HCP Pro Forma
Revenues and other income:
	Rental and related revenues		$	878,770		$	—		$	—		$	83,510	$	(10,084	)(W)	$	952,196
	Tenant recoveries			89,582			—			—			—		—			89,582
	Income from direct financing leases			51,495			438,876			182,441	(K)		—		—			672,812
	Interest income			124,146			—			(81,054	)(L)		1		—			43,093
	Investment management fee income			5,312			—			—			—		(2,789	)(X)		2,523
		Total revenues		1,149,305			438,876			101,387			83,511		(12,873	)		1,760,206
Costs and expenses:
	Depreciation and amortization			316,803			—			—			28,038		4,101	(Y)		348,942
	Interest expense			298,897			152,316			59,869	(M)		38,778		(605	)(Z)		549,255
	Operating			185,829			1,802			(1,649	)(N)		7		—			185,989
	General and administrative			78,471			—			—			4,682		(4,291	)(X)		78,862
	Litigation provision			101,973			—			—			—		—			101,973
	Impairments (recoveries)			75,389			—			—			—		—			75,389
		Total costs and expenses		1,057,362			154,118			58,220			71,505		(795	)		1,340,410
Other income, net				7,768			(5,757	)		5,757			—		—			7,768
Income before income taxes and equity income from and impairments of investments in unconsolidated joint ventures				99,711			279,001			48,924			12,006		(12,078	)		427,564
	Income taxes			(1,910	)		(105,408	)		105,408	(O)		—		—			(1,910	)
	Equity income from unconsolidated joint ventures			3,511			—			—			—		(5,541	)(BB)		(2,030	)
Income from continuing operations				101,312			173,593			154,332			12,006		(17,619	)		423,624
	Noncontrolling interests' share of earnings			(14,461	)		—			—			—		—			(14,461	)
Income from continuing operations applicable to HCP, Inc.				86,851			173,593			154,332			12,006		(17,619	)		409,163
	Preferred stock dividends			(21,130	)		—			—			—		—			(21,130	)
	Participating securities' share in earnings			(1,491	)		—			—			—		—			(1,491	)
Income from continuing operations applicable to common shares			$	64,230		$	173,593		$	154,332		$	12,006	$	(17,619	)	$	386,542
	Income from continuing operations per common share—basic(CC)		$	0.23													$	1.17
	Income from continuing operations per common share—diluted(CC)		$	0.23													$	1.17
Weighted average shares used to calculate income per common share:
	Basic(CC)			274,216						52,325	(DD)				4,384	(DD)		330,925
	Diluted(CC)			274,631						52,325	(DD)				4,384	(DD)		331,340

The accompanying notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.

5

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of HCP and HCR ManorCare PropCo for the year ended December 31, 2009 and as of and for the nine months ended September 30, 2010 that are incorporated herein by reference.

(A)

The historical financial statements of HCR ManorCare PropCo and HCP Ventures II for the year ended December 31, 2009 and as of and for the nine months ended September 30, 2010 have been presented based on the financial statement classification utilized by HCP.

(B)

On December 13, 2010, HCP signed a definitive agreement to acquire HCR ManorCare PropCo, a wholly-owned subsidiary of HCR ManorCare, for a total purchase price of approximately $6.1 billion, comprised of approximately $852 million of our common stock (See Note J), $3.5 billion in cash (adjusted for working capital), and the $1.6 billion settlement of HCP's loan investments in HCR ManorCare PropCo's debt at its estimated fair value. Under the terms of the purchase agreement, HCP can elect to fund all or a portion of the stock portion of the consideration with cash. After the HCR ManorCare Facilities Acquisition, HCR ManorCare will lease the Facilities acquired from HCR ManorCare PropCo back from HCP pursuant to a long-term master lease. All obligations under the lease will be guaranteed by HCR ManorCare.

The calculation of the HCR ManorCare Facilities Acquisition total purchase price follows (in thousands):

		September 30, 2010
Calculation of HCR ManorCare PropCo purchase price
Issuance of 25.7 million shares of HCP common stock		$	852,000
Payment of aggregate cash consideration			3,432,227
HCP's loan investment in HCR ManorCare PropCo's debt settled at fair value			1,623,618
Assumed HCR ManorCare PropCo accrued tax and other liabilities at fair value			117,290
	Total purchase price	$	6,025,135

Estimated fees and costs
Advisory fees(1)		$	12,600
Legal, accounting and other fees and costs(1)			6,275
Share registration rights			600
Debt issuance costs			23,663
	Total	$	43,138

⁽¹⁾

Represents estimated fees and costs that will be expensed. These charges are directly attributable to the transaction and represent non-recurring costs; therefore, the anticipated impact on the results of operations was excluded from the pro forma condensed consolidated statements of operations.

Adjustment to the total members' deficit represents the elimination of such historical deficit balance of HCR ManorCare PropCo.

6

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(C)

Adjustment has been made to reflect HCR ManorCare PropCo's existing direct financing lease ("DFL") assets at their estimated fair value.

(D)

HCP's historical investments in loan receivables from HCR ManorCare PropCo will be settled at the closing of the HCR ManorCare Facilities Acquisition resulting in an estimated gain on settlement of $44.9 million, which represents the loan receivables' estimated fair value in excess of their carrying value. This gain is directly attributable to the transaction and represents a non-recurring credit; therefore, the anticipated impact on HCP's results of operations was excluded from the pro forma consolidated statements of operations.

(E)

Recognition of intangible assets associated with the acquired in-place ground leases that have favorable market rental rates.

(F)

Adjustments to HCR ManorCare PropCo's historical balance of other assets follow (in thousands):

Elimination of HCR ManorCare PropCo's historical deferred debt issuance costs	$	(35,442	)
Elimination of HCR ManorCare PropCo's land parcel not acquired at closing		(60	)
Elimination of HCR ManorCare PropCo's derivative asset settled at closing		(107	)
Fair value of option to purchase a non-controlling interest in the lessee		5,000
Deferral of debt issuance costs associated with new borrowings		23,663
	$	(6,946	)

(G)

HCP expects to fund $3.1 billion of the cash consideration and other associated costs of the HCR ManorCare Facilities Acquisition primarily with short-term financing and issuance of senior notes. HCP has obtained a 364-day bridge loan of $3.3 billion. Although HCP intends to issue debt securities in lieu of borrowings under this bridge loan, for purposes of these unaudited pro forma condensed consolidated financial statements we have assumed a drawn down of $2.87 billion at the closing of the HCR ManorCare Facilities Acquisition. In addition, we have assumed the issuance of $200 million of senior unsecured notes with a term of ten years. Any draw downs under the bridge loan are expected to be repaid after the HCR ManorCare Facilities Acquisition with proceeds from the issuance of additional senior notes with terms of three to ten years. Additionally, HCP's $425 million secured debt collateralized by the participation investment in HCR ManorCare PropCo's mortgage debt is assumed to be repaid in full at or before closing. All of HCR ManorCare PropCo's long-term debt, including our aggregate investments in HCR ManorCare PropCo debt with an aggregate face amount of $1.72 billion, is assumed to be settled or repaid at closing.

