8-K

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

Date of Report (Date of earliest event reported): January 5, 2007

HEALTH CARE PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Maryland	1-8895	33-0091377
(State or other jurisdiction	(Commission File Number)	(IRS Employer
of incorporation)		Identification No.)

3760 Kilroy Airport Way, Suite 300

Long Beach, CA 90806

(Address of principal executive offices)

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

Not applicable

(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:

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

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

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

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

Item 8.01. Other Events.

Health Care Property Investors, Inc. (“HCP”) is revising its historical financial statements to reflect additional properties in discontinued operations in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). During the nine months ended September 30, 2006, HCP classified 35 additional properties as held for sale in accordance with FAS 144 and has reported revenue, expenses and net gains from the sale of these properties as discontinued operations for each period presented. This reclassification has no effect on HCP’s reported net income available to common stockholders.

Accordingly, this Current Report on Form 8-K updates Items 6, 7 and 8 of HCP’s 2005 Annual Report on Form 10-K (“2005 10-K”) to reflect the additional properties classified as held for sale during the nine months ended September 30, 2006. The information contained in this Current Report on Form 8-K is presented as of December 31, 2005. No attempt has been made to update matters in the Form 10-K except to the extent expressly provided above.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

SIGNATURES

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

	HEALTH CARE PROPERTY INVESTORS, INC.
Date: January 5 , 2007	By:	/s/ EDWARD J. HENNING
		Edward J. Henning
		Senior Vice President,
		General Counsel and Corporate Secretary

EXHIBIT INDEX

Attached as exhibits to this form are the documents listed below:

Exhibit	Document
23.1	Consent of Independent Registered Public Accounting Firm
99.1	Selected Financial Data (Item 6 of 2005 10-K)
	Management’s Discussion and Analysis of Financial Condition and Results of Operations Financial Statements (Item 7 of 2005 10-K)
	Quantitative and Qualitative Disclosures About Market Risk (Item 7A of 2005 10-K)
	Financial Statements and Supplementary Data (Item 8 of 2005 10-K)

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EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-28483, Form S-8 No. 333-90353, Form S-8 No. 333-54786, Form S-8 No. 333-54784, Form S-8 No. 333-108838, Form S-8 No. 135679, Form S-3 No. 333-99067, Form S-3 No. 333-99063, Form S-3 No. 333-95487, Form S-3 No. 333-111174, Form S-3 No. 333-110939, Form S-3 No. 333-86654, Form S-3 No. 333-122456, Form S-3 No. 333-119469, Form S-3 No. 333-124922, Form S-3 No. 333-136344, Form S-3 No. 333-137225, and Form S-4 No. 333-135569) of Health Care Property Investors, Inc. and in the related Prospectuses of our report dated February 10, 2006 (except for Note 2 under “Discontinued Operations”,  Note 7 Investments in and Advances to Joint Ventures,  Note 18 Segment Disclosures, Note 21 Selected Quarterly Financial Data (Unaudited) and Schedule III: Real Estate and Accumulated Depreciation, as to which the date is January 2, 2007) with respect to the consolidated financial statements and schedule of Health Care Property Investors, Inc., included in this Current Report (Form 8-K) which updates Items 6, 7 and 8 of  Health Care Property Investors, Inc. Annual Report (Form 10-K) for the year ended December 31, 2005 and of our report dated February 10, 2006 with respect to Health Care Property Investors, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Health Care Property Investors, Inc., included in its Annual Report (Form 10-K) for the year ended December 31, 2005.

Irvine, California

January 2, 2007

EX-99.1

Exhibit 99.1

ITEM 6.Selected Financial Data

Set forth below is our selected financial data as of and for each of the years in the five year period ended December 31, 2005.

	Year Ended December 31,
	2005		2004		2003		2002		2001
	(Dollars in thousands, except per share data)
Income statement data:
Total revenue	$	458,548	$	401,152	$	350,676	$	302,765	$	273,440
Income from continuing operations	143,822		139,509		125,853		110,846		88,809
Net income applicable to common shares	151,927		147,910		121,849		112,480		96,266
Income from continuing operations applicable to common shares:
Basic earnings per common share	0.91		0.90		0.71		0.75		0.59
Diluted earnings per common share	0.91		0.89		0.71		0.73		0.59
Net income applicable to common shares:
Basic earnings per common share	1.13		1.12		0.98		0.98		0.89
Diluted earnings per common share	1.12		1.11		0.97		0.96		0.89
Balance sheet data:
Total assets	3,597,265		3,104,526		3,035,957		2,748,417		2,431,153
Debt obligations(1)	1,956,946		1,487,291		1,407,284		1,333,848		1,057,752
Stockholders’ equity	1,399,766		1,419,442		1,440,617		1,280,889		1,246,724
Other data:
Dividends paid	248,389		243,250		223,231		213,349		190,123
Dividends paid per common share	1.68		1.67		1.66		1.63		1.55

(1)Includes bank line of credit, senior unsecured notes and mortgage debt.

ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Language Regarding Forward-Looking Statements

Statements in this report that are not historical factual statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements include, among other things, statements regarding the intent, belief or expectations of Health Care Property Investors, Inc. and its officers and can be identified by the use of terminology such as “may,” “will,” “expect,” “believe,” “intend,” “plan,” “estimate,” “should” and other comparable terms or the negative thereof. In addition, we, through our senior management, from time to time make forward-looking oral and written public statements concerning our expected future operations and other developments. Readers are cautioned that, while forward-looking statements reflect our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Actual results may differ materially from the expectations contained in the forward-looking statements as a result of various factors. In addition to the factors set forth under “Risk Factors” in this report, readers should consider the following:

(a)Legislative, regulatory, or other changes in the healthcare industry at the local, state or federal level which increase the costs of or otherwise affect the operations of, our tenants and borrowers;

(b)Changes in the reimbursement available to our tenants and borrowers by governmental or private payors, including changes in Medicare and Medicaid payment levels and the availability and cost of third party insurance coverage;

(c)Competition for tenants and borrowers, including with respect to new leases and mortgages and the renewal or rollover of existing leases;

(d)Availability of suitable healthcare facilities to acquire at favorable prices and the competition for such acquisition and financing of healthcare facilities;

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(e)The ability of our tenants and borrowers to operate our properties in a manner sufficient to maintain or increase revenues and to generate sufficient income to make rent and loan payments;

(f)The financial weakness of some operators, including potential bankruptcies, which results in uncertainties regarding our ability to continue to realize the full benefit of such operators’ leases;

(g)Changes in national or regional economic conditions, including changes in interest rates and the availability and cost of capital;

(h)The risk that we will not be able to sell or lease facilities that are currently vacant;

(i)The potential costs of SB 1953 compliance with respect to our hospital in Tarzana, California;

(j)The financial, legal and regulatory difficulties of two significant operators, Tenet and HealthSouth; and

(k)The potential impact of existing and future litigation matters.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We are a real estate investment trust (“REIT”) that invests in healthcare related properties located throughout the United States. We develop, acquire and manage healthcare real estate, and provide mortgage financing to healthcare providers. We invest directly, often structuring sale-leaseback transactions, and through joint ventures. At December 31, 2005, our real estate portfolio, including assets held through joint ventures and mortgage loans, consisted of interests in 522 facilities located in 42 states.

Our business strategy is based on three principles: (i) opportunistic investing, (ii) portfolio diversification, and (iii) conservative financing. We actively redeploy capital from investments with lower return potential into assets with higher return potential, and recycle capital from shorter term to longer term investments. We make investments where the expected risk-adjusted return exceeds our cost of capital and strive to leverage our operator and other business relationships.

Our strategy contemplates acquiring and developing properties on favorable terms. We attempt to structure transactions that are tax-advantaged and mitigate risks in our underwriting process. Generally, we prefer larger, more complex private transactions that leverage our management team’s experience and our infrastructure. During 2005, we made gross investments of $647 million. These investments had an average first year yield on cost of just over 7.67%. Our 2005 investments of were allocated among the following healthcare sectors: (i) 62% senior housing facilities; (ii) 32% Medical Office Buildings (“MOBs”); and (iii) 6% hospitals.

We follow a disciplined approach to enhancing the value of our existing portfolio, including the ongoing evaluation of properties for potential disposition that no longer fit our strategy. We sold interests in 20 properties during 2005 for $71 million and had 16 properties with a carrying amount of $98.9 million classified as held for sale at year end.

We primarily generate revenue by leasing healthcare related properties under long-term operating leases. Most of our rents are received under triple-net leases; however, MOB rents are typically structured as gross or modified gross leases. Accordingly, for MOBs we incur certain property operating expenses, such as real estate taxes, repairs and maintenance, property management fees, utilities and insurance. Our growth depends, in part, on our ability to (i) increase rental income by increasing occupancy levels and rental rates, (ii) maximize tenant recoveries given underlying lease structures, and (iii) control operating and other expenses. Our operations are impacted by property specific, market specific, general economic and other conditions.

Access to external capital on favorable terms is critical to the success of our strategy. We attempt to match the long-term duration of our leases with long-term fixed rate financing. At December 31, 2005, 15% of our consolidated debt is at variable interest rates. We intend to maintain an investment grade rating on our fixed income securities and manage various capital ratios and amounts within appropriate parameters. As of December 31, 2005, our senior debt is rated BBB+ by both Standard & Poor’s and Fitch Ratings and Baa2 by Moody’s Investors Service.

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Capital market access impacts our cost of capital and our ability to refinance existing indebtedness as it matures, as well as to fund future acquisitions and development through the issuance of additional securities. Our ability to access capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our securities, perception of our potential future earnings and cash distributions, and the market price of our capital stock.

2005 Overview

Real Estate Transactions

During 2005, the Company acquired interests in properties and made secured loans aggregating $647 million with an average yield of 7.7%. Our 2005 investments were made in the following healthcare sectors: (i) 62% senior housing facilities; (ii) 32% medical office buildings; and (iii) 6% hospitals. 2005 investments included the following:

·On April 20, 2005, we acquired five assisted living facilities for $58 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 9.0% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

·On April 28, 2005, we acquired five medical office buildings for $81 million, including assumed debt valued at $29 million. The initial yield is 7.0%, with two properties currently in lease-up. The yield following lease-up is expected to be 8.2%. The medical office buildings include approximately 537,000 rentable square feet.

·On July 1, 2005, we acquired an assisted living facility for $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.75% with annual CPI-based escalators that have a floor of 2.75%.

·On July 22, 2005, we acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt and non-managing member LLC units (“DownREIT units”) valued at $52 million and $19 million, respectively, through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with three ten-year renewal options. The initial annual lease rate is 7.1% with annual CPI-based escalators that have a floor of 3%.

·On August 31, 2005, we acquired five assisted living facilities for $41 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.5% with annual CPI-based escalators that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

·On October 19, 2005, we acquired seven medical office buildings for $51 million, including assumed debt and DownREIT units valued at $24 million and $11 million, respectively. The medical office buildings include approximately 351,000 rentable square feet and have an initial yield of 8.2%.

·On December 22, 2005, we acquired two independent and assisted living facilities for $18 million through a sale-leaseback transaction. The facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.5% with annual CPI-based escalators that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

·On December 23, 2005, we acquired two medical office buildings for $25 million. The medical office buildings include approximately 152,000 rentable square feet and have an initial yield of 7.4%.

·On December 28, 2005, we closed a $40 million loan secured by a hospital in Texas. The note bears interest at 8.75% per annum. Subject to certain performance conditions, we may fund an additional $10 million under the existing loan agreement.

·During 2005, we sold interests in 20 properties for $71 million and recognized gains of $10 million.

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Capital Markets Transactions

·On April 27, 2005, we issued $250 million of 5.625% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%. We received proceeds of $247 million, which were used to repay outstanding indebtedness and for general corporate purposes.

·On September 16, 2005, we issued $200 million of 4.875% senior unsecured notes due 2010. The notes were priced at 99.567% of the principal amount with an effective yield of 4.974%. We received net proceeds of $198 million, which were used to repay outstanding indebtedness and for general corporate purposes.

·              During the year ended December 31, 2005, we issued approximately 878,000 shares of our common stock under our Dividend Reinvestment and Stock Purchase Plan at an average price per share of $25.80 for proceeds of $23 million.

Other Events

·Quarterly dividends paid during 2005 aggregated to $1.68 per share. On February 6, 2006, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.425 per share. The common stock dividend will be paid on February 23, 2006, to stockholders of record as of the close of business on February 13, 2006. This dividend equals $1.70 per share on an annualized basis. Our Board of Directors has determined to continue its policy of considering dividend increases on an annual rather than quarterly basis.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Our judgments are based on our experience, interpretation of the facts and circumstances, and on various other estimates and assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied resulting in a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ.

Principles of Consolidation

Our consolidated financial statements include the accounts of HCP, its wholly owned subsidiaries and its controlled, through voting rights or other means, joint ventures. All material intercompany transactions and balances have been eliminated in consolidation.

We have adopted Interpretation No. 46R, Consolidation of Variable Interest Entities, as revised (“FIN 46R”), effective January 1, 2004 for variable interest entities created before February 1, 2003 and effective in fiscal year 2003 for variable interest entities created after January 31, 2003. FIN 46R provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise is the primary beneficiary of the VIE. A variable interest entity is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional financial support. We consolidate investments in VIEs when it is determined that we are the primary beneficiary of the VIE at either the creation of the variable interest entity or upon the occurrence of a reconsideration event. The adoption of FIN 46R resulted in the consolidation of five joint ventures with aggregate assets of $18.5 million, effective January 1, 2004, that were previously accounted for under the equity

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method. The consolidation of these joint ventures did not have a significant effect on our consolidated financial statements or results of operations.

We adopted Emerging Issues Task Force Issue (“EITF”) 04-5, Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights (“EITF 04-5”), effective June 2005. The issue concludes as to what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership in accordance with GAAP. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. This EITF also applies to managing members in limited liability companies. The adoption of EITF 04-5 did not have an impact on our consolidated financial position or results of operations.

Investments in entities which we do not consolidate but for which we have the ability to exercise significant influence over operating and financial policies are reported under the equity method. Generally, under the equity method of accounting, our share of the investee’s earnings or loss is included in our operating results.

Revenue Recognition

Rental income from tenants is recognized in accordance with GAAP, including Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). For leases with minimum scheduled rent increases, we recognize income on a straight-line basis over the lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis for leases results in recognized revenue exceeding amounts contractually due from tenants. Such cumulative excess amounts are included in other assets and were $18.4 million and $11.0 million, net of allowances, at December 31, 2005 and 2004, respectively. In the event we determine that collectibility of straight-line rents is not reasonably assured, we limit future recognition to amounts contractually owed, and, where appropriate, we establish an allowance for estimated losses. Certain leases provide for additional rents based upon a percentage of the facility’s revenue in excess of specified base periods or other thresholds. Such revenue is deferred until the related thresholds are achieved.

We monitor the liquidity and creditworthiness of our tenants and borrowers on an ongoing basis. This evaluation considers industry and economic conditions, property performance, security deposits and guarantees, and other matters. We establish provisions and maintain an allowance for estimated losses resulting from the possible inability of its tenants and borrowers to make payments sufficient to recover recognized assets. For straight-line rent amounts, our assessment is based on income recoverable over the term of the lease. At December 31, 2005 and 2004, we had an allowance of $21.6 million and $15.8 million, respectively, included in other assets, as a result of our determination that collectibility is not reasonably assured for certain straight-line rent amounts.

Real Estate

Real estate, consisting of land, buildings, and improvements, is recorded at cost. We allocate the cost of the acquisition to the acquired tangible and identified intangible assets and liabilities, primarily lease related intangibles, based on their estimated fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, third party appraisals, and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

We record acquired “above and below” market leases at their fair value, using a discount rate which reflects the risks associated with the leases acquired, equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include

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estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and 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, we consider leasing commissions, legal and other related costs.

Real estate assets are periodically reviewed for potential impairment by comparing the carrying amount to the expected undiscounted future cash flows to be generated from the assets. If the sum of the expected future net undiscounted cash flows is less than the carrying amount of the property, we will recognize an impairment loss by adjusting the asset’s carrying amount to its estimated fair value. Fair value for properties to be held and used is based on the present value of the future cash flows expected to be generated from the asset. Properties held for sale are recorded at the lower of carrying amount or fair value less costs to dispose. Our ability to accurately predict future cash flows impacts the determination of fair value, which may significantly impact our reported results of operations.

Results of Operations

Comparison of the year ended December 31, 2005 to the year ended December 31, 2004

Rental and other revenue.   MOB rental revenue increased 35% to $126.9 million for the year ended December 31, 2005. The increase in MOB rental revenue of $33.2 million primarily relates to the additive effect of our acquisitions in 2005 and 2004, which contributed $26.7 million to rental revenues year over year.

Triple-net lease rental revenues increased 14% to $306.6 million for the year ended December 31, 2005. The increase in triple-net lease rental revenue of $37.4 million primarily relates to the additive effect of our acquisitions in 2005 and 2004, as detailed below:

	Triple-net lease rental revenue resulting from acquisitions— for the year ended December 31,
Property Type	2005		2004		Change
	(in thousands)
Senior housing facilities	$	44,980	$	14,183	$	30,797
Other healthcare facilities	6,091		5,566		525
Total	$	51,071	$	19,749	$	31,322

We also recognized $5.7 million of rental income during the fourth quarter of 2004 resulting from a change in estimate related to the collectibility of straight-line rental income from ARC. Additionally, included in triple-net lease rental revenues are facility level operating revenues for five senior housing properties that were previously leased on a net basis. Periodically tenants default on their leases, which cause us to take temporary possession of the operations of the facility. We contract with third party managers to manage these properties until a replacement tenant can be identified or the property can be sold. The operating revenues and expenses for these properties are included in triple-net lease rental revenues and operating expenses, respectively. The increase in reported revenues for these facilities of $3.6 million to $7.7 million for the year ended December 31, 2005, was primarily due to us taking possession of two of these properties in 2005 and increases in overall occupancy of such properties.

Equity income (loss).   Equity income decreased to a loss of $1.1 million primarily due to our investment in HCP MOP, for which we recorded equity losses of $1.4 million and equity income of $1.5 million for 2005 and 2004, respectively. During the years ended December 31, 2005 and 2004, HCP MOP revised its purchase price allocation and attributed more of the purchase price of the properties acquired from MedCap Properties, LLC to below-market lease intangibles and other intangibles from real estate assets. Lease intangibles generally amortize over a shorter period of time relative to tangible real estate assets. The decrease in the equity income from our investment in HCP MOP was primarily due to the revisions to the purchase price allocations referred to above. Additionally, HCP MOP incurred repairs and other related expenses for damages caused by hurricanes Katrina and Rita of $1.4 million during the year ended December 31, 2005. See Note 7 to the Consolidated Financial Statements for additional information on HCP MOP.

