Segment Disclosures

9 Months Ended

Sep. 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, as amended, filed with the SEC. There were no intersegment sales or transfers during the nine months ended September 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 September 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	$	114,856	$	36,076	$	876	$	—	$	151,808	$	126,060	$	113,592
Post-acute/skilled		135,508		—		9,135		—		144,643		135,354		116,898
Life science		71,194		—		—		1		71,195		59,403		56,341
Medical office		85,800		—		—		459		86,259		50,852		49,669
Hospital		21,310		—		267		—		21,577		20,408		19,950
Total	$	428,668	$	36,076	$	10,278	$	460	$	475,482	$	392,077	$	356,450

For the three months ended September 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	$	122,849	$	11,974	$	42	$	—	$	134,865	$	125,209	$	112,755
Post-acute/skilled	132,392		—		287		—		132,679		132,148		112,881
Life science	71,093		—		—		1		71,094		57,860		52,785
Medical office	80,996		—		—		493		81,489		47,650		46,514
Hospital	20,854		—		248		—		21,102		19,629		19,065
Total	$	428,184	$	11,974	$	577	$	494	$	441,229	$	382,496	$	344,000

For the nine months ended September 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	$	341,936	$	107,824	$	1,686	$	—	$	451,446	$	379,834	$	342,368
Post-acute/skilled	404,180		—		9,842		—		414,022		403,654		346,900
Life science	215,569		—		—		3		215,572		177,339		171,179
Medical office	246,661		—		—		1,420		248,081		148,030		144,272
Hospital	63,300		—		785		—		64,085		60,530		58,996
Total	$	1,271,646	$	107,824	$	12,313	$	1,423	$	1,393,206	$	1,169,387	$	1,063,715

For the nine months ended September 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	$	355,496	$	15,314	$	49	$	70	$	370,929	$	359,460	$	319,393
Post-acute/skilled	265,377		—		98,167		—		363,544		265,059		228,034
Life science	215,045		—		—		3		215,048		176,384		159,544
Medical office	240,603		—		—		1,532		242,135		143,243		138,469
Hospital	62,118		—		983		—		63,101		58,704		56,863
Total	$	1,138,639	$	15,314	$	99,199	$	1,605	$	1,254,757	$	1,002,850	$	902,303

(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 (expense), 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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net income	$	199,043		$	175,471		$	600,582		$	483,707
Interest income	(10,278		)	(577		)	(12,313		)	(99,199		)
Investment management fee income	(460		)	(494		)	(1,423		)	(1,605		)
Interest expense	103,513			103,459			309,875			315,695
Depreciation and amortization	88,686			86,672			259,039			265,742
General and administrative	19,443			19,647			54,356			76,471
Impairments	7,878			15,400			7,878			15,400
Other (income) expense, net	(770		)	772			(2,233		)	(17,056		)
Income taxes	(598		)	5			(1,131		)	289
Equity income from unconsolidated joint ventures	(13,396		)	(17,050		)	(42,803		)	(32,798		)
Total discontinued operations, net of income taxes	(984		)	(809		)	(2,440		)	(3,796		)
NOI	392,077			382,496			1,169,387			1,002,850
Straight-line rents	(11,821		)	(14,024		)	(33,608		)	(46,936		)
DFL accretion	(23,433		)	(23,571		)	(71,072		)	(48,508		)
Amortization of above and below market lease intangibles, net	(533		)	(1,178		)	(1,855		)	(3,271		)
Lease termination fees	(175		)	(239		)	(574		)	(3,417		)
NOI adjustments related to discontinued operations	335			516			1,437			1,585
Adjusted NOI	$	356,450		$	344,000		$	1,063,715		$	902,303

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

	September 30,			December 31,
Segments	2012			2011
Senior housing	$	5,867,914		$	5,792,196
Post-acute/skilled nursing	6,057,501			5,644,472
Life science	3,928,661			3,886,851
Medical office	2,586,231			2,336,302
Hospital	760,222			757,618
Gross segment assets	19,200,529			18,417,439
Accumulated depreciation and amortization	(1,885,172		)	(1,649,845		)
Net segment assets	17,315,357			16,767,594
Real estate held for sale, net	91,226			102,649
Other non-segment assets	672,753			538,232
Total assets	$	18,079,336		$	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 September 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.