(H)

Adjustments to HCR ManorCare PropCo's historical balance of other liabilities follow (in thousands):

Elimination of HCR ManorCare PropCo's historical deferred tax liability	$	(907,248	)
Payment of HCR ManorCare's historical accrued interest on its long-term debt		(7,746	)
Elimination of HCR ManorCare PropCo's net payable to its affiliate		(16,265	)
	$	(931,259	)

At closing of the HCR ManorCare Facilities Acquisition, HCP will not be responsible for HCR ManorCare PropCo's recorded amounts of the deferred tax obligations; accordingly, such deferred tax obligations amounts were eliminated.

7

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(I)

Adjustments represent the issuance of 31 million shares of HCP common stock in this offering and the application of the estimated proceeds therefrom of $967 million to fund a portion of the cash consideration and other associated costs of the Acquisitions. HCP expects to use $137 million to fund the HCP Ventures II Purchase with the remaining balance of $825 million used to partially fund the HCR ManorCare Facilities Acquisition. The shares of HCP common stock assumed to be issued are valued as follows (in thousands, except share and per share data):

Number of shares issued			31,000,000
Assumed price of shares of HCP common stock		$	32.52	(1)
Value of shares issued		$	1,008,120
Less: Underwriting discount			(40,325	)
Less: share registration and issuance costs			(800	)
	Total value of shares issued	$	966,995

⁽¹⁾

Based on the last reported sale price of HCP's common stock on December 13, 2010.

The total value of the shares of HCP common stock issued is presented as follows:

Par value, $1.00 per share	$	31,000
Additional paid-in capital		935,995
	$	966,995

(J)

Adjustments represent the issuance of HCP common stock directly to the seller of HCR ManorCare PropCo, which is assumed to fund the equity consideration of the HCR ManorCare Facilities Acquisition. The shares of HCP common stock issued are valued as follows (in thousands, except share and per share data):

Number of shares issued			25,709,113
Assumed price of shares of HCP common stock		$	33.14	(1)
Value of shares issued		$	852,000
Less: share registration and issuance costs			(600	)
	Total value of shares issued	$	851,400

⁽¹⁾

Based on the average of last reported sale prices of HCP's common stock for the 10 days before the day the definitive agreement was signed for the HCR ManorCare Facilities Acquisition.

The total value of the shares of HCP common stock issued is presented as follows:

Par value, $1.00 per share	$	25,709
Additional paid-in capital		825,691
	$	851,400

8

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(K)

Adjustments to income from DFLs follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Eliminate HCR ManorCare PropCo historical income from DFLs	$	(331,865	)	$	(438,876	)
Pro forma amortization of unearned income from DFLs under the effective interest method		475,199			621,317
	$	143,334		$	182,441

(L)

Represents the elimination of interest earned on HCR ManorCare PropCo debt held as loan investments by HCP that will be settled at closing.

(M)

Adjustments to interest expense follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Interest expense and related amortization of issuance costs and fees associated with new borrowings used to finance the HCR ManorCare Facilities Acquisition (See Note G)	$	138,410		$	214,415
Eliminate HCR ManorCare PropCo's historical interest expense		(116,183	)		(152,316	)
Eliminate HCP's historical interest expense related to debt repaid at closing that is secured by HCP's loan investment participation in HCR ManorCare PropCo's mortgage debt		(4,147	)		(2,230	)
	$	18,080		$	59,869

The pro forma increase in interest expense as a result of the assumed issuance of new debt in the HCR ManorCare Facilities Acquisition is calculated using market rates management believes would have been available to HCP for the borrowings assumed to have been issued as of December 13, 2010 (the date that the definitive agreement was executed to acquire HCR ManorCare PropCo). Each ¹/8 of 1% increase in the annual interest assumed with respect to the debt would increase pro forma interest expense by $3.8 million for the year ended December 31, 2009 and $2.9 for the nine months ended September 30, 2010.

(N)

Adjustments to operating expenses follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Eliminate HCR ManorCare PropCo's historical operating expenses	$	(1,274	)	$	(1,802	)
Recognize the amortization of acquired ground lease intangibles		115			153
	$	(1,159	)	$	(1,649	)

9

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For intangible assets associated with the value of in-place ground leases, a weighted-average remaining lease term of approximately 88 years was used to compute amortization expense. The Company computes amortization using the straight-line method over the remaining lease term of the related lease.

(O)

At the closing of the Acquisition, 100% of the real estate of HCR ManorCare PropCo will be acquired by a REIT subsidiary of HCP; accordingly, assuming the HCR ManorCare Facilities Acquisition was effective January 1, 2009, substantially all of the amounts of the income tax expense would then be eliminated.

(P)

On December 10, 2010, HCP signed a definitive agreement to acquire its partner's 65 percent interest in HCP Ventures II, which owns 25 senior housing facilities, resulting in HCP becoming the sole owner of the portfolio. The assets were acquired on October 5, 2006, through HCP's acquisition of CNL Retirement Properties, Inc., and were contributed to HCP Ventures II in January 2007. HCP owns a 35 percent noncontrolling interest in HCP Ventures II that is accounted under the equity method as an unconsolidated joint venture at September 30, 2010. In exchange for its partner's interest and the assumption of approximately $652 million of mortgage debt secured by the assets, HCP will pay approximately $137 million in cash for the transaction.

The calculation of the HCP Ventures II Purchase consideration and total purchase price follows (in thousands):

		September 30, 2010
Calculation of HCP Ventures II purchase price
Payment of aggregate cash consideration		$	136,153
Fair value of 35 percent interest in HCP Ventures II			73,313
All HCP Ventures II debt assumed at par value			652,350
	Total purchase price	$	861,816
Estimated fees and costs
Legal, accounting and other fees and costs(1)		$	150
Debt assumption fees			500
	Total	$	650

⁽¹⁾

Represents estimated fees and costs that will be expensed. These charges are directly attributable to the transaction and represent non-recurring costs; therefore, the anticipated impact on the results of operations was excluded from the pro forma condensed consolidated statement of operations.

Adjustment to the total members' equity represents the elimination of such historical equity balance of HCP Ventures II.

(Q)

HCP Ventures II's real estate assets have been adjusted to their preliminary estimated fair values as of September 30, 2010 and the related historical accumulated depreciation and amortization balances are eliminated when real estate assets are recorded at fair value.

10

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(R)

Adjustments to eliminate HCP's historical 35 percent interest in HCP Ventures II follow (in thousands):

Elimination of HCP's historical carrying value of HCP Ventures II	$	65,108
Elimination of historical amounts due from HCP Ventures II		543
		65,651
Elimination of historical amounts due to HCP Ventures II	$	543

The anticipated consolidation of HCP Ventures II results in an estimated gain of $7.7 million, which represents the estimated fair value of HCP's 35 percent noncontrolling interest in HCP Ventures II that is in excess of its carrying value at September 30, 2010. This gain is directly attributable to the transaction and represents a non-recurring credit; therefore, the anticipated impact on the results of operations was excluded from the pro forma consolidated statements of operations.

(S)

Adjustments to intangible assets follow (in thousands):

Recognition of lease-up related intangible assets associated with acquired leases	$	78,375
Elimination of HCP Ventures II's historical intangible assets		(36,530	)
	$	41,845

In-place lease intangible assets acquired include amounts for in-place lease values that are based on HCP's evaluation of the specific characteristics of each tenant's lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, HCP includes estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, HCP considers leasing commissions, legal and other related costs.

