10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                        to                       

Commission file number 1-9028

NATIONWIDE HEALTH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Maryland	95-3997619
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

610 Newport Center Drive, Suite 1150 Newport Beach, California (Address of principal executive offices) 92660 (Zip Code)

Registrant’s telephone number, including area code: (949) 718-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $.10 Par Value	New York Stock Exchange
7.677% Series A Cumulative Preferred	None

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

The aggregate market value of the voting stock held by non-affiliates of the Company is approximately $931,688,000 as of January 31, 2002.

47,250,651

(Number of shares of common stock outstanding as of January 31, 2002)

Part III is incorporated by reference from the registrant’s definitive proxy statement for the Annual Meeting of Stockholders to be held on April 22, 2002.

PART I

Item 1.    Business.

Nationwide Health Properties, Inc., a Maryland corporation, is a real estate investment trust (“REIT”) that invests primarily in healthcare related facilities and provides financing to health care providers. Whenever we refer herein to “the Company” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. and subsidiaries. At December 31, 2001, we had investments in 309 facilities located in 37 states that were operated by 60 healthcare providers. The facilities include 165 skilled nursing facilities, 128 assisted living facilities, 13 continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and one medical clinic.

As of December 31, 2001, we had direct ownership of 135 skilled nursing facilities, 121 assisted living facilities, nine continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and one medical clinic. Substantially all of our owned facilities are leased under “triple-net” leases, which are accounted for as operating leases, to 52 healthcare providers. Of our lessees, only Alterra Healthcare Corporation (“Alterra”) is expected to account for more than 10% of our revenues in 2002.            

The leases generally have initial terms ranging from 5 to 21 years, and generally have two or more multiple-year renewal options. We earn fixed monthly minimum rents and may earn periodic additional rents. The additional rent payments are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rents are generally calculated and payable monthly or quarterly. While the calculations and payments are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (“SAB No. 101”), which we adopted during the fourth quarter of 2000 does not allow for the recognition of this revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations so that all contingencies for revenue recognition have been eliminated at each of our quarterly reporting dates. Also, most of our leases contain provisions that the total rent cannot decrease from one year to the next. Approximately 41% of our facilities are leased under master leases. In addition, most of our leases contain cross collateralization and cross-default provisions tied to other leases with the same lessee, as well as grouped lease renewals and grouped purchase options. Obligations under our leases have corporate guarantees, and leases covering 195 facilities are backed by irrevocable letters of credit or security deposits that cover up to 12 months, most of which cover from three to six months, of monthly minimum rents. Under the terms of the leases, the lessee is generally responsible for all maintenance, repairs, taxes and insurance on the leased properties.

During 2001, we completed the construction of one assisted living facility in which our total aggregate investment was approximately $10,438,000. Additionally, we funded approximately $6,270,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. These capital improvements generally result in an increase in the minimum rents we earn on these facilities.

At December 31, 2001, we held 29 mortgage loans secured by 30 skilled nursing facilities, seven assisted living facilities and four continuing care retirement communities. These loans had an aggregate outstanding principal balance of approximately $144,289,000 and a net book value of approximately $140,474,000 at December 31, 2001, net of an aggregate discount and reserve totaling approximately $3,815,000. The mortgage loans have individual outstanding balances ranging from approximately $185,000 to $16,104,000 and have maturities ranging from 2002 to 2024.

1

The following table summarizes our major operators, the number of facilities each operates and the percentage of our annualized revenues received from each operator during 2001, as adjusted for facilities disposed during 2001:

Operator	Number of Facilities Operated	Percentage of Annualized Revenue
Alterra Healthcare Corporation	54	13	%
ARV Assisted Living, Inc.	16	9	%
Beverly Enterprises, Inc.	31	9	%
American Retirement Corporation	11	8	%
Epoch Senior Living	8	5	%
Senior Services of America	10	4	%
Liberty Healthcare	17	4	%
Nexion Health Management, Inc.	21	4	%
Laureate Group	4	4	%
Integrated Health Services, Inc.	11	4	%
Senior Housing Associates	6	3	%
Mariner Post-Acute Network, Inc.	8	3	%
Life Care Centers of America, Inc.	6	3	%

We have historically provided lease or mortgage financing for healthcare facilities to qualified operators and acquired additional healthcare related facilities, including skilled nursing facilities, assisted living facilities, rehabilitation hospitals and long-term acute care hospitals. Financing for these investments was provided by borrowings under our bank line of credit, private placements or public offerings of debt or equity and the assumption of secured indebtedness.

Taxation

We believe we have operated in such a manner as to qualify for taxation as a “real estate investment trust” under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and we intend to continue to operate in such a manner. If we qualify for taxation as a real estate investment trust, we will generally not be subject to federal corporate income taxes on our net income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (e.g. at the corporate and stockholder levels) that usually results from investment in the stock of a corporation.

Properties

Of the 309 facilities in which we have investments, we have direct ownership of 135 skilled nursing facilities, 121 assisted living facilities, nine continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and one medical clinic. Substantially all of the properties are leased to other parties under terms that require the lessee, in addition to paying rent, to pay all additional charges, taxes, assessments, levies and fees incurred in the operation of the leased properties.

Skilled Nursing Facilities

Skilled nursing facilities provide rehabilitative, restorative, skilled nursing and medical treatment for patients and residents who do not require the high-technology, care-intensive, high-cost setting of an acute care or rehabilitative hospital. Treatment programs include physical, occupational, speech, respiratory and other therapeutic programs, including sub-acute clinical protocols such as wound care and intravenous drug treatment.

2

Assisted Living Facilities

Assisted living facilities provide services to aid in everyday living, such as bathing, routine or special meals, security, transportation, recreation, medication supervision and limited therapeutic programs. More intensive medical needs of the residents are often met within our assisted living facilities by home health providers, close coordination with the individual’s physician and skilled nursing facilities. Assisted living facilities are increasingly successful as lower cost, less institutional alternatives to the health problems of the elderly or medically frail.

Continuing Care Retirement Communities

Continuing care retirement communities provide a broad continuum of care. At the most basic level, services are provided which aid in everyday living, much like in an assisted living facility. At the other end of the spectrum, skilled nursing, rehabilitation and medical treatment is provided to residents who need those services. This type of facility offers residents the ability to have the most independent lifestyle possible while providing a wide range of social, health and nursing services tailored to meet individual needs.

Rehabilitation Hospitals

Rehabilitation hospitals provide inpatient and outpatient medical care to patients requiring high intensity physical, respiratory, neurological, orthopedic and other treatment protocols and for intermediate periods in their recovery. These programs are often the most effective in treating severe skeletal or neurological injuries and traumatic diseases such as stroke and acute arthritis.

Long-Term Acute Care Hospitals

Long-term acute care hospitals serve medically complex, chronically ill patients. These hospitals have the capability to treat patients who suffer from multiple systemic failures or conditions such as neurological disorders, head injuries, brain stem and spinal cord trauma, cerebral vascular accidents, chemical brain injuries, central nervous system disorders, developmental anomalies and cardiopulmonary disorders. Chronic patients are often dependent on technology for continued life support, such as mechanical ventilators, total parenteral nutrition, respiration or cardiac monitors and dialysis machines. While these patients suffer from conditions that require a high level of monitoring and specialized care, they may not necessitate the continued services of an intensive care unit. Due to their severe medical conditions, these patients generally are not clinically appropriate for admission to a nursing facility or rehabilitation hospital.

3

The following table sets forth certain information regarding our owned facilities as of December 31, 2001.

Facility Location	Number of Facilities	Number of Beds/ Units(1)	Gross Investment		2001 Rent(2)
	(Dollars in Thousands)
Assisted Living Facilities:
Alabama	2	166	$	5,953	$	566
Arizona	2	142		7,868		795
Arkansas	1	32		2,151		171
California	13	1,590		79,578		10,862
Colorado	6	609		45,615		4,487
Delaware	1	54		5,301		577
Florida	20	1,363		93,764		9,397
Idaho	1	158		11,800		1,281
Indiana	1	50		4,666		441
Kansas	4	231		13,470		1,217
Kentucky	1	44		2,657		291
Louisiana	1	104		7,385		887
Maryland	1	56		5,200		535
Massachusetts	1	118		11,008		1,057
Michigan	1	143		7,306		1,081
Nevada	2	155		13,616		1,280
New Jersey	1	52		4,085		363
North Carolina	1	42		2,916		271
Ohio	11	635		38,952		4,053
Oklahoma	3	188		8,133		805
Oregon	6	536		28,831		3,029
Pennsylvania	3	247		25,210		1,813
Rhode Island	3	274		30,060		3,197
South Carolina	4	162		11,041		986
Tennessee	5	278		24,738		2,400
Texas	17	943		77,274		7,209
Virginia	2	153		12,974		1,633
Washington	4	341		22,934		2,496
West Virginia	1	60		6,132		627
Wisconsin	2	422		29,061		2,258
Subtotals	121	9,348		639,679		66,065

4

Facility Location	Number of Facilities	Number of Beds/ Units(1)	Gross Investment		2001 Rent(2)
	(Dollars in Thousands)
Skilled Nursing Facilities:
Arizona	1	130	$	3,540	$	653
Arkansas	8	833		34,914		3,200
California	7	904		24,869		4,023
Connecticut	4	464		14,259		973
Florida	8	1,098		27,603		3,010
Georgia	1	100		4,342		390
Idaho	1	64		792		81
Illinois	2	210		5,549		793
Indiana	7	886		27,335		3,443
Kansas	8	627		13,210		1,497
Maryland	4	749		22,233		3,560
Massachusetts	16	1,611		74,355		7,393
Minnesota	4	618		20,351		1,717
Mississippi	1	120		4,467		413
Missouri	1	108		2,740		518
Nevada	1	140		4,034		534
New Jersey	1	180		6,808		293
North Carolina	1	150		2,360		333
Ohio	6	811		28,527		3,587
Oklahoma	3	253		3,939		394
Tennessee	5	508		18,509		1,958
Texas	26	2,893		62,668		8,673
Virginia	4	604		18,568		2,910
Washington	7	697		29,165		2,938
Wisconsin	8	773		19,692		2,904
Subtotals	135	15,531		474,829		56,188
Continuing Care Retirement Communities:
California	1	279		12,427		1,584
Colorado	1	119		3,115		332
Georgia	1	190		11,492		971
Kansas	1	200		13,204		1,374
Massachusetts	1	178		14,292		1,409
Tennessee	1	80		3,178		355
Texas	1	352		30,370		2,842
Wisconsin	2	942		64,361		6,142
Subtotals	9	2,340		152,439		15,009

5

Facility Location	Number of Facilities	Number of Beds/ Units(1)	Gross Investment		2001 Rent(2)
	(Dollars in Thousands)
Rehabilitation Hospitals:
Arizona	1	60	$	10,710	$	1,088
Long-Term Acute Care Hospitals:
Arizona	1	56		6,166		408
Medical Clinics:
Alabama	1	—		2,433		—
Land Parcels:
Alabama	—	—		867		—
Florida	—	—		1,262		—
Maine	—	—		344		—
Michigan	—	—		2,015		—
New Hampshire	—	—		737		—
Ohio	—	—		1,759		—
Pennsylvania	—	—		1,599		—
Texas	—	—		810		—
Subtotals	—	—		9,393		—
Total All Owned Facilities	268	27,335	$	1,295,649	$	138,758

(1) Assisted living facilities are measured in units, continuing care retirement communities are measured in beds and units and all other facilities are measured by bed count.

(2) Rental income for 2001 for each of the properties we owned at December 31, 2001.

Competition

We generally compete with other REITs, including Health Care Property Investors, Inc., Senior Housing Properties Trust, Healthcare Realty Trust Incorporated and Health Care REIT, Inc., real estate partnerships, healthcare providers and other investors, including, but not limited to, banks and insurance companies, in the acquisition, leasing and financing of health care facilities. The operators of the healthcare facilities compete on a local and regional basis with operators of facilities that provide comparable services. Operators compete for patients based on quality of care, reputation, physical appearance of facilities, services offered, family preferences, physicians, staff and price.

Regulation

Payments for healthcare services provided by the operators of our facilities are received principally from four sources: Medicaid, a medical assistance program for the indigent, operated by individual states with the financial participation of the federal government; Medicare, a federal health insurance program for the aged and certain chronically disabled individuals; private funds; and health and other insurance plans. Government revenue sources, particularly Medicaid programs, are subject to statutory and regulatory changes, administrative rulings, and government funding restrictions, all of which may materially increase or decrease the rates of payment to nursing facilities and the amount of additional rents payable to us under our leases. Effective for cost reporting years beginning after July 1, 1998, the payment methodology for skilled nursing facilities under the Medicare program was changed. Under the revised methodology, Medicare reimburses skilled nursing facilities operators for nursing care, ancillary services and capital costs at a flat per diem rate. In the past, a cost-based system of reimbursement was used. This changed reimbursement methodology has been phased in over four years. Payments under the new methodology are generally lower than the payments the facilities had historically received, however there has been some relief during 2000 and 2001 as a portion of the reduction in payments was reversed. There is no assurance that payments under such programs will remain at levels comparable to the

6

present levels or be sufficient to cover all the operating and fixed costs allocable to Medicaid and Medicare patients. In fact, the Medicare Payment Advisory Commission has recommended that some of the relief implemented in 2000 and 2001 be allowed to expire in 2002, which would result in a reduction in Medicare payments of approximately 10%. Any changes in reimbursement levels could have an adverse impact on the revenues of the operators of our facilities, which could in turn adversely impact their ability to make their monthly lease or debt payments to us.

Healthcare facilities in which we invest are also generally subject to state licensure statutes and regulations and statutes which may require regulatory approval, in the form of a certificate of need (“CON”), prior to the addition or construction of new beds, the addition of services or certain capital expenditures. CON requirements generally do not apply to assisted living facilities. CON requirements are not uniform throughout the United States and are subject to change. We cannot predict the impact of regulatory changes with respect to licensure and CONs on the operations of our lessees and mortgagees.

Executive Officers of the Company

The table below sets forth the name, position and age of each executive officer of the Company. Each executive officer is appointed by the Board of Directors (the “Board”), serves at their pleasure and holds office until a successor is appointed, or until the earliest of death, resignation or removal. There is no “family relationship” between any of the named executive officers or any director. All information is given as of February 15, 2002.

Name	Position	Age
R. Bruce Andrews	President and Chief Executive Officer	61
Donald D. Bradley	Senior Vice President and General Counsel	46
Mark L. Desmond	Senior Vice President and Chief Financial Officer	43
T. Andrew Stokes	Senior Vice President of Corporate Development	53
David M. Boitano	Vice President of Development	40
Steven J. Insoft	Vice President of Development	38
John J. Sheehan, Jr.	Vice President of Development	44

R. Bruce Andrews—President and Chief Executive Officer since September 1989 and a director since October 1989. Mr. Andrews had previously served as a director of American Medical International, Inc., a hospital management company, and served as its Chief Financial Officer from 1970 to 1985 and its Chief Operating Officer in 1985 and 1986. From 1986 through 1989, Mr. Andrews was engaged in various private investments. Mr. Andrews is also a director of CenterTrust Retail Properties, Inc.

Donald D. Bradley—Senior Vice President and General Counsel since March 2001. From January 2000 to February 2001, Mr. Bradley was engaged in various personal interests. Mr. Bradley was formerly the General Counsel of Furon Company, a NYSE-listed international, high performance polymer manufacturer from 1990 to December 1999. Previously, Mr. Bradley served as a Special Counsel of O’Melveny & Myers LLP, an international law firm with which he had been associated since 1982.

Mark L. Desmond—Senior Vice President and Chief Financial Officer since January 1996. Mr. Desmond was Vice President and Treasurer from May 1990 to December 1995 and Controller, Chief Accounting Officer and Assistant Treasurer from June 1988 to April 1990. From 1986 until joining the Company, Mr. Desmond held various accounting positions with Beverly Enterprises, Inc., an operator of nursing facilities, pharmacies and pharmacy related outlets.

T. Andrew Stokes—Senior Vice President of Corporate Development since January 1996. Mr. Stokes was Vice President of Development from August 1992 to December 1995. From 1989 until joining the Company, Mr. Stokes was Healthcare Group Director of Houlihan, Lokey, Howard & Zukin, a national financial advisory firm. From 1984 to 1988, Mr. Stokes served as Vice President, Corporate Development for American Medical International, Inc., a hospital management company.

7

David M. Boitano—Vice President of Development since February 2002. From June 2000 until November 2001 Mr. Boitano was the Chief Operating Officer for Essential Markets, Inc., an information technology company. Mr. Boitano was formerly the Senior Vice President of Finance and Acquisitions and Treasurer, and the Vice President of Finance of Alterra Healthcare Corporation, an operator of assisted living facilities, from May 1996 until May 2000. From March 1994 until May 1996, Mr. Boitano was the Chief Financial Officer of Crossings International Corporation, an operator of assisted living facilities.