Interest and other income.   Interest and other income decreased 27% to $26.2 million for the year ended December 31, 2005. The change reflects a reduced level of loans receivable following an $83 million repayment from ARC and a $17 million repayment from Emeritus during the third quarter of 2004. The decrease in interest and other income was partially offset by gains from the sale of various investments of $4.5 million in 2005. The gains from these investments were primarily

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the result of the sale of securities in 2005, which were acquired in conjunction with real estate and or leasing transactions we completed in previous years. During the year ended December 31, 2005 and 2004, we also recognized management and other fees from HCP MOP of $3.1 million in each period.

Interest expense.   Interest expense increased 22% to $107.2 million for the year ended December 31, 2005. The increase was due to the issuance of $450 million of senior notes payable in April and September of 2005, and the assumption of $113.5 million of mortgage notes payable in connection with the acquisitions of real estate properties, which resulted in increased borrowing levels, and an overall increase in short-term variable rates. The table below sets forth information with respect to our debt as of December 31, 2005 and 2004:

	As of December 31,
	2005			2004
	(dollars in thousands)
Balance:
Fixed rate	$	1,663,166		$	1,153,012
Variable rate	295,265			337,010
Total	$	1,958,431		$	1,490,022
Percent of total debt:
Fixed rate	85		%	77		%
Variable rate	15		%	23		%
Total	100		%	100		%
Weighted average interest rate at end of period:
Fixed rate	6.33		%	6.76		%
Variable rate	4.95		%	3.09		%
Total weighted average rates	6.14		%	5.93		%

Depreciation and amortization.   Real estate depreciation and amortization increased 27% to $103.6 million for the year ended December 31, 2005. The increase in depreciation and amortization of $22.1 million primarily relates to the additive effect of our acquisitions in 2005 and 2004, as detailed below:

	Depreciation and amortization resulting from acquisitions— for the year ended December 31,
Property Type	2005		2004		Change
	(in thousands)
Senior housing facilities	$	15,697	$	5,258	$	10,439
Medical office buildings	10,981		651		10,330
Other healthcare facilities	810		766		44
Total	$	27,488	$	6,675	$	20,813

Operating expenses.   Operating costs increased 39% to $59.0 million for the year ended December 31, 2005. Operating costs are predominantly related to MOB properties that are leased under gross or modified gross lease agreements where we share certain costs with tenants. Additionally, we contract with third party property managers for most of our MOB properties. Accordingly, the number of properties in our MOB portfolio directly impacts operating costs. The increase in operating expenses of $16.5 million primarily relates to the effect of our acquisitions in 2005 and 2004, as detailed below:

	Operating expenses  resulting from acquisitions— for the year ended December 31,
Property Type	2005		2004		Change
	(in thousands)
Medical office buildings	$	11,796	$	662	$	11,134
Other healthcare facilities	2,187		2,064		123
Total	$	13,983	$	2,726	$	11,257

Additionally, included in operating expenses are facility level operating expenses for five senior housing properties that were previously leased on a net basis. Periodically tenants default on their leases which cause us to take temporary possession of the operations of the facility. We contract with third party managers to manage these properties until a replacement tenant can be identified or the property can be sold. The revenues and expenses for these properties are included in triple-net lease

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rental revenues and operating expenses, respectively. The increase in reported operating expenses for these facilities of $3.6 million to $8.7 million for the year ended December 31, 2005, was primarily due to us taking possession of two of these properties in 2005 and an increase in the overall occupancy of such properties.

The presentation of expenses between general and administrative and operating expenses is based on the underlying nature of the expense. Periodically, we review the classification of expenses between categories and make revisions based on changes in the underlying nature of the expense.

General and administrative expenses.   General and administrative expenses decreased 13% to $32.1 million for the year ended December 31, 2005. The decrease was due to higher costs in 2004 primarily resulting from $1.5 million of income tax expense on income from certain assets held in a taxable REIT subsidiary, the implementation of a new information system, considerable resources that were expended towards initial compliance with certain regulatory requirements, principally Section 404 of the Sarbanes-Oxley Act of 2002, $0.7 million in expenses associated with the relocation of our corporate offices to Long Beach, California in 2004 and a charge of $1.6 million related to the settlement of a lawsuit filed against us by our former Executive Vice President and Chief Financial Officer. Offsetting the decrease from 2004 was an increase in compensation related expenses due to an increase in full-time employees from 74 at December 31, 2004, to 83 at December 31, 2005.

Discontinued operations.   Income from discontinued operations for the year ended December 31, 2005 was $29.2 million compared to $29.5 million for the comparable period in the prior year. The change is due to a decline in the carrying value of assets disposed from $151 million in 2004 to $54 million in 2005, and resulted in a decrease in the year over year gains on sale of real estate of $10.9 million, and a decline of operating income of $5.1 million associated with discontinued operations. The changes in net gain on sale and operating income were predominantly offset by a year over year reduction of impairment charges of $15.8 million.

Comparison of the year ended December 31, 2004 to the year ended December 31, 2003

Rental and other revenue.   MOB rental revenue increased 22% to $93.7 million for the year ended December 31, 2004. The increase in MOB rental revenue of $17.2 million primarily relates to the additive effect of our acquisitions in 2004 and 2003, which contributed $14.7 million to rental revenues year over year.

Triple-net lease rental revenues increased 20% to $269.2 million for the year ended December 31, 2004. The increase in triple-net lease rental revenue of $45.8 million primarily relates to the additive effect of our acquisitions in 2004 and 2003, as detailed below:

	Triple-net lease rental revenue resulting from acquisitions— for the year ended December 31,
Property Type	2004		2003		Change
	(in thousands)
Senior housing facilities	$	34,672	$	6,016	$	28,656
Other healthcare facilities	5,931		252		5,679
Total	$	40,603	$	6,268	$	34,335

We also recognized $5.7 million of rental income during the fourth quarter of 2004 resulting from a change in estimate related to the collectibility of straight-line rental income from ARC. The consolidation of five joint ventures upon the adoption of FIN 46R, effective January 2004, increased reported triple-net lease rental income by approximately $2.8 million.

Equity income (loss).   Equity income decreased 25% to $2.2 million primarily due to our acquisition of four retirement living facilities in September 2003 which were accounted for under the equity method. This was offset by higher HCP MOP interest expense following HCP MOP obtaining $288 million of non-recourse mortgage debt in early 2004. During 2004 and 2003, we recognized $1.5 million and $1.7 million of equity income from HCP MOP, respectively. At December 31, 2004, 100 properties were held by unconsolidated joint ventures, including HCP MOP, compared to 115 properties at December 31, 2003.

Interest and other income.   Interest and other income decreased 25% to $36.1 million for the year ended December 31, 2004. The change reflects the net effects of (i) $4.6 million of revenue from the recognition of ARC interest income upon the repayment by ARC during 2004 of $83 million of debt and accrued interest thereon, and (ii) a reduced level of loans

8

receivable following the aforementioned repayment from ARC and a $17 million repayment from Emeritus. During 2004 and 2003, we also recognized management and other fees from HCP MOP of $3.1 million and $2.5 million, respectively. Other income in 2003 includes a $3.4 million tax related accrual reversal related to our 1999 acquisition of American Health Properties.

Interest expense.   Interest expense decreased 1% to $87.6 million for the year ended December 31, 2004. The change was due to a decrease in overall interest rates, offset by minor increases in borrowing levels. The table below sets forth information with respect to our debt as of December 31, 2004 and 2003:

	As of December 31,
	2004			2003
	(dollars in thousands)
Balance:
Fixed rate	$	1,153,012		$	1,209,154
Variable rate	337,010			202,075
Total	$	1,490,022		$	1,411,229
Percent of total debt:
Fixed rate	77		%	86		%
Variable rate	23		%	14		%
Total	100		%	100		%
Weighted average interest rate at end of period:
Fixed rate	6.76		%	7.07		%
Variable rate	3.09		%	2.07		%
Total weighted average rates	5.93		%	6.35		%

Depreciation and amortization.   Real estate depreciation and amortization increased 20% to $81.4 million for the year ended December 31, 2004. The increase in depreciation and amortization of $13.5 million primarily relates to our acquisitions in 2004 and 2003, as detailed below:

	Depreciation and amortization resulting from acquisitions— for the year ended December 31,
Property Type	2004		2003		Change
	(in thousands)
Senior housing facilities	$	11,055	$	1,892	$	9,163
Medical office buildings	4,221		913		3,308
Other healthcare facilities	894		96		798
Total	$	16,170	$	2,901	$	13,269

Operating expenses.   Operating costs increased 24% to $42.5 million for the year ended December 31, 2004. Operating costs are predominantly related to MOB properties that are leased under gross or modified gross lease agreements where we share certain costs with tenants. Additionally, we contract with third party property managers for most of our MOB properties. Accordingly, the number of properties in our MOB portfolio directly impacts operating costs. The increase in operating expenses of $8.2 million primarily relates to the effect of our acquisitions in 2004 and 2003, as detailed below:

	Operating expenses resulting from acquisitions— for the year ended December 31,
Property Type	2004		2003		Change
	(in thousands)
Medical office buildings	$	6,107	$	864	$	5,243
Other healthcare facilities	2,064		—		2,064
Total	$	8,171	$	864	$	7,307

The presentation of expenses between general and administrative and operating expenses is based on the underlying nature of the expense. Periodically, we review the classification of expenses between categories and make revisions based on changes in the underlying nature of the expense.

9

General and administrative expenses.   General and administrative expenses increased 63% to $36.7 million for the year ended December 31, 2004. The increase was due to higher costs in 2004 primarily resulting from income tax expense of $1.5 million on income from certain assets held in a taxable REIT subsidiary and the implementation of a new information system and considerable resources that were expended towards initial compliance with certain regulatory requirements, principally Section 404 of the Sarbanes-Oxley Act of 2002. Also contributing to the increase was $0.7 million in expenses associated with the move of our corporate offices to Long Beach, California and a charge of $1.6 million related to the settlement of a lawsuit filed against us by our former Executive Vice President and Chief Financial Officer.

Discontinued operations.   Income from discontinued operations for the year ended December 31, 2004, was $29.5 million compared to $32.7 million for the comparable period in the prior year. The change is primarily due to an increase in impairment charges of $3.9 million year over year. The year over year increase in gains on sale of $8.9 million was predominantly offset by comparable period decrease in operating income of $8.3 million.

Liquidity and Capital Resources

Our principal liquidity needs are to (i) fund normal operating expenses, (ii) meet debt service requirements, (iii) fund capital expenditures including tenant improvements and leasing costs, (iv) fund acquisition and development activities, and (v) make minimum distributions required to maintain our REIT qualification under the Internal Revenue Code, as amended.

We believe these needs will be satisfied using cash flows generated by operations and provided by financing activities. We intend to repay maturing debt with proceeds from future debt and/or equity offerings and anticipate making future investments dependent on the availability of cost-effective sources of capital. We use the public debt and equity markets as our principal source of financing. As of December 31, 2005, our senior debt is rated BBB+ by both Standard & Poor’s Ratings Group and Fitch Ratings and Baa2 by Moody’s Investors Service.

Net cash provided by operating activities was $282.1 million and $272.5 million for 2005 and 2004, respectively. Cash flow from operations reflects increased revenues offset by higher costs and expenses, and changes in receivables, payables, accruals, and deferred revenue. Our cash flows from operations are dependent upon the occupancy level of multi-tenant buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and other factors.

Net cash used in investing activities was $414.8 million during 2005 and principally reflects the net effect of: (i) $64.6 million received from the sale of several facilities, (ii) $447.2 million principally used to fund acquisitions and construction of real estate, (iii) $53.3 million used to fund investments in loans receivable and (iv) $19.1 million in principal repayments received on loans. During 2005 and 2004, we used $7.1 million and $3.4 million to fund lease commissions and tenant and capital improvements, respectively.

Net cash provided by financing activities was $137.1 million for 2005 and includes proceeds of $45.2 million from common stock issuances, and $445.5 million from senior note issuances. These proceeds were partially offset by: (i) the repayment of $31.0 million of senior notes, (ii) net repayment of $41.5 million of our line of credit, (iii) payment of common and preferred dividends aggregating $248.4 million, and (iv) repayments on mortgage debt of $17.9 million. In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our shareholders. Accordingly, we intend to continue to make regular quarterly distributions to holders of our common and preferred stock.

At December 31, 2005, we held approximately $11.9 million in deposits and $44.2 million in irrevocable letters of credit from commercial banks securing tenants’ lease obligations and borrowers’ loan obligations. We may draw upon the letters of credit or depository accounts if there are defaults under the related leases or loans. Amounts available under letters of credit could change based upon facility operating conditions and other factors and such changes may be material.

Bank Line of Credit, Mortgage Debt and Senior Unsecured Notes

At December 31, 2005, we had the following outstanding debt:

Bank line of credit.   Borrowings under our $500 million three-year bank line of credit were $258.6 million with an interest rate of 5.01% at December 31, 2005. Borrowings under the bank line of credit accrue interest at 65 basis points over the London Inter Bank Offering Rate (“LIBOR”) with a 15 basis point facility fee. In addition, a negotiated rate option, whereby the lenders participating in the credit facility bid on the interest to be charged and which may result in a reduced

10

interest rate, is available for up to 50% of borrowings. The credit facility also contains an “accordion” feature allowing borrowings to be increased by $100 million in certain conditions.

The credit agreement contains certain financial restrictions and requirements customary in transactions of this type. The more significant covenants, using terms defined in the agreement, limit the ratios of (i) Consolidated Total Indebtedness to Consolidated Total Asset Value to 60%, (ii) Secured Debt to Consolidated Total Asset Value to 30% and (iii) Unsecured Debt to Consolidated Unencumbered Asset Value to 60%. We must also maintain (i) a Fixed Charge Coverage ratio, as defined, of 1.75 times and (ii) a formula-determined Minimum Tangible Net Worth. As of December 31, 2005, we were in compliance with each of these restrictions and requirements.

Mortgage debt.   At December 31, 2005, we had $236.1 million in mortgage debt secured by 38 healthcare facilities with a carrying amount of $384.5 million. Interest rates on the mortgage notes ranged from 2.75% to 9.32% with a weighted average rate of 7.05% at December 31, 2005.

The instruments encumbering the properties restrict title transfer of the respective properties subject to the terms of the mortgage, prohibit additional liens, require payment of real estate taxes, maintenance of the properties in good condition and maintenance of insurance on the properties and include a requirement to obtain lender consent to enter into material tenant leases.

Senior unsecured notes.   At December 31, 2005 we had $1.5 billion in aggregate principal amount of senior unsecured notes outstanding. Interest rates on the notes ranged from 4.875% to 7.875% with a weighted average rate of 6.23% at December 31, 2005.

On April 27, 2005, we issued $250 million of 5.625% senior unsecured notes due in 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%. We received proceeds of $247 million, which were used to repay outstanding indebtedness and for general corporate purposes.

Senior unsecured notes at December 31, 2004, included $200 million principal amount of Mandatory Par Put Remarketed Securities (“MOPPRS”), due June 8, 2015. The MOPPRS contained an option (the “MOPPRS Option”) exercisable by the Remarketing Dealer, an investment bank affiliate, which derived its value from the yield on ten-year U.S. Treasury rates relative to a fixed strike rate of 5.565%. Generally, the value of the option to the Remarketing Dealer increased as ten-year Treasury rates declined and the option’s value to the Remarketing Dealer decreased as ten-year Treasury rates increased.

On June 3, 2005, the Remarketing Dealer exercised its option to redeem our $200 million principal amount of 6.875% MOPPRS. The Remarketing Dealer redeemed the securities from the holders at par plus accrued interest, and reissued ten-year senior notes with a coupon of 7.072%. The reissued notes are at an effective interest rate which is higher than what would otherwise have been available if we had issued new ten-year notes at par value.

On September 16, 2005, we issued $200 million of 4.875% senior unsecured notes due in 2010. The notes were priced at 99.567% of the principal amount with an effective yield of 4.974%. We received net proceeds of $198 million, which were used to repay outstanding indebtedness and for other general corporate purposes.

During the year ended December 31, 2005, we repaid $31 million of maturing senior unsecured notes which accrued interest at a rate of 7.5%. These notes were repaid with funds available under our bank line of credit.

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Debt Maturities

The following table summarizes our stated debt maturities and scheduled principal repayments at December 31, 2005 (in thousands):

Year	Amount
2006	$	140,228
2007	409,362
2008	19,922
2009	10,814
2010	271,595
Thereafter	1,106,510
	$	1,958,431

Equity

At December 31, 2005, we had outstanding 4,000,000 shares of 7.25% Series E cumulative redeemable preferred stock, 7,820,000 shares of 7.10% Series F cumulative redeemable preferred stock, and 136 million shares of common stock.

During the year ended December 31, 2005, we issued approximately 878,000 shares of our common stock under our Dividend Reinvestment and Stock Purchase Plan at an average price per share of $25.80 for proceeds of $22.6 million. We also received $22.9 million in proceeds from stock option exercises. At December 31, 2005, stockholders’ equity totaled $1.4 billion and our equity securities had a market value of $3.9 billion.

As of December 31, 2005, there were a total of 3.4 million DownREIT units outstanding in five limited liability companies in which we are the managing member (i) HCPI/Tennessee, LLC; (ii) HCPI/Utah, LLC; (iii) HCPI/Utah II, LLC; (iv) HCPI/Indiana, LLC; and (v) HCP DR California, LLC. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). The 3.4 million DownREIT units outstanding at December 31, 2005, are convertible into 6.0 million shares of our common stock.

As of December 31, 2005, we had $1.06 billion available for future issuances of debt and equity securities under a shelf registration statement filed with the Securities and Exchange Commission. These securities may be issued from time to time in the future based on our needs and the then-existing market conditions

Off-Balance Sheet Arrangements

We own interests in certain unconsolidated joint ventures, including HCP MOP, as described under Note 7 to the Consolidated Financial Statements. Except in limited circumstances, our risk of loss is limited to our investment carrying amount and any outstanding loans receivable.

We have no other material off balance sheet arrangements that we expect to materially affect our liquidity and capital resources except these described under “Contractual Obligations.”

Contractual Obligations

The following table summarizes our material contractual payment obligations and commitments at December 31, 2005 (in thousands):

	One Year or Less		2007-2008		2009-2010		More than Five Years		Total
Unsecured senior notes and mortgage debt	$	140,228	$	170,684	$	282,409	$	1,106,510	$	1,699,831
Revolving line of credit	—		258,600		—		—		258,600
Acquisition and construction commitments	32,561		—		—		—		32,561
Operating leases	1,353		2,777		2,874		117,760		124,764
Interest payments	98,954		173,439		163,837		319,820		756,050
Total	$	273,096	$	605,500	$	449,120	$	1,544,090	$	2,871,806

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Inflation

Our leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other measures, and/or additional rent based on increases in the tenant’s revenue from the facility. Substantially all of our MOB leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, utilities, etc. We believe that inflationary increases in expenses will be offset, in part, by the tenant expense reimbursements and contractual rent increases described above.

New Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.

ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk

At December 31, 2005, we are exposed to market risks related to fluctuations in interest rates on $57.3 million of variable rate mortgage notes payable, $258.6 million of variable rate bank debt and $25.0 million of variable rate senior unsecured notes. Of the $57.3 million of variable rate mortgage notes payable outstanding, $45.6 million has been hedged through interest rate swap contracts. We do not have any, and do not plan to enter into, derivative financial instruments for trading or speculative purposes. Of our consolidated debt of $2.0 billion at December 31, 2005, excluding the $45.6 million of variable rate debt where the rates have been hedged to fixed rates, approximately 15% is at variable interest rates.

Fluctuation in the interest rate environment will not affect our future earnings and cash flows on our fixed rate debt until that debt must be replaced or refinanced. However, interest rate changes will affect the fair value of our fixed rate instruments and our hedge contracts. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not affect the fair value of those instruments. Assuming a one percentage point increase in the interest rate related to the variable-rate debt and related swap contracts, and assuming no change in the outstanding balance as of December 31, 2005, interest expense for 2005 would increase by approximately $3 million, or $0.02 per common share on a diluted basis.

The principal amount and the average interest rates for our mortgage loans receivable and debt categorized by maturity dates is presented in the table below. The fair value estimates for the mortgage loans receivable are based on the estimates of management and on rates currently prevailing for comparable loans. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to us for debt of the same type and remaining maturity.

	Maturity
	2006			2007			2008			2009			2010			Thereafter			Total			Fair Value
	(dollars in thousands)
Loans Receivable:
Secured loans receivable	$	64,130		$	8,290		$	724		$	5,480		$	45,654		$	51,148		$	175,426		$	202,695
Weighted average interest rate	11.44		%	12.25		%	10.50		%	12.23		%	11.16		%	8.64		%	10.61		%
Liabilities:
Variable rate debt:
Bank notes payable	$	—		$	258,600		$	—		$	—		$	—		$	—		$	258,600		$	258,600
Weighted average interest rate	—			5.01		%	—			—			—			—			5.01		%
Senior notes payable	$	—		$	—		$	—		$	—		$	—		$	25,000		$	25,000		$	25,000
Weighted average interest rate	—			—			—			—			—			5.39		%	5.39		%
Mortgage notes payable	$	—		$	—		$	—		$	—		$	—		$	11,665		$	11,665		$	11,665
Weighted average interest rate	—			—			—			—			—			2.75		%	2.75		%
Fixed rate debt:
Senior notes payable	$	135,000		$	140,000		$	—		$	—		$	206,421		$	962,000		$	1,443,421		$	1,466,591
Weighted average interest rate	6.70		%	7.49		%	—			—			4.93		%	6.24		%	6.22		%
Mortgage notes payable	$	—		$	5,434		$	15,391		$	5,920		$	68,645		$	124,355		$	219,745		$	247,303
Weighted average interest rate	—			8.03		%	7.18		%	7.17		%	8.19		%	6.76		%	7.08		%

13

ITEM 8.Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Health Care Property Investors, Inc.

We have audited the accompanying consolidated balance sheets of Health Care Property Investors, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health Care Property Investors, Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Health Care Property Investors, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2006 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
Irvine, California
February 10, 2006,
except for Note 2 under “Discontinued Operations”, Note 7 Investments in and Advances to Joint Ventures, Note 18 Segment Disclosures, Note 21 Selected Quarterly Financial Data (Unaudited) and Schedule III: Real Estate and Accumulated Depreciation, as to which the date is January 2, 2007

14

HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

	December 31,
	2005			2004
ASSETS
Real estate:
Buildings and improvements	$	3,365,869		$	2,842,809
Developments in process	22,286			25,529
Land	328,609			274,551
Less accumulated depreciation and amortization	573,767			483,372
Net real estate	3,142,997			2,659,517
Loans receivable, net:
Joint venture partners	7,006			6,473
Others	179,825			139,919
Investments in and advances to unconsolidated joint ventures	48,598			60,506
Accounts receivable, net of allowance of $1,205 and $1,070, respectively	13,313			14,834
Cash and cash equivalents	21,342			16,962
Restricted cash	2,270			4,678
Intangibles, net	38,804			19,679
Real estate held for sale, net	98,855			157,664
Other assets, net	44,255			24,294
Total assets	$	3,597,265		$	3,104,526
LIABILITIES AND STOCKHOLDERS’ EQUITY
Bank line of credit	$	258,600		$	300,100
Senior unsecured notes	1,462,250			1,046,690
Mortgage debt	236,096			140,501
Accounts payable and accrued liabilities	68,718			59,905
Deferred revenue	22,551			16,107
Total liabilities	2,048,215			1,563,303
Minority interests:
Joint venture partners	20,905			21,515
Non-managing member unitholders	128,379			100,266
Total minority interests	149,284			121,781
Stockholders’ equity:
Preferred stock, $1.00 par value: 50,000,000 shares authorized; 11,820,000 shares issued and outstanding, liquidation preference of $25 per share	285,173			285,173
Common stock, $1.00 par value: 750,000,000 shares authorized; 136,193,764 and 133,658,318 shares issued and outstanding, respectively	136,194			133,658
Additional paid-in capital	1,454,813			1,403,335
Cumulative net income	1,521,146			1,348,089
Cumulative dividends	(1,988,248		)	(1,739,859		)
Other equity	(9,312		)	(10,954		)
Total stockholders’ equity	1,399,766			1,419,442
Total liabilities and stockholders’ equity	$	3,597,265		$	3,104,526

See accompanying Notes to Consolidated Financial Statements.

15

HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

	Year Ended December 31,
	2005			2004			2003
Revenues and other income:
Rental and other revenues	$	433,516		$	362,934		$	299,974
Equity income (loss) from unconsolidated joint ventures	(1,123		)	2,157			2,889
Interest and other income	26,154			36,061			47,813
	458,547			401,152			350,676
Costs and expenses:
Interest	107,201			87,561			88,297
Depreciation and amortization	103,579			81,440			67,903
Operating	58,983			42,484			34,296
General and administrative	32,012			36,649			22,486
Impairments	—			1,305			2,090
	301,775			249,439			215,072
Income before minority interests	156,772			151,713			135,604
Minority interests	(12,950		)	(12,204		)	(9,751		)
Income from continuing operations	143,822			139,509			125,853
Discontinued operations:
Operating income	19,079			24,208			32,498
Gain on sales of real estate, net of impairments	10,156			5,323			234
	29,235			29,531			32,732
Net income	173,057			169,040			158,585
Preferred stock dividends	(21,130		)	(21,130		)	(18,183		)
Preferred redemption charges	—			—			(18,553		)
Net income applicable to common shares	$	151,927		$	147,910		$	121,849
Basic earnings per common share:
Continuing operations	$	0.91		$	0.90		$	0.71
Discontinued operations	0.22			0.22			0.27
Net income applicable to common shares	$	1.13		$	1.12		$	0.98
Diluted earnings per common share:
Continuing operations	$	0.91		$	0.89		$	0.71
Discontinued operations	0.21			0.22			0.26
Net income applicable to common shares	$	1.12		$	1.11		$	0.97
Weighted average shares used to calculate earnings per common share:
Basic	134,673			131,854			124,942
Diluted	135,560			133,362			126,130

See accompanying Notes to Consolidated Financial Statements.

16

HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

									Additional
	Preferred Stock					Common Stock			Paid-In			Cumulative					Other
	Shares		Amount			Shares	Amount		Capital			Net Income		Dividends			Equity			Total
January  1, 2003	11,722		$	274,487		118,940	$	118,940	$	1,152,081		$	1,020,464	$	(1,273,378	)	$	(11,705	)	$	1,280,889
Issuances of common stock, net	—		—			9,524	9,524		182,498			—		—			(6,280		)	185,742
Exercise of stock options	—		—			2,576	2,576		38,854			—		—			—			41,430
Issuance of preferred stock, net	11,820		285,173			—	—		—			—		—			—			285,173
Redemption of preferred stock	(11,722	)	(274,487		)	—	—		(18,553		)	—		—			—			(293,040		)
Net income	—		—			—	—		—			158,585		—			—			158,585
Preferred stock dividends	—		—			—	—		—			—		(18,183		)	—			(18,183		)
Common stock dividends	—		—			—	—		—			—		(206,166		)	—			(206,166		)
Amortization of deferred compensation	—		—			—	—		419			—		—			2,722			3,141
Changes in notes receivable from officers	—		—			—	—		—			—		—			2,023			2,023
Changes in other comprehensive income	—		—			—	—		—			—		—			1,023			1,023
December 31, 2003	11,820		$	285,173		131,040	$	131,040	$	1,355,299		$	1,179,049	$	(1,497,727	)	$	(12,217	)	$	1,440,617
Issuances of common stock, net	—		—			1,172	1,172		26,857			—		—			(1,751		)	26,278
Exercise of stock options	—		—			1,446	1,446		19,682			—		—			—			21,128
Net income	—		—			—	—		—			169,040		—			—			169,040
Preferred stock dividends	—		—			—	—		—			—		(21,130		)	—			(21,130		)
Common stock dividends	—		—			—	—		—			—		(221,002		)	—			(221,002		)
Amortization of deferred compensation	—		—			—	—		1,497			—		—			4,665			6,162
Changes in notes receivable from officers	—		—			—	—		—			—		—			236			236
Changes in other comprehensive income	—		—			—	—		—			—		—			(1,887		)	(1,887		)
December 31, 2004	11,820		$	285,173		133,658	$	133,658	$	1,403,335		$	1,348,089	$	(1,739,859	)	$	(10,954	)	$	1,419,442
Issuances of common stock, net	—		—			1,100	1,100		26,618			—		—			(2,744		)	24,974
Exercise of stock options	—		—			1,436	1,436		21,429			—		—			—			22,865
Net income	—		—			—	—		—			173,057		—			—			173,057
Preferred stock dividends	—		—			—	—		—			—		(21,130		)	—			(21,130		)
Common stock dividends	—		—			—	—		—			—		(227,259		)	—			(227,259		)
Amortization of deferred compensation	—		—			—	—		3,431			—		—			3,064			6,495
Changes in other comprehensive income	—		—			—	—		—			—		—			1,322			1,322
December 31, 2005	11,820		$	285,173		136,194	$	136,194	$	1,454,813		$	1,521,146	$	(1,988,248	)	$	(9,312	)	$	1,399,766

See accompanying Notes to Consolidated Financial Statements.

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HEALTH CARE PROPERTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Year Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net income	$	173,057		$	169,040		$	158,585
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate and in-place lease intangibles:
Continuing operations	103,579			81,440			67,903
Discontinued operations	4,387			7,917			12,220
Amortization of above and below market lease intangibles	(1,912		)	—			—
Stock-based compensation	6,495			6,162			3,141
Debt issuance cost amortization	3,181			3,823			4,287
Impairments	—			17,067			13,992
Provisions (recovery) for loan losses	(56		)	1,648			748
Straight-line rents	(7,257		)	(8,946		)	1,315
Equity (income) loss from unconsolidated joint ventures	1,123			(2,157		)	(2,889		)
Distributions of earnings from unconsolidated joint ventures	—			2,157			1,195
Minority interests	12,950			12,204			9,751
Net gain on sales of securities	(4,517		)	—			—
Net gain on sales of real estate	(10,156		)	(21,085		)	(12,136		)
Changes in:
Accounts receivable	1,521			1,637			5,911
Other assets	(8,524		)	243			(6,948		)
Accounts payable, accrued liabilities and deferred revenue	8,219			1,392			6,500
Net cash provided by operating activities	282,090			272,542			263,575
Cash flows from investing activities:
Acquisition and development of real estate	(447,152		)	(337,445		)	(216,275		)
Lease commissions and tenant and capital improvements	(7,138		)	(3,419		)	(6,470		)
Net proceeds from sales of real estate	64,564			140,402			56,110
Distributions from (contribution to) unconsolidated joint ventures and other	6,973			88,554			(176,991		)
Purchase of securities	(6,768		)	—			—
Proceeds from the sale of securities	6,482			—			—
Principal repayments on loans receivable	19,138			39,570			77,709
Investment in loans receivable	(53,293		)	(9,622		)	(43,404		)
Decrease (increase) in restricted cash	2,408			(2,722		)	2,507
Net cash used in investing activities	(414,786		)	(84,682		)	(306,814		)
Cash flows from financing activities:
Borrowings (repayments) under bank line of credit	(41,500		)	102,100			(69,800		)
Repayment of mortgage debt	(17,889		)	(69,313		)	(21,629		)
Repayment of senior unsecured notes	(31,000		)	(92,000		)	(36,000		)
Issuance of senior unsecured notes	445,471			87,000			197,536
Net proceeds from the issuance of preferred stock	—			—			285,173
Net proceeds from the issuance of common stock and exercise of options	45,238			42,629			222,730
Repurchase of preferred stock	—			—			(293,040		)
Dividends paid on common and preferred stock	(248,389		)	(243,250		)	(223,231		)
Distributions to minority interests	(14,855		)	(14,953		)	(9,965		)
Other, net	—			60			730
Net cash provided by (used in) financing activities	137,076			(187,727		)	52,504
Net increase in cash and cash equivalents	4,380			133			9,265
Cash and cash equivalents, beginning of year	16,962			16,829			7,564
Cash and cash equivalents, end of year	$	21,342		$	16,962		$	16,829

See accompanying Notes to Consolidated Financial Statements.

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HEALTH CARE PROPERTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)Business

Health Care Property Investors, Inc. is a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “HCP” or the “Company”), invests directly, or through joint ventures and mortgage loans, in healthcare related properties located throughout the United States.

(2)Summary of Significant Accounting Policies

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ.

Principles of Consolidation

The consolidated financial statements include the accounts of HCP, its wholly owned subsidiaries and its controlled, through voting rights or other means, joint ventures. All material intercompany transactions and balances have been eliminated in consolidation.

The Company adopted Interpretation No. 46R, Consolidation of Variable Interest Entities, as revised (“FIN 46R”), effective January 1, 2004 for variable interest entities created before February 1, 2003 and effective January 1, 2003 for variable interest entities created after January 31, 2003. FIN 46R provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise is the primary beneficiary of the VIE. A variable interest entity is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional financial support. The Company consolidates investments in VIEs when it is determined that the Company is the primary beneficiary of the VIE at either the creation of the variable interest entity or upon the occurrence of a reconsideration event. The adoption of FIN 46R resulted in the consolidation of five joint ventures with aggregate assets of $18.5 million, effective January 1, 2004, that were previously accounted for under the equity method. The consolidation of these joint ventures did not have a significant effect on the Company’s consolidated financial statements or results of operations.

The Company adopted Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights (“EITF 04-5”), effective June 2005. The issue concludes as to what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership in accordance with GAAP. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership of limited partnership interests, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. This EITF also applies to managing members in limited liability companies. The adoption of EITF 04-5 did not have an impact on the Company’s consolidated financial position or results of operations.

Investments in entities which the Company does not consolidate but for which the Company has the ability to exercise significant influence over operating and financial policies are reported under the equity method. Generally, under the equity method of accounting the Company’s share of the investee’s earnings or loss is included in the Company’s operating results.

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Revenue Recognition

Rental income from tenants is recognized in accordance with GAAP, including Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). For leases with minimum scheduled rent increases, the Company recognizes income on a straight-line basis over the lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis for leases results in recognized revenue exceeding amounts contractually due from tenants. Such cumulative excess amounts are included in other assets and were $18.4 million and $11.0 million, net of allowances, at December 31, 2005 and 2004, respectively. In the event the Company determines that collectibility of straight-line rents is not reasonably assured, the Company limits future recognition to amounts contractually owed, and, where appropriate, the Company establishes an allowance for estimated losses. Certain leases provide for additional rents based upon a percentage of the facility’s revenue in excess of specified base periods or other thresholds. Such revenue is deferred until the related thresholds are achieved.

The Company monitors the liquidity and creditworthiness of its tenants and borrowers on an ongoing basis. The evaluation considers industry and economic conditions, property performance, security deposits and guarantees, and other matters. The Company establishes provisions and maintains an allowance for estimated losses resulting from the possible inability of its tenants and borrowers to make payments sufficient to recover recognized assets. For straight-line rent amounts, the Company’s assessment is based on income recoverable over the term of the lease. At December 31, 2005 and 2004, respectively, the Company had an allowance of $21.6 million and $15.8 million, included in other assets, as a result of the Company’s determination that collectibility is not reasonably assured for certain straight-line rent amounts. Results for the fourth quarter of 2004 include income of $5.7 million resulting from the Company’s change in estimate relating to the collectibility of straight-line rents due from affiliates of American Retirement Corporation.

Loans Receivable

Loans receivable are classified as held-to-maturity because the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the effective interest method.

Real Estate

Real estate, consisting of land, buildings, and improvements, is recorded at cost. The Company allocates acquisition costs to the acquired tangible and identified intangible assets and liabilities, primarily lease intangibles, based on their estimated fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.

The Company assesses fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, third party appraisals and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired “above and below” market leases at their fair value using a discount rate which reflects the risks associated with the leases acquired, equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term for any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’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, the Company includes real estate taxes, insurance and other operating expenses and 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, the Company considers leasing commissions, legal and other related costs.

Real estate assets and related intangibles are periodically reviewed for potential impairment by comparing the carrying amount to the expected undiscounted future cash flows to be generated from the assets. If the sum of the expected future net undiscounted cash flows is less than the carrying amount of the property, the Company will recognize an impairment loss by adjusting the asset’s carrying amount to its estimated fair value. Fair value for properties to be held and used is based on the

20

present value of the future cash flows expected to be generated from the asset. Properties held for sale are recorded at the lower of carrying amount or fair value less costs to dispose.

Developments in process are carried at cost which includes pre-construction costs essential to development of the property, construction costs, capitalized interest, and other costs directly related to the property. Capitalization of interest ceases when the property is ready for service which generally is near the date that a certificate of occupancy is obtained. Expenditures for tenant improvements and leasing commissions are capitalized and amortized over the terms of the respective leases. Repairs and maintenance are expensed as incurred.