(T)

Adjustments to HCP Ventures II's historical balance of other assets follow (in thousands):

Deferral of debt issuance costs associated with debt assumed in the HCP Ventures II Purchase	$	500
Elimination of HCP Ventures II's historical deferred debt issuance		(3,500	)
Elimination of HCP Ventures II's leasing incentive assets		(2,742	)
	$	5,742

(U)

Adjustment to eliminate HCP Ventures II's historical discount on mortgage debt.

(V)

Adjustment eliminates HCP Ventures II's historical balance of intangible liabilities associated with acquired in-place leases that have below-market rental rates.

11

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(W)

Adjustments to rental and related revenues follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Eliminate HCP Ventures II's historical straight-line rent revenue	$	(9,539	)	$	(13,221	)
Eliminate HCP Ventures II's historical amortization of lease intangibles and lease incentives		2,323			3,137
	$	(7,216	)	$	(10,084	)

(X)

Adjustments to eliminate management fees follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Eliminate HCP's historical management fee income related to HCP Ventures II	$	(1,965	)	$	(2,789	)
Eliminate HCP Ventures II's historical management fees paid to HCP	$	3,209		$	4,291

(Y)

Adjustments to depreciation and amortization expense follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Real estate depreciation expense as a result of the recording of HCP Ventures II's real estate at its estimated fair value	$	17,189		$	22,918
Represents the incremental amortization expense related to lease-up related intangible assets associated with acquired leases		6,916			9,221
Eliminate HCP Ventures II's historical depreciation and amortization		(20,760	)		(28,038	)
	$	3,345		$	4,101

An estimated useful life of 30 years was assumed to compute real estate depreciation. For assets and liabilities associated with the value of in-place leases, a weighted-average remaining lease term of approximately 8.5 years was used to compute amortization expense. The Company computes depreciation and amortization using the straight-line method over the properties estimated useful lives or the remaining lease term of the related intangible.

12

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Z)

Adjustments to interest expense follow (in thousands):

	Nine Months Ended September 30, 2010			Year Ended December 31, 2009
Amortization of debt issuance costs associated with the assumed debt in the HCP Ventures II Purchase	$	60		$	80
Eliminate HCP Ventures II's historical debt issuance costs amortization		(514	)		(685	)
	$	(454	)	$	(605	)

(AA)

Adjustment eliminates HCP Ventures II's historical impairment of its straight-line rent assets. In October 2010, HCP Ventures II determined that the collectability of the straight-line rents was not reasonably assured and as a result established an allowance to fully impair the carrying value of its straight-line rent assets effective July 1, 2010. Further, HCP Ventures II limited its recognition of rental revenues to amounts collected from the related tenant. Assuming the HCP Ventures II Purchase occurred on January 1, 2009, no value would be attributed to straight-line asset in purchase accounting; therefore, no impairment of straight-line rent assets would have occurred.

(BB)

Represents the elimination of HCP's historical equity income from and related impairment of its 35 percent interest in HCP Ventures II, which resulted from the pro forma consolidation of HCP Ventures II assumed on January 1, 2009.

13

HCP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(CC)

The calculations of basic and diluted earnings from continuing operations attributable to common stock per share follow (in thousands, except per share data):

		Nine Months Ended September 30, 2010						Year Ended December 31, 2009
		Historical			Pro Forma			Historical			Pro Forma
Income from continuing operations		$	192,310		$	514,655		$	101,312		$	423,624
	Noncontrolling interests' share of earnings		(10,077	)		(10,077	)		(14,461	)		(14,461	)
Income from continuing operations applicable to HCP, Inc.		$	182,233		$	504,578		$	86,851		$	409,163
	Preferred stock dividends		(15,848	)		(15,848	)		(21,130	)		(21,130	)
	Participating securities' share in earnings		(1,648	)		(1,648	)		(1,491	)		(1,491	)
Income from continuing operations applicable to common shares		$	164,737		$	487,082		$	64,230		$	386,542
	Weighted average shares used to calculate earnings per common share—Basic		299,243			355,952			274,216			330,925
	Incremental weighted average effect of potentially dilutive instruments		1,225			1,225			415			415
	Adjusted weighted average shares used to calculate earnings per common share—Diluted		300,468			357,177			274,631			331,340
	Earnings from continuing operations per common share—Basic	$	0.55		$	1.37		$	0.23		$	1.17
	Earnings from continuing operations per common share—Diluted	$	0.55		$	1.36		$	0.23		$	1.17

(DD)

The pro forma weighted-average shares outstanding are the historical weighted-average shares of HCP for the periods presented, adjusted for the assumed issuance of 56.7 million shares of HCP common stock on a weighted-average basis for the year ended December 31, 2009, and the nine months ended September 30, 2010.

14

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Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2010 AND FOR THE YEAR ENDED DECEMBER 31, 2009 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2010
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HCP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2010 (In thousands)
HCP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Nine Months Ended September 30, 2010 (In thousands, except per share data)
HCP, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 2009 (In thousands, except per share data)
HCP, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EX-99.2

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Exhibit 99.2

CONSOLIDATED FINANCIAL STATEMENTS

HCR Properties, LLC
For the nine months ended September 30, 2010 and for the
years ended December 31, 2009 and 2008
With Report of Independent Auditors

HCR Properties, LLC

Consolidated Financial Statements

Contents

Report of Independent Auditors	1
Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Member's Deficit	5
Notes to Consolidated Financial Statements	6

Report of Independent Auditors

The Board of Directors of HCR Properties, LLC

        We have audited the accompanying consolidated balance sheets of HCR Properties, LLC. as of September 30, 2010 and December 31, 2009, and the related consolidated statements of income, cash flows and member's deficit for the nine months ended September 30, 2010 and years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HCR Properties, LLC as of September 30, 2010 and December 31, 2009, and the consolidated results of its operations and its cash flows for the nine months ended September 30, 2010 and years ended December 31, 2009 and 2008 in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young

Toledo, Ohio
November 30, 2010

1

HCR Properties, LLC

Consolidated Balance Sheets

		September 30, 2010			December 31, 2009
		(In thousands)
Assets
Current assets:
	Restricted cash and cash equivalents	$	3,420		$	7,855
Net investment in direct financing lease			3,123,630			3,096,351
Property			60			60
Other assets			35,549			59,589
Total assets		$	3,162,659		$	3,163,855
Liabilities and Member's Deficit
Current liabilities:
	Accrued liabilities	$	8,110		$	8,280
	Income taxes payable		116,926			51,978
	Net payable to affiliated company		16,265			19,463
Total current liabilities			141,301			79,721
Long-term debt			4,595,942			4,595,942
Deferred income taxes			907,248			892,839
Member's deficit:
	Contributed capital		3,812,947			3,812,947
	Accumulated distributions		(5,097,856	)		(4,893,128	)
	Retained earnings		376,858			250,294
	Accumulated other comprehensive loss		(13,251	)		(17,020	)
			(921,302	)		(846,907	)
	Less subscription receivable		(1,560,530	)		(1,557,740	)
Total member's deficit			(2,481,832	)		(2,404,647	)
Total liabilities and member's deficit		$	3,162,659		$	3,163,855

See accompanying notes.