Steven J. Insoft—Vice President of Development since February 1998. From 1991 to 1997, Mr. Insoft served as President of CMI Senior Housing & Healthcare, Inc., an operator of nursing facilities. From 1988 to 1991, Mr. Insoft was an Associate in the Capital Markets Group of Prudential Insurance Company of America.

John J. Sheehan, Jr.—Vice President of Development since February 1996. From April 1990 until joining the Company, Mr. Sheehan was Vice President, Mortgage Finance for Life Care Centers of America, an operator and manager of nursing facilities. From September 1987 through April 1990, Mr. Sheehan served as Director of Asset Management for Southmark Corporation, a real estate syndication company.

Employees

As of February 15, 2002, we had 14 employees.

8

RISK FACTORS

You should carefully consider the risks described below before making an investment decision in the Company. The risks and uncertainties described below are not the only ones facing us and there may be additional risks that we do not presently know of or that we currently consider immaterial. All of these risks could adversely affect our business, financial condition, results of operations and cash flows. As a result, our ability to pay distributions on, and the market price of, our common stock may be adversely affected if any of such risks are realized. Whenever we refer herein to “the Company” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. and subsidiaries.

Operator Obligations

Our income would be adversely affected if a significant number of our operators were unable to meet their obligations to us or if we were unable to lease our facilities or make mortgage loans on economically favorable terms. There can be no assurance that a lessee will exercise its option to renew its lease upon the expiration of the initial term or that if such failure to renew were to occur, we could lease the facility to another operator on favorable terms.

Operator Governmental Regulations

Our operators are subject to regulation by federal, state and local governments. These laws and regulations are subject to frequent and substantial changes resulting from legislation, adoption of rules and regulations, and administrative and judicial interpretations of existing law. These changes may have a dramatic effect on our operators’ costs associated with doing business and the amount of reimbursement by both government and other third-party payors. These changes may be applied retroactively. The ultimate timing or effect of these changes cannot be predicted. The failure of any of our operators to comply with such laws, requirements and regulations could adversely affect such operator’s ability to meet its obligations to us.

Operator Reimbursement Rates

The ability of our operators to generate revenue and profit affects the underlying value of our facilities. Revenues of our operators are generally derived from payments for patient care from the federal Medicare program, state Medicaid programs, private insurance carriers, health care service plans, health maintenance organizations, preferred provider arrangements, self-insured employers as well as the patients themselves.

A significant portion of our operators’ revenue is derived from governmentally-funded reimbursement programs, such as Medicare and Medicaid. Federal and state governments have adopted and continue to consider various health care reform proposals to control health care costs. In recent years, there have been fundamental changes in the Medicare program that have resulted in reduced levels of payment for a substantial portion of health care services. In many instances, revenues from Medicaid programs are already insufficient to cover the actual costs incurred in providing care to those patients. In addition, reimbursement from private payors has in many cases effectively been reduced to levels approaching those of government payors.

Governmental and public concern regarding health care costs may result in significant reductions in payment to health care facilities, and there can be no assurance that future reimbursement rates for either governmental or private payors will be sufficient to cover cost increases in providing services to patients. Any changes in reimbursement policies that reduce reimbursement to levels that are insufficient to cover the cost of providing patient care could adversely affect revenues of our operators and thereby adversely affect their ability to meet their obligations to the Company.

Operator Financial Difficulties

Our facilities are operated by 60 health care providers including public companies such as Alterra Healthcare Corporation, American Retirement Corporation, ARV Assisted Living Inc., Beverly Enterprises, Inc.,

9

Harborside Healthcare Corporation, HEALTHSOUTH Corporation, Integrated Health Services (“Integrated”), Mariner Post-Acute Network (“Mariner”), Sun Healthcare Group, Inc. (“Sun”) and Assisted Living Concepts, Inc. (“ALC”). At December 31, 2001, Alterra operated 54 facilities representing approximately 13% of our revenues. Other than Alterra, no health care provider operated facilities representing over 10% of our revenues.

At December 31, 2001, five operators, Sun, Mariner, Integrated, ALC and SV/Home Office, Inc. and affiliates, have filed for bankruptcy protection. Effective January 1, 2002, ALC emerged from its bankruptcy proceeding. See “Management’s Discussion and Analysis—Information Regarding Certain Operators” for a more comprehensive discussion of our relationship with these operators. In addition, on February 26, 2001, Alterra announced that it commenced discussion with its principal lenders and lessors regarding the restructuring of its debt and lease obligations. While we expect to be able to accommodate Alterra’s restructuring efforts without any adverse effect to the Company, there can be no guarantee that the restructuring will not have a negative impact on earnings or cash flow.

Our financial position and our ability to make distributions may be adversely affected by financial difficulties experienced by any of our major operators, including bankruptcy, insolvency or general downturn in business of any such operator, or in the event any such operator does not renew or extend its relationship with us as its term expires.

Operators Seeking Bankruptcy Protection

We are exposed to the risk that our operators may not be able to meet their obligations, which may result in their bankruptcy or insolvency. Although our leases and loans provide us the right to terminate an investment, evict an operator, demand immediate repayment and other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able to restrict our ability to collect unpaid rent and interest during the bankruptcy proceeding.

If one of our lessees seeks bankruptcy protection, the lessee can either assume or reject the lease. Generally, the operator is required to make rent payments to us during their bankruptcy until they reject the lease. If the lessee assumes the lease, the court cannot change the rental amount or any other lease provision that could financially impact us. However, if the lessee rejects the lease, the facility would be returned to us. If the facility is returned to us, our financial condition could be adversely affected by delays in leasing the facility to a new operator.

In the event of a default by our operators under mortgage loans, we may have to foreclose on the mortgage or protect our interest by acquiring title to a property and thereafter making substantial improvements or repairs in order to maximize the facility’s investment potential. Operators may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce mortgage obligations. If an operator seeks bankruptcy protection, the automatic stay of the federal bankruptcy law would preclude us from enforcing foreclosure or other remedies against the operator unless relief is obtained from the court. High “loan to value” ratios or declines in the value of the facility may prevent us from realizing an amount equal to our mortgage loan upon foreclosure.

The receipt of liquidation proceeds or the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the replacement of the operator licensed to manage the facility. In some instances, we may take possession of a property that may expose us to successor liabilities. If any of these events occur, our revenue and operating cash flow could be adversely affected. See “Management’s Discussion and Analysis—Information Regarding Certain Operators” for a discussion regarding five of our operators that have filed for bankruptcy protection.

Fraud and Abuse Regulations

There are various federal and state laws prohibiting fraud by healthcare providers, including criminal provisions that prohibit filing false claims or making false statements to receive payment or certification under Medicare and Medicaid, or failing to refund overpayments or improper payments.

10

There are also laws that govern referrals and financial relationships. A wide array of relationships and arrangements, including ownership interests in a company by persons who refer or who are in a position to refer patients, as well as personal services agreements, have under certain circumstances, been alleged or been found to violate these provisions. State and federal governments are devoting increasing attention and resources to anti-fraud initiatives against healthcare providers.

Licensing, Certification and Accreditation

Our operators and facilities are subject to regulatory and licensing requirements of federal, state and local authorities. In granting and renewing licenses, regulatory agencies consider, among other things, the physical buildings and equipment, the qualifications of the administrative personnel and nursing staff, the quality of care and the continuing compliance with the laws and regulations relating to the operation of the facilities. In the ordinary course of business, the operators receive notices of deficiencies for failure to comply with various regulatory requirements and take appropriate corrective and preventive actions.

Failure to obtain licensure or loss of licensure would prevent a facility from operating. Failure to maintain certification in the Medicare and Medicaid programs would result in a loss of funding from those programs. Although accreditation is generally voluntary, loss of accreditation could result in a facility failing to meet eligibility requirements to participate in various reimbursement programs. These events could adversely affect the facility operator’s ability to meet its obligations to the Company.

Competition

The healthcare industry is highly competitive and we expect that it may become more competitive in the future. Our operators are competing with numerous other companies providing similar healthcare services or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. In addition, overbuilding in the assisted living market during the past several years caused a slow-down in the fill-rate of newly constructed buildings and a reduction in the monthly rate many newly built and previously existing facilities were able to obtain for their services. This resulted in lower revenues for the operators of certain of our facilities. It may also have contributed to the financial difficulties of some of our operators. While we believe that overbuilt markets should reach stabilization in the next couple of years due to minimal new development, we cannot be certain the operators of all of our facilities will be able to achieve occupancy and rate levels that will enable them to meet all of their obligations to us. There can also be no assurance that our operators will not encounter increased competition in the future that could limit their ability to attract residents or expand their businesses and therefore affect their ability to meet their obligations to the Company.

Debt Obligations

We are subject to risks normally associated with debt financing, including the risks that our cash flow will be insufficient to make distributions to our stockholders, that we will be unable to refinance existing indebtedness and that the terms of refinancing will not be as favorable as the terms of existing indebtedness.

If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, our cash flow may not be sufficient in all years to pay distributions to our stockholders and to repay all maturing debt. Furthermore, if prevailing interest rates, changes in our debt ratings or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to that refinanced indebtedness would increase. This increased interest expense would adversely affect our financial condition and results of operations.

11

Leverage

Financing for our future investments may be provided by borrowings under our bank line of credit, private or public offerings of debt, the assumption of secured indebtedness, obtaining mortgage financing on a portion of our owned portfolio or through joint ventures. Accordingly, we could become more highly leveraged. The degree of leverage could have important consequences to stockholders, including affecting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, development or other general corporate purposes and making us more vulnerable to a downturn in business or the economy generally.

External Sources of Capital

In order to qualify as a REIT under the Internal Revenue Code, we are required each year to distribute to our stockholders at least 90% of our REIT taxable income. Because of this distribution requirement, we may not be able to fund all future capital needs, including capital needs in connection with acquisitions, from cash retained from operations. As a result, we rely on other sources of capital, which we may not be able to obtain on favorable terms or at all. Our access to capital depends upon a number of factors, including general market conditions and the market’s perception of our growth potential and our current and potential future earnings and cash distributions and the market price of the shares of our capital stock. Additional debt financing may substantially increase our leverage.

Investment Level

Difficult capital market conditions in our industry have limited our access to capital. As a result, the level of our new investments has decreased. However, we anticipate making additional investments in healthcare related facilities during 2002. In the event that there are mortgage repayments or facility sales in excess of new investments, our revenues may decrease.

Change of Control Provisions

Our charter and bylaws contain provisions that may delay, defer or prevent a change in control or other transactions that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for our common stock.

In order to protect us against the risk of losing our REIT status for federal income tax purposes, our charter prohibits the ownership by any single person of more than 9.9% of the issued and outstanding shares of our voting stock. We will redeem shares acquired or held in excess of the ownership limit. In addition, any acquisition of our common stock or preferred stock that would result in our disqualification as a REIT is null and void. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction. The Board of Directors has increased the ownership limit applicable to our voting stock to 20% with respect to Cohen & Steers Capital Management, Inc. As of December 31, 2001, Cohen & Steers Capital Management, Inc. held 15.94% of our common stock.

Our charter authorizes us to issue additional shares of common stock and one or more series of preferred stock and to establish the preferences, rights and other terms of any series of preferred stock that we issue. Although our Board of Directors has no intention to do so at the present time, it could establish a series of preferred stock that could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

12

Our Charter also contains other provisions that may delay, defer or prevent a transaction, including a change in control, that might involve payment of a premium price for our common stock or otherwise be in the best interests of our stockholders. Those provisions include the following:

Ÿ A proposed consolidation, merger, share exchange or transfer must be approved by two-thirds of the votes entitled to be cast on the matter; and

Ÿ the requirement that any Business Combination be approved by 90% of the outstanding shares unless the transaction receives a unanimous vote or a consent of the Board of Directors or is a combination solely with the wholly-owned subsidiary.

These provisions may impede various actions by stockholders without approval of our Board of Directors, which in turn may delay, defer or prevent a transaction involving a change of control.

Stock Price

As with other publicly-traded equity securities, the market price of our common stock will depend upon various market conditions, which may change from time to time. Among the market conditions that may affect the market price of our stock are the following:

Ÿ the extent of investor interest;

Ÿ the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies);

Ÿ our financial performance and that of our operators;

Ÿ the contents of analyst reports regarding the Company and the REIT industry; and

Ÿ general stock and bond market conditions, including changes in interest rates on fixed income securities, which may lead prospective purchasers of our common stock to demand a higher annual yield from future distributions. Such an increase in the required yield from distributions may adversely affect the market price of our common stock.

Other factors such as governmental regulatory action and changes in tax laws could also have a significant impact on the future market price of our common stock.

The market value of the equity securities of a REIT is generally based upon the market’s perception of the REIT’s growth potential and its current and potential future earnings and cash distributions. For that reason, shares of our common stock may trade at prices that are higher or lower than the net asset value per share. Our failure to meet the market’s expectation with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock. Another factor that may influence the price of our common stock will be the distribution yield on our common stock (as a percentage of the price of our common stock) relative to market interest rates. An increase in market interest rates might lead prospective purchasers of our common stock to expect a higher distribution yield, which would adversely affect the market price of our common stock.

REIT Status

We intend to operate in a manner to qualify as a REIT under the Internal Revenue Code. We believe that we have been organized and have operated in a manner, which would allow us to qualify as a REIT under the Internal Revenue Code. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a REIT, or that our future operations could cause us to fail to qualify. Qualification as a REIT requires us to satisfy numerous requirements established under highly technical and complex Internal Revenue Code provisions. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must pay dividends to stockholders aggregating at least 90% of our annual REIT taxable income. Legislation, new regulations, administrative

13

interpretations or court decisions could significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a REIT.

If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. Unless we are entitled to relief under statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification. If we lose our REIT status, our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to stockholders.

Key Personnel

We depend on the efforts of our executive officers, particularly Mr. R. Bruce Andrews, Mr. T. Andrew Stokes and Mr. Mark L. Desmond. While we believe that we could find suitable replacements for these key personnel, the loss of their services or the limitation of their availability could have an adverse impact on our operations. Although we have entered into employment agreements with these executive officers, these employment agreements may not assure their continued service.

Item 2.    Properties.

See Item 1 for details.

Item 3.    Legal Proceedings.

There are various legal proceedings pending to which we are a party or to which some of our properties are subject arising in the normal course of business. We do not believe that the ultimate resolution of these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders.

None.

14

PART II

Item 5.    Market for the Company’s Common Equity and Related Stockholder Matters.

Our common stock is listed on the New York Stock Exchange. It has been our policy to declare quarterly dividends to holders of our common stock in order to comply with applicable sections of the Internal Revenue Code governing real estate investment trusts. Set forth below are the high and low sales prices of our common stock from January 1, 2000 to December 31, 2001 as reported by the New York Stock Exchange and the cash dividends per share paid with respect to such periods.

	High		Low		Dividend
2001
First quarter	$	16.80	$	12.81	$	.46
Second quarter		20.20		16.08		.46
Third quarter		20.29		16.33		.46
Fourth quarter		20.95		18.36		.46
2000
First quarter	$	14.81	$	9.56	$	.46
Second quarter		15.00		9.63		.46
Third quarter		16.38		13.88		.46
Fourth quarter		16.25		12.00		.46

As of January 31, 2002 there were approximately 900 holders of record of our common stock.

15

Item 6.    Selected Financial Data.

The following table presents our selected financial data. Certain of this financial data has been derived from our audited financial statements included elsewhere in this Annual Report on Form 10-K and should be read in conjunction with those financial statements and accompanying notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Reference is made to Note 4 of the Notes to Consolidated Financial Statements for information regarding our acquisitions.

	Years ended December 31,
	2001			2000			1999			1998			1997
	(In thousands, except per share data)
Operating Data:
Total revenues	$	166,837		$	171,396		$	163,865		$	142,584		$	115,705
Income from operations		57,093			70,013			71,148			67,427			62,988
Gain (loss) on sale of facilities		11,245			1,149			(335	)		2,321			829
Net income		68,338			71,162			70,813			69,748			63,817
Preferred stock dividends		(7,677	)		(7,677	)		(7,677	)		(7,677	)		(1,962	)
Net income available to common stockholders		60,661			63,485			63,136			62,071			61,855
Dividends paid on common stock		87,093			85,889			83,480			75,128			65,734
Per Share Data:
Basic/diluted net income available to common stockholders		1.30			1.37			1.37			1.39			1.47
Dividends paid on common stock		1.84			1.84			1.80			1.68			1.56
Balance Sheet Data:
Investments in real estate, net	$	1,228,987		$	1,333,026		$	1,372,064		$	1,316,685		$	1,053,273
Total assets		1,289,838			1,381,007			1,430,056			1,357,303			1,077,394
Senior unsecured notes due 2002-2038		564,750			627,900			657,900			545,150			355,000
Bank borrowings		35,000			79,000			75,300			42,000			19,600
Convertible debentures		—			—			—			57,431			64,512
Notes and bonds payable		91,590			62,857			64,048			64,623			58,297
Stockholders’ equity		555,312			563,472			585,590			605,558			553,046
Other Data:
Net cash provided by operating activities	$	83,187		$	99,940		$	94,659		$	106,067		$	86,010
Net cash provided by (used in) investing activities		75,721			11,258			(89,753	)		(282,968	)		(267,302	)
Net cash provided by (used in) financing activities		(155,995	)		(121,188	)		(4,949	)		182,891			179,775
Funds from operations available to common stockholders (2)		96,481			99,632			99,602			92,726			80,851
Weighted average shares outstanding		46,836			46,228			46,216			44,645			42,173

(1) For per share purposes, income from continuing operations is defined as income before the effect of any gains or losses on sales of properties.