The Company computes depreciation on properties using the straight-line method over the assets’ estimated useful lives. Depreciation is discontinued when a property is identified as held for sale. Building and improvements are depreciated over useful lives ranging up to 45 years. Above and below market rent intangibles are amortized primarily to revenue over the remaining noncancellable lease terms and bargain renewal periods. Other in-place lease intangibles are amortized to expense over the remaining lease term and bargain renewal periods. At December 31, 2005 and 2004, lease intangibles assets were $38.8 million and $19.7 million, respectively. At December 31, 2005 and 2004, lease intangible liabilities were $5.3 million and $0.8 million and are included in deferred revenue.

Income Taxes

The Company has elected and believes it operates so as to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, the Company generally is not subject to federal income tax on its taxable income distributed to stockholders if certain distribution, income, asset, and shareholder tests are met. A REIT must distribute at least 90% of its annual taxable income to stockholders. At December 31, 2005 and 2004, the tax basis of the Company’s net assets is less than the reported amounts by $298 million and $288 million, respectively.

Certain activities the Company undertakes must be conducted by entities which elect to be treated as taxable REIT subsidiaries (“TRSs”). TRSs are subject to both federal and state income taxes. For the year ended December 31, 2005 and 2004, income taxes related to the Company’s TRSs approximated a benefit of $0.7 million and an expense of $1.5 million, respectively, and is included in general and administrative expenses. The Company’s income tax expense in 2003 was insignificant.

Discontinued Operations

Certain long lived assets are classified as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets to be disposed of are reported at the lower of their carrying amount or their fair value less cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as discontinued operations. Discontinued operations are defined in SFAS No. 144 as a component of an entity that has either been disposed of or is deemed to be held for sale if both the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

The Company periodically sells assets based on market conditions and the exercise of purchase options by tenants. The operating results of properties meeting the criteria established in SFAS No. 144 are reported as discontinued operations in the Company’s consolidated statements of income. Discontinued operations in 2005, based on activity through September 30, 2006, include 46 properties with revenues of $24.0 million. The Company had 78 and 103 properties classified as discontinued operations for the years ended December 31, 2004 and 2003, with revenue of $34.8million and $56.3 million, respectively. During 2005, 2004, and 2003, 18, 32 and 25 properties were sold, respectively, with net gains on real estate dispositions of $10.2 million, $21.1 million and $12.1 million, respectively. At December 31, 2005 and December 31, 2004, the number of assets held for sale was 16 and 28 with carrying amounts of $98.9 million and $157.7 million, respectively, and are included in real estate held for sale, net on our consolidated balance sheets.

Stock-Based Compensation

On January 1, 2002, the Company adopted the fair value method of accounting for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transaction and Disclosure (“SFAS 148”). The fair value provisions of SFAS

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123 were adopted prospectively with the fair value of all new stock option grants recognized as compensation expense beginning January 1, 2002. Since only new grants are accounted for under the fair value method, stock-based compensation expense is less than that which would have been recognized if the fair value method had been applied to all awards. Compensation expense for awards with graded vesting is generally recognized ratably over the vesting period.

The following table reflects net income and earnings per share, adjusted as if the fair value based method had been applied to all outstanding stock awards in each period (in thousands, except per share amounts):

	Year Ended December 31,
	2005			2004			2003
Net income, as reported	$	173,057		$	169,040		$	158,585
Add: Stock-based compensation expense included in reported net income	6,495			6,162			3,141
Deduct: Stock-based employee compensation expense determined under the fair value based method	(6,811		)	(6,785		)	(4,040		)
Pro forma net income	$	172,741		$	168,417		$	157,686
Earnings per share:
Basic—as reported	$	1.13		$	1.12		$	0.98
Basic—pro forma	$	1.13		$	1.12		$	0.97
Diluted—as reported	$	1.12		$	1.11		$	0.97
Diluted—pro forma	$	1.12		$	1.10		$	0.96

Cash and Cash Equivalents

Cash and cash equivalents represent short term investments with original maturities of three months or less when purchased.

Restricted Cash

Restricted cash primarily consist of amounts held by mortgage lenders to provide for future real estate tax expenditures and tenant improvements, security deposits, and net proceeds from property sales that were executed as a tax-deferred disposition.

Derivatives

The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, SFAS No. 138 and SFAS No. 148 (“SFAS No. 133”), as of January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires the recognition of all derivative instruments as assets or liabilities in the Company’s condensed consolidated balance sheets at fair value. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria of SFAS No. 133 are recognized in earnings. For derivatives designated as hedging instruments in qualifying cash flow hedges, the effective portion of changes in fair value of the derivatives is recognized in accumulated other comprehensive income (loss) whereas the ineffective portions are recognized in earnings.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities in the balance sheet. The Company also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. When it is determined that a derivative ceases to be highly effective as a hedge, the Company discontinues hedge accounting prospectively.

Marketable Securities

The Company classifies its existing marketable equity securities as available-for-sale in accordance with the provisions of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Investment, (“SFAS No. 115”). These securities

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are carried at fair market value, with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income. Gains or losses on securities sold are based on the specific identification method. During the year ended December 31, 2005, the Company realized gains totaling $4.5 million, related to the sale of various securities. There were no gains or losses realized for the years ended December 31, 2004 and 2003.

All debt securities are classified as held-to-maturity because the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity.

Segment Reporting

The Company reports its consolidated financial statements in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”). The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by leasing activities. The Company’s segments include: medical office buildings (“MOBs”) and triple-net leased.

Stock Split

As of March 2, 2004, each stockholder received one additional share of common stock for each share they own resulting from a 2-for-1 stock split declared by the Company on January 22, 2004. The stock split has been reflected in all periods presented.

Minority Interests and Mandatorily Redeemable Financial Instruments

As of December 31, 2005, there were 3.4 million non-managing member units outstanding in five limited liability companies of which the Company is the managing member: HCPI/Tennessee, LLC; HCPI/Utah, LLC; HCPI/Utah II, LLC; HCPI Indiana, LLC; and HCP DR California, LLC. The Company consolidates these entities since it exercises control. The non-managing member LLC Units (“DownREIT units”) are exchangeable for an amount of cash approximating the then-current market value of shares of the Company’s common stock or, at the Company’s option, shares of the Company’s common stock (subject to certain adjustments, such as stock splits and reclassifications).

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS No. 150”), requires, among other things, that mandatorily redeemable financial instruments be classified as a liability and recorded at settlement value. Consolidated joint ventures with a limited-life are considered mandatorily redeemable. Implementation of the provisions of SFAS No. 150 that require the valuation and establishment of a liability for limited-life entities was subsequently deferred. As of December 31, 2005, the Company has eleven limited-life entities that have a settlement value of the minority interests of approximately $4.9 million, which is approximately $3.0 million more than the carrying amount.

Preferred Stock Redemptions

The Company recognizes the excess of the redemption value of cumulative redeemable preferred stock redeemed over its carrying amount as a charge to income in accordance with Financial Accounting Standards Board (“FASB”)—EITF Topic D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock (“EITF Topic D-42”). In July 2003, the SEC staff issued a clarification of the SEC’s position on the application of FASB EITF Topic D-42. The SEC staff’s position, as clarified, is that in applying Topic D-42, the carrying value of preferred shares that are redeemed should be reduced by the amount of original issuance costs, regardless of where in stockholders’ equity those costs are reflected. (See Note 12.)

New Accounting Pronouncements

SFAS No. 123R, Share-Based Payments (“SFAS No. 123R”), which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, was issued in December 2004. Generally, the approach in SFAS No. 123R is similar to that in SFAS No. 123. However, SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006 for the Company. The Company believes the adoption

23

of SFAS 123R will not have a significant impact on its consolidated financial statements since it previously adopted the fair value method prospectively under SFAS No. 123 on January 1, 2002.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which replaces Accounting Principles Board Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principles. It requires retrospective application to prior periods’ financial statements of changes in accounting principles, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a significant impact on the Company’s financial position or results of operations.

Reclassifications

Certain reclassifications have been made for comparative financial statement presentation.

(3)Future Minimum Rents

Future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2005, are as follows (in thousands):

Year	Amount
2006	$	421,573
2007	396,295
2008	365,051
2009	294,307
2010	262,786
Thereafter	1,283,771
	$	3,023,783

(4)Acquisitions and Dispositions

A summary of 2005 acquisitions is as follows (in thousands):

	Consideration						Assets Acquired
Acquisition(1)	Cash		Assumed Debt		DownREIT Units(2)		Real Estate		Net Intangibles
Senior housing facilities	$	313,744	$	52,060	$	19,431	$	379,745	$	5,490
Medical office buildings	96,863		61,424		10,967		154,182		15,072
	$	410,607	$	113,484	$	30,398	$	533,927	$	20,562

A summary of 2004 acquisitions is as follows (in thousands):

	Consideration						Assets Acquired
Acquisition(1)	Cash		Assumed Debt		Loans Settled		Real Estate		Net Intangibles
Senior housing facilities	$	58,574	$	81,386	$	93,268	$	233,228	$	—
Medical office buildings	131,213		—		—		113,621		17,592
Assisted living facilities	77,988		—		1,500		79,043		445
Other healthcare facilities	41,223		—		—		41,223		—
	$	308,998	$	81,386	$	94,768	$	467,115	$	18,037

(1)           Includes transaction costs, if any.

(2)           Non-managing member LLC units.

During the year ended December 31, 2005, the Company acquired properties aggregating $554 million, including the following significant acquisitions:

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On December 23, 2005, the Company acquired two medical office buildings for $25 million. The medical office buildings include 152,000 rentable square feet and have an initial yield of 7.4%. As of December 31, 2005, the purchase price allocation is preliminary and is pending information necessary to complete the valuation of certain intangibles.

On December 22, 2005, the Company acquired two independent and assisted living facilities for $18 million through a sale-leaseback transaction. The facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.5% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

On October 19, 2005, the Company acquired seven medical office buildings for $51 million, including assumed debt and DownREIT units valued at $24 million and $11 million, respectively. The medical office buildings include approximately 351,000 rentable square feet and have an initial yield of 8.2%.

On August 31, 2005, the Company acquired five assisted living facilities for $41 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.5% with annual CPI-based escalators that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

On July 22, 2005, the Company acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt and DownREIT units valued at $52 million and $19 million, respectively, through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with three ten-year renewal options. The initial annual lease rate is 7.1% with annual CPI-based escalators that have a floor of 3%.

On July 1, 2005, the Company acquired an assisted living facility for $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 8.75% with annual CPI-based escalators that have a floor of 2.75%.

On April 28, 2005, the Company acquired five medical office buildings for $81 million, including assumed debt valued at $29 million. The initial yield is 7.0%, with two properties currently in lease-up. The yield following lease-up is expected to be 8.2%. The medical office buildings include approximately 537,000 rentable square feet.

On April 20, 2005, the Company acquired five assisted living facilities for $58 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is 9.0% with annual CPI-based escalators that have a floor of 2.75%. These properties are included in a master lease that has 21 properties leased to the operator.

During the year ended December 31, 2005, the Company sold 18 properties for $65 million and recognized net gains of $10 million.

See Note 20 for a discussion of acquisitions subsequent to December 31, 2005.

(5)Intangibles

At December 31, 2005 and 2004, intangible lease assets, comprised of lease-up and below market ground lease intangibles, were $38.8 million and $19.7 million, respectively, and are included in intangibles, net in the consolidated balance sheets. The weighted average amortization period of intangibles assets is approximately 12 years.

At December 31, 2005 and 2004, below market lease intangibles, net were $5.3 million and $0.8 million, respectively, and are included in deferred revenue in the consolidated balance sheets. Rental income and operating expense for the year ended December 31, 2005, includes $2.0 million of income and $0.1 million of expense, respectively, of above and below market lease intangibles amortization. There was no amortization of below market lease intangibles in 2004 and 2003. The weighted average amortization period of below market lease intangibles is approximately six years.

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Estimated aggregate amortization of intangible assets and liabilities for each of the five succeeding fiscal years and thereafter is as follows (in thousands):

	Intangible Assets		Intangible Liabilities			Net Intangible Amortization
2006	$	9,044	$	(1,350	)	$	7,694
2007	8,613		(1,241		)	7,372
2008	6,532		(1,059		)	5,473
2009	2,914		(750		)	2,164
2010	1,820		(374		)	1,446
Thereafter	9,881		(508		)	9,373
	$	38,804	$	(5,282	)	$	33,522

(6)Operator Concentration

Tenet Healthcare Corporation (NYSE: THC) and American Retirement Corporation (NYSE: ARC) accounted for 11% and 9%, respectively, of the Company’s revenue in 2005 and accounted for 13% and 12%, respectively, of the Company’s revenue in 2004. The carrying amount of the Company’s real estate assets leased to Tenet and ARC was $343.1 million and $370.7 million, respectively, at December 31, 2005.

These companies are publicly traded and are subject to the informational filing requirements of the Securities and Exchange Act of 1934, as amended. Accordingly, each is required to file periodic reports on Form 10-K and Form 10-Q with the Securities and Exchange Commission.

Certain operators of the Company’s properties are experiencing financial, legal and regulatory difficulties. The loss of a significant operator or a combination of smaller operators could have a material impact on the Company’s financial position or results of operations.

(7)Investments in and Advances to Joint Ventures

HCP Medical Office Portfolio, LLC

HCP Medical Office Portfolio, LLC (“HCP MOP”) is a joint venture formed in June 2003 between the Company and an affiliate of General Electric Company (“GE”). HCP MOP is engaged in the acquisition, development and operation of MOB properties. The Company has a 33% ownership interest therein and is the managing member. Activities of the joint venture requiring equity capital are generally funded on a transactional basis by the members in proportion to their ownership interest. Cash distributions are made to the members in proportion to their ownership interest until GE’s cumulative return, as defined, exceeds specified thresholds. Thereafter, the Company will be entitled to an additional promoted interest.

The Company uses the equity method of accounting for its investment in HCP MOP because it exercises significant influence through voting rights and its position as managing member. However, the Company does not consolidate HCP MOP since it does not control, through voting rights or other means, the joint venture as GE has substantive participating decision making rights and has the majority of the economic interest. The accounting policies of the HCP MOP are the same as those described in the summary of significant accounting policies (see Note 2).

Summarized unaudited condensed consolidated financial information of HCP MOP follows:

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	December 31,
	2005		2004
	(In thousands)
Real estate, at cost	$	390,840	$	367,066
Less accumulated depreciation and amortization	21,342		11,068
Net real estate	369,498		355,998
Real estate held for sale, net	78,811		85,793
Other assets, net	36,790		52,405
Total assets	$	485,099	$	494,196
Mortgage loans and notes payable	$	270,466	$	262,178
Mortgage loans on assets held for sale	58,232		60,381
Other liabilities	21,439		22,220
GE’s capital	90,424		100,109
HCP’s capital	44,538		49,308
Total liabilities and members’ capital	$	485,099	$	494,196

	Year Ended December 31,
	2005			2004		2003
	(In thousands)
Revenue and other income	$	71,107		$	66,383	$	15,937
Net income (loss)	$	(3,829	)	$	4,932	$	3,853
HCP’s equity income (loss)	$	(1,379	)	$	1,537	$	1,694
Fees earned by HCP	$	3,102		$	3,112	$	2,491
Distributions received	$	5,302		$	98,291	$	—

HCP MOP acquired 100 properties from MedCap in October 2003 for cash of $464 million and the assumption of $26 million of mortgage debt that accrues interest at 7%. In connection therewith, the Company contributed $143 million to HCP MOP. In January 2004, HCP MOP completed $288 million of non-recourse mortgage financings, including $254 million at a weighted average fixed interest rate of 5.57% with the balance based on LIBOR plus 1.75%. The Company received $92 million of distributions from HCP MOP in connection with this financing during early 2004.

The Company has not guaranteed any indebtedness or other obligations of HCP MOP. Generally, the Company may only be required to provide additional funding to HCP MOP under limited circumstances as specified in the related agreements. At December 31, 2005 and 2004, investments and advances to unconsolidated joint ventures includes outstanding advances to HCP MOP of $3.7 million and $6.4 million, respectively.

During the year ended December 31, 2005, HCP MOP revised its purchase price allocation related to its 2003 acquisition of certain properties acquired from MedCap Properties, LLC. The revisions made by HCP MOP to the purchase price allocation attributed more value to below-market lease intangibles and other intangibles from real estate assets. Lease intangibles generally amortize over a shorter period of time relative to tangible real estate assets. The impact to net income for HCP MOP, for the year ended December 31, 2005, resulting from the purchase price allocation revisions was a charge of $1.4 million.

In late August and early September 2005, ten medical office buildings owned by HCP MOP, principally in Louisiana and the surrounding area, sustained varying degrees of damage due to hurricanes Katrina and Rita. Due to the nature and extent of the overall damage to the area, the Company has not been able to finalize damage assessments. Preliminary estimates indicate that four of the buildings have incurred substantial damage, and may be a total loss. For the years ended December 31, 2005 and 2004, the four buildings generated revenues of $0.9 million and $1.4 million, respectively. As of December 31, 2005, the $3.8 million carrying value of these four buildings was written off and an equal amount was recorded as a receivable for the expected insurance proceeds up to the carrying value of each building.

At December 31, 2005, the remaining six buildings had resumed operations with repairs underway. Revenues for the six facilities undergoing repair were $5.8 million and $5.9 million for the years ended December 31, 2005, and 2004, respectively.

Repair costs and other related expenses for damages caused by hurricanes Katrina and Rita during the year ended December 31, 2005, were approximately $1.4 million. The Company has property, business interruption and other related

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insurance coverage to mitigate the financial impact of these types of events; such coverage is subject to various limits and deductible provisions based on the terms of the policies. Any excess insurance recovery above the carrying value of the assets is expected to be recognized by HCP MOP as a gain at the time the claims settle with the insurance carrier.

In January and February 2006, HCP MOP sold 21 MOBs with 787,000 of rentable square feet for $50 million, net of estimated transaction costs, and recognized aggregate gains of $8 million. In connection with the sale, approximately $39 million of HCP MOP’s mortgage debt was either repaid or assumed by the purchaser.

Other Unconsolidated Joint Ventures

The Company owns minority interests in the following entities which are accounted for on the equity method at December 31, 2005 (dollars in thousands):

Entity	Investment(1)			Ownership(2)
Arborwood Living Center, LLC	$	756		45	%
Edgewood Assisted Living Center, LLC	(378		)	45	%
Greenleaf Living Centers, LLC	510			45	%
Seminole Shores Living Center, LLC	(628		)	50	%
	$	260

(1)Represents the Company’s investment in the identified unconsolidated joint venture. See Note 2 regarding the Company’s policy for accounting for joint venture interests.

(2)The Company’s ownership interest and economic interests are substantially the same.