2

HCR Properties, LLC

Consolidated Statements of Income

		Nine months ended September 30, 2010			Year ended December 31, 2009			Year ended December 31, 2008
		(In thousands)
Revenues		$	—		$	—		$	—
Expenses:
	Operating		111			252			131
	Management fees		1,163			1,550			1,550
			1,274			1,802			1,681
Loss before other income (expenses) and income taxes			(1,274	)		(1,802	)		(1,681	)
Other income (expenses):
	Interest expense		(116,183	)		(152,316	)		(263,509	)
	Loss on debt extinguishment		—			—			(40	)
	Unrealized derivative loss		(10,921	)		(6,989	)		—
	Gain on sale of assets		—			1,232			—
	Interest income and other		331,865			438,876			398,193
Total other income, net			204,761			280,803			134,644
Income before income taxes			203,487			279,001			132,963
Income taxes			76,923			105,408			49,681
Net income		$	126,564		$	173,593		$	83,282

See accompanying notes.

3

HCR Properties, LLC

Consolidated Statements of Cash Flows

			Nine months ended September 30, 2010			Year ended December 31, 2009			Year ended December 31, 2008
			(In thousands)
Operating Activities
Net income			$	126,564		$	173,593		$	83,282
Adjustments to reconcile net income to net cash provided by operating activities:
	Deferred finance fee and derivative amortization			19,321			19,318			16,033
	Interest earned in excess of cash receipts			(30,069	)		(48,069	)		(50,202	)
	Loss on debt extinguishment			—			—			40
	Unrealized derivative loss			10,921			6,989			—
	Provision for deferred income taxes			11,976			52,319			47,741
	Gain on sale of assets			—			(1,232	)		—
	Changes in assets and liabilities:
		Assets		—			(13,176	)		9,632
		Liabilities		64,778			49,402			10,856
Total adjustments				76,927			65,551			34,100
Net cash provided by operating activities				203,491			239,144			117,382
Investing Activities
Investment in direct financing lease				—			(2,356	)		—
Investment in property				—			(60	)		—
Proceeds from sale of assets				—			4,704			—
Net change in restricted cash and cash equivalents				4,435			1,550			1,821
Proceeds from direct financing lease and subscription receivable				—			—			31,627
Net cash provided by investing activities				4,435			3,838			33,448
Financing Activities
Net (advance) payable to affiliated company				(3,198	)		351			(7,381	)
Contributions from Manor Care, Inc.				—			17,997			—
Distributions to Manor Care, Inc.				(204,728	)		(256,392	)		(142,909	)
Payment of debt				—			(3,558	)		(500	)
Payment of financing and extinguishment costs				—			(1,380	)		(40	)
Net cash used in financing activities				(207,926	)		(242,982	)		(150,830	)
Net change in cash and cash equivalents				—			—			—
Cash and cash equivalents at beginning of period				—			—			—
Cash and cash equivalents at end of period			$	—		$	—		$	—

See accompanying notes.

4

HCR Properties, LLC

Consolidated Statements of Member's Deficit

			Contributed Capital		Accumulated Distributions			Retained (Deficit) Earnings			Accumulated Other Comprehensive Loss			Subscription Receivable			Total Member's Deficit
			(In thousands)
Balance at January 1, 2008			$	3,794,950	$	(4,493,827	)	$	(6,581	)	$	(6,316	)	$	(1,548,240	)	$	(2,260,014	)
Distributions to Manor Care, Inc.						(142,909	)											(142,909	)
Subscription receivable activity															1,112			1,112
Comprehensive income (loss):
	Net income								83,282
	Other comprehensive loss, net of tax:
		Unrealized loss and reclassification adjustments for hedging derivatives (see Note 4)										(13,446	)
Total comprehensive income																		69,836
Balance at December 31, 2008				3,794,950		(4,636,736	)		76,701			(19,762	)		(1,547,128	)		(2,331,975	)
Contributions from Manor Care, Inc.				17,997														17,997
Distributions to Manor Care, Inc.						(256,392	)											(256,392	)
Subscription receivable activity															(10,612	)		(10,612	)
Comprehensive income:
	Net income								173,593
	Other comprehensive income, net of tax:
		Unrealized gain and reclassification adjustments for hedging derivatives (see Note 4)										2,742
Total comprehensive income																		176,335
Balance at December 31, 2009				3,812,947		(4,893,128	)		250,294			(17,020	)		(1,557,740	)		(2,404,647	)
Distributions to Manor Care, Inc.						(204,728	)											(204,728	)
Subscription receivable activity															(2,790	)		(2,790	)
Comprehensive income:
	Net income								126,564
	Other comprehensive income, net of tax:
		Unrealized loss and reclassification adjustments for hedging derivatives (see Note 4)										3,769
Total comprehensive income																		130,333
Balance at September 30, 2010			$	3,812,947	$	(5,097,856	)	$	376,858		$	(13,251	)	$	(1,560,530	)	$	(2,481,832	)

See accompanying notes.

5

HCR Properties, LLC

Notes to Consolidated Financial Statements

1. Accounting Policies

Nature of Operations

        HCR Properties, LLC and subsidiaries (the Company) lease certain property and equipment of 331 skilled nursing and assisted living centers to a related party, HCR III Healthcare, LLC. The centers are located in 30 states, with 63 percent located in Florida, Illinois, Michigan, Ohio and Pennsylvania.

Principles of Consolidation and Basis of Presentation

        The consolidated financial statements include the accounts of HCR Properties, LLC and its wholly-owned subsidiaries. HCR Properties, LLC is a wholly-owned subsidiary of Manor Care, Inc.

        Effective July 1, 2009, the Company adopted a new accounting standard that was issued to establish the Financial Accounting Standards Board (FASB) Accounting Standard Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. Adopting this standard had no impact on the Company's financial position or results of operations.

Related-Party Transactions

        HCR III Healthcare, LLC is an indirect, wholly-owned subsidiary of HCR Healthcare, LLC and Manor Care, Inc. Certain of the consolidated subsidiaries of HCR Properties, LLC hold the title to the property and equipment of the skilled nursing and assisted living facilities. HCR III Healthcare, LLC (also referred to as Master Tenant) leases the property from certain subsidiaries of HCR Properties, LLC and conducts the operations of the business. The lease is accounted for as a direct financing lease. HCR Properties, LLC distributes the residual lease payments to Manor Care, Inc., which represents the portion of the lease payments received from HCR III Healthcare, LLC which are not used by subsidiaries of HCR Properties, LLC to make payments with respect to their loan agreements. The distributions were $204.7 million for the nine months ended September 30, 2010, $256.4 million for the year ended December 31, 2009, and $142.9 million for the year ended December 31, 2008. In addition, Manor Care, Inc. contributes funds to HCR Properties, LLC as needed, which totaled $18.0 million for the year ended December 31, 2009.