(2) Industry analysts generally consider funds from operations to be an alternative measure of the performance of an equity REIT. We therefore disclose funds from operations, although it is a measurement that is not defined by generally accepted accounting principles. We use the NAREIT measure of funds from operations, which is generally defined as income before extraordinary items adjusted for certain non-cash items, primarily real estate depreciation, less gains/losses on sales of facilities. The NAREIT measure may not be comparable to similarly titled measures used by other REITs. Consequently, our funds from operations may not provide a meaningful measure of our performance as compared to that of other REITs. Funds from operations does not represent cash generated from operating activities as defined by generally accepted accounting principles (funds from operations does not include changes in operating assets and liabilities) and, therefore, should not be considered as an alternative to net income as the primary indicator of operating performance or to cash flow as a measure of liquidity.

16

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

Statement Regarding Forward Looking Disclosure

Certain information contained in this report includes forward looking statements. Forward looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. These statements may be identified, without limitation, by the use of forward looking terminology such as “may”, “will”, “anticipates”, “expects”, “believes”, “intends”, “should” or comparable terms or the negative thereof. All forward looking statements included in this report are based on information available to us on the date hereof. Such statements speak only as of the date hereof and we assume no obligation to update such forward looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include (without limitation) the following: the effect of economic and market conditions and changes in interest rates; the general distress of the healthcare industry; government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs; continued deterioration of the operating results or financial condition, including bankruptcies, of our tenants; the ability of our operators to repay deferred rent in future periods; our ability to attract new operators for certain facilities; occupancy levels at certain facilities; our ability to sell certain facilities for their book value; the amount and yield of any additional investments; changes in tax laws and regulations affecting real estate investment trusts; access to the capital markets and the cost of capital; changes in the ratings of our debt securities; and the risk factors set forth under the caption “ Risk Factors” in Item 1.

Operating Results

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Rental income increased $16,000, or less than 1%, in 2001 as compared to 2000. The increase was primarily a result of one development completed during 2001, a full year of revenues earned by investments in additional facilities in 2000 and the conversion of three facilities from mortgage loans receivable to ownership. The increase was offset by the disposal of 18 facilities during the year, eleven of which were sold in the fourth quarter, and a reduction of the rent at certain facilities related to the settlement with certain operators in bankruptcy proceedings as discussed below. Interest and other income decreased by $4,575,000, or 18%, in 2001 as compared to 2000. The decrease was primarily due to the payoff at par of mortgage loans receivable totaling approximately $32,290,000 secured by five facilities, the conversion of three facilities and four land parcels totaling approximately $13,339,000 from mortgage loans receivable to ownership mentioned above and amortization of notes receivable.

Interest and amortization of deferred financing costs decreased $3,545,000, or 6%, in 2001 as compared to 2000. The decrease was primarily due to a reduction in overall debt levels accomplished with the funds received from the facility sales and mortgage loan receivable payoffs discussed above and decreases in the average interest rates on our $100,000,000 bank line of credit. The decrease was partially offset by a reduction in interest capitalized on construction projects. Depreciation and non-cash charges increased $23,000, or less than 1%, in 2001 as compared to 2000. The increase was attributable to increased depreciation on the development completed in 2001 and the three facilities converted from mortgage loans receivable to ownership and a full year of depreciation related to facilities acquired in 2000. The increase was offset by the disposal of 18 facilities during the year. General and administrative costs increased $2,137,000, or 38%, in 2001 as compared to 2000 primarily due to increases in legal fees and other costs related to five operators in bankruptcy discussed below and general cost increases.

We recorded a net gain of $11,245,000 in 2001 related to the disposal of 15 skilled nursing facilities, two residential care facilities for the elderly and one assisted living facility during the year.

17

During the fourth quarter of 2001, we recorded an impairment of assets charge of $9,746,000. This charge included $3,647,000 related to the write down of three skilled nursing facilities to their fair value less costs to sell, the provision of a reserve against mortgage loans receivable of $1,500,000 and $4,599,000 of receivable write-offs and reserves against other assets which we believe may have become impaired.

We expect to receive increased rent and interest at individual facilities because our leases and mortgages generally contain provisions under which rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. Historically, revenues at our facilities and the Consumer Price Index generally have increased, although there are no assurances that they will continue to increase in the future. Sales of facilities or repayments of mortgages would serve to offset the aforementioned revenue increases, and if sales and repayments exceed additional investments this would actually reduce revenues. There is no assurance that leases will renew at the aggregate existing rent level, so the impact of lease renewals may cause a decrease in the total rent we receive. Additional investments in healthcare facilities would increase rental and/or interest income. As additional investments in facilities are made, depreciation and/or interest expense will also increase. We expect any such increases to be at least partially offset by rent or interest income associated with the investments.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Rental income increased $6,946,000, or 5%, in 2000 as compared to 1999. The increase was primarily a result of the five developments completed during 2000, combined with a full year of revenues earned from investments in additional facilities in 1999. Interest and other income increased by $585,000, or 2%, in 2000 as compared to 1999. The increase was primarily due to increases in additional interest based on increases in the facility revenues or the Consumer Price Index pursuant to our existing mortgage loans receivable and interest income on a note received from Beverly Enterprises, Inc. in 2000 as part of a lease settlement, partially offset by the payoff of a mortgage loan receivable and the partial payoff of another mortgage loan receivable during the year.

Interest and amortization of deferred financing costs increased $6,770,000, or 13%, in 2000 as compared to 1999. The increase was primarily due to the issuance of $112,750,000 in fixed rate medium-term notes during 1999, the interest on which is now included for a full year, increases in the average interest rates on our $100,000,000 bank line of credit and a reduction in interest capitalized on construction projects, partially offset by the repayment of $30,000,000 of fixed rate medium term notes during the year. Depreciation and non-cash charges increased $1,165,000, or 3%, in 2000 as compared to 1999. The increase was attributable to increased depreciation on the developments completed in 2000, a full year of depreciation related to facilities acquired in 1999, partially offset by the disposal of 17 facilities during 2000. General and administrative costs increased $731,000, or 15%, in 2000 as compared to 1999 due to increases in legal fees related to the three operators in bankruptcy at that time, general cost increases and additional costs associated with our larger asset base.

Information Regarding Certain Operators

Over-leveraging and changes in reimbursement levels during 1999 had an adverse impact on the financial performance of some of the companies that operate nursing homes we own. In addition, overbuilding in the assisted living sector has resulted in lower than anticipated fill rates and rental rates for some of the companies that operate assisted living facilities owned by us. Five of the companies that operate our facilities have filed for protection under the United States bankruptcy laws. The table below summarizes, for the four operators of nursing homes, the filing dates of the bankruptcies, the number of our owned facilities operated by each operator at December 31, 2001, our investment in facilities subject to the bankruptcies at December 31, 2001, the percentage of our revenues for 2001 relating to the facilities operated by each operator at December 31, 2001 and cash deposits and letters of credit currently held by us as security for each operator. The fifth operator in bankruptcy, Assisted Living Concepts, Inc. (“ALC”), which operates assisted living facilities, filed for bankruptcy on October 1, 2001 and emerged effective January 1, 2002. At December 31, 2001 we leased two buildings and provided two mortgage loans secured by two buildings to ALC that represented less than 1%

18

of our 2001 revenues and our total investments at December 31, 2001. As part of our arrangement with ALC, as of January 1, 2002, the titles to the two buildings previously securing the mortgage loans were transferred to us in satisfaction of the mortgages and we now lease all four buildings to ALC under a master lease. The new rental rate on these facilities will result in a reduction in income of approximately $500,000 starting in 2002.

Operator	Bankruptcy Filing Date	Number of Facilities Operated	Investment in Facilities		Percentage of 2001 Revenue		Security Deposits
Integrated Health Services, Inc.	February 2, 2000	7	$	34,086,000	3	%	$	643,000
Mariner Post-Acute Network, Inc.	January 18, 2000	7		28,022,000	2	%		1,190,000
Sun Healthcare Group, Inc.	October 14, 1999	6		25,623,000	2	%		870,000
SV/Home Office, Inc. and certain of its affiliates	November 14, 2001	2		3,186,000	0	%		105,000
Totals		22	$	90,917,000	7	%	$	2,808,000

Under bankruptcy statutes, the tenant must either assume our leases or reject them and return the properties to us. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact us. The tenant’s decision whether to assume leases is usually based primarily on whether the properties that are operated by the tenant are providing positive cash flows. Only a few of the 16 remaining facilities leased to and operated by these four companies that have not been assumed are not providing adequate cash flows on their own to cover the rent under the leases. Our rent has been paid each month on a timely basis. Nevertheless, there is a possibility that the tenants may decide to reject the leases on these properties, and while we have identified parties interested in leasing these facilities, any new leases may be at a lower rental rate.

Mariner Post-Acute Network, Inc. (“Mariner”) has assumed the leases on six of the seven facilities it currently leases from us. It has returned 14 facilities to us to date, all of which have been leased to new operators. The leases for eleven of the returned facilities are at rates substantially consistent with what was previously received from Mariner; however, the leases for the other three facilities are at significantly lower rental rates. Sun Healthcare Group, Inc. (“Sun”) has not assumed any of the six facilities it currently leases from us. It has returned 19 facilities to us to date, 17 of which have been leased to new operators, one of which has been sold and one of which is not currently leased. The leases on the buildings that have been leased to new operators are substantially consistent with what was previously received from Sun. We expect the net rate reduction on the facilities returned and those we believe may be returned by Mariner and Sun to result in a decrease in income of approximately $2,125,000 on an annualized basis, approximately $1,425,000 of which is reflected in the financial statements for the year ended December 31, 2001. We are currently in negotiations with Integrated Health Services, Inc. (“Integrated”) regarding their portfolio. We expect them to return two facilities to us, to assume the lease on one facility and we expect to recognize a negotiated reduction in rent on the four remaining leases we expect them to keep. We anticipate the result of the above items related to Integrated to result in a decrease in income of approximately $1,525,000 starting in 2002. SV/Home Office, Inc. and certain of its affiliates (“SV”) have returned one facility to us that we disposed of in January 2002 and we have agreed to allow them to continue to lease the remaining facility. The returned facility will result in a reduction in income of approximately $210,000 in 2002. We recorded a charge of approximately $1,929,000 related to the write-down of the facility SV returned to us. This amount was included in the impairment of assets line in our income statement for 2001.

In addition to the above, we have one mortgage loan directly with Mariner with a principal balance of $7,497,000 that is secured by one facility. The revenues from this mortgage loan represent approximately .5% of our revenues for the year ended December 31, 2001. The mortgage loan is secured by a cash deposit in the amount of $400,000. We have not received any payments on this mortgage loan subsequent to March 2000. We also have one mortgage loan directly with SV with a principal balance of $4,850,000 that is secured by two facilities. The revenues from this mortgage loan represent less than .5% of our revenues for the year ended

19

December 31, 2001. We have agreed to extend this mortgage loan for five years to December 2006. The mortgage is current based on the extended term we have agreed to. Under bankruptcy statutes, the court imposes an automatic stay with respect to our actions to collect or pursue remedies with respect to mortgage loans and we are precluded from exercising foreclosure or other remedies against the borrower. Unlike a lease, a mortgage loan is not subject to assumption or rejection. The mortgage loan may be divided into (i) a secured loan for the portion of the mortgage loan that does not exceed the value of the property and (ii) an unsecured loan for the portion of the mortgage loan that exceeds the value of the property, which unsecured portion would be treated like general unsecured claims in the bankruptcy estate. We would only be entitled to the recovery of interest and costs if and to the extent that the value of the collateral exceeds the amount owed. In addition, the courts may modify the terms of a mortgage, including the rate of interest and timing of principal payments.

In December 2000, Balanced Care Corporation (“BCC”) notified us that it would only be making a partial payment of its December rent. At the time, we leased ten facilities in six states to BCC under two master leases. The facilities were constructed and opened during 1999 and 2000 with an aggregate investment of approximately $68,712,000. We immediately declared BCC in default under its master leases and initiated steps to terminate the leases. BCC agreed to return the facilities to us and the leases were terminated effective as of January 1, 2001. We have leased the facilities to a new operator effective April 1, 2001 at straight-lined lease rates comparable to those previously paid by BCC of approximately $580,000 per month. BCC managed the facilities on an interim basis on our behalf until we had a new operator with licenses in place. We utilized the forfeited cash security deposits totaling approximately $2,035,000 to cover the majority of the rent from December 2000 through March 2001. During 2001, we recognized revenues related to these buildings in excess of cash received of approximately $5,200,000.

In general, the replacement of operators that have defaulted on lease or loan obligations could be delayed by the approval process of any regulatory agency necessary for the transfer of the property or the replacement of the operator licensed to operate the facility.

Liquidity and Capital Resources

During 2001, we completed the construction of one assisted living facility in which our aggregate investment was approximately $10,438,000. Upon completion of construction, the facility was leased under terms generally similar to our existing leases. During this period, we also funded approximately $6,270,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. Such capital improvements generally result in an increase in the minimum rents we earn on these facilities. We funded the construction advances and capital improvements with borrowings on our bank line of credit and cash on hand.

During 2001, we sold 15 skilled nursing facilities, our final two residential care facilities for the elderly and one assisted living facility in twelve separate transactions for aggregate cash proceeds of approximately $50,831,000. We recognized an aggregate gain of $11,245,000 related to the disposal of these facilities. We used the proceeds to repay borrowings on our bank line of credit.

During 2001, we provided a mortgage loan secured by one skilled nursing facility in the amount of $1,000,000. In addition, we funded an additional $1,261,000 on existing mortgage loans. Such additional amounts funded will result in an increase in the interest income we earn on these mortgages. We funded these mortgage loans with borrowings on our bank line of credit and cash on hand.

During 2001, two mortgage loans receivable with an aggregate net book value of approximately $20,727,000 secured by two skilled nursing facilities were repaid at par. In addition, portions of two mortgage loans receivable totaling $11,563,000 secured by three skilled nursing facilities were also repaid. We used the proceeds to repay borrowings on our bank line of credit.

During 2001, we obtained $30,000,000 of mortgage financing for ten years at a 7.7% rate secured by four assisted living facilities. We used the proceeds to repay borrowings on our bank line of credit.

20

During 2001, we repaid $78,150,000 in aggregate principal amount of medium-term notes. The notes bore fixed interest at a weighted average interest rate of 6.89%. We funded the repayment with borrowings on our bank line of credit, cash on hand and the issuance of $15,000,000 in aggregate principal amount of medium-term notes that bear interest at a fixed rate of 9.75% and mature on March 20, 2008. We have $50,000,000 of medium-term notes maturing in 2002 that we anticipate repaying with a combination of borrowings on our bank line of credit, cash on hand, potential mortgage loans receivable payoffs and asset sales, the potential issuance of common stock, the issuance of additional medium-term notes under the shelf registrations discussed below or cash from operations. At year-end we had the availability under our bank line of credit to repay the entire $50,000,000 coming due in 2002. Our medium-term notes have been investment grade rated since 1994. Our current ratings are Baa3 from Moody’s, BBB- from Standard & Poor’s and BBB from Fitch.

At December 31, 2001, we had $65,000,000 available under our $100,000,000 unsecured bank line of credit. At our option, borrowings under the bank line of credit bear interest at prime or at LIBOR plus 1.275%. We pay a facility fee of .35% per annum on the total commitment under the bank line of credit. Under covenants contained in the credit agreement, we are required to maintain, among other things: (i) a minimum net worth of $475,000,000; (ii) a ratio of cash flow before interest expense and non-cash expenses to regularly scheduled debt service payments on all debt of at least 2.5 to 1.0; (iii) a ratio of total liabilities to net worth of not more than 1.6 to 1.0; and (iv) a gross asset value coverage ratio of at least 1.5 to 1.0.