On June 30, 2005, the Company sold its minority interests in two joint ventures with American Retirement Corporation (“ARC”) for $6.2 million in exchange for a note collateralized by certain partnership interests of ARC. The note bears interest at 9% per annum and matures June 2010. The gain on sale of $2.4 million was deferred and will be recognized under the installment method of accounting as the principal balance of the note is repaid. These joint ventures were accounted for by the Company under the equity method prior to June 30, 2005.

Summarized unaudited condensed combined financial information for the other unconsolidated joint ventures follows:

	December 31,
	2005		2004(1)
	(In thousands)
Real estate, net	$	14,708	$	117,557
Other assets, net	1,407		1,376
Total assets	$	16,115	$	118,933
Notes payable	$	15,449	$	15,361
Mortgage notes payable	—		15,862
Accounts payable	55		767
Entrance fee liabilities and deferred life estate obligations	—		75,746
Other partners’ capital	351		6,855
HCP’s capital	260		4,342
Total liabilities and partners’ capital	$	16,115	$	118,933

(1)Includes financial information related to two joint ventures with ARC that were sold on June 30, 2005.

	Year Ended December 31,
	2005		2004		2003
	(In thousands)
Revenue and other income	$	4,420	$	13,244	$	12,894
Net income	$	442	$	3,432	$	1,992
HCP’s equity income	$	256	$	620	$	1,195
Distributions received	$	—	$	694	$	1,445

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As of December 31, 2005, the Company has guaranteed approximately $7.2 million of a total of $15.4 million of notes payable for four of these joint ventures.

(8)Loans Receivable

	December 31,
	2005								2004
	Secured		Unsecured			Total			Secured		Unsecured			Total
	(In thousands )
Joint venture partners	$	—	$	7,006		$	7,006		$	5,694	$	779		$	6,473
Other	175,426		6,663			182,089			135,006		7,340			142,346
Loan loss allowance	—		(2,264		)	(2,264		)	—		(2,427		)	(2,427		)
	$	175,426	$	11,405		$	186,831		$	140,700	$	5,692		$	146,392

During 2004, ARC repaid its secured loans and interest thereon, and the Company recognized $4.6 million of additional interest income. The interest income recognized resulted from the reversal of a previously established allowance of $4.6 million that was based on, among other things, the Company’s analysis of the loan to asset value underlying the investment.

In the fourth quarter of 2004, the Company recorded a charge of $1.6 million to increase its loan loss allowance as a result of a borrower who defaulted upon maturity of two notes and a credit assessment of another borrower.

On December 28, 2005, the Company closed a $40 million loan secured by a hospital in Texas. The note bears interest at 8.75% per annum. Subject to certain performance conditions, the Company may fund an additional $10 million under the existing loan agreement.

On February 9, 2006, the Company refinanced two existing loans secured by a hospital in Texas. The loans were combined into a new single loan that bears interest at 8.5% per annum and matures 2016. The original maturity of these loans was January 2006 with a weighted average interest rate of 10.35%.

At December 31, 2005, minimum future principal payments to be received on secured loans receivable are $66.5 million in 2006, $8.8 million in 2007, $2.4 million in 2008, $7.2 million in 2009, $39.8 million in 2010, and $50.7 million thereafter.

Following is a summary of secured loans receivable at December 31, 2005:

Final Payment Due	Number of Loans	Payment Terms	Initial Principal Amount		Carrying Amount
			(In thousands)
2006	3	Monthly payments from $227,000 to $361,000 including interest from 10.19% to 12.20%, these three loans are secured by an acute care hospital located in Texas and one in New Mexico.	$	61,435	$	56,697
2006	1	Monthly payments of $62,000 at 13.5% interest, secured by six assisted living facilities in various states.	9,500		7,433
2007	1	Monthly interest payments of $88,000 and quarterly principal payments of $238,000, including interest of 12.50%. Secured by leasehold interests in nine properties.	13,500		8,289
2010	2	Monthly payments of $183,000 to $348,000, including interest from 10.67% to 11.40%, secured by two assisted living facilities in Colorado, and nine skilled nursing facilities.	53,157		45,654
2008-2015	6	Monthly payments from $8,000 to $292,000, including interest from 7.25% to 12.81%, secured by facilities in several states.	63,914		57,353
	13		$	201,506	$	175,426

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(9)Debt

Senior Unsecured Notes

Following is a summary of senior unsecured notes outstanding at December 31, 2005 (dollars in thousands):

Year Issued	Maturity	Principal Amount		Interest Rate
1996	2006	115,000		6.500	%
1998	2006	20,000		7.875
1997	2007	140,000		7.30 - 7.62
1995	2010	6,421		6.62
2005	2010	200,000		4.875
2002	2012	250,000		6.45
2004	2014	87,000		5.39 - 6.00
2003	2015	200,000		6.00
1998	2015	200,000		7.072
2005	2017	250,000		5.625
		1,468,421
Net discounts		(6,171	)
		1,462,250

In June 2004, the Company issued $25 million in aggregate principal amount of 6.00% fixed rate senior notes due 2014 and $25 million in aggregate principal amount of variable-rate senior notes due 2014. In July 2004, the Company issued $37 million in aggregate principal amount of 6.00% senior notes due 2014. In February 2003, the Company issued $200 million in aggregate principal amount of 6.00% senior notes due 2015.

On April 27, 2005, the Company issued $250 million of 5.625% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%. The Company received proceeds of $247 million, which were used to repay outstanding indebtedness and for general corporate purposes.

Senior unsecured notes at December 31, 2004, included $200 million principal amount of Mandatory Par Put Remarketed Securities (“MOPPRS”), due June 8, 2015. The MOPPRS contained an option (the “MOPPRS Option”) exercisable by the Remarketing Dealer, an investment bank affiliate, which derived its value from the yield on ten-year U.S. Treasury rates relative to a fixed strike rate of 5.565%. Generally, the value of the option to the Remarketing Dealer increased as ten-year Treasury rates declined and the option’s value to the Remarketing Dealer decreased as ten-year Treasury rates increased. On June 3, 2005, the Remarketing Dealer exercised its option to redeem the Company’s $200 million principal amount of 6.875% MOPPRS. The Remarketing Dealer redeemed the securities from the holders at par plus accrued interest, and reissued ten-year senior notes with a coupon of 7.072%. The reissued notes are at an effective interest rate which is higher than what would otherwise have been available if the Company had issued new ten-year notes at par value.

On September 16, 2005, the Company issued $200 million of 4.875% senior unsecured notes due 2010. The notes were priced at 99.567% of the principal amount with an effective yield of 4.974%. The Company received net proceeds of $198 million, which were used to repay outstanding indebtedness and for other general corporate purposes.

During the year ended December 31, 2005, the Company repaid $31 million of maturing senior unsecured notes which accrued interest at a rate of 7.5%. These notes were repaid with funds available under the Company’s bank line of credit.

The weighted average interest rate on the senior unsecured notes at December 31, 2005 and 2004, respectively, was 6.23% and 6.55%. Discounts and premiums are amortized to interest expense over the term of the related debt.

The senior unsecured notes contain certain covenants including limitations on debt and other terms customary in transactions of this type.

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Mortgage Debt

At December 31, 2005, the Company had $236.1 million in mortgage debt secured by 38 healthcare facilities with a carrying amount of $384.5 million. Interest rates on the mortgage notes ranged from 2.75% to 9.32%. At December 31, 2005 and 2004, the weighted-average interest rate on mortgage notes payable was 7.05% and 7.86%, respectively.

The instruments encumbering the properties restrict title transfer of the respective properties subject to the terms of the mortgage, prohibit additional liens, restrict prepayment, require payment of real estate taxes, maintenance of the properties in good condition, maintenance of insurance on the properties and include a requirement to obtain lender consent to enter into material tenant leases.

Bank Line of Credit

In October 2004, the Company closed a $500 million three-year unsecured revolving credit facility. Interest accrues at LIBOR plus 65 basis points, based on the Company’s current credit ratings, with a 15 basis point facility fee. The credit agreement contains certain financial restrictions and requirements customary in transactions of this type. The more significant covenants, using terms defined in the agreements, limit (i) Consolidated Total Indebtedness to Total Asset Value to 60%, (ii) Secured Debt to Total Asset Value to 30%, and (iii) Unsecured Debt to Consolidated Unencumbered Asset Value to 60%. The agreement also requires that the Company maintain (i) a Fixed Charge Coverage Ratio, as defined, of 1.75 times and (ii) a formula-determined Minimum Tangible Net Worth. As of December 31, 2005, the Company was in compliance with each of these restrictions and requirements. The weighted average interest rate on outstanding line of credit borrowings at December 31, 2005 and 2004 was 5.01% and 3.14%, respectively.

Debt Maturities

Debt maturities and scheduled principal payments at December 31, 2005 are as follows (in thousands):

Year	Senior Notes		Mortgage Notes		Bank Line of Credit		Total
2006	$	135,000	$	5,228	$	—	$	140,228
2007	140,000		10,762		258,600		409,362
2008	—		19,922		—		19,922
2009	—		10,814		—		10,814
2010	206,421		65,174		—		271,595
Thereafter	987,000		119,510		—		1,106,510
	$	1,468,421	$	231,410	$	258,600	$	1,958,431

(10)Commitments and Contingencies

The Company, from time to time, is party to legal proceedings, lawsuits and other claims in the ordinary course of the Company’s business. These claims, even if not meritorious, could force the Company to spend significant financial resources. Except as described below, the Company is not aware of any legal proceedings or claims that it believes will have, individually or taken together, a material adverse effect on its business, prospects, financial condition or results of operations.

On September 26, 2005, the Company filed a lawsuit in Superior Court of California, County of San Diego entitled Health Care Property Investors, Inc. v. Fenton Partners, Fenton & Grust, LLC and SRG Holdco, LP. The Company held an option to acquire certain limited partnership units in SRG Holdco, LP. The Company settled this lawsuit on November 11, 2005. The settlement included a payment to the Company of $1.7 million. The Company accounted for the transfer of this financial asset as a sale and recognized a gain of approximately $1.3 million based on the proceeds received less the carrying value of the securities. The net gain from the sale of these securities is included in interest and other income.

One of the Company’s properties located in Tarzana, California is affected by State of California Senate Bill 1953 (SB 1953), which requires certain seismic safety building standards for acute care hospital facilities. This hospital is operated by Tenet under a lease expiring in February 2009. The Company and Tenet are currently reviewing the SB 1953 compliance of this hospital, multiple plans of action to cause such compliance, the estimated time for completing the same, and the cost of performing necessary remediation of the property. We cannot currently estimate the remediation costs that will need to be incurred prior to 2013 in order to make the facility SB 1953-compliant through 2030, and the final allocation of any

31

remediation costs between the Company and Tenet. Rent on the hospital in 2005 and 2004 was $10.8 million and $10.6 million, respectively, and the carrying amount was $76.1 million at December 31, 2005.

Certain residents of two of the Company’s senior housing facilities have entered into a master trust agreement with the operator of the facilities whereby amounts paid upfront by such residents were deposited into a trust account. These funds were then made available to the senior housing operator in the form of a non-interest bearing loan to provide permanent financing for the related communities. The operator of the senior housing is the borrower under these arrangements; however, two of the Company’s properties are collateral under the master trust agreements. As of December 31, 2005, the remaining obligation under the master trust agreements for these two properties is $10.8 million. The Company’s property is released as collateral as the master trust liabilities are extinguished.

On July 28, 2005, in connection with the acquisition of SCCI Healthcare Services Corporation (“SCCI”) by Triumph Healthcare Holdings, Inc. (“Buyer”), the Company sold its securities in SCCI, with a carrying value of zero, and received proceeds of $2.9 million. Pursuant to certain indemnities specified in the related Stock Purchase Agreement (“SPA”), the Company could be required to return or pay to the Buyer a portion of the proceeds received from the sale of its shares in certain circumstances. Specifically, the SPA provides that each seller under the SPA, severally but not jointly, indemnifies Buyer for damages relating to certain legal proceedings, which are defined in the SPA. The SPA generally imposes an aggregate cap on the liability of the sellers for indemnities under the SPA in the amount of $17.5 million, which sum was deposited into escrow at the closing of the sale as a holdback. The Company accounted for the transfer of this financial asset as a sale and recognized a gain of approximately $2.8 million based on the proceeds received less the estimated fair value of the indemnities. The gain from the sale of these securities is included in interest and other income in the Company’s results of operations for the year ended December 31, 2005.

Earn-out Obligations.   Pursuant to the terms of certain acquisition-related agreements, the Company may be obligated to make additional payments (“Earn-outs”) upon the achievement of certain criteria. If it is probable at the time of acquisition of the related properties that the Earn-out criteria will be achieved, the Earn-out payments are accrued. Otherwise, the additional purchase consideration is recognized when the performance criteria are achieved.

General Uninsured Losses.   The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, flood, earthquake and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits and deductibles considering the relative risk of loss, the cost of such coverage and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable. Although the Company has obtained coverage to mitigate the impact of various casualty losses, with policy specifications and insured limits that it believes are commercially reasonable, there can be no assurance that the Company will be able to collect under such policies or that the policies will provide adequate coverage. Should an uninsured loss occur at a property, the Company’s assets may become impaired and the Company may not be able to operate its business at the property for an extended period of time.

Leases with certain tenants contain purchase options whereby the tenant may elect to acquire the underlying real estate. Annualized lease payments to be received from leases subject to purchase options, in the year that these purchase options are exercisable, are summarized as follows (dollars in thousands):

Year	Base Rent		Number of Properties
2006	$	4,166	16
2007	2,075		4
2008	5,063		12
2009	11,089		14
2010	1,390		2
Thereafter	68,891		82
	$	92,674	130

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The Company’s rental expense attributable to continuing operations for the years ended December 31, 2005, 2004 and 2003 was approximately $2.6 million, $1.3 million and $0.6 million, respectively. These rental expense amounts include ground rent and other leases. Future minimum lease obligations under non-cancelable ground leases as of December 31, 2005 were as follows (in thousands):

Year	Amount
2006	$	1,353
2007	1,377
2008	1,400
2009	1,424
2010	1,450
Thereafter	117,760
Total	$	124,764

(11)Derivative Financial Instruments

In July 2005, the Company entered into three interest-rate swap contracts that are designated as hedging the variability in expected cash flows for variable rate debt assumed in connection with the acquisition of a portfolio of real estate assets in July 2005. The cash flow hedges have a notional amount of $45.6 million and expire in July 2020. The fair value of these contracts at December 31, 2005, was $0.4 million and is included in other assets. For the year ended December 31, 2005, the Company recognized increased interest expense of $0.2 million attributable to the contracts. The Company determined that these swap agreements were highly effective in offsetting future variable-interest cash flows related to the assumed mortgages. The effective portion of gains and losses on these contracts is recognized in accumulated other comprehensive income (loss) whereas the ineffective portion is recognized in earnings. During the year ended December 31, 2005, there was no ineffective portion related to these hedges.

(12)Stockholders’ Equity

Common Stock

Dividends on the Company’s common stock are characterized for federal income tax purposes as taxable ordinary income, capital gain distributions, nontaxable distributions or a combination thereof. Following is the characterization of the Company’s annual common stock dividends per share:

	Year Ended December 31,
	2005		2004		2003
Taxable ordinary income	$	1.0492	$	1.0730	$	1.0913
Capital gain distribution	0.0300		—		—
Nontaxable distribution	0.6008		0.5970		0.5687
	$	1.6800	$	1.6700	$	1.6600

During 2005 and 2004, the Company issued 0.9 million shares of common stock under its Dividend Reinvestment and Stock Purchase Plan (DRIP) in each year. The Company issued 1.4 million shares upon exercise of stock options in each of the years ended December 31, 2005 and 2004.

On February 6, 2006, the Company announced that its Board declared a quarterly cash dividend of $0.425 per share. The common stock cash dividend will be paid on February 23, 2006 to stockholders of record as of the close of business on February 13, 2006.

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Preferred Stock

The Series E and Series F preferred stock have no stated maturity, are not subject to any sinking fund or mandatory redemption and are not convertible into any other securities of the Company. Dividends are payable quarterly in arrears. The following summarizes cumulative redeemable preferred stock outstanding at December 31, 2005:

Series	Shares Outstanding	Issue Price		Dividend Rate		Callable at Par on or After
Series E	4,000,000	$	25/share	7.25	%	September 15, 2008
Series F	7,820,000	$	25/share	7.10	%	December 3, 2008

Dividends on preferred stock are characterized as ordinary income, capital gains, or a combination thereof for federal income tax purposes and are summarized in the following annual distribution table:

			Annual Dividends Per Share
	Dividend		Capital Gain Distribution		Ordinary Income
	Rate		2005		2005		2004		2003
Series A	7.875	%	$	—	$	—	$	—	$	1.3672
Series B	8.700	%	—		—		—		1.6251
Series C	8.600	%	—		—		—		0.7243
Series E	7.250	%	0.0504		1.7621		1.8125		0.5337
Series F	7.100	%	0.0493		1.7257		1.9180		—

On September 15, 2003, the Company issued 4,000,000 shares of 7.25% Series E Cumulative Redeemable Preferred Stock at $25 per share, generating gross proceeds of $100 million.

On December 3, 2003, the Company issued 7,820,000 shares of 7.10% Series F Cumulative Redeemable Preferred Stock at $25 per share, raising gross proceeds of $195.5 million.

On May 2, 2003, the Company redeemed all of the outstanding 8.6% Series C preferred stock. The amount paid to redeem the preferred stock was approximately $99.4 million plus accrued dividends. The redemption amount in excess of the carrying amount of the Series C preferred stock resulted in a preferred stock redemption charge of $11.8 million.

On September 10, 2003, the Company redeemed all of the outstanding 7.875% Series A preferred stock. The amount paid to redeem the Series A preferred stock was approximately $60 million plus accrued dividends. The redemption amount in excess of the carrying amount of the Series A preferred stock resulted in a preferred stock redemption charge of $2.2 million.

On October 1, 2003, the Company redeemed all of the 8.7% Series B preferred stock. The amount paid to redeem the Series B preferred stock was approximately $133.6 million plus accrued dividends. The redemption amount in excess of the carrying amount of the Series B preferred stock resulted in a preferred stock redemption charge of $4.6 million.

On January 2006, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.45313 per share on its Series E cumulative redeemable preferred stock and $0.44375 per share on its Series F cumulative redeemable preferred stock. These dividends will be paid on March 31, 2006 to stockholders of record as of the close of business on March 15, 2006.

Accumulated Other Comprehensive (Income) Loss (“AOCI”) and Other Equity

	December 31,
	2005			2004
Unamortized balance of deferred compensation	$	8,464		$	8,786
AOCI—unrealized gains on securities available for sale	(1,080		)	—
AOCI—unrealized gains on cash flow hedges	(388		)	—
Supplemental Executive Retirement Plan (“SERP”) minimum liability	2,316			2,168
Total other equity	$	9,312		$	10,954

34

Other comprehensive income and losses are additions to and reductions of net income, respectively, in calculating comprehensive income. Comprehensive income for the years ended December 31, 2005 and 2004 was $174.4 million and $167.2 million, respectively.