        Certain wholly-owned subsidiaries of HCR Healthcare, LLC perform services for the Company, which will be referred to as affiliated company. An affiliated company provides strategic advisory and management services to the Company in accordance with a corporate services agreement. The management fee is based on an agreed upon fee for each legal entity, as defined in the agreement. Total management fees were $1.2 million for the nine months ended September 30, 2010, and $1.6 million for each of the years ended December 31, 2009 and 2008. Cash is received and disbursed on behalf of the Company by an affiliated company. The net payable to an affiliated company was $16.3 million at September 30, 2010 and $19.5 million at December 31, 2009. The payable is due on the earlier of 30 days after the affiliated company demands payment, the Company is no longer a direct or indirect wholly-owned subsidiary of Manor Care, Inc., or an event of default, as defined in the agreement. The payable is guaranteed by Manor Care, Inc. Payments or other credits are applied against any outstanding balance on a first-in, first-out basis. Generally, the payable accrues interest if it remains outstanding for more than three months. There was no interest expense recorded during the nine months ended September 30, 2010 or the years ended December 31, 2009 and 2008.

6

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

1. Accounting Policies (Continued)

Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Restricted Cash and Cash Equivalents

        The Company's restricted cash and cash equivalents represent amounts escrowed under the Company's loan agreements for insurance and taxes

Derivative Financial Instruments and Hedging Activities

        The accounting standard for derivatives and hedging activities establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

        For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings. The Company records all derivative activity in cash flows from operations.

        On January 1, 2009, the Company adopted a new accounting standard that amends and expands the disclosure requirements for derivative instruments and hedging activities. The new standard requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. See Note 4 for the expanded disclosures.

Assets and Liabilities Measured at Fair Value

        In 2008, the Company adopted a new accounting standard for its financial instruments measured at fair value on a recurring basis. See Note 5 for the disclosures. On January 1, 2009, the Company adopted a new accounting standard for its non-financial assets and liabilities that are not recognized at fair value on a recurring basis. The new standard defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The adoption of the standard for its non-financial assets did not affect the Company's consolidated financial statements.

7

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

1. Accounting Policies (Continued)

        In the first quarter of 2010, the Company adopted a new accounting standard that amends and expands the disclosures about fair value measurements. The additional disclosures include the amount of transfers between Levels 1 and 2 of the fair value hierarchy, the reasons for transfers in and out of Level 3 and activity for recurring Level 3 measures. The amendments clarify certain existing disclosure requirements related to the level at which fair value disclosures should be disaggregated and the requirement to provide disclosures about the valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Levels 2 or 3. The Company previously provided disclosures about the valuation techniques and inputs. See Note 5 for these disclosures.

Concentrations of Credit Risk

        Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of restricted cash and cash equivalents, and derivatives, which the Company maintains with various financial institutions. The Company's loan agreements limit the types of investments that the Company can make. The majority of the Company's cash equivalents are invested in money market funds. As part of its cash and risk management process, the Company performs periodic evaluations of the relative credit standing of the financial institutions. The Company has not sustained credit losses from instruments held at financial institutions. The Company utilizes interest rate caps to add stability to interest expense. Such contracts involve the risk of non-performance by the counterparties with respect to the interest rate caps, which could result in a material loss if interest rates were to increase.

Income Taxes

        In accordance with accounting standards for income taxes, the Company's financial statements recognize the current and deferred income tax consequences that result from the Company's activities as if the Company were a separate taxpayer, rather than a member of the ultimate parent company's consolidated income tax return group. The Company's related party lease activity is eliminated in consolidation and not reflected in the parent company's consolidated tax return. As a result, the Company's current income taxes receivable or payable will remain on the Company's balance sheets.

Subsequent Events

        On April 1, 2009, the Company adopted the new accounting standard that establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Company has evaluated subsequent events through November 30, 2010, the date the financial statements were available to be issued.

2. Net Investment in Direct Financing Lease and Subscription Receivable

        In December 2007, the Company entered into a master lease agreement to lease its property and equipment for skilled nursing and assisted living facilities to HCR III Healthcare, LLC. The original term of the agreement is 12 years with one 10-year renewal. Because HCR III Healthcare, LLC has an economic compulsion to renew the lease, all lease payments are included in the minimum lease payment calculations. At the inception of the lease, the present value of the minimum lease payments exceeded the fair value of the property and equipment. The excess value is classified as a subscription receivable and included in member's deficit. Unearned income is recognized as interest income using the interest method over the term of the lease. There is no allowance for uncollectible minimum lease

8

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

2. Net Investment in Direct Financing Lease and Subscription Receivable (Continued)

payments receivable. In 2009, the Company sold one skilled nursing facility in Ohio for $4.7 million, resulting in a net gain of $1.2 million due to the related adjustment of the direct financing lease and subscription receivable.

        At September 30, 2010, future minimum lease payments receivable for the direct financing lease and future subscription payments receivable are as follows:

	Minimum lease payments receivable		Subscription payments receivable
	(In thousands)
2011	$	272,583	$	138,809
2012		280,761		142,973
2013		289,183		147,262
2014		297,859		151,680
2015		306,795		156,231
Later years		5,516,117		2,809,003
Total	$	6,963,298	$	3,545,958

        The components of net investment in direct financing lease consisted of:

	September 30, 2010		December 31, 2009
	(In thousands)
Future minimum lease payments receivable	$	6,963,298	$	7,163,236
Unguaranteed residual value		1,568,324		1,568,324
Gross investment in lease		8,531,622		8,731,560
Less unearned income		5,407,992		5,635,209
Net investment in direct financing lease	$	3,123,630	$	3,096,351

        The components of subscription receivable consisted of:

	September 30, 2010		December 31, 2009
	(In thousands)
Future subscription payments receivable	$	3,545,958	$	3,647,773
Less unearned income		1,985,428		2,090,033
Subscription receivable	$	1,560,530	$	1,557,740

9

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

3. Debt

        Debt consisted of the following:

	September 30, 2010		December 31, 2009
	(In thousands)
Commercial mortgage-backed securities (CMBS)	$	2,997,353	$	2,997,353
Mezzanine loans		1,598,589		1,598,589
Long-term debt	$	4,595,942	$	4,595,942

        Commercial Mortgage-Backed Securities (CMBS) and Mezzanine Loans.    In December 2007, subsidiaries of the Company entered into loan agreements with aggregate proceeds of $4.6 billion, consisting of CMBS totaling $3.0 billion and Mezzanine loans totaling $1.6 billion. The CMBS and Mezzanine debt are non-recourse and expire on January 9, 2012, subject to a one-year extension at the borrower's option if certain criteria are met. CMBS debt is secured by mortgages on the assets of certain of the subsidiaries of the Company, with a net book value of $2.8 billion at September 30, 2010. Interest on the CMBS and Mezzanine loans is payable monthly at LIBOR plus a spread, as defined in the loan agreements. Principal and any unpaid interest are payable at maturity. At September 30, 2010 and December 31, 2009, the weighted-average interest rate on the CMBS and Mezzanine loans was 2.8 percent and 2.7 percent, respectively. See Note 4 for discussion on interest rate caps entered into with respect to the CMBS and Mezzanine debt. During 2009, the Company paid a total of $3.6 million on its CMBS and Mezzanine loans due to the sale of a facility and excess land. During 2008, the Company paid $0.5 million due to the sale of excess land at a facility with an immaterial prepayment premium.

        The CMBS and Mezzanine debt are not obligations of HCR Healthcare, LLC or HCR III Healthcare, LLC. HCR Properties, LLC and its subsidiaries' assets and credit are not available to satisfy the debts and other obligations of any of their affiliates or any other person. HCR III Healthcare, LLC and its subsidiaries' assets and credit are not available to satisfy the debts and other obligations of any of their affiliates or any other person.