During 2001, we issued one million shares of common stock at $18.00 per share to two mutual funds advised by Cohen & Steers Capital Management, Inc. The issuance of the shares did not involve any underwriting fees. We recorded the stock issuance net of approximately $25,000 of legal and accounting fees related to the issuance and sale of the securities. The proceeds received were used to repay borrowings on our bank line of credit.

We have shelf registrations on file with the Securities and Exchange Commission under which we may issue (a) up to $427,100,000 in aggregate principal amount of medium-term notes and (b) up to $160,247,000 of securities including debt, convertible debt, common and preferred stock.

We did not utilize any off-balance sheet financing arrangements or have any unconsolidated subsidiaries at December 31, 2001, or during the year then ended. During 2001 we entered into a joint venture with an institutional investor that may invest up to $130,000,000 in health care facilities similar to those already owned by us. We anticipate that the venture would be funded 50% by cash from the institutional investor and us and 50% by non-recourse secured debt. We expect to be a 25% equity partner in the venture and therefore would have a total cash commitment of $16,250,000. No investments were made by or into this venture during 2001. While this will be an off-balance sheet arrangement if we choose to utilize it in 2002, we expect its leverage to be no more than 50% and we expect to provide disclosure adequate to facilitate an analysis of the venture’s independent financing and operating activities and their impact on the Company.

We have historically deferred rent for the first several months of a lease for buildings we have constructed with the amount deferred to be repaid over the remainder of the term. During 2001 we began, in certain instances, to provide similar terms for leases on buildings that we have taken or received back from certain operators. We recognized approximately $7,200,000, $700,000 and $2,700,000 of revenues in excess of cash rent received during 2001, 2000 and 1999, respectively and there is approximately $12,700,000 and $6,200,000 of deferred rent recorded under the caption “Other assets” on the balance sheet at December 31, 2001 and 2000, respectively. The ultimate amount we realize could be less than amounts recorded at December 31, 2001.

We anticipate making additional investments in healthcare related facilities during 2002, although the level of our new investments has been depressed during the last two years. During that time we have not been making significant additional investments beyond our actual commitments because access to long-term capital was not available under favorable terms. The common stock issuance during the second quarter of 2001 may indicate that our ability to access capital and fund investments may be improving. Financing for future investments may be

21

provided by borrowings under our bank line of credit, private placements or public offerings of debt or equity, the assumption of secured indebtedness, obtaining mortgage financing on a portion of our owned portfolio or through joint ventures. We anticipate the repayment of certain mortgage loans receivable and the possible sale of certain facilities during 2002. In the event that there are mortgage loan receivable repayments or facility sales in excess of new investments, revenues may decrease. We anticipate using the proceeds from any mortgage loan receivable repayments or facility sales to reduce the outstanding balance on our bank line of credit, to repay other borrowings as they mature or to provide capital for future investments. Any such reduction in debt levels would result in reduced interest expense that we believe would partially offset any decrease in revenues. We believe we have sufficient liquidity and financing capability to finance anticipated future investments, maintain our current dividend level and repay borrowings at or prior to their maturity.

Impact of New Accounting Pronouncements

In June 2001, Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations was issued. This pronouncement supersedes APB Opinion No. 16, “Business Combinations,” and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased Enterprises.” We will adopt SFAS No. 141 for all business combinations initiated after June 30, 2001.

In June 2001, SFAS No. 142, Goodwill and Other Intangible Assets was issued. This pronouncement changes the accounting for goodwill from an amortization method to an impairment approach. We do not presently have any goodwill recorded and do not believe that this pronouncement will have a material impact on our financial position or results of operations.

In August 2001, SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets was issued. This pronouncement supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and a portion of Accounting Principles Board (“APB”) Opinion No. 30 Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions and will become effective for us on January 1, 2002. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 as it relates to assets to be held and used and assets to be sold, but adds provisions for assets to be disposed of other than by sale. It also changes the accounting for the disposal of a segment under APB No. 30 by requiring the operations of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from operating income and reported as discontinued operations. Treating such assets as discontinued operations would also require the reclassification of the operations of any such assets for any prior periods presented. We do not expect the adoption of SFAS No. 144 to have a material impact on our financial condition or the results of our operations.

Market Risk Exposure

We are exposed to market risks related to fluctuations in interest rates on our mortgage loans receivable and debt. We do not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. The purpose of the following analyses is to provide a framework to understand our sensitivity to hypothetical changes in interest rates as of December 31, 2001. Readers are cautioned that many of the statements contained in the “Market Risk Exposure” paragraphs are forward looking and should be read in conjunction with our disclosures under the heading “Statement Regarding Forward Looking Disclosure” set forth above.

We provide mortgage loans to operators of healthcare facilities as part of our normal operations. The majority of the loans have fixed rates. Three of our mortgage loans have adjustable rates; however, the rates adjust only once or twice over the term of the loans and the minimum adjusted rates are equal to the then current rates. Therefore, all mortgage loans receivable are treated as fixed rate notes in the table and analysis below.

22

We utilize debt financing primarily for the purpose of making additional investments in healthcare facilities. Historically, we have made short-term borrowings on our variable rate bank line of credit to fund our acquisitions until market conditions were appropriate, based on management’s judgment, to issue stock or fixed rate debt to provide long-term financing.

A portion of our secured debt is variable rate debt in the form of housing revenue bonds that were assumed in connection with the acquisition of certain healthcare facilities. Pursuant to the associated lease arrangements, increases or decreases in the interest rates on the housing revenue bonds would be substantially offset by increases or decreases in the rent received by us on the properties securing this debt. Therefore, there is substantially no market risk associated with our variable rate secured debt.

For fixed rate debt, changes in interest rates generally affect the fair market value, but do not impact earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value, but do affect the future earnings and cash flows. We generally cannot prepay fixed rate debt prior to maturity. Therefore, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until we would be required to refinance such debt. Holding the variable rate debt balance constant, and including the bank borrowings as variable rate debt due to its nature, each one percentage point increase in interest rates would result in an increase in interest expense for the coming year of approximately $470,000.

The table below details the principal amounts and the average interest rates for the mortgage loans receivable and debt for each category based on the final maturity dates. Certain of the mortgage loans receivable and certain items in the various categories of debt require periodic principal payments prior to the final maturity date. 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 a similar type and remaining maturity.

	Maturity Date
	2002			2003			2004			2005			2006			Thereafter			Total			Fair Value
	(Dollars in thousands)
Assets
Mortgage loans receivable	$	1,000		$	3,039			—		$	5,354		$	14,206		$	116,875		$	140,474		$	140,366
Average interest rate		11.00	%		10.32	%		—			11.50	%		10.50	%		10.11	%		10.22	%
Liabilities
Debt
Fixed rate	$	50,000		$	66,000		$	67,750		$	18,000		$	63,500		$	379,106		$	644,356		$	598,300
Average interest rate		7.35	%		7.49	%		9.08	%		8.66	%		7.42	%		7.41	%		7.63	%
Variable rate		—			—			—			—			—		$	11,984		$	11,984		$	11,984
Average interest rate		—			—			—			—			—			3.67	%		3.67	%
Bank borrowings		—		$	35,000			—			—			—			—		$	35,000		$	35,000
Average interest rate		—			3.15	%		—			—			—			—			3.15	%

Decreases in interest rates during 2001 resulted in a decrease in interest expense related to our bank line of credit. These interest rate decreases have made it less expensive for us to borrow on our bank line of credit. Any future interest rate increases will increase the cost of borrowings on our bank line of credit, any borrowings to refinance long-term debt as it matures or finance future acquisitions.

23

Item 8.    Financial Statements and Supplementary Data.

Report of Independent Public Accountants	25
Consolidated Balance Sheets	26
Consolidated Statements of Operations	27
Consolidated Statements of Stockholders’ Equity	28
Consolidated Statements of Cash Flows	29
Notes to Consolidated Financial Statements	30

24

R EPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Directors of

    Nationwide Health Properties, Inc.:

We have audited the accompanying consolidated balance sheets of Nationwide Health Properties, Inc. (a Maryland corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Health Properties, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

/S/    ARTHUR ANDERSEN LLP

Orange County, California

January 18, 2002

25

N ATIONWIDE HEALTH PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

A S S E T S
	December 31,
	2001			2000
	(In thousands)
Investments in real estate
Real estate properties:
Land	$	144,869		$	142,721
Buildings and improvements		1,150,780			1,182,410
Construction in progress		—			8,478
		1,295,649			1,333,609
Less accumulated depreciation		(207,136	)		(186,206	)
		1,088,513			1,147,403
Mortgage loans receivable, net		140,474			185,623
		1,228,987			1,333,026
Cash and cash equivalents		9,062			6,149
Receivables		9,274			7,607
Other assets		42,515			34,225
	$	1,289,838		$	1,381,007
L I A B I L I T I E S  A N D  S T O C K H O L D E R S ’  E Q U I T Y
Bank borrowings	$	35,000		$	79,000
Senior notes due 2002-2038		564,750			627,900
Notes and bonds payable		91,590			62,857
Accounts payable and accrued liabilities		43,186			47,778
Commitments and contingencies
Stockholders’ equity:
Preferred stock $1.00 par value; 5,000,000 shares authorized; issued and outstanding: 1,000,000 as of December 31, 2001 and 2000; stated at liquidation preference of $100 per share		100,000			100,000
Common stock $.10 par value; 100,000,000 shares authorized; issued and outstanding: 47,240,651 and 46,226,484 as of December 31, 2001 and 2000, respectively		4,724			4,623
Capital in excess of par value		574,829			556,658
Cumulative net income		643,957			575,619
Cumulative dividends		(768,198	)		(673,428	)
Total stockholders’ equity		555,312			563,472
	$	1,289,838		$	1,381,007

26

N ATIONWIDE HEALTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts)

	Years ended December 31,
	2001			2000			1999
Revenues:
Rental income	$	146,173		$	146,157		$	139,211
Interest and other income		20,664			25,239			24,654
		166,837			171,396			163,865
Expenses:
Interest and amortization of deferred financing costs		54,846			58,391			51,621
Depreciation and non-cash charges		37,319			37,296			36,131
General and administrative		7,833			5,696			4,965
Impairment of assets		9,746			—			—
		109,744			101,383			92,717
Income before gain (loss) on sale of facilities		57,093			70,013			71,148
Gain (loss) on sale of facilities		11,245			1,149			(335	)
Net income		68,338			71,162			70,813
Preferred stock dividends		(7,677	)		(7,677	)		(7,677	)
Net income available to common stockholders	$	60,661		$	63,485		$	63,136
Per share amounts:
Basic/diluted net income available to common stockholders	$	1.30		$	1.37		$	1.37
Weighted average shares outstanding		46,836			46,228			46,216

27

N ATIONWIDE HEALTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

	Common stock			Preferred Stock			Capital in excess of par value		Cumulative net income		Cumulative dividends			Total stockholders’ equity
	Shares	Amount		Shares	Amount
Balances at December 31, 1998	46,206	$	4,621	1,000	$	100,000	$	555,998	$	433,644	$	(488,705	)	$	605,558
Issuance of common stock	10		1	—		—		327		—		—			328
Conversion of debentures	—		—	—		—		8		—		—			8
Stock options	—		—	—		—		40		—		—			40
Net income	—		—	—		—		—		70,813		—			70,813
Preferred dividends	—		—	—		—		—		—		(7,677	)		(7,677	)
Common dividends	—		—	—		—		—		—		(83,480	)		(83,480	)
Balances at December 31, 1999	46,216		4,622	1,000		100,000		556,373		504,457		(579,862	)		585,590
Issuance of common stock	10		1	—		—		225		—		—			226
Stock options	—		—	—		—		60		—		—			60
Net income	—		—	—		—		—		71,162		—			71,162
Preferred dividends	—		—	—		—		—		—		(7,677	)		(7,677	)
Common dividends	—		—	—		—		—		—		(85,889	)		(85,889	)
Balances at December 31, 2000	46,226		4,623	1,000		100,000		556,658		575,619		(673,428	)		563,472
Issuance of common stock	1,015		101	—		—		18,083		—		—			18,184
Stock options	—		—	—		—		88		—		—			88
Net income	—		—	—		—		—		68,338		—			68,338
Preferred dividends	—		—	—		—		—		—		(7,677	)		(7,677	)
Common dividends	—		—	—		—		—		—		(87,093	)		(87,093	)
Balances at December 31, 2001	47,241	$	4,724	1,000	$	100,000	$	574,829	$	643,957	$	(768,198	)	$	555,312

28

N ATIONWIDE HEALTH PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years ended December 31,
	2001			2000			1999
Cash flows from operating activities:
Net income	$	68,338		$	71,162		$	70,813
Depreciation and non-cash charges		37,319			37,296			36,131
(Gain) loss on sale of properties		(11,245	)		(1,149	)		335
Impairment of assets		9,746			—			—
Amortization of deferred financing costs		952			1,011			940
Net change in other assets and liabilities		(21,923	)		(8,380	)		(13,560	)
Net cash provided by operating activities		83,187			99,940			94,659
Cash flows from investing activities:
Investment in real estate properties		(7,412	)		(20,843	)		(110,590	)
Disposition of real estate properties		50,831			21,004			23,669
Investment in mortgage loans receivable		(2,261	)		(2,929	)		(5,011	)
Principal payments on mortgage loans receivable		34,563			14,026			2,179
Net cash provided by (used in) investing activities		75,721			11,258			(89,753	)
Cash flows from financing activities:
Bank borrowings		209,300			180,800			262,600
Repayment of bank borrowings		(253,300	)		(177,100	)		(229,300	)
Issuance of common stock, net		18,034			—			—
Issuance of senior unsecured debt		15,000			—			112,750
Issuance of notes and bonds payable		30,000			—			—
Repayments of senior unsecured debt		(78,150	)		(30,000	)		—
Principal payments on notes and bonds payable		(1,262	)		(1,082	)		(58,470	)
Dividends paid		(94,770	)		(93,566	)		(91,157	)
Deferred financing costs		(847	)		(240	)		(1,372	)
Net cash used in financing activities		(155,995	)		(121,188	)		(4,949	)
Increase (decrease) in cash and cash equivalents		2,913			(9,990	)		(43	)
Cash and cash equivalents, beginning of period		6,149			16,139			16,182
Cash and cash equivalents, end of period	$	9,062		$	6,149		$	16,139
Supplemental schedule of cash flow information:
Cash interest paid	$	55,149		$	57,995		$	49,402

29

N A T I O NWIDE HEALTH PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2001, 2000 and 1999

1.    Organization

Nationwide Health Properties, Inc. was incorporated on October 14, 1985 in the State of Maryland. Whenever we refer herein to “the Company” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. We operate as a real estate investment trust specializing in investments in health care related properties and as of December 31, 2001 had investments in 309 health care facilities, including 165 skilled nursing facilities, 128 assisted living facilities, 13 continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and one medical clinic. At December 31, 2001, we owned 135 skilled nursing facilities, 121 assisted living facilities, nine continuing care retirement communities, one rehabilitation hospital, one long-term acute care hospital and one medical clinic. We also held 29 mortgage loans secured by 30 skilled nursing facilities, seven assisted living facilities and four continuing care retirement communities. We have no foreign facilities or operations.

2.    Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its investment in its majority owned and controlled joint ventures. All material intercompany accounts and transactions have been eliminated. Certain items in prior period financial statements have been reclassified to conform with current year presentation.

Land, Buildings and Improvements

We record properties at cost and use the straight-line method of depreciation for buildings and improvements over their estimated remaining useful lives of up to 40 years. We review and adjust facility useful lives periodically. We periodically evaluate our properties for potential impairment by comparing our net book values to the expected future cash flows from the properties.

Cash and Cash Equivalents

Cash in excess of daily requirements is invested in money market mutual funds, commercial paper and repurchase agreements with original maturities of three months or less. Such investments are deemed to be cash equivalents for purposes of presentation in the financial statements.

Federal Income Taxes

We qualify as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. We intend to continue to qualify as such and therefore to distribute at least 90% of our real estate investment trust taxable income to our stockholders. Accordingly, we will not be subject to federal income taxes on our income that is distributed to stockholders. Therefore, no provision for federal income taxes has been made in our financial statements. The net difference in the tax basis and the reported amounts of our assets and liabilities as of December 31, 2001 is approximately $22,231,000.

Revenue Recognition

Rental income from operating leases is accrued as earned over the life of the lease agreements in accordance with generally accepted accounting principles. The majority of our leases do not contain step rent provisions in

30

the lease agreements. Interest income on real estate mortgages is recognized using the effective interest method based upon the expected payments over the lives of the mortgages. Additional rent and additional interest, included in the captions “Rental income” and “Interest and other income,” respectively, are generally computed as a percentage of facility net patient revenues in excess of base amounts or as a percentage of the increase in the Consumer Price Index. Additional rent and interest are generally calculated and payable monthly or quarterly, and most of our leases contain provisions such that total rent cannot decrease from one year to the next. While the calculations and payments are generally made on a quarterly basis, SEC Staff Accounting Bulletin No. 101 Revenue Recognition in Financial Statements (“SAB No. 101”) does not allow for the recognition of such revenue until all possible contingencies have been eliminated. Most of our leases with additional rents contingent upon revenue are structured as quarterly calculations such that all contingencies have been eliminated at each of our quarterly reporting dates.

