Segment Disclosures

6 Months Ended

Jun. 30, 2012

Segment Disclosures

Segment Disclosures

(14) Segment Disclosures

The Company evaluates its business and makes resource allocations based on its five business segments: (i) senior housing, (ii) post-acute/skilled nursing, (iii) life science, (iv) medical office and (v) hospital. Under the senior housing, post-acute/skilled nursing, life science and hospital segments, the Company invests or co-invests primarily in single operator or tenant properties, through the acquisition and development of real estate, management of operations and by debt issued by operators in these sectors. Under the medical office segment, the Company invests or co-invests through the acquisition and development of medical office buildings (“MOBs”) that are leased under gross, modified gross or triple-net leases, generally to multiple tenants, and which generally require a greater level of property management. The accounting policies of the segments are the same as those described in Note 2 to the Consolidated Financial Statements for the year ended December 31, 2011 in the Company’s Annual Report on Form 10-K filed with the SEC. There were no intersegment sales or transfers during the six months ended June 30, 2012 and 2011. The Company evaluates performance based upon property net operating income from continuing operations (“NOI”), adjusted NOI and interest income of the combined investments in each segment.

Non-segment assets consist primarily of real estate held-for-sale and corporate assets including cash, restricted cash, accounts receivable, net, marketable equity securities and deferred financing costs. Interest expense, depreciation and amortization and non-property specific revenues and expenses are not allocated to individual segments in determining the Company’s performance measure. See Note 12 for other information regarding concentrations of credit risk.

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

For the three months ended June 30, 2012:

Segments	Rental Revenues(1)		Resident Fees and Services		Interest Income		Investment Management Fee Income		Total Revenues		NOI(2)		Adjusted NOI(2)
Senior housing	$	116,445	$	35,569	$	527	$	—	$	152,541	$	128,570	$	116,509
Post-acute/skilled	134,677		—		427		—		135,104		134,505		116,833
Life science	72,545		—		—		1		72,546		58,990		55,735
Medical office	80,905		—		—		469		81,374		48,926		47,682
Hospital	22,612		—		262		—		22,874		21,675		21,154
Total	$	427,184	$	35,569	$	1,216	$	470	$	464,439	$	392,666	$	357,913

For the three months ended June 30, 2011:

Segments	Rental Revenues(1)		Resident Fees and Services		Interest Income		Investment Management Fee Income		Total Revenues		NOI(2)		Adjusted NOI(2)
Senior housing	$	128,862	$	835	$	7	$	—	$	129,704	$	128,927	$	113,664
Post-acute/skilled	123,545		—		60,189		—		183,734		123,491		106,055
Life science	71,527		—		—		1		71,528		58,937		53,136
Medical office	80,037		—		—		503		80,540		48,058		46,533
Hospital	22,289		—		330		—		22,619		21,067		20,442
Total	$	426,260	$	835	$	60,526	$	504	$	488,125	$	380,480	$	339,830

For the six months ended June 30, 2012:

Segments	Rental Revenues(1)		Resident Fees and Services		Interest Income		Investment Management Fee Income		Total Revenues		NOI(2)		Adjusted NOI(2)
Senior housing	$	232,806	$	71,748	$	810	$	—	$	305,364	$	259,480	$	233,527
Post-acute/skilled	268,672		—		707		—		269,379		268,300		230,002
Life science	144,375		—		—		2		144,377		117,936		114,838
Medical office	160,861		—		—		961		161,822		97,178		94,604
Hospital	41,990		—		518		—		42,508		40,122		39,046
Total	$	848,704	$	71,748	$	2,035	$	963	$	923,450	$	783,016	$	712,017

For the six months ended June 30, 2011:

Segments	Rental Revenues(1)		Resident Fees and Services		Interest Income		Investment Management Fee Income		Total Revenues		NOI(2)		Adjusted NOI(2)
Senior housing	$	238,372	$	3,340	$	7	$	70	$	241,789	$	239,957	$	211,275
Post-acute/skilled	132,985		—		97,880		—		230,865		132,911		115,153
Life science	143,952		—		—		2		143,954		118,524		106,759
Medical office	159,607		—		—		1,039		160,646		95,593		91,955
Hospital	41,264		—		735		—		41,999		39,075		37,798
Total	$	716,180	$	3,340	$	98,622	$	1,111	$	819,253	$	626,060	$	562,940

(1)Represents rental and related revenues, tenant recoveries, and income from DFLs.