        Fair Value.    At September 30, 2010 and December 31, 2009, the carrying value of the Company's debt was $4.6 billion and the fair value was $4.3 billion and $3.9 billion, respectively. At September 30, 2010 and December 31, 2009, the fair value of the Company's variable-rate debt was calculated using cash flows based upon the variable interest rate in effect at period end discounted at a current replacement spread over LIBOR based on current market conditions.

        Other Information.    Interest paid, primarily related to debt, amounted to $97.1 million for the nine months ended September 30, 2010, $135.8 million for the year ended December 31, 2009, and $229.1 million for the year ended December 31, 2008.

        The Company has assumed that it will extend the CMBS and Mezzanine debt for one year, which is permitted under the loan agreements if certain criteria are met, until 2013. Therefore, the only debt maturity for the five years subsequent to September 30, 2010 is $4.6 billion in 2013.

10

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

4. Derivative Financial Instruments and Hedging Activities

        Risk Management Objective of Using Derivatives.    The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's borrowings. As of September 30, 2010 and December 31, 2009, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.

        Cash Flow Hedges of Interest Rate Risk.    The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

        During December 2007, the Company entered into 24 interest rate caps, which expire in January 2012, to hedge the variable cash flows associated with the CMBS and Mezzanine variable-rate debt of $4.6 billion for an up-front premium of $36.9 million. These transactions were executed in conjunction with interest rate floor transactions executed by HCR Healthcare, LLC. During the first quarter of 2009, the Company modified certain interest rate caps to reduce the strike rate on $2.5 billion of the total outstanding notional amount for an up-front premium of $14.2 million. As a result of these modifications, the Company discontinued prospectively the hedge accounting on 16 of its interest rate caps for $3.57 billion of the notional amount, as this portion no longer met the strict hedge accounting requirements. As of September 30, 2010, the Company had eight interest rate caps designated as cash flow hedges of interest rate risk for a notional amount of $1.03 billion.

        The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (OCI) and is subsequently reclassified from accumulated other comprehensive income (AOCI) into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The payment of $3.6 million of CMBS and Mezzanine variable rate debt in 2009 created a minor ineffective portion and the change in fair value that is recorded directly to earnings is disclosed in the table below.

        Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. The Company continues to report the net gain or loss at the time of the modification related to the discontinued cash flow hedges in AOCI. The net gain or loss is expected to be reclassified into earnings during the original contractual terms of the derivative agreements as the hedged interest payments are expected to occur as forecasted. During the twelve months ending September 30, 2011, the Company estimates that an additional $16.2 million will be reclassified as an increase to interest expense.

11

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

4. Derivative Financial Instruments and Hedging Activities (Continued)

        Non-Designated Hedges.    Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. The Company uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract. Changes in the fair value are recorded directly in earnings. As of September 30, 2010, the Company had 16 interest rate caps for a notional amount of $3.57 billion that were not designated as hedges in qualifying hedging relationships.

        Balance Sheet Classification.    The fair value of the Company's derivative financial instruments and their classification on the consolidated balance sheets was as follows:

			Fair Value
Asset Derivatives		Balance Sheet Location	September 30, 2010		December 31, 2009
			(In thousands)
Designated hedges
	Interest Rate Caps	Other assets	$	9	$	1,179
Non-designated hedges
	Interest Rate Caps	Other assets		98		11,014
			$	107	$	12,193

        Income Statement Effect.    The effect of the Company's derivative financial instruments on the consolidated statements of income was as follows:

Derivatives Designated as Cash Flow Hedges

Interest Rate Caps:

Amount of gain/credit or (loss/expense)	Location	Nine months ended September 30, 2010			Year ended December 31, 2009			Year ended December 31, 2008
		(In thousands)
Recognized in OCI (effective portion)	OCI	$	(1,165	)	$	1,052		$	(22,593	)
Reclassified from AOCI into income (effective portion)	Interest		(7,367	)		(3,434	)		(467	)
	expense
Recognized in income (ineffective portion and amount excluded from effectiveness testing)	Unrealized		(5	)		(53	)		—
	derivative
	loss

12

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

4. Derivative Financial Instruments and Hedging Activities (Continued)

Derivatives Not Designated as Hedging Instruments

Amount of gain (loss) recognized in income	Location	Nine months ended September 30, 2010			Year ended December 31, 2009			Year ended December 31, 2008
		(In thousands)
Interest Rate Caps	Unrealized	$	(10,916	)	$	(6,936	)	$	—
	derivative loss

        Other Comprehensive Income (Loss).    The derivative activity included in other comprehensive income (loss) was as follows:

	Nine months ended September 30, 2010			Year ended December 31, 2009			Year ended December 31, 2008
	(In thousands)
Beginning balance	$	(17,020	)	$	(19,762	)	$	(6,316	)
Unrealized (loss) gain on hedging derivatives, net of income tax benefit (expense) of $457, $(413), and $8,863, respectively		(708	)		639			(13,730	)
Reclassification adjustment for losses recognized in earnings, net of income tax benefit of $2,890, $1,357, and $183, respectively		4,477			2,103			284
Net derivative activity		3,769			2,742			(13,446	)
Ending balance	$	(13,251	)	$	(17,020	)	$	(19,762	)

5. Fair Value Measurements

        The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The following three-tier hierarchy prioritizes the inputs used in measuring fair value:

Level 1:	Observable inputs such as quoted prices in active markets;
Level 2:	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:	Unobservable inputs for which there is little or no market data, which requires the Company to develop assumptions.

13

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

5. Fair Value Measurements (Continued)

        The fair value of the Company's financial assets was determined using the following inputs:

	Fair Value at September 30, 2010
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Restricted cash and cash equivalents	$	3,420	$	—	$	—
Derivative asset for interest rate caps		—		107		—
Total assets	$	3,420	$	107	$	—

	Fair Value at December 31, 2009
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Restricted cash and cash equivalents	$	7,855	$	—	$	—
Derivative asset for interest rate caps		—		12,193		—
Total assets	$	7,855	$	12,193	$	—

        There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2010 or the years ended December 31, 2009 and 2008. There were no assets or liabilities classified in Level 3 during the nine months ended September 30, 2010 or the years ended December 31, 2009 and 2008.

        The valuation of interest rate caps was determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporated credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by its counterparties. However, as of September 30, 2010 and December 31, 2009, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

14

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

6. Income Taxes

        The provision for income taxes consisted of the following:

		Nine months ended September 30, 2010		Year ended December 31, 2009		Year ended December 31, 2008
		(In thousands)
Current:
	Federal	$	58,157	$	46,794	$	2,250
	State and local		6,790		6,295		(310	)
			64,947		53,089		1,940
Deferred:
	Federal		9,992		46,679		42,594
	State and local		1,984		5,640		5,147
			11,976		52,319		47,741
Provision for income taxes		$	76,923	$	105,408	$	49,681

        The reconciliation of the amount computed by applying the statutory federal income tax rate to income before income taxes to the provision for income taxes was as follows:

		Nine months ended September 30, 2010		Year ended December 31, 2009		Year ended December 31, 2008
		(In thousands)
Income taxes computed at statutory rate		$	71,220	$	97,650	$	46,537
Differences resulting from:
	State and local income taxes, net of federal effect		5,703		7,758		3,144
Provision for income taxes		$	76,923	$	105,408	$	49,681