We have historically deferred the payment of rent for the first several months on leases for buildings we have constructed. These deferred amounts are repaid over the remainder of the lease term. During 2001 we began, in certain instances, to provide similar terms for leases on buildings that we have taken or received back from certain operators. We recognized approximately $7,200,000, $700,000 and $2,700,000 of revenues in excess of cash rent received during 2001, 2000 and 1999, respectively and there is approximately $12,700,000 and $6,200,000 of deferred rent recorded under the caption “Other assets” on the balance sheet at December 31, 2001 and 2000, respectively. The ultimate amount we realize could be less than amounts recorded at December 31, 2001.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting for Stock-Based Compensation

In 1999, we adopted the accounting provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 Accounting for Stock-Based Compensation. This Statement established a fair value based method of accounting for stock-based compensation. Accounting for stock-based compensation under this Statement causes the fair value of stock options granted to be amortized into expense over the vesting period of the stock and causes any dividend equivalents earned to be treated as dividends for financial reporting purposes.

Capitalization of Interest

We capitalize interest on facilities under construction. The capitalization rates used are based on rates for our senior unsecured notes and bank line of credit, as applicable. Capitalized interest in 2001, 2000 and 1999 was $613,000, $1,245,000 and $4,190,000, respectively. There are no facilities under construction at December 31, 2001.

Impact of New Accounting Pronouncements

In June 2001, Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations was issued. This pronouncement supersedes APB Opinion No. 16, “Business Combinations,” and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased Enterprises.” We will adopt SFAS No. 141 for all business combinations initiated after June 30, 2001.

31

In June 2001, SFAS No. 142, Goodwill and Other Intangible Assets was issued. This pronouncement changes the accounting for goodwill from an amortization method to an impairment approach. We do not presently have any goodwill recorded and do not believe that this pronouncement will have a material impact on our financial position or results of operations.

In August 2001, SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets was issued. This pronouncement supersedes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and a portion of Accounting Principles Board (“APB”) Opinion No. 30 Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions and will become effective for us on January 1, 2002. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 as it relates to assets to be held and used and assets to be sold, but adds provisions for assets to be disposed of other than by sale. It also changes the accounting for the disposal of a segment under APB No. 30 by requiring the operations of any assets with their own identifiable cash flows that are disposed of or held for sale to be removed from operating income and reported as discontinued operations. Treating such assets as discontinued operations would also require the reclassification of the operations of any such assets for any prior periods presented. We do not expect the adoption of SFAS No. 144 to have a material impact on our financial condition or the results of our operations.

3.    Earnings Per Share (“EPS”)

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average common shares outstanding. Income available to common stockholders is calculated by deducting dividends declared on preferred stock from net income. Diluted earnings per share includes the effect of any potential shares outstanding, which for us is only comprised of dilutive stock options. The calculation below excludes 361,500 stock options with option prices that would not be dilutive. The table below details the components of the basic and diluted earnings per share from continuing operations calculations:

	Years Ended December 31,
	2001				2000				1999
	Income			Shares	Income			Shares	Income			Shares
	(Amounts in thousands)
Net income	$	68,338			$	71,162			$	70,813
Less: preferred stock dividends		(7,677	)			(7,677	)			(7,677	)
Amounts used to calculate Basic EPS		60,661		46,793		63,485		46,226		63,136		46,216
Effect of dilutive securities:
Stock options		—		43		—		2		—		—
Amounts used to calculate Diluted EPS	$	60,661		46,836	$	63,485		46,228	$	63,136		46,216

4.    Real Estate Properties

Substantially all of our owned facilities are leased under “triple-net” leases which are accounted for as operating leases. The leases generally have initial terms ranging from 5 to 21 years, and generally have two or more multiple-year renewal options. We earn fixed monthly minimum rents and may earn periodic additional rents. Most leases contain provisions such that the total rent cannot decrease from one year to the next. Approximately 41% of our facilities are leased under master leases. In addition, most leases contain cross-collateralization and cross-default provisions tied to other leases with the same lessee, as well as grouped lease renewals and grouped purchase options. Obligations under the leases have corporate guarantees, and leases

32

covering 195 facilities are backed by irrevocable letters of credit or cash security deposits that cover up to 12 months of monthly minimum rents. Under the terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and insurance on the leased properties.

Minimum future rentals on non-cancelable leases as of December 31, 2001 are as follows:

Year	Minimum Rentals		Year	Minimum Rentals
	(In thousands)			(In thousands)
2002	$	133,225	2008	101,646
2003		130,774	2009	91,761
2004		130,252	2010	78,336
2005.		119,257	2011	62,921
2006		112,298	Thereafter	185,311
2007		106,237

During 2001, we completed the construction of one assisted living facility in which our aggregate investment was approximately $10,438,000. Upon completion of construction, the facility was leased under terms generally similar to our existing leases. During this period, we also funded approximately $6,270,000 in capital improvements at certain facilities in accordance with certain existing lease provisions. Such capital improvements generally result in an increase in the minimum rents we earn on these facilities.

During 2001, we sold 15 skilled nursing facilities, our final two residential care facilities for the elderly and one assisted living facility in twelve separate transactions for aggregate cash proceeds of approximately $50,831,000. We recognized an aggregate gain of $11,245,000 related to the disposal of these facilities. We provided the mortgage financing for one of the skilled nursing facilities we sold in the amount of $642,000. In addition, we acquired title to three skilled nursing facilities and four land parcels for which we previously had provided mortgage loans receivable having an aggregate mortgage balance of $13,339,000.

33

The following table lists our real estate properties as of December 31, 2001:

Facility Location	Number of Facilities	Land		Buildings and Improvements		Total Investment(1)		Accumulated Depreciation		Notes and Bonds Payable
	(Dollar amounts in thousands)
Assisted Living Facilities:
Alabama	2	$	1,681	$	4,272	$	5,953	$	600	$	—
Arizona	2		1,024		6,844		7,868		976		—
Arkansas	1		182		1,969		2,151		202		—
California	13		15,105		64,473		79,578		11,828		30,000
Colorado	6		3,465		42,150		45,615		4,677		—
Delaware	1		345		4,956		5,301		340		—
Florida	20		12,581		81,183		93,764		7,902		—
Idaho	1		544		11,256		11,800		1,545		—
Indiana	1		805		3,861		4,666		354		—
Kansas	4		1,885		11,585		13,470		1,242		—
Kentucky	1		110		2,547		2,657		267		—
Louisiana	1		831		6,554		7,385		355		—
Maryland	1		533		4,667		5,200		271		—
Massachusetts	1		1,758		9,250		11,008		802		—
Michigan	1		300		7,006		7,306		1,361		—
Nevada	2		1,219		12,397		13,616		1,313		6,486
New Jersey	1		655		3,430		4,085		279		—
North Carolina	1		385		2,531		2,916		237		—
Ohio	11		3,623		35,329		38,952		3,498		—
Oklahoma	3		745		7,388		8,133		1,472		—
Oregon	6		2,078		26,753		28,831		4,500		8,702
Pennsylvania	3		2,066		23,144		25,210		994		—
Rhode Island	3		2,877		27,183		30,060		1,336		—
South Carolina	4		779		10,262		11,041		872		—
Tennessee	5		2,664		22,074		24,738		1,731		—
Texas	17		7,561		69,713		77,274		6,586		—
Virginia	2		1,651		11,323		12,974		477		—
Washington	4		1,840		21,094		22,934		2,532		—
West Virginia	1		705		5,427		6,132		287		—
Wisconsin	2		4,843		24,218		29,061		2,718		17,968
Subtotals	121		74,840		564,839		639,679		61,554		63,156

34

Facility Location	Number of Facilities	Land		Buildings and Improvements		Total Investment(1)		Accumulated Depreciation		Notes and Bonds Payable
	(Dollar amounts in thousands)
Skilled Nursing Facilities:
Arizona	1	$	650	$	2,890	$	3,540	$	1,002	$	—
Arkansas	8		2,505		32,409		34,914		3,939		2,145
California	7		6,688		18,181		24,869		5,420		—
Connecticut	4		1,230		13,029		14,259		1,696		—
Florida	8		3,640		23,963		27,603		8,089		—
Georgia	1		562		3,780		4,342		336		—
Idaho	1		15		777		792		292		—
Illinois	2		157		5,392		5,549		1,872		—
Indiana	7		752		26,583		27,335		9,169		—
Kansas	8		754		12,456		13,210		3,339		—
Maryland	4		845		21,388		22,233		9,315		—
Massachusetts	16		7,188		67,167		74,355		12,963		—
Minnesota	4		1,792		18,559		20,351		6,641		—
Mississippi	1		750		3,717		4,467		337		—
Missouri	1		51		2,689		2,740		1,230		—
Nevada	1		740		3,294		4,034		844		—
New Jersey	1		360		6,448		6,808		4,458		—
North Carolina	1		116		2,244		2,360		1,026		—
Ohio	6		1,316		27,211		28,527		10,129		—
Oklahoma	3		98		3,841		3,939		1,764		—
Tennessee	5		1,878		16,631		18,509		2,803		—
Texas	26		5,290		57,378		62,668		15,408		—
Virginia	4		1,036		17,532		18,568		8,018		—
Washington	7		2,924		26,241		29,165		5,501		—
Wisconsin	8		1,571		18,121		19,692		7,962		—
Subtotals	135		42,908		431,921		474,829		123,553		2,145
Continuing Care Retirement Communities:
California	1		1,600		10,827		12,427		1,963		—
Colorado	1		400		2,715		3,115		702		—
Georgia	1		723		10,769		11,492		834		—
Kansas	1		687		12,517		13,204		1,532		2,400
Massachusetts	1		1,351		12,941		14,292		1,252		—
Tennessee	1		174		3,004		3,178		100		—
Texas	1		1,848		28,522		30,370		3,060		—
Wisconsin	2		11,067		53,294		64,361		6,717		23,889
Subtotals	9		17,850		134,589		152,439		16,160		26,289
Rehabilitation Hospitals:
Arizona	1		1,275		9,435		10,710		2,251		—
Long-Term Acute Care Hospitals:
Arizona	1		242		5,924		6,166		1,996		—

35

Facility Location	Number of Facilities	Land		Buildings and Improvements		Total Investment(1)		Accumulated Depreciation		Notes and Bonds Payable
	(Dollar amounts in thousands)
Medical Clinics:
Alabama	1	$	248	$	2,185	$	2,433	$	1,561	$	—
Land Parcels:
Alabama	—		859		8		867		—		—
Florida	—		1,240		22		1,262		—		—
Maine	—		344		—		344		—		—
Michigan	—		1,999		16		2,015		—		—
New Hampshire	—		638		99		737		—		—
Ohio	—		253		1,506		1,759		53
Pennsylvania	—		1,573		26		1,599		—		—
Texas	—		600		210		810		8		—
Subtotals	—		7,506		1,887		9,393		61		—
Total Facilities	268	$	144,869	$	1,150,780	$	1,295,649	$	207,136	$	91,590

(1) Also represents the approximate aggregate cost for federal income tax purposes.

Four operators of nursing homes and one operator of assisted living facilities we own have filed for protection under the United States bankruptcy laws. Under bankruptcy statutes, the tenant must either assume our leases or reject them and return the properties to us. If the tenant assumes the leases, it is required to assume the leases under the existing terms; the court cannot change the rental amount or other lease provisions that could financially impact us. Our rent has been paid each month on a timely basis. While there is a possibility that the tenants may decide to reject the leases on these properties, and we expect them to return a few buildings to us, we have identified parties interested in leasing these facilities, however such leases may be at a lower rental rate. The table below summarizes, for the four operators of nursing homes, the filing dates of the bankruptcies, the number of our owned facilities operated by each operator at December 31, 2001, our investment in facilities subject to the bankruptcies at December 31, 2001, the percentage of our revenues for 2001 relating to the facilities operated by each operator at December 31, 2001 and cash deposits and letters of credit currently held by us as security for each operator. The fifth operator in bankruptcy, Assisted Living Concepts, Inc. (“ALC”), which operates assisted living facilities, filed for bankruptcy on October 1, 2001 and emerged effective January 1, 2002. At December 31, 2001 we leased two buildings and provided two mortgage loans secured by two buildings to ALC that represented less than 1% of our 2001 revenues and our total investments at December 31, 2001. As part of our arrangement with ALC, as of January 1, 2002, title to the two buildings previously securing the mortgage loans was transferred to us in satisfaction of the mortgages and we now lease all four buildings to ALC in a master lease. The new rental rate on these facilities will result in a reduction in income of approximately $500,000 starting in 2002.

36

Operator	Bankruptcy Filing Date	Number of Facilities Operated	Investment in Facilities		Percentage of 2001 Revenue		Security Deposits
Integrated Health Services, Inc.	February 2, 2000	7	$	34,086,000	3	%	$	643,000
Mariner Post-Acute Network, Inc.	January 18, 2000	7		28,022,000	2	%		1,190,000
Sun Healthcare Group, Inc.	October 14, 1999	6		25,623,000	2	%		870,000
SV/Home Office Inc. and certain affiliates	November 14, 2001	2		3,186,000	0	%		105,000
Totals		22	$	90,917,000	7	%	$	2,808,000

In December 2000, Balanced Care Corporation (“BCC”) notified us that it would only be making a partial payment of its December rent. At the time, we leased ten facilities in six states to BCC under two master leases. The facilities were constructed and opened during 1999 and 2000 with an aggregate investment of approximately $68,712,000. We immediately declared BCC in default under its master leases and initiated steps to terminate the leases. BCC agreed to return the facilities to us and the leases were terminated effective as of January 1, 2001. We have leased the facilities to a new operator effective April 1, 2001 at straight-lined lease rates comparable to those previously paid by BCC of approximately $580,000 per month. BCC managed the facilities on an interim basis on our behalf until we had a new operator with licenses in place. We utilized the forfeited cash security deposits totaling approximately $2,035,000 to cover the majority of the rent from December 2000 through March 2001. During 2001, we recognized revenues related to these buildings in excess of cash received of approximately $5,200,000.

5.    Mortgage Loans Receivable

During 2001, we financed the sale of one skilled nursing facility with a mortgage loan in the amount of $642,000. We also provided a mortgage loan secured by one skilled nursing facility in the amount of $1,000,000. In addition, we funded an additional $1,261,000 on existing mortgage loans. Such additional amounts funded will result in an increase in the interest income we earn on these mortgages. During 2001, two mortgage loans receivable with an aggregate net book value of approximately $20,727,000 secured by two skilled nursing facilities were repaid. In addition, portions of two mortgage loans receivable totaling $11,563,000 secured by three skilled nursing facilities were also repaid. We also acquired title to three skilled nursing facilities and four land parcels for which we previously had provided mortgage loans having an aggregate mortgage balance of $13,339,000. At December 31, 2001, we had 29 mortgage loans receivable secured by 30 skilled nursing facilities, seven assisted living facilities and four continuing care retirement communities. The mortgage loans receivable have an aggregate principal balance of approximately $144,289,000 and are reflected in our financial statements net of an aggregate discount and reserve totaling approximately $3,815,000. The principal balances of mortgage loans receivable as of December 31, 2001 mature approximately as follows: $3,305,000 in 2002, $6,989,000 in 2003, $1,951,000 in 2004, $6,072,000 in 2005, $15,806,000 in 2006 and $110,166,000 thereafter.