(13)Impairments

During 2005, no properties were determined to be impaired in connection with an assessment of the underlying undiscounted cash flows or as a result of the Company’s intent to dispose of the asset. During 2004 and 2003, 16 and 15 properties respectively, were deemed impaired resulting in impairment charges of $17.1 million and $14.0 million, respectively. Impairment charges principally arose as a result of reduced anticipated holding periods and planned near-term dispositions.

Impairment charges are summarized as follows:

	Year Ended December 31,
	2005		2004		2003
	(In thousands)
Continuing operations	$	—	$	1,305	$	2,090
Discontinued operations	—		15,762		11,902
	$	—	$	17,067	$	13,992

(14)Supplemental Cash Flow Information

Supplemental Cash Flow Information

	Year Ended December 31,
	2005		2004		2003
	(In thousands)
Interest paid, net of capitalized interest and other	$	99,862	$	87,168	$	87,653
Taxes paid	106		1,716		124
Capitalized interest	637		1,650		1,210
Mortgages assumed on acquired properties	113,484		81,386		—
Mortgages included with real estate dispositions	—		31,397		—
Loans received upon sale of unconsolidated joint venture investments	6,228		—		—
Non-managing member units issued in connection with acquisitions	30,398		1,086		48,181
Loans receivable settled in connection with real estate acquisitions	—		94,768		36,953
Accrued dividends	—		1,118		(1,118		)
Restricted stock issued, net of cancellations	2,744		1,751		6,280
Conversion of non-managing member units into common stock	2,601		4,777		4,442

(15)Earnings Per Common Share

The Company computes earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is calculated including the effect of dilutive securities. Approximately 0.9 million, 1.0 million and 1.0 million options to purchase shares of common stock that had an exercise price in excess of the average market price of the common stock during 2005, 2004 and 2003 were not included because they are not dilutive. Additionally, 6.0 million shares issuable upon conversion of 3.4 million non-managing member units in 2005, 5.1 million shares issuable upon conversion of 2.5 million non-managing member units in 2004 and 5.4 million shares issuable upon the conversion of 2.7 million non-managing member units in 2003 were not included since they are anti-dilutive.

35

	2005						2004						2003
	Income		Shares	Per Share			Income		Shares	Per Share			Income		Shares	Per Share
	(In thousands, except per share amounts)
Basic earnings per common share:
Net income applicable to common shares	$	151,927	134,673	$	1.13		$	147,910	131,854	$	1.12		$	121,849	124,942	$	0.98
Dilutive options and unvested restricted stock	—		887	(0.01		)	—		1,508	(0.01		)	—		1,188	(0.01		)
Diluted earnings per common share	$	151,927	135,560	$	1.12		$	147,910	133,362	$	1.11		$	121,849	126,130	$	0.97

(16)Disclosures About Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, receivables, payables, and accrued liabilities are reasonable estimates of fair value because of the short maturities of these instruments. Fair values for secured loans receivable, senior unsecured notes and mortgage debt are estimates based on rates currently prevailing for similar instruments of similar maturities. The fair values of the interest rate swaps and the MOPPRS Option were determined through estimates provided by investment bank affiliates. The fair values of the available for sale securities were determined based on market quotes.

	December 31,
	2005						2004
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(In thousands)
Secured loans receivable	$	175,426		$	202,695		$	140,700		$	161,960
Senior unsecured notes and mortgage debt	(1,698,346		)	(1,750,559		)	(1,183,961		)	(1,269,234		)
Available for sale securities	6,333			6,333			—			—
Interest rate swaps	388			388			—			—
MOPPRS option	—			—			(3,230		)	(20,000		)

(17)Compensation Plans

Stock Based Compensation

The Company’s 2000 Stock Incentive Plan (the “Incentive Plan”) provides for the granting of stock based compensation, including stock options, restricted stock, and performance restricted stock units. The maximum number of shares issuable over the term of the Incentive Plan is 11.4 million shares with approximately 4.9 million shares available for future awards at December 31, 2005, of which approximately 262,700 shares may be issued as restricted stock and performance restricted stock units.

36

Stock Options

Stock options are generally granted with an exercise price equal to the fair market value of the underlying stock on the date of grant. Stock options generally vest ratably over a five-year period. Vesting of certain options may accelerate upon retirement, a change in control of the Company, as defined, and other events. A summary of the option activity is presented in the following table (in thousands, except per share amounts):

	Number of Shares		Weighted Average Exercise Price		Number of Options Exercisable	Weighted Average Exercise Price
Balance at January 1, 2003	7,538		$	15	2,074	$	17
Granted	1,068		19
Exercised	(2,576	)	16
Forfeited	(669	)	15
Balance at December 31, 2003	5,361		16		921	$	15
Granted	1,011		27
Exercised	(1,446	)	15
Forfeited	(645	)	15
Balance at December 31, 2004	4,281		19		1,277	$	17
Granted	1,175		25
Exercised	(1,436	)	16
Forfeited	(158	)	21
Balance at December 31, 2005	3,862		22		1,157	$	19

A summary of stock options outstanding at December 31, 2005, is presented in the following table (in thousands, except per share and life data).

Options Outstanding						Options Exercisable
Number	Exercise Price		Weighted Average Exercise Price		Weighted Average Remaining Life	Number	Weighted Average Exercise Price
481	$	12-16	$	14	4 years	266	$	15
611	17-18		18		6 years	338	18
485	19-22		19		6 years	301	19
2,285	23-28		26		9 years	252	26
3,862	12-28		23		7 years	1,157	19

The weighted average fair value per share at the dates of grant for options awarded during 2005, 2004 and 2003 was $1.87, $1.79 and $0.91, respectively. At December 31, 2005, the remaining unamortized cost of stock options was $3.2 million. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions underlying the determination of such fair values for options granted are summarized as follows:

	2005		2004		2003
Dividend yield	7.5	%	7.5	%	8.7	%
Expected life—years	6.5		5		10
Risk-free interest rate	3.71	%	2.78	%	3.99	%
Expected stock price volatility	20	%	20	%	20	%

Restricted Stock and Performance Restricted Stock Units

Under the Incentive Plan, restricted stock and performance restricted stock units generally vest over a three to five year period. The vesting of certain restricted shares and units may accelerate upon retirement, a change in control of the Company, as defined, and other events. When vested, each performance restricted stock unit is convertible into one share of common stock. The restricted stock and performance restricted stock units are valued on the grant date based on the market price of a common share on that date. Generally, the Company recognizes the fair value of the awards over the applicable vesting period as compensation expense. At December 31, 2005, there were 0.5 million unvested shares of restricted stock and 0.5

37

million performance restricted stock units outstanding, with no units vested and convertible into common stock. At December 31, 2005, the remaining unamortized cost of restricted stock and performance restricted stock units was $8.5 million and $7.9 million, respectively. The following table summarizes awards for restricted stock and performance restricted stock units (in thousands):

	Year Ended December 31,
	2005			2004			2003
	Shares	Fair Value		Shares	Fair Value		Shares	Fair Value
Performance restricted stock units	292	$	7,438	122	$	3,346	113	$	837
Restricted stock	117	3,047		124	3,279		334	7,145

Employee Benefit Plan

The Company maintains a 401(k) and profit sharing plan that allows for eligible participants to defer compensation, subject to certain limitations imposed by the Code. The Company provides a matching contribution of up to 4% of each participant’s eligible compensation. During 2005, 2004 and 2003, the Company’s matching contributions have been approximately $0.2 million in each year.

(18)Segment Disclosures

The Company’s business consists of financing and leasing healthcare-related real estate. The Company evaluates its business and makes resource allocations on its two business segments—triple-net leased and medical office buildings segments. Under the triple-net leased segment, the Company invests in healthcare-related real estate through acquisition and secured financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases. Under the medical office buildings segment, the Company acquires medical office buildings that are primarily leased under gross or modified gross leases, and generally require a greater level of property management. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (See Note 2). There are no intersegment sales or transfers. The Company evaluates performance based upon property net operating income of the combined properties in each segment.

Non-segment revenue consists mainly of interest on unsecured loans and other fee income. Non-segment assets consist of corporate assets including cash, restricted cash, accounts receivable, net and deferred financing costs. Interest expense, depreciation and amortization, and other non-property specific revenues and expenses are not allocated to individual segments in determining the Company’s performance measure.

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

For the year ended December 31, 2005:

Segments	Rental Revenues		Equity Income (Loss)			Interest and Other		Total Revenues		NOI(1)
Triple-net leased
Senior housing facilities	$	112,346	$	256		$	3,160	$	115,762	$	103,459
Hospital	91,122		—			6,065		97,187		91,122
Skilled nursing facilities	77,684		—			5,814		83,498		77,684
Other healthcare facilities	25,466		—			—		25,466		20,275
Total triple-net leased	306,618		$	256		$	15,039	$	321,913	$	292,540
Medical office buildings	126,898		(1,379		)	—		125,519		81,993
Non-segment revenues and other income	—		—			11,115		11,115		—
Total	$	433,516	$	(1,123	)	$	26,154	$	458,547	$	374,533

38

For the year ended December 31, 2004:

Segments	Rental Revenues		Equity Income (Loss)		Interest and Other		Total Revenues		NOI(1)
Triple-net leased
Senior housing facilities	$	84,569	$	620	$	15,516	$	100,705	$	78,069
Hospital	89,185		—		6,270		95,455		89,185
Skilled nursing facilities	71,018		—		6,440		77,458		71,018
Other healthcare facilities	24,438		—		—		24,438		18,713
Total triple-net leased	$	269,210	$	620	$	28,226	$	298,056	$	256,985
Medical office buildings	93,725		1,537		—		95,262		63,465
Non-segment revenues and other income	—		—		7,835		7,835		—
Total	$	362,935	$	2,157	$	36,061	$	401,153	$	320,450

For the year ended December 31, 2003:

Segments	Rental Revenues		Equity Income (Loss)		Interest and Other		Total Revenues		NOI(1)
Triple-net leased:
Senior housing facilities	$	54,791	$	1,195	$	25,404	$	81,390	$	47,314
Hospital	90,784		—		6,447		97,231		90,784
Skilled nursing facilities	60,320		—		8,186		68,506		60,320
Other healthcare facilities	17,510		—		—		17,510		14,131
Total triple net leased:	$	223,405	$	1,195	$	40,037	$	264,637	$	212,549
Medical office buildings	76,569		1,694		—		78,263		53,129
Non-segment revenues and other income	—		—		7,776		7,776		—
Total	$	299,974	$	2,889	$	47,813	$	350,676	$	265,678

(1)Net Operating Income from Continuing Operations (“NOI”) is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate properties. The Company defines NOI as rental revenues, including tenant reimbursements, less property level operating expenses, which exclude depreciation and amortization, general and administrative expenses, impairments, interest expense and discontinued operations. The Company believes NOI provides investors relevant and useful information because it measures the operating performance of the Company’s real estate at the property level on an unleveraged basis. The Company uses NOI to make decisions about resource allocations and assess property level performance. The Company believes that net income is the most directly comparable GAAP measure to NOI. NOI should not be viewed as an alternative measure of operating performance to net income as defined by GAAP since it does not reflect the aforementioned excluded items. Further, NOI may not be comparable to that of other real estate investment trusts, as they may use different methodologies for calculating NOI.

The following is a reconciliation from NOI to reported net income, a financial measure under GAAP (in thousands):

	Years ended December 31,
	2005			2004			2003
Net operating income from continuing operations	$	374,533		$	320,450		$	265,678
Equity income (loss) from unconsolidated joint ventures	(1,123		)	2,157			2,889
Interest and other income	26,154			36,061			47,813
Interest expense	(107,201		)	(87,561		)	(88,297		)
Depreciation and amortization	(103,579		)	(81,440		)	(67,903		)
General and administrative	(32,012		)	(36,649		)	(22,486		)
Impairments	—			(1,305		)	(2,090		)
Minority interests	(12,950		)	(12,204		)	(9,751		)
Total discontinued operations	29,235			29,531			32,732
Net income	$	173,057		$	169,040		$	158,585

39

The Company’s total assets by segment were:

	As of December 31,
Segments	2005			2004
Triple-net leased:
Senior housing facilities	$	1,305,971		$	926,663
Hospital	809,930			787,624
Skilled nursing facilities	701,687			710,535
Other healthcare facilities	239,364			210,168
Total triple-net leased assets	$	3,056,952		$	2,634,990
Medical office building assets	1,034,651			881,020
Gross segment assets	4,091,603			3,516,010
Accumulated depreciation and amortization	(615,845		)	(528,901		)
Net segment assets	3,475,758			2,987,109
Non-segment assets	121,507			117,417
Total assets	$	3,597,265		$	3,104,526

(19)Transactions with Related Parties

Mr. Fanning, a director of the Company, on January 1, 2004, had remaining balances on loans from the Company of $107,938 with an interest rate of 5.55% due on April 8, 2004 and $127,690 with an interest rate of 3.85% due on April 9, 2005. Mr. Fanning paid both loans in full on April 5, 2004. The loans were made for the purpose of purchasing shares upon option exercise and such loans were secured by the common stock of the Company. The authority of the Company to maintain such loans was “grandfathered” under the Exchange Act, as amended by Section 402 of the Sarbanes-Oxley Act of 2002.

Mr. Flaherty, Chairman and Chief Executive Officer, of the Company, is a director of Quest Diagnostics Incorporated (“Quest”). During 2005, Quest made payments of approximately $0.5 million to the Company or its affiliates for the lease of medical office space at 14 locations. The leases for 12 of those locations were initially entered into by the predecessor landlord prior to the Company’s ownership of the particular medical office building with eight of those leases entered into before Mr. Flaherty became an employee and director of the Company and a director of Quest.

Mr. McKee, a director of the Company, is Vice Chairman and Chief Operating Officer of The Irvine Company. During each of 2005, 2004 and 2003, the Company made payments of approximately $0.6 million, $0.5 million and $0.5 million, respectively, to The Irvine Company for the lease of office space.

Mr. Messmer, a director of the Company, is Chairman and Chief Executive Officer of Robert Half International Inc. During 2005, 2004 and 2003, the Company made payments of approximately $0.1 million, $1.1 million and $0.1 million, respectively, to Robert Half International Inc. and certain of its subsidiaries for services including placement of temporary and permanent employees and Sarbanes-Oxley compliance consultation.

Mr. Rhein, a director of the Company, is a director of Cohen & Steers, Inc. Cohen & Steers Capital Management, Inc., a wholly owned subsidiary of Cohen & Steers, Inc., is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940. As of December 31, 2005, mutual funds managed by Cohen & Steers Capital Management, Inc., in the aggregate, owned 6.2% of the Company’s common stock.

Mr. Sullivan, a director of the Company, was a director of SCCI prior to July 28, 2005 and is a director of Covenant Care, Inc. During 2005, 2004 and 2003, SCCI made payments of approximately $0.9 million, $1.0 million and $1.3 million, respectively, to the Company for a lease and a loan, which loan was paid in full in July 2004, related to two of its hospital properties, and Covenant Care, Inc. made payments of approximately $8.0 million, $7.9 million and $7.6 million, respectively, to the Company for the lease of certain of its nursing home properties. Prior to July 28, 2005, the Company also owned certain preferred convertible securities in SCCI. On July 28, 2005, in connection with the acquisition of SCCI by Triumph Healthcare Holdings, Inc., the Company sold its securities in SCCI, and received proceeds of $2.9 million. The acquisition of the convertible securities in SCCI and the agreements that required payment to the Company from SCCI and Covenant Care were entered into prior to Mr. Sullivan being elected a director of the Company.

40

Pursuant to the original purchase agreement dated October 2, 2003, the Company paid $9.8 million during the year ended December 31, 2005, in additional purchase consideration in the form of an earn-out to the former members of MedCap Properties, LLC related to the Company’s 2003 acquisition of four MOBs that were under development at the time of acquisition. The amounts paid included $3.7 million paid to former members who are now senior officers of the Company. At the time that the original purchase agreement was entered into, the former members were not officers of the Company.

Notwithstanding these matters, the Board of Directors of the Company has determined, in accordance with the categorical standards adopted by the Board, that each of Messrs. McKee, Messmer, Rhein and Sullivan is independent within the meaning of the rules of the New York Stock Exchange.

See Note 10 for a discussion of the sale of the Company’s securities in SCCI.

(20)Subsequent Events

The following events occurred subsequent to December 31, 2005, through February 10, 2006.

On January 4, 2006, the Company acquired five medical office buildings for $41 million. The medical office buildings include approximately 216,000 rentable square feet and have an initial yield of 7.7%.

On February 8, 2006, the Company acquired four laboratory, office and biotech manufacturing buildings located in San Diego, California for $31 million. The initial yield is 6.0%, with the stabilized yield expected to be 8.3%. The buildings include approximately 158,000 rentable square feet.

(21)Selected Quarterly Financial Data (Unaudited)

	Three Months Ended During 2005
	March 31		June 30		September 30		December 31
	(In thousands, except share data)
Revenue	$	103,047	$	113,291	$	119,224	$	122,986
Gain from real estate dispositions, net of impairments	4,738		4,166		273		979
Net income applicable to common shares	38,175		37,764		39,759		36,229
Dividends paid per common share	0.42		0.42		0.42		0.42
Basic earnings per common share	0.29		0.28		0.29		0.27
Diluted earnings per common share	0.28		0.28		0.29		0.27

	Three Months Ended During 2004
	March 31		June 30			September 30			December 31
	(In thousands, except share data)
Revenue	$	89,445	$	98,571		$	104,081		$	109,055
Gain (loss) from real estate dispositions, net of impairments	9,008		(2,176		)	(6,036		)	4,527
Net income applicable to common shares	41,552		36,302			29,208			40,848
Dividends paid per common share	0.4175		0.4175			0.4175			0.4175
Basic earnings per common share	0.32		0.28			0.22			0.31
Diluted earnings per common share	0.31		0.27			0.22			0.30

Results of operations for properties sold or to be sold have been classified as discontinued operations for all periods presented.