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax

15

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

6. Income Taxes (Continued)

purposes. Significant components of the Company's federal and state deferred tax assets and liabilities were as follows:

		September 30, 2010		December 31, 2009
		(In thousands)
Deferred tax assets:
	Depreciable/amortizable assets for tax	$	311,453	$	314,777
	Hedge transactions		8,554		10,987
	Other		195		166
			320,202		325,930
Deferred tax liabilities:
	Net investment in direct financing lease		1,225,400		1,214,699
	Other		2,050		4,070
			1,227,450		1,218,769
Net deferred tax liabilities		$	907,248	$	892,839

16

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Exhibit 99.2

Contents
Report of Independent Auditors
HCR Properties, LLC Consolidated Balance Sheets
HCR Properties, LLC Consolidated Statements of Income
HCR Properties, LLC Consolidated Statements of Cash Flows
HCR Properties, LLC Consolidated Statements of Member's Deficit
HCR Properties, LLC Notes to Consolidated Financial Statements

EX-99.3

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Exhibit 99.3

HCR Properties, LLC

Consolidated Financial Statements

For the three and nine months ended September 30, 2010 and 2009

HCR Properties, LLC

Consolidated Balance Sheets

		September 30, 2010			December 31, 2009
		(Note 1)			(Note 1)
		(In thousands)
Assets
Current assets:
	Restricted cash and cash equivalents	$	3,420		$	7,855
Net investment in direct financing lease			3,123,630			3,096,351
Property			60			60
Other assets			35,549			59,589
Total assets		$	3,162,659		$	3,163,855
Liabilities and Member's Deficit
Current liabilities:
	Accrued liabilities	$	8,110		$	8,280
	Income taxes payable		116,926			51,978
	Net payable to affiliated company		16,265			19,463
Total current liabilities			141,301			79,721
Long-term debt			4,595,942			4,595,942
Deferred income taxes			907,248			892,839
Member's deficit:
	Contributed capital		3,812,947			3,812,947
	Accumulated distributions		(5,097,856	)		(4,893,128	)
	Retained earnings		376,858			250,294
	Accumulated other comprehensive loss		(13,251	)		(17,020	)
			(921,302	)		(846,907	)
	Less subscription receivable		(1,560,530	)		(1,557,740	)
Total member's deficit			(2,481,832	)		(2,404,647	)
Total liabilities and member's deficit		$	3,162,659		$	3,163,855

See accompanying notes.

1

HCR Properties, LLC

Consolidated Statements of Income

		Three months ended September 30,						Nine months ended September 30,
		2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Note 1)			(Unaudited)
		(In thousands)
Revenues		$	—		$	—		$	—		$	—
Expenses:
	Operating		111			184			111			184
	Management fees		388			388			1,163			1,163
			499			572			1,274			1,347
Loss before other income (expenses) and income taxes			(499	)		(572	)		(1,274	)		(1,347	)
Other income (expenses):
	Interest expense		(39,619	)		(37,727	)		(116,183	)		(114,780	)
	Unrealized derivative loss		(586	)		(3,864	)		(10,921	)		(2,388	)
	Gain on sale of assets		—			1,232			—			1,232
	Interest income and other		110,876			109,829			331,865			328,774
Total other income, net			70,671			69,470			204,761			212,838
Income before income taxes			70,172			68,898			203,487			211,491
Income taxes			26,525			25,897			76,923			79,962
Net income		$	43,647		$	43,001		$	126,564		$	131,529

See accompanying notes.

2

HCR Properties, LLC

Consolidated Statements of Cash Flows

				Nine months ended September 30,
				2010			2009
				(Note 1)			(Unaudited)
				(In thousands)
Operating Activities
Net income				$	126,564		$	131,529
Adjustments to reconcile net income to net cash
	provided by operating activities:
		Deferred finance fee and derivative amortization			19,321			13,972
		Interest earned in excess of cash receipts			(30,069	)		(35,637	)
		Unrealized derivative loss			10,921			2,388
		Provision for deferred income taxes			11,976			43,598
		Gain on sale of assets			—			(1,232	)
		Changes in assets and liabilities:
			Assets		—			(13,176	)
			Liabilities		64,778			32,291
Total adjustments					76,927			42,204
Net cash provided by operating activities					203,491			173,733
Investing Activities
Investment in direct financing lease					—			(2,356	)
Investment in property					—			(60	)
Proceeds from sale of assets					—			4,704
Net change in restricted cash and cash equivalents					4,435			4,134
Net cash provided by investing activities					4,435			6,422
Financing Activities
Net advance to affiliated company					(3,198	)		(2,687	)
Contributions from Manor Care, Inc.					—			17,997
Distributions to Manor Care, Inc.					(204,728	)		(190,527	)
Payment of debt					—			(3,558	)
Payment of financing costs					—			(1,380	)
Net cash used in financing activities					(207,926	)		(180,155	)
Net change in cash and cash equivalents					—			—
Cash and cash equivalents at beginning of period					—			—
Cash and cash equivalents at end of period				$	—		$	—

See accompanying notes.

3

HCR Properties, LLC

Notes to Consolidated Financial Statements

1.     Accounting Policies

Nature of Operations

        HCR Properties, LLC and subsidiaries (the Company) lease certain property and equipment of 331 skilled nursing and assisted living centers to a related party, HCR III Healthcare, LLC. The centers are located in 30 states, with 63 percent located in Florida, Illinois, Michigan, Ohio and Pennsylvania.

Principles of Consolidation and Basis of Presentation

        The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and footnotes for the nine months ended September 30, 2010 and for the years ended December 31, 2009 and 2008.

        The consolidated balance sheets as of September 30, 2010 and December 31, 2009, and the consolidated statements of income and cash flows for the nine months ended September 30, 2010 have been derived from audited consolidated financial statements but do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The consolidated statements of income for the three months ended September 30, 2010 and for the three and nine months ended September 30, 2009, and the statement of cash flows for the nine months ended September 30, 2009 are unaudited. The footnotes in these financial statements are considered unaudited, except for references to the balances as of September 30, 2010 and December 31, 2009, and the amounts for the nine months ended September 30, 2010 that have been derived from audited consolidated financial statements.

        The consolidated financial statements include the accounts of HCR Properties, LLC and its wholly-owned subsidiaries. HCR Properties, LLC is a wholly-owned subsidiary of Manor Care, Inc.

Related-Party Transactions

        HCR III Healthcare, LLC is an indirect, wholly-owned subsidiary of HCR Healthcare, LLC and Manor Care, Inc. Certain of the consolidated subsidiaries of HCR Properties, LLC hold the title to the property and equipment of the skilled nursing and assisted living facilities. HCR III Healthcare, LLC (also referred to as Master Tenant) leases the property from certain subsidiaries of HCR Properties, LLC and conducts the operations of the business. The lease is accounted for as a direct financing lease. HCR Properties, LLC distributes the residual lease payments to Manor Care, Inc., which represents the portion of the lease payments received from HCR III Healthcare, LLC which are not used by subsidiaries of HCR Properties, LLC to make payments with respect to their loan agreements.