37

The following table lists our mortgage loans receivable at December 31, 2001:

Location of Facilities	Number of Facilities	Interest Rate		Final Maturity Date	Estimated Balloon Payment(1)		Original Face Amount of Mortgages		Carrying Amount of Mortgages(2)
	(Dollar amounts in thousands)
Assisted Living Facilities:
Florida	2	10.31	%	09/20	$	—	$	7,230	$	7,084
North Carolina	2	10.44	%	05/07		2,950		2,950		2,950
Pennsylvania	1	9.24	%	09/08		2,900		2,900		2,900
South Carolina	1	9.24	%	09/08		2,955		2,955		2,955
Washington	1	9.95	%	12/15		6,432		6,557		6,557
Subtotals	7					15,237		22,592		22,446
Skilled Nursing Facilities:
Arkansas	3	10.00	%	12/06		4,946		5,500		5,102
California	1	9.50	%	03/09		64		7,841		79
Florida	—	11.35	%	07/03		—		4,400		349
Florida	1	11.65	%	07/06		4,400		4,400		4,400
Florida	2	10.00	%	12/06		4,850		4,850		4,704
Florida	1	10.00	%	12/03		1,028		1,230		1,307
Illinois	1	9.00	%	01/24		—		9,500		8,778
Illinois	1	11.00	%	12/02		1,000		1,000		1,000
Indiana	1	11.35	%	07/03		—		785		185
Kansas	1	10.00	%	09/03		1,168		1,550		1,198
Louisiana	1	10.89	%	04/15		2,407		3,850		3,716
Maryland	1	10.90	%	06/21		—		7,800		7,497
Massachusetts	1	8.75	%	02/24		—		9,000		7,915
Michigan	2	13.69	%	01/05		2,506		3,000		2,529
Michigan	1	9.00	%	01/05		1,231		1,800		1,411
Missouri	4	11.68	%	08/11		9,056		17,250		9,056
Oregon	1	10.00	%	01/05		642		642		642
South Dakota	1	10.95	%	05/05		—		4,275		472
Tennessee	1	10.67	%	01/07		8,550		8,550		8,550
Washington	4	11.00	%	10/19		112		6,000		5,511
Wisconsin	1	10.95	%	05/05		—		1,350		300
Subtotals	30					41,960		104,573		74,701
Continuing Care Retirement Communities:
California	1	9.50	%	03/09		3,015		4,159		3,755
Florida	1	10.00	%	06/09		16,104		16,104		16,104
Massachusetts	1	9.52	%	06/23		—		12,350		11,866
Oklahoma	1	9.55	%	03/24		2,250		14,200		13,102
Subtotals	4					21,369		46,813		44,827
Mortgage Loan Reserve	—	—		—		—		—		(1,500	)
Total	41				$	78,566	$	173,978	$	140,474

38

(1) Most mortgage loans receivable require monthly principal and interest payments at level amounts over life to maturity. Some mortgage loans receivable have interest rates which periodically adjust, but cannot decrease, which results in varying principal and interest payments over life to maturity, in which case the balloon payments reflected are an estimate. Five of the mortgage loans receivable have decreasing principal and interest payments over the life of the loans. Most mortgage loans receivable require a prepayment penalty based on a percentage of principal outstanding or a penalty based upon a calculation maintaining the yield we would have earned if prepayment had not occurred. Six mortgage loans receivable have a provision that no prepayments are acceptable.

(2) Also represents the approximate aggregate cost for federal income tax purposes.

The skilled nursing facility mortgage loan receivable listed above in the state of Maryland with a carrying amount of $7,497,000 is directly with Mariner Post-Acute Network, which filed for protection under the United States bankruptcy laws on January 18, 2000. Under bankruptcy statutes, the court imposes an automatic stay with respect to our actions to collect or pursue remedies with respect to mortgage loans and we are precluded from exercising foreclosure or other remedies against the borrower. The mortgage loan may be divided into (i) a secured loan for the portion of the mortgage loan that does not exceed the value of the property and (ii) an unsecured loan for the portion of the mortgage loan that exceeds the value of the property, which unsecured portion would be treated like general unsecured claims in the bankruptcy estate. We would only be entitled to the recovery of interest and costs if and to the extent that the value of the collateral exceeds the amount owed. In addition, the courts may modify the terms of a mortgage, including the rate of interest and timing of principal payments. The revenues from this mortgage loan receivable represent approximately .5% of our revenues for the year ended December 31, 2001, and the mortgage loan receivable is secured by a cash deposit in the amount of $400,000. We have not received any payments on this mortgage loan subsequent to March 2000. The mortgage loan receivable above in the state of Florida secured by two skilled nursing facilities with a carrying amount of $4,704,000 is directly with SV/Home Office, Inc. and certain of its affiliates which filed for bankruptcy protection on November 14, 2001. The revenues from this mortgage loan receivable represent less than .5% of our revenues for the year ended December 31, 2001. We have agreed to extend the mortgage loan for five years to December 2006 and it is current based on the extended terms we have negotiated.

The following table summarizes the changes in mortgage loans receivable during 2001, 2000 and 1999:

	2001			2000			1999
	(In thousands)
Balance at January 1,	$	185,623		$	203,362		$	206,613
New mortgage loans		2,903			9,009			5,011
New discounts on mortgage loans		—			(263	)		—
Accretion of discount on loans		1,350			1,801			1,217
Reclassification of loans to leases		(13,339	)		(14,260	)		(7,300	)
Collection of principal		(34,563	)		(14,026	)		(2,179	)
Mortgage loan reserve		(1,500	)		—			—
Balance at December 31,	$	140,474		$	185,623		$	203,362

6.    Bank Borrowings

We have a $100,000,000 unsecured credit agreement with certain banks that matures on March 31, 2003. At our option, borrowings under the agreement bear interest at prime (4.75% at December 31, 2001) or LIBOR plus 1.275% (3.15% at December 31, 2001). We pay a facility fee of .35% per annum on the total commitment under the agreement.

39

Under covenants contained in the credit agreement, we are required to maintain, among other things: (i) a minimum net worth of $475,000,000; (ii) a ratio of cash flow before interest expense and non-cash expenses to regularly scheduled debt service payments on all debt of at least 2.5 to 1.0; (iii) a ratio of total liabilities to net worth of not more than 1.6 to 1.0; and (iv) a gross asset value coverage ratio of at least 1.5 to 1.0.

7.    Notes and Bonds Payable

Notes and bonds payable are due through the year 2035, at interest rates ranging from 3.2% to 10.5% and are secured by real estate properties with an aggregate net book value as of December 31, 2001 of approximately $125,354,000. During 2001, we obtained $30,000,000 of mortgage financing with a ten year term at a 7.7% rate secured by four assisted living facilities. The principal balances of the notes and bonds payable as of December 31, 2001 mature approximately as follows: $1,615,000 in 2002, $1,755,000 in 2003, $1,888,000 in 2004, $2,023,000 in 2005, $2,145,000 in 2006, and $82,164,000 thereafter.

8.    Senior Unsecured Notes Due 2002-2038

During 2001, we repaid $78,150,000 in aggregate principal amount of medium-term notes. The aggregate principal amount of Senior Notes outstanding at December 31, 2001 was $564,750,000. The weighted average interest rate on the Senior Notes was 7.65% and the weighted average maturity was 11.0 years. The principal balances of the Senior Notes as of December 31, 2001 mature approximately as follows: $50,000,000 in 2002, $66,000,000 in 2003, $67,750,000 in 2004, $18,000,000 in 2005, $63,500,000 in 2006 and $299,500,000 thereafter.

There are $55,000,000 of medium-term notes due in 2037 which may be put back to us at their face amount at the option of the holder on October 1st of any of the following years: 2004, 2007, 2009, 2012, 2017, or 2027. There are $41,500,000 of medium-term notes due in 2028 which may be put back to us at their face amount at the option of the holder on November 20th of any of the following years: 2003, 2008, 2013, 2018, or 2023. There are $40,000,000 of medium-term notes due in 2038 which may be put back to us at their face amount at the option of the holder on July 7th of any of the following years: 2003, 2008, 2013, 2018, 2023, or 2028.

9.    Preferred Stock

During 1997, we sold 1,000,000 shares of 7.677% Series A Cumulative Preferred Step-Up REIT securities (“Preferred Stock”) with a liquidation preference of $100 per share. Dividends on the Preferred Stock are cumulative from the date of original issue and are payable quarterly in arrears, commencing December 31, 1997 at the rate of 7.677% per annum of the liquidation preference per share (equivalent to $7.677 per annum per share) through September 30, 2012 and at a rate of 9.677% of the liquidation preference per annum per share (equivalent to $9.677 per annum per share) thereafter. The Preferred Stock is not redeemable prior to September 30, 2007. On or after September 30, 2007, the Preferred Stock may be redeemed for cash at our option, in whole or in part, at a redemption price of $100 per share, plus accrued and unpaid dividends, if any, thereon.

10.    Stock Incentive Plan

Under the terms of a stock incentive plan (the “Plan”), we have reserved for issuance 1,600,000 shares of common stock. Under the Plan, as amended, we may issue stock options, restricted stock, dividend equivalents and stock appreciation rights. We began accounting for the Plan under SFAS No. 123 Accounting for Stock-Based Compensation during 1999 for options granted in 1999 and thereafter. Prior to 1999, we accounted for the

40

Plan under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees. Had compensation cost for the Plan been determined consistent with SFAS No. 123 for the years prior to 1999, our net income and net income per share in 2000 and 1999 would have been the following pro forma amounts:

	2000		1999
Net income available to common stockholders:
As reported	$	63,485,000	$	63,136,000
Pro forma		63,387,000		62,977,000
Basic/diluted net income per share:
As reported	$	1.37	$	1.37
Pro forma		1.37		1.36

As the options vest over three years and we adopted SFAS No. 123 during 1999, the pro forma affect was fully amortized at the end of 2000. A summary of the status of the Plan at December 31, 2001, 2000 and 1999 and changes during the years then ended are as follows:

	2001				2000				1999
	Shares		Wtd Avg Ex Price		Shares		Wtd Avg Ex Price		Shares		Wtd Avg Ex Price
Options:
Outstanding at beginning of year	529,000		$	20.61	404,000		$	22.53	279,000		$	23.42
Granted	135,000			14.98	125,000			14.38	125,000			20.56
Exercised	(4,167	)		—	—			—	—			—
Forfeited	(50,833	)		—	—			—	—			—
Expired	—			—	—			—	—			—
Outstanding at end of year	609,000			19.35	529,000			20.61	404,000			22.53
Exercisable at end of year	361,500		$	21.90	287,334		$	22.70	182,327		$	22.50
Weighted average fair value of options granted	$  0.84				$  0.45				$  1.04
Restricted Stock:
Outstanding at beginning of year	26,000				53,000				73,400
Awarded	10,000				10,000				10,000
Vested	(8,000	)			(37,000	)			(30,400	)
Forfeited	—				—				—
Outstanding at end of year	28,000				26,000				53,000
Weighted average fair value of restricted stock awarded	$14.88				$14.38				$20.56

Stock options granted under the Plan become exercisable each year following the date of grant in annual increments of one-third and are exercisable at the market price of our common stock on the date of grant. Options at December 31, 2001 have a weighted average contractual life of 7 years.

41

The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following weighted average assumptions:

	2001	2000	1999
Risk free rate of return	5.15%	6.79%	5.18%
Dividend yield	12.30%	12.52%	8.75%
Option term	10	10	10
Volatility	27.21%	22.21%	18.96%

The restricted stock awards are granted at no cost. Restricted stock awards vest at the third anniversary of the award date with respect to non-employee directors and at the fifth anniversary with respect to officers and employees. Subsequent to 1995, only non-employee directors receive restricted stock awards, and the remaining restricted stock issued to officers and employees fully vested in 2000. The restricted stock awards are amortized over their respective vesting periods. Expense is determined based upon the market value at the date of award of the restricted stock and is recognized over the vesting period. Expense recorded in 2001, 2000 and 1999 related to restricted stock awards was approximately $150,000, $226,000 and $325,000, respectively.

Awards of dividend equivalents accompany the stock option grants beginning in 1996 on a one-for-one basis. Such dividend equivalents are payable in cash until such time as the corresponding stock option is exercised, based upon a formula approved by the Compensation Committee of the Board of Directors. That formula depends on our performance measured for a minimum of a three-year period and up to a five-year period by total return to stockholders (increase in stock price and dividends paid) compared to peer companies and other select financial measures compared to peer companies, in each case as selected by the Compensation Committee. SFAS No. 123 provides that payments related to the dividend equivalents are treated as dividends.

No stock appreciation rights have been issued under the Plan.

11.    Pension Plan

During 1991, we adopted an unfunded benefit pension plan covering the current non-employee members of our Board of Directors upon completion of five years of service on the Board. The benefits, limited to the number of years of service on the Board, are based upon the then current annual retainer in effect.

The following tables set forth the amounts recognized in our financial statements:

	12/31/01		12/31/00
Actuarial present value of benefit obligations:
Vested benefit obligation	$	978,000	$	882,000
Accumulated benefit obligation	$	1,024,000	$	908,000
Projected benefit obligation	$	1,084,000	$	965,000
Unrecognized prior service cost		—		(19,000	)
Unrecognized net gain		16,000		87,000
Accrued pension cost	$	1,100,000	$	1,033,000

42

Net pension cost for the year included the following components:

	2001		2000		1999
Current service cost	$	52,000	$	48,000	$	54,000
Interest cost		70,000		59,000		53,000
Amortization of prior service cost		19,000		5,000		19,000
Net periodic pension cost	$	141,000	$	112,000	$	126,000

Discount rates of 8.0%, 8.0% and 6.75% in 2001, 2000 and 1999, respectively, and a 5.0% increase in the annual retainer every other year, were used in determining the actuarial present value of the projected benefit obligation.

12.    Transactions with Alterra Healthcare Corporation and Beverly Enterprises, Inc.

As of December 31, 2000, 53 of our owned facilities are leased to and operated by subsidiaries of Alterra Healthcare Corporation (“Alterra”). Additionally, Alterra is the borrower on one of our mortgage loans. Revenues from Alterra were approximately $19,430,000, $19,148,000 and $19,117,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

One of our directors was chairman of the board of directors and chief executive officer of Beverly Enterprises, Inc. (“Beverly”) during 1999 and 2000. He was its chairman of the board of directors in 2001. As of January 2002, he is no longer serving on the board of directors of Beverly.

As of December 31, 2001, 28 of our owned facilities are leased to and operated by subsidiaries of Beverly. Additionally, Beverly is the borrower on 4 of our mortgage loans. Revenues from Beverly were approximately $14,793,000, $21,514,000 and $21, 211,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

Effective January 1, 2000, we negotiated a new lease and settlement with Beverly that incorporated 38 of the 47 facilities then leased to Beverly. As part of the renewal settlement, we recorded a note receivable from Beverly of approximately $16,208,000, net of deferred income of approximately $8,165,000 that is being recognized under the installment method. Such revenues are included in rent on the accompanying income statements. The promissory note bears interest at 9.0% and requires Beverly to make quarterly payments through its final maturity on December 31, 2004.

13.    Impairment of Assets

During the fourth quarter of 2001 we became aware of facts indicating that certain assets may have become impaired. After analyzing these assets we recorded an impairment of assets charge of $9,746,000. Included in this amount was $3,647,000 for the write down of three skilled nursing facilities to their fair values based on prices offered to us for these specific properties less anticipated selling costs. We determined that one facility was impaired because it has not had a tenant during 2001. The impairment of the other two facilities was determined as a result of the operators of the facilities, both of which have filed for bankruptcy protection, notifying us that they would be rejecting the leases on their respective buildings. We disposed of one of the rejected facilities in January 2002 for its reduced book value. These facilities had revenues of approximately $520,000, $699,000, and $747,000 in 2001, 2000 and 1999, respectively and expenses, primarily depreciation, of approximately $675,000, $848,000, and $137,000 in 2001, 2000 and 1999, respectively. The impairment of assets charge also included the provision of a reserve against mortgage loans receivable of $1,500,000 and $4,599,000 of receivable write-offs and reserves against other assets that we believe may have become impaired, $2,500,000 and $700,000 of which are valuation reserves against items included under the caption “Other assets” on the balance sheet at December 31, 2001.

43

14.    Dividends

Dividend payments to the common stockholders were characterized in the following manner for tax purposes:

	2001		2000		1999
Ordinary income	$	1.07	$	1.25	$	1.30
Capital gain		.19		.19		.10
Return of capital		.58		.40		.40
Total dividends paid	$	1.84	$	1.84	$	1.80

15.    Quarterly Financial Data (unaudited)

	Three months ended,
	March 31,		June 30,		September 30,		December 31,
	(In thousands except per share amounts)
2001:
Revenues	$	41,679	$	42,597	$	41,541	$	41,020
Net income available to common stockholders		13,248		15,790		17,910		13,714
Basic/diluted net income per share		.29		.34		.38		.29
Dividends per share		.46		.46		.46		.46
2000:
Revenues	$	42,421	$	43,066	$	43,057	$	42,852
Net income available to common stockholders		15,619		16,380		15,812		15,675
Basic/diluted net income per share		.34		.36		.34		.34
Dividends per share		.46		.46		.46		.46

16.     Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short maturity of these instruments.

Mortgage Loans Receivable

Fair values are based upon the estimates of management and on rates currently prevailing for comparable loans.

Long-Term Debt

The fair value of long-term debt is estimated based on discounting future cash flows utilizing current rates offered to us for debt of a similar type and remaining maturity.

The estimated fair values of our financial instruments are as follows:

	2001				2000
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Cash and cash equivalents	$	9	$	9	$	6	$	6
Mortgage loans receivable		140		140		186		186
Long-term debt		691		645		770		709

44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Directors

of Nationwide Health Properties, Inc.:

We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Nationwide Health Properties, Inc.’s annual report to shareholders included in this Form 10-K, and have issued our report thereon dated January 18, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

/s/    ARTHUR ANDERSEN LLP

Orange County, California

January 18, 2002

45

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

NATIONWIDE HEALTH PROPERTIES, INC.