41

Health Care Property Investors, Inc.
Schedule III: Real Estate and Accumulated Depreciation
December 31, 2005
(Dollars in Thousands)

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Senior housing
Birmingham	AL	$	—		$	1,200	$	8,023	$	9,223	$	(1,635	)	1999	45
Mesa	AZ				880		3,679		4,559		(562		)	2003	30
Phoenix	AZ				473		4,478		4,951		(1,400		)	1995	35
Tucson	AZ				2,350		24,037		26,387		(1,803		)	2003	30
Auburn	CA	—			540		8,309		8,849		(1,302		)	2001	40
Concord	CA	(25,000		)	6,010		38,637		44,647		(507		)	2005	40
Dana Point	CA	—			1,960		16,144		18,104		(207		)	2005	40
Escondido	CA	—			627		4,951		5,578		(396		)	2004	20
Escondido	CA	(14,340		)	5,090		24,619		29,709		(328		)	2005	40
Fairfield	CA	—			149		2,835		2,984		(659		)	1997	35
Fremont	CA	—			2,360		11,855		14,215		(161		)	2005	40
Granada Hills	CA	—			2,200		18,493		20,693		(242		)	2005	40
Lodi	CA	—			732		5,907		6,639		(1,590		)	1998	35
Murietta	CA	—			435		5,934		6,369		(1,331		)	1999	35
Ontario	CA	—			174		4,622		4,796		(1,183		)	1997	35
Pleasant Hill	CA	(6,270		)	2,480		21,569		24,049		(280		)	2005	40
South San Francisco	CA	—			3,000		16,291		19,291		(211		)	2005	40
Stockton	CA	—			505		3,977		4,482		(411		)	2004	15
Ventura	CA	—			2,030		17,644		19,674		(233		)	2005	40
Denver	CO	—			2,810		36,021		38,831		(2,702		)	2003	30
Torrington	CT	—			166		11,251		11,417		(257		)	2005	40
Dover	DE	—			380		4,147		4,527		(1,316		)	1995	35
Altamonte Springs	FL	—			1,530		7,956		9,486		(885		)	2002	40
Altamonte Springs	FL	—			394		3,124		3,518		(167		)	2004	35
Boynton Beach	FL	—			1,270		5,232		6,502		(598		)	2003	40
Casselberry	FL	—			540		1,550		2,090		(395		)	1998	35
Clearwater	FL	—			2,250		3,207		5,457		(544		)	2002	40
Clearwater	FL	—			3,856		12,446		16,302		(299		)	2005	40
Delray Beach	FL	—			850		5,257		6,107		(651		)	2002	45
Englewood	FL	—			1,240		9,841		11,081		(514		)	2004	35
Jacksonville	FL	—			3,250		26,786		30,036		(3,416		)	2002	35
Lakeland	FL	—			300		3,332		3,632		(50		)	2005	25
New Port Richey	FL	—			1,575		12,463		14,038		(585		)	2004	40
New Port Richey	FL	—			540		7,021		7,561		(100		)	2005	25
Ocala	FL	—			522		5,420		5,942		(1,004		)	1999	45
Ocala	FL	—			1,010		7,453		8,463		(135		)	2005	20
Ocoee	FL	—			2,096		9,540		11,636		(231		)	2005	40
Pinellas Park	FL	—			480		4,251		4,731		(1,430		)	1996	35
Port Orange	FL	—			2,340		10,158		12,498		(237		)	2005	40
St. Augustine	FL	—			830		11,851		12,681		(138		)	2005	35

42

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Sun City Center	FL	$	—		$	510	$	6,120	$	6,630	$	(328	)	2004	35
Sun City Center	FL	—			3,466		70,810		74,276		(3,247		)	2004	35
Tampa	FL	—			600		6,225		6,825		(1,512		)	1999	45
Venice	FL	—			360		7,906		8,266		(137		)	2005	20
Winter Haven	FL	—			390		607		997		(436		)	1989	45
Zephyrhills	FL	—			460		3,355		3,815		(777		)	1998	35
Cedar Rapids	IA	—			440		3,496		3,936		(180		)	2004	35
Boise	ID	—			150		3,197		3,347		(515		)	1999	35
Lewiston	ID	—			767		6,079		6,846		(282		)	2004	40
Anderson	IN	—			500		6,375		6,875		(1,023		)	1999	35
Evansville	IN	—			500		8,171		8,671		(1,339		)	2000	45
Jeffersonville	IN	—			160		1,341		1,501		(148		)	2003	40
Mission	KS	—			340		9,517		9,857		(1,069		)	2002	35
Overland Park	KS	—			750		8,241		8,991		(1,589		)	2000	45
Wichita	KS	—			220		4,422		4,642		(2,093		)	1986	40
Lexington	KY	(8,010		)	2,093		16,917		19,010		(997		)	2004	30
Alexandria	LA	—			393		5,262		5,655		(1,157		)	1997	45
Lafayette	LA	—			433		5,259		5,692		(1,142		)	1997	45
Lake Charles	LA	—			454		5,583		6,037		(1,214		)	1997	45
Auburn	MA	—			1,281		10,153		11,434		(471		)	2004	40
Westminster	MD	—			768		5,619		6,387		(1,517		)	1999	45
Cape Elizabeth	ME	—			630		3,957		4,587		(443		)	2003	40
Saco	ME	—			80		2,688		2,768		(265		)	2003	40
Holland	MI	(16,375		)	787		51,410		52,197		(2,916		)	2004	30
Sterling Height	MI	—			920		7,326		8,246		(907		)	2001	35
Biloxi	MS	—			480		5,856		6,336		(968		)	2001	40
Bozeman	MT	—			982		7,776		8,758		(360		)	2004	40
Hendersonville	NC	—			100		1,836		1,936		(621		)	1996	35
Hendersonville	NC	—			320		7,902		8,222		(2,504		)	1996	35
Glassboro	NJ	—			162		2,875		3,037		(741		)	1997	35
Hillsborough	NJ	—			1,042		10,260		11,302		(231		)	2005	40
Manahawkin	NJ	—			921		10,187		11,108		(231		)	2005	40
Vineland	NJ	—			177		2,897		3,074		(761		)	1997	35
Voorhees Township	NJ	—			380		6,360		6,740		(1,927		)	1995	35
Voorhees Township	NJ	—			900		7,968		8,868		(1,496		)	1999	45
Albuquerque	NM	—			767		9,324		10,091		(2,235		)	1997	45
Las Vegas	NV	—			1,960		5,916		7,876		(91		)	2005	40
Painted Post	NY	—			150		3,939		4,089		(1,307		)	1995	35
Cincinnati	OH	—			600		4,428		5,028		(548		)	2001	35
Cleveland	OH	—			1,310		5,798		7,108		(799		)	2002	40
Allentown	PA	—			115		4,882		4,997		(1,576		)	1995	35
Latrobe	PA	—			50		9,008		9,058		(2,791		)	1995	35
Easley	SC	—			510		13,087		13,597		(4,110		)	1996	35
Georgetown	SC	—			239		3,136		3,375		(567		)	1999	45
Lancaster	SC	—			84		3,120		3,204		(499		)	2000	45

43

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Rock Hill	SC	$	—		$	203	$	2,908	$	3,111	$	(607	)	1999	45
Spartanburg	SC	—			535		17,769		18,304		(5,217		)	1996	35
Sumter	SC	—			196		2,866		3,062		(626		)	1999	45
Jackson	TN	—			200		2,310		2,510		(969		)	1999	35
Austin	TX	—			2,960		41,645		44,605		(3,123		)	2003	30
Beaumont	TX	—			145		10,404		10,549		(2,429		)	1996	45
Carthage	TX	—			83		1,486		1,569		(443		)	1995	35
Conroe	TX	—			167		1,885		2,052		(527		)	1996	35
Dallas	TX	—			330		7,058		7,388		—			2005	35
El Paso	TX	—			470		8,053		8,523		(2,420		)	1997	35
El Paso	TX	—			300		4,052		4,352		(710		)	1999	35
Fort Worth	TX	—			2,830		50,832		53,662		(3,812		)	2003	30
Friendswood	TX	—			400		7,675		8,075		(797		)	2002	45
Gun Barrel	TX	—			34		1,553		1,587		(462		)	1995	35
Houston	TX	—			835		7,195		8,030		(1,219		)	1998	45
Houston	TX	—			2,470		22,560		25,030		(2,963		)	2002	35
Irving	TX	—			710		10,126		10,836		—			2005	35
Lubbock	TX	—			197		2,467		2,664		(689		)	1996	35
Mesquite	TX	—			100		2,466		2,566		(689		)	1996	35
Odessa	TX	—			200		4,052		4,252		(732		)	1999	35
San Antonio	TX	—			180		9,429		9,609		(2,772		)	1997	35
San Antonio	TX	—			632		7,182		7,814		(1,603		)	1997	45
San Antonio	TX	—			730		4,276		5,006		(566		)	2002	45
San Marcos	TX	—			190		3,571		3,761		(1,138		)	1997	35
Sherman	TX	—			145		1,516		1,661		(452		)	1995	35
Temple	TX	—			96		2,138		2,234		(561		)	1997	35
Victoria	TX	—			175		4,292		4,467		(1,201		)	1996	43
Woodbridge	VA	—			950		7,158		8,108		(1,349		)	1998	45
Everett	WA	—			314		3,376		3,690		(1,156		)	1995	35
Kirkland	WA	(6,395		)	1,000		13,562		14,562		(170		)	2005	40
Puyallup	WA	—			1,088		8,630		9,718		(400		)	2004	40
Renton	WA	—			231		2,877		3,108		(974		)	1995	35
Shoreline	WA	—			1,590		10,800		12,390		(144		)	2005	40
Shoreline	WA	—			4,030		23,727		27,757		(308		)	2005	40
Walla Walla	WA	—			300		5,282		5,582		(933		)	1999	35
Total senior housing		$	(76,390	)	$	115,141	$	1,144,080	$	1,259,221	$	(122,323	)
Medical office buildings
Cullman	AL	—			—		13,047		13,047		—			2005	40
Cullman	AL	—			—		12,350		12,350		—			2005	35
Chandler	AZ	—			3,669		13,920		17,589		(463		)	2004	40
Oro Valley	AZ	—			1,050		6,774		7,824		(818		)	2001	45
Phoenix	AZ	—			780		3,611		4,391		(666		)	1999	35
Phoenix	AZ	—			280		877		1,157		(84		)	2001	45
Tucson	AZ	—			215		6,318		6,533		(891		)	2001	35
Tucson	AZ	—			215		4,064		4,279		(291		)	2003	45
Murietta	CA	—			402		9,670		10,072		(1,862		)	1999	35

44

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Poway	CA	$	—		$	2,700	$	10,908	$	13,608	$	(2,994	)	1997	35
San Diego	CA	—			2,900		5,959		8,859		(2,519		)	1997	35
San Diego	CA	(7,869		)	2,863		8,971		11,834		(3,326		)	1997	35
San Diego	CA	—			4,619		21,006		25,625		(7,475		)	1997	35
San Diego	CA	(3,836		)	1,650		4,192		5,842		(920		)	1999	35
San Diego	CA	—			2,910		17,362		20,272		(3,059		)	1999	35
San Jose	CA	—			1,935		2,110		4,045		(366		)	2003	36
San Jose	CA	—			1,460		6,095		7,555		59			2003	36
Valencia	CA	—			2,309		6,689		8,998		(1,429		)	1999	35
West Hills	CA	—			2,100		11,071		13,171		(2,464		)	1999	35
Aurora	CO	—			—		6,563		6,563		—			2005	*
Conifer	CO	(942		)	—		1,633		1,633		(12		)	2005	40
Englewood	CO	(6,258		)	—		9,996		9,996		(123		)	2005	35
Englewood	CO	—			—		9,666		9,666		(142		)	2005	35
Englewood	CO	(5,644		)	—		9,260		9,260		(108		)	2005	35
Englewood	CO	(5,207		)	—		10,015		10,015		(112		)	2005	35
Littleton	CO	(2,931		)	—		5,330		5,330		(75		)	2005	35
Littleton	CO	(3,291		)	—		5,584		5,584		(62		)	2005	40
Lone Tree	CO	—			—		17,732		17,732		(673		)	2004	40
Thornton	CO	—			236		10,219		10,455		(966		)	2001	45
Atlantis	FL	(1,778		)	4		5,785		5,789		(1,096		)	1999	35
Atlantis	FL	(1,495		)	—		1,987		1,987		(350		)	1999	35
Atlantis	FL	—			—		2,018		2,018		(351		)	1999	35
Orlando	FL	—			2,144		5,640		7,784		(693		)	2003	36
Brownsburg	IN	—			430		790		1,220		(158		)	1998	35
Indianapolis	IN	—			520		2,034		2,554		(413		)	1998	35
Indianapolis	IN	—			1,278		9,887		11,165		(2,000		)	1998	35
Indianapolis	IN	—			700		3,554		4,254		(720		)	1998	35
Indianapolis	IN	—			1,200		6,592		7,792		(1,342		)	1998	35
Indianapolis	IN	—			944		3,037		3,981		(745		)	1998	35
Indianapolis	IN	—			1,754		5,834		7,588		(1,379		)	1998	35
Indianapolis	IN	—			642		2,453		3,095		(646		)	1998	35
Indianapolis	IN	—			1,057		3,949		5,006		(861		)	1998	35
Indianapolis	IN	(3,209		)	1,164		6,284		7,448		(1,381		)	1998	35
Indianapolis	IN	—			3,104		11,477		14,581		(2,408		)	1998	35
Indianapolis	IN	—			420		3,598		4,018		(628		)	1999	35
Zionsville	IN	—			400		2,040		2,440		(464		)	1998	35
Wichita	KS	(2,321		)	530		3,341		3,871		(309		)	2001	45
Louisville	KY	(6,705		)	936		9,196		10,132		(543		)	2005	12
Louisville	KY	(22,356		)	835		29,604		30,439		(624		)	2005	38
Louisville	KY	—			780		8,878		9,658		(362		)	2005	19
Louisville	KY	—			826		14,975		15,801		(288		)	2005	39
Louisville	KY	—			2,983		14,019		17,002		(376		)	2005	31
Glen Burnie	MD	(3,578		)	670		5,085		5,755		(968		)	1999	35
Minneapolis	MN	(8,361		)	117		13,267		13,384		(3,129		)	1997	35
Minneapolis	MN	(3,655		)	160		10,184		10,344		(2,209		)	1998	35
St Louis/Shrews	MO	(3,441		)	1,650		3,767		5,417		(664		)	1999	35
Albuquerque	NM	—			—		4,835		4,835		—			2005	*
Elko	NV	—			55		2,637		2,692		(520		)	1999	35
Las Vegas	NV	—			—		16,826		16,826		(703		)	2004	40
Las Vegas	NV	—			3,244		18,485		21,729		(981		)	2004	30
Harrison	OH	(2,654		)	—		4,561		4,561		(804		)	1999	35

45

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Owasso	OK	$	—		$	—	$	265	$	265	$	—		2005	*
Roseburg	OR	—			—		5,707		5,707		(917		)	2000	34
Hermitage	TN	—			830		7,858		8,688		(471		)	2003	36
Hermitage	TN	—			596		10,428		11,024		(1,029		)	2003	36
Hermitage	TN	—			317		7,066		7,383		(676		)	2003	36
Murfreesboro	TN	(6,394		)	900		11,936		12,836		(2,148		)	1999	35
Fort Worth	TX	(2,828		)	—		3,515		3,515		(80		)	2005	25
Fort Worth	TX	(4,688		)	—		8,001		8,001		(75		)	2005	40
Houston	TX	—			300		3,770		4,070		(1,558		)	1993	30
Houston	TX	(13,276		)	1,927		32,234		34,161		(5,918		)	1999	35
Houston	TX	(10,427		)	2,203		19,142		21,345		(6,486		)	1999	20
Longview	TX	—			102		7,998		8,100		(2,106		)	1993	45
Lufkin	TX	—			338		2,383		2,721		(592		)	1993	45
McKinney	TX	—			541		6,382		6,923		(700		)	2003	36
McKinney	TX	—			—		7,827		7,827		(343		)	2003	36
Pampa	TX	—			84		3,242		3,326		(848		)	1993	45
Plano	TX	(4,426		)	1,704		7,806		9,510		(1,908		)	1999	25
Victoria	TX	—			125		8,977		9,102		(2,225		)	1994	45
Bountiful	UT	—			276		5,237		5,513		(1,217		)	1995	45
Castle Dale	UT	—			50		1,818		1,868		(359		)	1999	35
Centerville	UT	(507		)	300		1,288		1,588		(254		)	1999	35
Grantsville	UT	—			50		429		479		(84		)	1999	35
Kaysville	UT	—			530		4,493		5,023		(432		)	2001	45
Layton	UT	(1,117		)	—		2,827		2,827		(498		)	1999	35
Layton	UT	—			371		7,085		7,456		(982		)	2001	35
Ogden	UT	(608		)	180		1,726		1,906		(334		)	1999	35
Orem	UT	—			337		9,813		10,150		(1,975		)	1999	35
Providence	UT	—			240		4,005		4,245		(780		)	1999	35
Salt Lake City	UT	—			190		779		969		(151		)	1999	35
Salt Lake City	UT	(4,710		)	180		14,849		15,029		(2,974		)	1999	35
Salt Lake City	UT	—			3,000		7,547		10,547		(834		)	2001	40
Salt Lake City	UT	—			509		4,402		4,911		(549		)	2003	36
Salt Lake City	UT	—			220		10,795		11,015		(2,220		)	1999	35
Springville	UT	—			85		1,493		1,578		(294		)	1999	35
Stansbury	UT	(2,246		)	450		3,220		3,670		(298		)	2001	45
Washington Terrace	UT	—			—		4,631		4,631		(1,012		)	1999	35
Washington Terrace	UT	—			—		2,703		2,703		(584		)	1999	35
West Valley City	UT	—			1,070		17,463		18,533		(3,425		)	1999	35
West Valley City	UT	—			410		8,264		8,674		(827		)	2002	35
Reston	VA	—			—		16,073		16,073		(639		)	2004	40
Renton	WA	—			—		18,796		18,796		(3,406		)	1999	35
Seattle	WA	—			—		58,900		58,900		(3,184		)	2004	39
Seattle	WA	—			—		28,945		28,945		(2,156		)	2004	36
Seattle	WA	—			—		9,439		9,439		(724		)	2004	33
Seattle	WA	—			—		9,639		9,639		(817		)	2004	10
Seattle	WA	—			—		4,585		4,585		(412		)	2004	25
Total Medical office building		$	(146,758	)	$	79,255	$	903,392	$	982,647	$	(119,457	)