4

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

Assets and Liabilities Measured at Fair Value

        In the first quarter of 2010, the Company adopted a new accounting standard that amends and expands the disclosures about fair value measurements. The additional disclosures include the amount of transfers between Levels 1 and 2 of the fair value hierarchy, the reasons for transfers in and out of Level 3 and activity for recurring Level 3 measures. The amendments clarify certain existing disclosure requirements related to the level at which fair value disclosures should be disaggregated and the requirement to provide disclosures about the valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Levels 2 or 3. The Company previously provided disclosures about the valuation techniques and inputs. See Note 4 for these disclosures.

Comprehensive Income

        Comprehensive income represents the sum of net income plus other comprehensive income. Comprehensive income was $45.3 million and $130.3 million for the three and nine months ended September 30, 2010, respectively, and $43.7 million and $134.0 million for the three and nine months ended September 30, 2009, respectively. The other comprehensive income represented the unrealized gain or loss on hedging derivatives and the reclassification adjustment for losses recognized in earnings.

Subsequent Events

        The Company has evaluated subsequent events through November 30, 2010, the date the financial statements were available to be issued.

2.     Debt

        Fair Value.    At September 30, 2010 and December 31, 2009, the carrying value of the Company's debt was $4.6 billion and the fair value was $4.3 billion and $3.9 billion, respectively. At September 30, 2010 and December 31, 2009, the fair value of the Company's variable-rate debt was calculated using cash flows based upon the variable interest rate in effect at period end discounted at a current replacement spread over LIBOR based on current market conditions.

        Other.    The commercial mortgage-backed securities (CMBS) and Mezzanine debt are not obligations of HCR Healthcare, LLC or HCR III Healthcare, LLC. HCR Properties, LLC and its subsidiaries' assets and credit are not available to satisfy the debts and other obligations of any of their affiliates or any other person. HCR III Healthcare, LLC and its subsidiaries' assets and credit are not available to satisfy the debts and other obligations of any of their affiliates or any other person.

3.     Derivative Financial Instruments and Hedging Activities

        Risk Management Objective of Using Derivatives.    The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally

5

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

related to the Company's borrowings. As of September 30, 2010 and December 31, 2009, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Company does not use derivatives for trading or speculative purposes.

        Cash Flow Hedges of Interest Rate Risk.    The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.

        During December 2007, the Company entered into 24 interest rate caps, which expire in January 2012, to hedge the variable cash flows associated with the CMBS and Mezzanine variable-rate debt of $4.6 billion for an up-front premium of $36.9 million. These transactions were executed in conjunction with interest rate floor transactions executed by HCR Healthcare, LLC. During the first quarter of 2009, the Company modified certain interest rate caps to reduce the strike rate on $2.5 billion of the total outstanding notional amount for an up-front premium of $14.2 million. As a result of these modifications, the Company discontinued prospectively the hedge accounting on 16 of its interest rate caps for $3.57 billion of the notional amount, as this portion no longer met the strict hedge accounting requirements. As of September 30, 2010, the Company had eight interest rate caps designated as cash flow hedges of interest rate risk for a notional amount of $1.03 billion.

        The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (OCI) and is subsequently reclassified from accumulated other comprehensive income (AOCI) into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The payment of $3.6 million of CMBS and Mezzanine variable rate debt in 2009 created a minor ineffective portion and the change in fair value that is recorded directly to earnings is disclosed in the table below.

        Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. The Company continues to report the net gain or loss at the time of the modification related to the discontinued cash flow hedges in AOCI. The net gain or loss is expected to be reclassified into earnings during the original contractual terms of the derivative agreements as the hedged interest payments are expected to occur as forecasted. During the twelve months ending September 30, 2011, the Company estimates that an additional $16.2 million will be reclassified as an increase to interest expense.

        Non-Designated Hedges.    Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. The Company uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract. Changes in the fair value are recorded directly in earnings. As of September 30, 2010, the Company had 16 interest rate caps for a notional amount of $3.57 billion that were not designated as hedges in qualifying hedging relationships.

6

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

        Balance Sheet Classification.    The fair value of the Company's derivative financial instruments and their classification on the consolidated balance sheets was as follows:

			Fair Value
Asset Derivatives		Balance Sheet Location	September 30, 2010		December 31, 2009
			(Note 1)		(Note 1)
			(In thousands)
Designated hedges
	Interest Rate Caps	Other assets	$	9	$	1,179
Non-designated hedges
	Interest Rate Caps	Other assets		98		11,014
			$	107	$	12,193

        Income Statement Effect.    The effect of the Company's derivative financial instruments on the consolidated statements of income was as follows:

Derivatives Designated as Cash Flow Hedges

        Interest Rate Caps:

		Three months ended September 30,						Nine months ended September 30,
Amount of gain/credit or (loss/expense)	Location	2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Note 1)			(Unaudited)
		(In thousands)
Recognized in OCI (effective portion)	OCI	$	(57	)	$	35		$	(1,165	)	$	1,901
Reclassified from AOCI into income (effective portion)	Interest
	expense		(2,745	)		(1,132	)		(7,367	)		(2,073	)
Recognized in income (ineffective portion and amount excluded from effectiveness testing)	Unrealized
	derivative
	loss		(1	)		(2	)		(5	)		(49	)

Derivatives Not Designated as Hedging Instruments

		Three months ended September 30,						Nine months ended September 30,
Amount of gain (loss) recognized in income	Location	2010			2009			2010			2009
		(Unaudited)			(Unaudited)			(Note 1)			(Unaudited)
		(In thousands)
Interest Rate Caps	Unrealized	$	(585	)	$	(3,862	)	$	(10,916	)	$	(2,339	)
	derivative loss

7

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

4.     Fair Value Measurements

        The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The following three-tier hierarchy prioritizes the inputs used in measuring fair value:

Level 1:	Observable inputs such as quoted prices in active markets;
Level 2:	Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:	Unobservable inputs for which there is little or no market data, which requires the Company to develop assumptions.

        The fair value of the Company's financial assets was determined using the following inputs:

	Fair Value at September 30, 2010 (Note 1)
	Level 1		Level 2		Level 3
			(In thousands)
Assets:
Restricted cash and cash equivalents	$	3,420	$	—	$	—
Derivative asset for interest rate caps		—		107		—
Total assets	$	3,420	$	107	$	—

	Fair Value at December 31, 2009 (Note 1)
	Level 1		Level 2		Level 3
			(In thousands)
Assets:
Restricted cash and cash equivalents	$	7,855	$	—	$	—
Derivative asset for interest rate caps		—		12,193		—
Total assets	$	7,855	$	12,193	$	—

        There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2010 or the year ended December 31, 2009. There were no assets or liabilities classified in Level 3 during the nine months ended September 30, 2010 or the year ended December 31, 2009.

        The valuation of interest rate caps was determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporated credit valuation adjustments to appropriately reflect the respective counterparty's nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by its counterparties. However, as of September 30, 2010 and

8

HCR Properties, LLC

Notes to Consolidated Financial Statements (Continued)

December 31, 2009, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

9

QuickLinks

Exhibit 99.3

HCR Properties, LLC Consolidated Financial Statements For the three and nine months ended September 30, 2010 and 2009
HCR Properties, LLC Consolidated Balance Sheets
HCR Properties, LLC Consolidated Statements of Income
HCR Properties, LLC Consolidated Statements of Cash Flows
HCR Properties, LLC Notes to Consolidated Financial Statements