DECEMBER 31, 2001

(Dollar amounts in thousands)

Facility Type and Location		Initial Cost to Building and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Assisted Living Facilities:
Decatur	AL	$	1,825	$	—	$	1,484	$	1,825	$	3,309	$	274	1987	1996
Hanceville	AL		2,447		—		197		2,447		2,644		326	1996	1996
Benton	AR		1,479		490		182		1,969		2,151		202	1990	1998
Chandler	AZ		2,753		—		505		2,753		3,258		235	1998	1998
Mesa	AZ		1,391		2,700		519		4,091		4,610		741	1985	1996
Carmichael	CA		7,929		755		1,500		8,684		10,184		1,881	1984	1995
Chula Vista	CA		6,281		72		950		6,353		7,303		1,113	1989	1995
Encinitas (3)	CA		5,017		126		1,000		5,143		6,143		1,039	1984	1995
Mission Viejo	CA		3,544		89		900		3,633		4,533		682	1985	1995
Novato (3)	CA		3,658		403		2,500		4,061		6,561		821	1978	1995
Placentia	CA		3,801		184		1,320		3,985		5,305		855	1982	1995
Rancho Cucamonga (3)	CA		4,156		269		610		4,425		5,035		819	1987	1995
San Dimas	CA		3,577		225		1,700		3,802		5,502		760	1975	1995
San Jose	CA		7,252		—		850		7,252		8,102		680	1998	1998
San Juan Capistrano	CA		6,344		235		700		6,579		7,279		1,122	1985	1995
San Juan Capistrano (3)	CA		3,834		172		1,225		4,006		5,231		752	1985	1995
Santa Maria	CA		2,649		118		1,500		2,767		4,267		565	1967	1995
Vista	CA		3,701		82		350		3,783		4,133		739	1980	1996
Aurora	CO		10,119		—		715		10,119		10,834		696	1999	1999
Aurora	CO		7,923		—		919		7,923		8,842		1,584	1983	1995
Boulder	CO		4,811		—		833		4,811		5,644		722	1985	1995
Boulder	CO		4,738		—		184		4,738		4,922		812	1992	1995
Brighton	CO		2,158		—		210		2,158		2,368		243	1997	1997
Lakewood	CO		12,401		—		604		12,401		13,005		620	2000	2000
Hockessin	DE		4,956		—		345		4,956		5,301		340	1999	1999
Gainesville	FL		2,699		—		356		2,699		3,055		298	1997	1997
Gainesville	FL		3,313		—		310		3,313		3,623		248	1998	1998
Hudson	FL		8,139		550		1,665		8,689		10,354		1,425	1986	1996
Jacksonville	FL		2,770		—		226		2,770		2,996		294	1997	1997
Jacksonville	FL		2,376		—		366		2,376		2,742		282	1997	1997
LeHigh Acres	FL		2,600		—		307		2,600		2,907		271	1997	1997
Naples	FL		10,797		—		1,140		10,797		11,937		765	1999	1999
Naples	FL		4,084		—		1,182		4,084		5,266		451	1997	1997
Palm Coast	FL		2,580		—		406		2,580		2,986		258	1997	1997
Panama City	FL		2,659		—		353		2,659		3,012		227	1998	1998
Pensacola	FL		5,626		730		408		6,356		6,764		335	1999	1999
Pensacola	FL		1,580		400		170		1,980		2,150		428	1979	1996
Port Charlotte	FL		2,655		—		245		2,655		2,900		288	1997	1997
Punta Gorda	FL		2,691		—		210		2,691		2,901		297	1997	1997
Rotunda	FL		2,628		—		267		2,628		2,895		263	1997	1997
St. Petersburg	FL		2,396		985		2,000		3,381		5,381		498	1993	1995
Tallahassee	FL		9,084		134		696		9,218		9,914		520	1999	1999
Travares	FL		2,466		—		156		2,466		2,622		288	1997	1997
Titusville	FL		4,706		—		1,742		4,706		6,448		202	1987	2000
Venice	FL		2,535		—		376		2,535		2,911		264	1997	1997
Boise	ID		5,586		5,670		544		11,256		11,800		1,545	1978	1995
Carmel	IN		3,861		—		805		3,861		4,666		354	1998	1998
Lawrence	KS		3,822		—		932		3,822		4,754		350	1995	1998
Salina	KS		2,887		—		329		2,887		3,216		303	1989	1998
Salina	KS		1,921		—		200		1,921		2,121		228	1996	1997
Topeka	KS		2,955		—		424		2,955		3,379		361	1986	1998
Murray	KY		2,547		—		110		2,547		2,657		267	1998	1998
Mandeville	LA		6,554		—		831		6,554		7,385		355	1999	1999

46

Facility Type and Location		Initial Cost to Building and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Assisted Living Facilities: (continued)
Pittsfield	MA	$	9,052	$	198	$	1,758	$	9,250	$	11,008	$	802	1998	1998
Hagerstown	MD		3,785		882		533		4,667		5,200		271	1999	1999
Riverview	MI		6,939		67		300		7,006		7,306		1,361	1987	1995
Hickory	NC		2,531		—		385		2,531		2,916		237	1997	1998
Deptford	NJ		3,430		—		655		3,430		4,085		279	1998	1998
Sparks (4)	NV		7,278		—		714		7,278		7,992		728	1993	1997
Sparks (5)	NV		5,119		—		505		5,119		5,624		585	1991	1997
Dayton	OH		1,917		—		270		1,917		2,187		196	1997	1997
Dublin	OH		5,793		9		356		5,802		6,158		496	1998	1998
Fairfield	OH		1,917		—		270		1,917		2,187		212	1997	1997
Greenville	OH		2,311		—		215		2,311		2,526		255	1997	1997
Hillard	OH		7,056		1,744		652		8,800		9,452		527	1999	1999
Lancaster	OH		2,084		—		350		2,084		2,434		174	1998	1998
Newark	OH		2,047		—		225		2,047		2,272		230	1997	1997
Sharonville	OH		4,013		37		225		4,050		4,275		787	1986	1995
Springdale	OH		2,092		—		440		2,092		2,532		222	1997	1997
Urbana	OH		2,118		—		150		2,118		2,268		221	1997	1997
Youngstown	OH		2,191		—		470		2,191		2,661		178	1998	1998
Broken Arrow	OK		1,445		—		178		1,445		1,623		181	1996	1997
Oklahoma City	OK		3,897		515		392		4,412		4,804		1,100	1982	1994
Oklahoma City	OK		1,531		—		175		1,531		1,706		191	1996	1997
Albany	OR		3,657		4,531		511		8,188		8,699		1,424	1968	1995
Albany (6)	OR		2,465		—		92		2,465		2,557		493	1984	1995
Forest Grove (7)	OR		3,152		—		401		3,152		3,553		540	1994	1995
Gresham	OR		4,647		—		—		4,647		4,647		797	1988	1995
McMinnville (8)	OR		3,976		—		760		3,976		4,736		597	1989	1995
Medford	OR		4,325		—		314		4,325		4,639		649	1990	1995
Bridgeville	PA		8,023		1,149		653		9,172		9,825		597	1999	1999
Center Square	PA		9,438		—		1,000		9,438		10,438		79	2001	2001
York	PA		3,790		744		413		4,534		4,947		318	1999	1999
East Greenwich	RI		8,277		140		1,200		8,417		9,617		421	2000	2000
Lincoln	RI		9,612		—		477		9,612		10,089		400	2000	2000
Portsmouth	RI		9,154		—		1,200		9,154		10,354		515	1999	1999
Clinton	SC		2,560		—		87		2,560		2,647		208	1997	1998
Columbia	SC		2,664		1		210		2,665		2,875		250	1997	1998
Greenwood	SC		2,648		—		107		2,648		2,755		215	1997	1998
Greer	SC		2,389		—		375		2,389		2,764		199	1998	1998
Brentwood	TN		2,302		—		600		2,302		2,902		379	1995	1995
Bristol	TN		4,130		874		406		5,004		5,410		335	1999	1999
Germantown	TN		4,623		10		755		4,633		5,388		386	1998	1998
Johnson City	TN		4,289		715		404		5,004		5,408		302	1999	1999
Murfreesboro	TN		4,240		891		499		5,131		5,630		329	1999	1999
College Station	TX		1,726		—		278		1,726		2,004		147	1994	1998
Corsicana	TX		1,494		—		117		1,494		1,611		190	1996	1996
Dallas	TX		3,500		743		308		4,243		4,551		1,048	1981	1994
Denton	TX		1,425		—		185		1,425		1,610		181	1996	1996
Ennis	TX		1,409		—		119		1,409		1,528		179	1996	1996
Houston	TX		8,945		—		985		8,945		9,930		615	1999	1999
Houston	TX		7,184		—		1,089		7,184		8,273		479	1999	1999
Houston	TX		7,194		—		1,235		7,194		8,429		629	1998	1998
Houston	TX		7,052		—		1,089		7,052		8,141		485	1999	1999
Lakeway	TX		10,542		—		579		10,542		11,121		769	1999	1999
Lewisville	TX		1,892		—		260		1,892		2,152		217	1997	1997
Mansfield	TX		1,575		—		225		1,575		1,800		197	1996	1997
Paris	TX		1,465		—		166		1,465		1,631		186	1996	1996
Pearland	TX		7,892		—		493		7,892		8,385		691	1998	1998

47

Facility Type and Location		Initial Cost to Buildings and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Assisted Living Facilities (continued):
Richland Hills	TX	$	2,211	$	252	$	65	$	2,463	$	2,528	$	185	1998	1998
Richland Hills	TX		1,616		—		223		1,616		1,839		202	1996	1997
Weatherford	TX		1,596		—		145		1,596		1,741		186	1996	1997
Martinsville	VA		3,049		5		1,001		3,054		4,055		115	2000	2000
Midlothian	VA		8,269		—		650		8,269		8,919		362	2000	2000
Bellevue	WA		4,467		—		766		4,467		5,233		382	1998	1998
Richland	WA		6,052		119		172		6,171		6,343		1,052	1990	1995
Tacoma	WA		5,208		—		402		5,208		5,610		586	1997	1997
Yakima	WA		5,248		—		500		5,248		5,748		512	1998	1998
Menomonee Falls (9)	WI		13,190		—		4,161		13,190		17,351		1,602	1989	1997
West Allis (10)	WI		8,117		2,911		682		11,028		11,710		1,116	1996	1997
Hurricane	WV		4,475		952		705		5,427		6,132		287	1999	1999
			532,961		31,878		74,840		564,839		639,679		61,554
Skilled Nursing Facilities:
Benton	AR		4,659		9		685		4,668		5,353		478	1992	1998
Bryant	AR		4,889		16		320		4,905		5,225		501	1989	1998
Hot Springs	AR		2,320		—		54		2,320		2,374		1,022	1978	1986
Lake Village	AR		4,317		15		261		4,332		4,593		388	1998	1998
Monticello	AR		3,295		8		300		3,303		3,603		296	1995	1998
Morrilton	AR		4,995		3		308		4,998		5,306		448	1996	1998
Morrilton	AR		3,703		8		250		3,711		3,961		379	1988	1998
Wynne (11)	AR		4,165		7		327		4,172		4,499		427	1990	1998
Scottsdale	AZ		2,790		100		650		2,890		3,540		1,002	1963	1991
Chowchilla	CA		1,119		—		109		1,119		1,228		399	1965	1987
Gilroy	CA		1,892		—		714		1,892		2,606		646	1968	1991
Hayward	CA		1,222		221		795		1,443		2,238		479	1968	1991
Orange	CA		5,059		—		1,141		5,059		6,200		1,191	1987	1992
San Diego	CA		4,925		—		842		4,925		5,767		1,491	1965	1992
San Jose	CA		1,136		571		1,595		1,707		3,302		547	1968	1991
Santa Cruz	CA		1,596		440		1,492		2,036		3,528		667	1964	1991
Bloomfield	CT		2,827		—		670		2,827		3,497		683	1967	1994
Hartford	CT		4,153		—		350		4,153		4,503		30	1969	2001
Torrington	CT		2,555		—		140		2,555		2,695		958	1969	1987
Winsted	CT		3,494		—		70		3,494		3,564		25	1960	2001
Dania	FL		1,098		—		178		1,098		1,276		1,001	1970	1997
Ft. Pierce	FL		2,758		280		125		3,038		3,163		1,373	1960	1985
Jacksonville	FL		2,787		46		498		2,833		3,331		503	1965	1996
Jacksonville	FL		1,759		—		1,503		1,759		3,262		202	1997	1997
Lakeland	FL		5,029		79		1,000		5,108		6,108		1,218	1982	1994
Live Oak	FL		3,217		1,750		50		4,967		5,017		1,662	1983	1986
Maitland	FL		3,327		—		209		3,327		3,536		1,465	1982	1986
Pensacola	FL		1,833		—		77		1,833		1,910		665	1962	1987
Flowery Branch	GA		3,115		665		562		3,780		4,342		336	1970	1997
Buhl	ID		777		—		15		777		792		292	1913	1986
Lasalle	IL		2,703		—		127		2,703		2,830		938	1975	1991
Litchfield	IL		2,689		—		30		2,689		2,719		934	1974	1991
Brookville	IN		4,120		—		81		4,120		4,201		944	1987	1992
Evansville	IN		5,324		—		280		5,324		5,604		1,849	1968	1991
New Castle	IN		5,173		—		43		5,173		5,216		1,796	1972	1991
Petersburg	IN		2,352		—		33		2,352		2,385		1,036	1970	1986
Richmond	IN		2,519		—		114		2,519		2,633		1,110	1975	1986
Rochester	IN		4,055		250		161		4,305		4,466		1,465	1969	1991
Wabash	IN		2,790		—		40		2,790		2,830		969	1974	1991
Belleville	KS		1,887		—		213		1,887		2,100		550	1977	1993
Colby	KS		599		117		50		716		766		274	1974	1986

48

Facility Type and Location		Initial Cost to Building and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Skilled Nursing Facilities (continued):
Derby	KS	$	2,482	$	—	$	133	$	2,482	$	2,615	$	807	1978	1992
Hiawatha	KS		788		34		150		822		972		73	1974	1998
Hutchinson	KS		1,855		161		75		2,016		2,091		526	1964	1994
Onaga	KS		652		88		6		740		746		322	1959	1986
Salina	KS		2,463		135		27		2,598		2,625		681	1981	1994
Topeka	KS		1,137		58		100		1,195		1,295		106	1973	1998
Amesbury	MA		4,241		607		229		4,848		5,077		695	1971	1997
Beverly	MA		3,748		874		392		4,622		5,014		288	1998	1998
Brockton	MA		3,591		16		525		3,607		4,132		982	1971	1993
Buzzards Bay	MA		4,815		226		415		5,041		5,456		2,259	1910	1985
Danvers	MA		4,248		1,047		392		5,295		5,687		325	1998	1998
Danvers	MA		3,211		1,144		327		4,355		4,682		604	1962	1997
Danvers	MA		2,891		487		305		3,378		3,683		486	1969	1997
Haverhill	MA		5,707		1,764		660		7,471		8,131		1,718	1973	1993
Haverhill	MA		1,414		3		775		1,417		2,192		386	1962	1993
Melrose	MA		4,029		531		432		4,560		4,992		496	1967	1998
N. Bellerica	MA		3,137		300		800		3,437		4,237		866	1970	1994
New Bedford	MA		2,357		52		93		2,409		2,502		1,099	1888	1985
Northborough	MA		2,509		458		300		2,967		3,267		282	1968	1998
Saugus	MA		5,262		514		374		5,776		6,150		837	1967	1997
Sharon	MA		1,097		4,369		844		5,466		6,310		494	1963	1996
Wellesley	MA		2,435		83		325		2,518		2,843		1,146	1961	1985
Clinton	MD		5,017		—		400		5,017		5,417		1,840	1965	1987
Cumberland	MD		5,260		—		150		5,260		5,410		2,405	1968	1985
Hagerstown	MD		4,140		176		215		4,316		4,531		1,963	1971	1985
Westminster	MD		6,795		—		80		6,795		6,875		3,107	1973	1985
Duluth	MN		7,047		—		1,014		7,047		8,061		998	1971	1997
Minneapolis	MN		5,752		582		333		6,334		6,667		2,977	1941	1985
Minneapolis	MN		4,184		—		436		4,184		4,620		2,069	1961	1985
Ostrander	MN		947		47		9		994		1,003		597	1968	1986
Maryville	MO		2,689		—		51		2,689		2,740		1,230	1972	1985
Columbus	MS		3,520		197		750		3,717		4,467		337	1976	1998
Hendersonville	NC		2,244		—		116		2,244		2,360		1,026	1979	1985
Lakewood	NJ		6,448		—		360		6,448		6,808		4,458	1966	1987
Sparks	NV		3,294		—		740		3,294		4,034		844	1988	1991
Alliance	OH		838		—		83		838		921		646	1962	1991
Boardman	OH		7,046		—		60		7,046		7,106		2,446	1962	1991
Columbus	OH		4,333		—		343		4,333		4,676		1,654	1984	1988
Galion	OH		3,419		—		24		3,419		3,443		1,187	1967	1991
Warren	OH		7,489		—		450		7,489		7,939		2,600	1967	1991
Wash Court House	OH		4,086		—		356		4,086		4,442		1,596	1984	1988
Maud	OK		803		—		12		803		815		303	1960	1986
Sapulpa	OK		2,243		—		68		2,243		2,311		841	1970	1986
Tonkawa	OK		795		—		18		795		813		620	1962	1987
Celina	TN		853		—		150		853		1,003		232	1975	1993
Clarksville	TN		3,479		—		350		3,479		3,829		947	1967	1993
Decatur	TN		3,330		—		193		3,330		3,523		333	1981	1998
Jonesborough	TN		2,551		3		65		2,554		2,619		695	1982	1993