(2)NOI is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate. The Company defines NOI as rental and related revenues, including tenant recoveries, resident fees and services, and income from direct financing leases, less property level operating expenses. NOI excludes interest income, investment management fee income, interest expense, depreciation and amortization, general and administrative expenses, litigation settlement, impairments, impairment recoveries, other income, net, income taxes, equity income from and impairments of investments in unconsolidated joint ventures, and discontinued operations. The Company believes NOI provides relevant and useful information because it reflects only income and operating expense items that are incurred at the property level and presents them on an unleveraged basis. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL accretion, amortization of above and below market lease intangibles, and lease termination fees. Adjusted NOI is sometimes referred to as “cash NOI.” The Company uses NOI and adjusted NOI to make decisions about resource allocations and to assess and compare 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 because it does not reflect the aforementioned excluded items. Further, the Company’s definition of NOI may not be comparable to the definition used by other REITs, as those companies may use different methodologies for calculating NOI.

The following is a reconciliation from reported net income to NOI and adjusted NOI (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net income	$	204,975		$	234,252		$	401,539		$	308,236
Interest income	(1,216		)	(60,526		)	(2,035		)	(98,622		)
Investment management fee income	(470		)	(504		)	(963		)	(1,111		)
Interest expense	103,225			105,129			207,793			213,705
Depreciation and amortization	87,924			89,814			176,165			180,996
General and administrative	14,812			34,872			34,914			56,824
Other income, net	(1,028		)	(7,518		)	(1,464		)	(17,827		)
Income taxes	176			248			(533		)	285
Equity income from unconsolidated joint ventures	(15,732		)	(14,950		)	(29,407		)	(15,748		)
Total discontinued operations, net of income taxes	—			(337		)	(2,993		)	(678		)
NOI	392,666			380,480			783,016			626,060
Straight-line rents	(11,860		)	(15,612		)	(21,787		)	(32,912		)
DFL accretion	(22,017		)	(22,262		)	(47,639		)	(24,937		)
Amortization of above and below market lease intangibles, net	(625		)	(1,187		)	(1,322		)	(2,093		)
Lease termination fees	(251		)	(1,589		)	(399		)	(3,178		)
NOI adjustments related to discontinued operations	—			—			148			—
Adjusted NOI	$	357,913		$	339,830		$	712,017		$	562,940

The Company’s total assets by segment were (in thousands):

	June 30,			December 31,
Segments	2012			2011
Senior housing	$	5,956,879		$	5,911,352
Post-acute/skilled nursing	5,923,120			5,644,472
Life science	3,915,856			3,886,851
Medical office	2,353,948			2,336,302
Hospital	755,913			757,618
Gross segment assets	18,905,716			18,536,595
Accumulated depreciation and amortization	(1,825,257		)	(1,670,511		)
Net segment assets	17,080,459			16,866,084
Real estate held for sale, net	—			4,159
Other non-segment assets	709,309			538,232
Total assets	$	17,789,768		$	17,408,475

On October 5, 2006, simultaneous with the closing of the Company’s merger with CNL Retirement Properties, Inc. (“CRP”), the Company also merged with CNL Retirement Corp. (“CRC”). CRP was a REIT that invested primarily in senior housing facilities and MOBs. Under the purchase method of accounting, the assets and liabilities of CRC were recorded at their estimated relative fair values, with $51.7 million paid in excess of the estimated fair value of CRC’s assets and liabilities recorded as goodwill. The CRC goodwill amount was allocated in proportion to the assets of the Company’s reporting units (property sectors) subsequent to the CRP acquisition.

At June 30, 2012, goodwill of $50 million was allocated to segment assets as follows: (i) senior housing—$31 million, (ii) post-acute/skilled nursing—$3 million, (iii) medical office—$11 million, and (iv) hospital—$5 million.