46

				Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05		Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Hospitals
Fayetteville	AR	$	—	$	700	$	9,951	$	10,651	$	(1,755	)	1999	35
Little Rock	AR	—		709		9,604		10,313		(3,458		)	1989	45
Peoria	AZ	—		1,565		7,070		8,635		(2,774		)	1988	45
Tucson	AZ	—		630		2,989		3,619		(571		)	1989	45
Irvine	CA	—		18,000		70,800		88,800		(12,481		)	1999	35
Los Gatos	CA	—		3,736		17,139		20,875		(11,337		)	1985	30
Tarzana	CA	—		12,300		77,465		89,765		(13,636		)	1999	35
Colorado Springs	CO	—		690		8,338		9,028		(2,924		)	1990	45
Ft. Lauderdale	FL	—		2,000		11,269		13,269		(2,299		)	1997	40
Palm Beach Garden	FL	—		4,200		58,250		62,450		(10,265		)	1999	35
Roswell	GA	—		6,900		54,859		61,759		(9,731		)	1999	35
Idaho Falls	ID	—		2,068		25,170		27,238		(1,764		)	2002	45
Overland Park	KS	—		2,316		10,704		13,020		(4,159		)	1986	45
Wichita	KS	—		1,500		12,501		14,001		(2,203		)	1999	35
Plaquemine	LA	—		636		9,722		10,358		(3,647		)	1992	35
Slidell	LA	—		2,520		19,412		21,932		(9,936		)	1985	40
Poplar Bluff	MO	—		1,200		34,800		36,000		(6,131		)	1999	35
Hickory	NC	—		2,600		69,900		72,500		(12,316		)	1999	35
Bennetsville	SC	—		794		13,700		14,494		(3,381		)	1999	25
Cheraw	SC	—		500		8,000		8,500		(1,980		)	1999	25
Amarillo	TX	—		350		3,800		4,150		(2,425		)	1999	10
Cleveland	TX	—		400		14,603		15,003		(2,171		)	1999	35
San Antonio	TX	—		1,990		12,994		14,984		(6,192		)	1988	45
Webster	TX	—		2,900		58,759		61,659		(8,509		)	1997	35
West Valley City	UT	—		890		5,161		6,051		(1,231		)	1999	35
Morgantown	WV	—		—		14,400		14,400		(2,540		)	1999	35
Total hospitals		$	—	$	72,094	$	641,360	$	713,454	$	(139,816	)
Skilled nursing
Mobile	AL	$	—	$	335	$	3,614	$	3,949	$	(2,459	)	1986	30
Dumas	AR	—		50		1,453		1,503		(1,021		)	1988	25
Piggott	AR	—		30		1,909		1,939		(1,090		)	1988	30
Douglas	AZ	—		110		1,492		1,602		(318		)	1999	35
Safford	AZ	—		300		4,217		4,517		(789		)	1999	35
Bellflower	CA	—		330		1,148		1,478		(732		)	1986	35
Claremont	CA	—		513		1,944		2,457		(1,339		)	1985	25
Downey	CA	—		330		1,406		1,736		(902		)	1986	35
El Monte	CA	—		360		3,542		3,902		(2,273		)	1986	35
Glendora	CA	—		430		2,292		2,722		(1,424		)	1986	35
Livermore	CA	—		330		1,711		2,041		(1,345		)	1985	25
Lomita	CA	—		510		1,222		1,732		(793		)	1986	35
Perris	CA	—		336		3,394		3,730		(1,153		)	1998	25
Vista	CA	—		653		6,447		7,100		(2,118		)	1997	25
Denver	CO	—		200		3,764		3,964		(701		)	1999	35
Fort Collins	CO	—		159		2,064		2,223		(1,611		)	1985	25
Lakewood	CO	—		150		4,548		4,698		(842		)	1999	35
Morrison	CO	—		430		5,689		6,119		(4,311		)	1985	25
Lake City	FL	—		100		2,649		2,749		(1,803		)	1987	30
Lake Worth	FL	—		720		5,264		5,984		(2,056		)	1989	45

47

				Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05		Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Live Oak	FL	$	—	$	130	$	2,317	$	2,447	$	(932	)	1989	45
Orange Park	FL	—		450		3,322		3,772		(1,271		)	1988	45
Orlando	FL	—		755		2,984		3,739		(1,751		)	1998	30
Orlando	FL	—		600		5,059		5,659		(1,936		)	1988	45
Port St. Lucie	FL	—		1,050		2,528		3,578		(1,150		)	1988	45
Winter Haven	FL	—		875		4,337		5,212		(1,807		)	1989	45
Statesboro	GA	—		168		1,695		1,863		(599		)	1998	25
Cedar Rapids	IA	—		300		3,430		3,730		(1,971		)	1988	30
Rexburg	ID	—		200		5,310		5,510		(1,329		)	1998	35
Anderson	IN	—		50		8,035		8,085		(1,734		)	1998	35
Angola	IN	—		130		2,970		3,100		(581		)	1999	35
Chesterton	IN	—		53		3,407		3,460		(1,162		)	1995	35
Ferdinand	IN	—		26		3,389		3,415		(1,292		)	1991	40
Fort Wayne	IN	—		125		3,391		3,516		(794		)	1998	35
Fort Wayne	IN	—		200		4,300		4,500		(881		)	1999	35
Fort Wayne	IN	—		140		3,860		4,000		(762		)	1999	35
Greenfield	IN	—		130		3,303		3,433		(767		)	1998	35
Huntington	IN	—		30		3,071		3,101		(623		)	1999	35
Indianapolis	IN	—		250		2,184		2,434		(552		)	1998	35
Indianapolis	IN	—		500		7,344		7,844		(1,636		)	1998	35
Indianapolis	IN	—		40		1,994		2,034		(442		)	1998	35
Indianapolis	IN	—		100		2,334		2,434		(562		)	1998	35
Indianapolis	IN	—		450		5,583		6,033		(1,237		)	1998	35
Jasper	IN	—		165		6,811		6,976		(1,283		)	2001	35
Jeffersonville	IN	—		296		6,955		7,251		(3,776		)	1990	30
Kokomo	IN	—		250		5,932		6,182		(707		)	2000	45
Lebanon	IN	—		—		5,550		5,550		(1,033		)	2000	45
Ligonier	IN	—		84		2,839		2,923		(373		)	2002	30
Logansport	IN	—		80		3,032		3,112		(592		)	2002	25
Lowell	IN	—		34		3,035		3,069		(1,406		)	1991	35
Michigan City	IN	—		555		5,494		6,049		(270		)	2004	40
Milford	IN	—		26		1,935		1,961		(838		)	1991	35
New Albany	IN	—		230		7,090		7,320		(1,365		)	2001	35
Petersburg	IN	—		25		2,434		2,459		(1,026		)	1991	40
Richmond	IN	—		250		5,016		5,266		(867		)	2001	35
Seymour	IN	—		—		7,897		7,897		(410		)	2004	45
Spencer	IN	—		70		7,440		7,510		(1,498		)	2001	35
Tell City	IN	—		95		7,812		7,907		(867		)	2001	45
Upland	IN	—		150		1,715		1,865		(946		)	1986	35
Yorktown	IN	—		64		3,603		3,667		(1,221		)	1995	35
Hutchinson	KS	—		318		3,756		4,074		(1,922		)	1986	40
Salina	KS	—		250		2,415		2,665		(1,409		)	1988	30
Wichita	KS	—		220		4,377		4,597		(2,200		)	1986	40
Albany	KY	—		95		1,918		2,013		(315		)	2002	30
Augusta	KY	—		75		881		956		(207		)	2002	20
Bedford.	KY	—		50		2,667		2,717		(416		)	2002	30
Cynthiana	KY	—		192		4,875		5,067		(107		)	2005	40
Georgetown	KY	—		620		2,298		2,918		(362		)	2002	30
Mayfield	KY	—		218		2,797		3,015		(1,349		)	1986	40
Taylorsville	KY	—		145		5,390		5,535		(839		)	2002	30
Franklin	LA	—		406		4,102		4,508		(1,416		)	1998	25

48

				Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05		Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Morgan City	LA	$	—	$	202	$	2,048	$	2,250	$	(707	)	1998	25
Chelmsford	MA	—		429		3,996		4,425		(2,665		)	1985	30
Westborough	MA	—		138		2,975		3,113		(2,040		)	1985	30
Cambridge	MD	—		371		9,166		9,537		(4,752		)	1987	35
Elkton	MD	—		706		7,012		7,718		(3,607		)	1987	35
Lexington Park	MD	—		210		4,658		4,868		(2,317		)	1987	40
Bad Axe	MI	—		400		4,506		4,906		(906		)	1998	40
Deckerville	MI	—		39		2,966		3,005		(1,253		)	1986	45
Mc Bain	MI	—		12		2,424		2,436		(1,035		)	1986	45
West Point	MS	—		110		2,635		2,745		(1,253		)	1986	40
Arden	NC	—		460		3,753		4,213		(1,126		)	1996	45
King	NC	—		207		3,423		3,630		(1,262		)	1993	45
Knightdale	NC	—		300		3,169		3,469		(1,159		)	1995	35
Lenoir	NC	—		—		3,459		3,459		(259		)	2002	40
Walnut Cove	NC	—		30		3,470		3,500		(2,519		)	1985	25
Woodfin	NC	—		301		3,321		3,622		(1,236		)	1993	45
Las Vegas	NM	—		178		1,638		1,816		(1,350		)	1985	25
Las Vegas	NV	—		1,300		4,300		5,600		(1,046		)	1999	35
Las Vegas	NV	—		1,300		6,200		7,500		(1,422		)	1999	35
Canton	OH	—		77		3,785		3,862		(2,640		)	1986	30
Delaware	OH	—		93		3,440		3,533		(1,977		)	1986	35
Fairborn	OH	—		250		4,951		5,201		(955		)	1999	35
Georgetown	OH	—		130		5,070		5,200		(976		)	1999	35
Hilliard	OH	—		87		3,776		3,863		(2,610		)	1986	30
Marion	OH	—		218		2,971		3,189		(1,831		)	1986	30
Newark	OH	—		400		8,588		8,988		(4,544		)	1986	35
Port Clinton	OH	—		370		3,730		4,100		(740		)	1999	35
Springfield	OH	—		250		4,051		4,301		(796		)	1999	35
Toledo	OH	—		120		5,280		5,400		(1,054		)	1999	35
Versailles	OH	—		120		5,080		5,200		(977		)	1999	35
Edmond	OK	—		516		3,768		4,284		(1,782		)	1986	45
Moore	OK	—		134		3,454		3,588		(1,623		)	1986	45
Ponca City	OK	—		316		2,630		2,946		(420		)	2000	35
Seminole	OK	—		263		464		727		(264		)	2000	35
Shawnee	OK	—		297		4,245		4,542		(700		)	2000	35
Stillwater	OK	—		50		1,323		1,373		(444		)	1998	35
Salem	OR	—		87		2,660		2,747		(1,830		)	1985	25
Hillsdale	PA	—		35		3,298		3,333		(659		)	1998	35
Carthage	TN	—		129		2,406		2,535		(141		)	2004	35
Huntsville	TN	—		75		5,467		5,542		(1,070		)	2001	35
Kingsport	TN	—		450		8,092		8,542		(1,688		)	2001	35
Lawrence County	TN	—		210		7,832		8,042		(1,595		)	2001	35
Loudon	TN	—		26		3,879		3,905		(2,100		)	1986	35
Maryville	TN	—		160		1,472		1,632		(636		)	1986	45
Maryville	TN	—		307		4,376		4,683		(1,813		)	1986	45

49

					Gross Amount at Which Carried at Close of Period 12/31/05										Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles		Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Amarillo	TX	—			200		2,048		2,248		(501		)	1998	35
Fort Worth.	TX	—			243		2,575		2,818		(894		)	1998	25
Frankston	TX	—			50		947		997		(546		)	1988	30
Galveston	TX	—			245		6,977		7,222		(968		)	2002	35
Pilot Point	TX	—			220		2,314		2,534		(434		)	2002	30
Pittsburg	TX	—			50		1,339		1,389		(761		)	1988	30
Port Arthur	TX	—			155		7,067		7,222		(977		)	2002	35
Texas City	TX	—			325		2,727		3,052		(641		)	1998	35
Texas City	TX	—			170		7,052		7,222		(975		)	2002	35
Ogden	UT	—			250		4,685		4,935		(1,174		)	1998	35
Fishersville	VA	—			751		7,734		8,485		(482		)	2004	40
Floyd	VA	—			309		2,708		3,017		(401		)	2004	25
Independence	VA	—			206		8,366		8,572		(485		)	2004	40
Newport News	VA	—			535		6,192		6,727		(399		)	2004	40
Roanoke	VA	—			586		7,159		7,745		(439		)	2004	40
Staunton	VA	—			422		8,681		9,103		(527		)	2004	40
Williamsburg	VA	—			699		4,886		5,585		(330		)	2004	40
Windsor	VA	—			319		7,543		7,862		(444		)	2004	40
Woodstock	VA	—			607		5,400		6,007		(349		)	2004	40
Issaquah	WA	—			1,700		5,742		7,442		(1,843		)	1999	20
Green Bay	WI	—			100		3,604		3,704		(2,207		)	1988	30
Milwaukee	WI	—			450		2,239		2,689		(1,287		)	1988	30
Omro	WI	—			36		3,651		3,687		(2,872		)	1985	25
Sturgeon Bay	WI	—			250		2,653		2,903		(1,525		)	1988	30
Total skilled nursing		$	—		$	38,832	$	561,478	$	600,310	$	(173,111	)
Other healthcare
Douglas	AZ	$	—		$	110	$	703	$	813	$	(124	)	1999	35
Sacramento	CA	(12,948		)	2,860		21,706		24,566		(5,680		)	1998	35
San Diego	CA	—			7,872		33,537		41,409		(1,576		)	2004	40
Sunnyvale	CA	—			5,210		15,345		20,555		(3,739		)	1997	35
Bristol	CT	—			560		2,839		3,399		(292		)	2002	30
Enfield	CT	—			480		3,107		3,587		(391		)	2003	15
Newington	CT	—			310		2,007		2,317		(206		)	2002	30
West Springfield	MA	—			680		4,044		4,724		(323		)	2002	30
East Providence	RI	—			240		1,562		1,802		(161		)	2002	30
Warwick	RI	—			455		2,020		2,475		(207		)	2002	30
Clarksville	TN	—			1,195		6,537		7,732		(1,430		)	1998	35
Knoxville	TN	—			700		4,559		5,259		(1,498		)	1994	35
Salt Lake City	UT	—			—		878		878		—			2005	*
Salt Lake City	UT	—			500		8,548		9,048		(1,110		)	2001	35
Salt Lake City	UT	—			890		15,623		16,513		(1,787		)	2001	40
Salt Lake City	UT	—			190		9,875		10,065		(971		)	2001	45
Salt Lake City	UT	—			630		6,921		7,551		(817		)	2001	40
Salt Lake City	UT	—			125		6,368		6,493		(626		)	2001	45
Salt Lake City	UT	—			—		14,614		14,614		(953		)	2002	45
Salt Lake City	UT	—			280		4,345		4,625		(337		)	2002	45

50

					Gross Amount at Which Carried at Close of Period 12/31/05											Life on Which Depreciation
City	State	Encumbrances at 12/31/05			Land		Building Improvements, CIP and Intangibles			Total		Accumulated Depreciation			Date Acquired/ Constructed	in Latest Income Statement is Computed
Salt Lake City	UT	$	—		$	—	$	6,673		$	6,673	$	(227	)	2004	35
Total other healthcare		$	(12,948	)	$	23,287	171,811			$	195,098	$	(22,455	)
Total continuing operations properties		$	(236,096	)	$	328,959	$	3,424,385		$	3,753,344	$	(579,425	)
Properties held for sale
Mesa	AZ	$	—		$	200	$	1,445		$	1,645	$	(390	)
Tucson	AZ	—			289		3,499			3,788		(909		)
Palm Desert	CA	—			760		3,062			3,822		(379		)
Denver	CO	—			952		4,791			5,743		(2,800		)
Port Richey	FL	—			1,450		5,187			6,637		(642		)
Port Richey	FL	—			250		967			1,217		(451		)
Milledgeville	GA	—			150		1,687			1,837		(516		)
Terre Haute	IN	—			275		(275		)	—		—
Vincennes	IN	—			1,000		5,373			6,373		(3,518		)
Fairhaven	MA	—			350		2,264			2,614		(2,263		)
Las Vegas	NV	—			5,900		38,366			44,266		(3,982		)
Columbus	OH	—			800		7,415			8,215		(2,210		)
Whitehouse	OH	—			250		2,501			2,751		(1,174		)
Blountville	TN	—			38		4,320			4,358		(2,033		)
Bolivar	TN	—			61		3,424			3,485		(1,589		)
Camden	TN	—			68		3,730			3,798		(2,065		)
Huntingdon	TN	—			84		4,220			4,304		(1,999		)
Jefferson City	TN	—			63		4,060			4,123		(2,188		)
Memphis	TN	—			236		4,923			5,159		(2,332		)
Ripley	TN	—			29		3,718			3,747		(1,603		)
Houston	TX	—			350		3,089			3,439		(927		)
Houston	TX	—			400		2,845			3,245		(787		)
San Angelo	TX	—			150		250			400		(250		)
Sugar Land	TX	—			350		2,976			3,326		(885		)
Texarkana	TX	—			111		3,102			3,213		(2,071		)
The Woodlands	TX	—			400		1,864			2,264		(610		)
Walla Walla	WA	—			115		1,490			1,605		(1,129		)
Milwaukee	WI	—			550		3,252			3,802		(619		)
Total properties held for sale		$	—		$	15,631	$	123,545		$	139,176	$	(40,321	)
Corporate and other assets		$	—		$	—	$	5,324		$	5,324	$	(2,372	)
Total		$	(236,096	)	$	344,240	$	3,550,990		$	3,895,230	$	(619,855	)

*Property is in development and not yet placed in service.

Schedule III total	$	3,895,230
Less: In-place lease intangibles included in other assets and deferred revenue	39,289
Amount included under real estate on consolidated balance sheet	$	3,855,941

(b)           A summary of activity for real estate and accumulated depreciation for the year ended December 31, 2005, 2004 and 2003 is as follows (in thousands):

51

	Year ended December 31,
	2005			2004			2003
Real estate:
Balances at beginning of year	$	3,350,945		$	3,017,461		$	2,783,799
Acquisition of real state, development and improvements	576,932			511,448			310,151
Disposition of real estate	(68,048		)	(183,012		)	(62,497		)
Impairments	—			(17,067		)	(13,992		)
Balances associated with changes in reporting presentation	(3,888		)	22,115			—
Balances at end of year	$	3,855,941		$	3,350,945		$	3,017,461
Accumulated depreciation:
Balances at beginning of year	$	533,764		$	474,021		$	412,388
Depreciation expense	101,202			88,548			80,123
Disposition of real estate	(14,450		)	(34,163		)	(18,490		)
Balances associated with changes in reporting presentation	(6,427		)	5,358			—
Balances at end of year	$	614,089		$	533,764		$	474,021

52