49

Facility Type and Location		Initial Cost to Building and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Skilled Nursing Facilities (continued)
Madison	TN	$	6,415	$	—	$	1,120	$	6,415	$	7,535	$	596	1967	1998
Baytown	TX		2,388		108		90		2,496		2,586		679	1975	1990
Baytown	TX		1,902		108		61		2,010		2,071		542	1970	1990
Bogota	TX		1,820		—		13		1,820		1,833		802	1963	1986
Center	TX		1,424		108		22		1,532		1,554		408	1972	1990
Dublin	TX		905		—		21		905		926		437	1967	2001
Eagle Lake	TX		1,833		108		25		1,941		1,966		523	1972	1990
El Paso	TX		1,888		—		166		1,888		2,054		710	1980	1988
Garfield	TX		1,619		108		238		1,727		1,965		462	1970	1990
Gilmer	TX		3,033		1,785		248		4,818		5,066		365	1990	1998
Gladewater	TX		2,018		—		125		2,018		2,143		577	1971	1993
Houston	TX		4,155		107		408		4,262		4,670		1,207	1982	1993
Humble	TX		1,821		108		140		1,929		2,069		519	1972	1990
Huntsville	TX		1,930		107		135		2,037		2,172		550	1968	1990
Linden	TX		2,520		—		25		2,520		2,545		721	1968	1993
Marshall	TX		865		—		19		865		884		466	1964	1986
McKinney	TX		4,797		—		1,263		4,797		6,060		293	1967	2000
McKinney	TX		1,456		—		1,318		1,456		2,774		537	1967	1987
Mount Pleasant	TX		2,505		—		40		2,505		2,545		717	1970	1993
Nacogdoches	TX		1,104		107		135		1,211		1,346		317	1973	1990
New Boston	TX		2,366		—		44		2,366		2,410		677	1966	1993
Omaha	TX		1,579		—		28		1,579		1,607		452	1970	1993
San Antonio	TX		2,033		108		32		2,141		2,173		579	1965	1990
San Antonio	TX		1,636		107		221		1,743		1,964		467	1965	1990
Sherman	TX		2,075		—		67		2,075		2,142		594	1971	1993
Texarkana	TX		1,244		—		87		1,244		1,331		548	1983	1986
Waxahachie	TX		3,493		—		319		3,493		3,812		1,259	1976	1987
Annandale	VA		7,752		—		487		7,752		8,239		3,545	1963	1985
Charlottesville	VA		4,620		—		362		4,620		4,982		2,113	1964	1985
Petersburg	VA		2,945		—		94		2,945		3,039		1,347	1976	1985
Petersburg	VA		2,215		—		93		2,215		2,308		1,013	1972	1985
Battleground	WA		2,226		—		84		2,226		2,310		835	1963	1986
Kennewick	WA		4,459		—		297		4,459		4,756		644	1959	1997
Moses Lake	WA		4,307		1,326		304		5,633		5,937		1,074	1972	1994
Moses Lake	WA		2,385		—		164		2,385		2,549		583	1988	1994
Seattle	WA		5,752		182		1,223		5,934		7,157		1,080	1993	1994
Shelton	WA		4,382		300		327		4,682		5,009		363	1998	1998
Tacoma	WA		922		—		525		922		1,447		922	1968	1987
Chilton	WI		2,275		148		55		2,423		2,478		1,061	1963	1986
Florence	WI		1,529		—		15		1,529		1,544		674	1970	1986
Green Bay	WI		2,255		—		300		2,255		2,555		993	1965	1986
Sheboygan	WI		1,697		—		219		1,697		1,916		743	1967	1986
Shorewood	WI		5,744		368		706		6,112		6,818		2,663	1971	1986
St. Francis	WI		535		—		80		535		615		235	1960	1986
Tomah	WI		1,745		128		115		1,873		1,988		849	1974	1985
Wisconsin Dells	WI		1,697		—		81		1,697		1,778		744	1972	1986
			407,959		23,962		42,908		431,921		474,829		123,553

50

Facility Type and Location		Initial Cost to Building and Improvements		Costs Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period (1)						Accum. Depr.		Original Construction Date	Date Acquired
						Land (2)		Buildings and Improvements		Total
Continuing Care Retirement
Communities:
Palm Desert	CA	$	9,097	$	1,730	$	1,600	$	10,827	$	12,427	$	1,963	1989	1994
Sterling	CO		2,715		—		400		2,715		3,115		702	1979	1994
Lawrenceville	GA		10,769		—		723		10,769		11,492		834	1988	1998
Andover (12)	KS		12,517		—		687		12,517		13,204		1,532	1987	1997
Norton	MA		8,272		4,669		1,351		12,941		14,292		1,252	1972	1997
Trenton	TN		3,004		—		174		3,004		3,178		100	1974	2000
Corpus Christi	TX		14,929		13,593		1,848		28,522		30,370		3,060	1985	1997
Glendale (13)	WI		22,905		—		3,834		22,905		26,739		2,682	1988	1997
Waukesha (14)	WI		28,562		1,827		7,233		30,389		37,622		4,035	1973	1997
			112,770		21,819		17,850		134,589		152,439		16,160
Rehabilitation Hospitals:
Tucson	AZ		9,435		—		1,275		9,435		10,710		2,251	1992	1992
Long-Term Acute Care Facilities:
Scottsdale			5,874		50		242		5,924		6,166		1,996	1986	1988
Clinics:
Heflin	AL		2,100		85		248		2,185		2,433		1,561	1997	1997
Land:
Montgomery	AL		8		—		859		8		867		—
Stuart	FL		22		—		1,240		22		1,262		—
Wells	ME		—		—		344		—		344		—
West Bloomfield	MI		16		—		1,999		16		2,015		—
Derry	NH		99		—		638		99		737		—
Akron	OH		1,506		—		253		1,506		1,759		53
Upper Saint Clare	PA		26		—		1,573		26		1,599		—
Bastrop	TX		210		—		600		210		810		8
			1,887		—		7,506		1,887		9,393		61
GRAND TOTAL		$	1,072,986	$	77,794	$	144,869	$	1,150,780	$	1,295,649	$	207,136

  (1) Also represents the approximate cost for federal income tax purposes.

  (2) Gross amount at which land is carried at close of period also represents initial cost to the Company.

  (3) Real estate is security for notes payable in the aggregate of $30,000,000 at 12/31/01.

  (4) Real estate is security for notes payable in the aggregate of $3,018,000 at 12/31/01.

  (5) Real estate is security for notes payable in the aggregate of $3,468,000 at 12/31/01.

  (6) Real estate is security for notes payable in the aggregate of $2,025,000 at 12/31/01.

  (7) Real estate is security for notes payable in the aggregate of $3,258,000 at 12/31/01.

  (8) Real estate is security for notes payable in the aggregate of $3,419,000 at 12/31/01.

  (9) Real estate is security for notes payable in the aggregate of $10,085,000 at 12/31/01.

(10) Real estate is security for notes payable in the aggregate of $7,883,000 at 12/31/01.

(11) Real estate is security for notes payable in the aggregate of $2,145,000 at 12/31/01.

(12) Real estate is security for notes payable in the aggregate of $2,400,000 at 12/31/01.

(13) Real estate is security for notes payable in the aggregate of $12,772,000 at 12/31/01.

(14) Real estate is security for notes payable in the aggregate of $11,117,000 at 12/31/01.

51

	Real Estate Properties			Accumulated Depreciation
	(in thousands)
Balances at December 31, 1998:	$	1,243,388		$	133,316
Acquisitions		99,572			33,876
Improvements		11,100			1,381
Reclassifications		7,300			—
Sales		(29,987	)		(5,902	)
Balances at December 31, 1999:		1,331,373			162,671
Acquisitions		21,547			33,293
Improvements		15,114			2,364
Reclassifications		10,851			—
Sales		(45,276	)		(12,122	)
Balances at December 31, 2000:		1,333,609			186,206
Acquisitions		14,464			32,620
Improvements		6,270			2,640
Reclassifications		1,323			—
Impairment of Assets		(3,536	)		—
Sales		(56,481	)		(14,330	)
Balances at December 31, 2001:	$	1,295,649		$	207,136

52

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

PART III

Item 10.    Directors and Executive Officers of the Registrant.

Information required regarding executive officers is included under the caption “ Executive officers of the Company” in Item 1.

Incorporated herein by reference to the information under the caption “Election of Directors” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on April 22, 2002, filed or to be filed pursuant to Regulation 14A.

Item 11.    Executive Compensation.

Incorporated herein by reference to the information under the caption “Executive Compensation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on April 22, 2002, filed or to be filed pursuant to Regulation 14A.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

Incorporated herein by reference to the information under the caption “Stock Ownership” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on April 22, 2002, filed or to be filed pursuant to Regulation 14A.

Item 13.    Certain Relationships and Related Transactions.

Incorporated herein by reference to the information under the captions “Certain Relationships and Related Transactions” and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement for the Annual Meeting of Stockholders to be held on April 22, 2002, filed or to be filed pursuant to Regulation 14A.

PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1)  Financial Statements.

Report of Independent Public Accountants	25
Consolidated Balance Sheets at December 31, 2001 and 2000	26
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999	27
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2001, 2000 and 1999	28
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999	29
Notes to Consolidated Financial Statements	30

(2)  Financial Statement Schedules

Report of Independent Public Accountants	45
Schedule III Real Estate and Accumulated Depreciation	46

53

(b)  Reports on Form 8-K

A Form 8-K dated January 12, 2001 was filed with respect to the termination of two master leases with Balanced Care Corporation.

A Form 8-K dated June 12, 2001 was filed with respect to the issuance of one million shares of common stock resulting in net proceeds of approximately $17,975,000.

(c)  Exhibits

Exhibit No.		Description
2.		Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1		Agreement to Merge, dated August 19, 1997, among the Company, Laureate Investments, Inc. and Laureate Properties, Inc., filed as Exhibit 2.1 to the Company’s Form 8-K dated October 7, 1997, and incorporated herein by this reference.
3.		Articles of Incorporation and Bylaws
3.1	(a)	Restated Articles of Incorporation, filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 (No. 33-1128), effective December 19, 1985, and incorporated herein by this reference.
3.1	(b)	Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended March 31, 1989, and incorporated herein by this reference.
3.1	(c)	Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(c) to the Company’s Registration Statement on Form S-11 (No. 33-32251), effective January 23, 1990, and incorporated herein by this reference.
3.1	(d)	Articles of Amendment of Amended and Restated Articles of Incorporation of the Company, filed as Exhibit 3.1(d) to the Company’s Form 10-K for the year ended December 31, 1994, and incorporated herein by this reference.
3.1	(e)	Articles Supplementary to the Registrant’s Amended and Restated Articles of Incorporation, dated September 24, 1997, filed as Exhibit 3.1 to the Company’s Form 8-K dated September 24, 1997, and incorporated herein by this reference.
3.2		Amended and Restated Bylaws of the Company, filed as Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by this reference.
4.		Instruments Defining Rights of Security Holders, Including Indentures
4.1		Indenture dated as of November 16, 1992, between Nationwide Health Properties, Inc., Issuer to The Chase Manhattan Bank (National Association), Trustee, filed as Exhibit 4.1 to the Company’s Form S-3 (No. 33-54870) dated November 24, 1992, and incorporated herein by this reference.
4.2		Indenture dated as of June 30, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-3 (No. 33-64798), effective July 12, 1993, and incorporated herein by this reference.
4.3		First Supplemental Indenture dated November 15, 1993, between the Company and First Interstate Bank of California, as Trustee, filed as Exhibit 4.1 to the Company’s Form 8-K dated November 15, 1993, and incorporated herein by this reference.
4.4		Indenture dated as of January 12, 1996, between the Company and The Bank of New York, as Trustee, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 33-65423) dated December 27, 1995, and incorporated herein by this reference.

54

Exhibit No.	Description
4.5	Indenture dated as of January 13, 1999, between the Company and Chase Manhattan Bank and Trust Company, National Association, as Trustee, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (No. 333-70707) dated January 15, 1999, and incorporated herein by this reference.
10.	Material Contracts
10.1	1989 Stock Option Plan of the Company as Amended and Restated April 20, 2001, filed as Exhibit 10.4 to the Company’s 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.
10.2	The Company’s Retirement Plan for Directors effective July 26, 1991 filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference.
10.3	Deferred Compensation Plan of the Company effective September 1, 1991 filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 1991, and incorporated herein by this reference.
10.4	Commercial and Multi-family Mortgage Loan Sale Agreement dated as of June 5, 1992 by and between Resolution Trust Corporation, as Receiver, and Nationwide Health Properties, Inc. filed as Exhibit A to the Company’s Form 8-K dated May 29, 1992, and incorporated herein by this reference.
10.5	Amended and Restated Credit Agreement dated as of July 27, 1999 between the Company and Wells Fargo Bank National Association, Bank of America, N.A., The Bank of New York and KBC Bank N.V. filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by this reference.
10.6	Amendment Number One to Amended and Restated Credit Agreement dated as of May 15, 2000 filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by this reference.
10.7	Amendment Number Two to Amended and Restated Credit Agreement dated as of May 22, 2001.
10.8	Form of Indemnity Agreement between officers and directors of the Company including John C. Argue, David R. Banks, William K. Doyle, Charles D. Miller and Jack D. Samuelson, R. Bruce Andrews, Donald D. Bradley, Mark L. Desmond, Stephen J. Insoft, Don M. Pearson, and T. Andrew Stokes, and John J. Sheehan, Jr., filed as Exhibit 10.11 to the Company’s Form 10-K for the year ended December 31, 1995, and incorporated herein by this reference.
10.9	Executive Employment Security Policy as Amended and Restated April 20, 2001, filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.
10.10	Employment agreement entered into by and between Nationwide Health Properties, Inc. and R. Bruce Andrews dated as of February 25, 1998, filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference.
10.11	Employment agreement entered into by and between Nationwide Health Properties, Inc. and T. Andrew Stokes dated as of February 25, 1998, filed as Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference.
10.11(a)	First Amendment of Employment Agreement of T. Andrew Stokes dated as of January 19, 2001, filed as Exhibit 10.11(a) to the Company’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.11(b)	Second Amendment to Employment Agreement of T. Andrew Stokes dated as of April 20, 2001, filed as exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.

55

Exhibit No.	Description
10.12	Employment agreement entered into by and between Nationwide Health Properties, Inc. and Mark L. Desmond dated as of February 25, 1998, filed as Exhibit 10.15 to the Company’s Form 10-K for the year ended December 31, 1998, and incorporated herein by this reference.
10.12(a)	First Amendment of Employment Agreement of Mark L. Desmond dated as of January 19, 2001, filed as Exhibit 10.12(a) to the Company’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.12(b)	Second Amendment to Employment Agreement of Mark L. Desmond dated as of April 20, 2001, filed as exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by this reference.
10.13	Settlement and Amendment Agreement between Beverly Health and Rehabilitation Services, Inc. and the Company effective as of January 1, 2000, filed as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 2000, and incorporated herein by this reference.
10.14	Limited Liability Company Agreement of JER/NHP Senior Housing, LLC entered into as of August 28, 2001 by and among Nationwide Health Properties and JER Senior Housing, LLC.
21.	Subsidiaries of the Company
23.	Consents of Experts and Counsel
23.1	Consent of Arthur Andersen LLP

56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

NA TIONWIDE HEALTH PROPERTIES, INC.

By :                                                                         

            /s/  R. BRUCE ANDREWS                

R. Bruce Andrews

President and Chief Executive Officer

Dated: February 21, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    CHARLES D. MILLER         Charles D. Miller	Chairman and Director	February 21, 2002
/s/    R. BRUCE ANDREWS         R. Bruce Andrews	President, Chief Executive Officer and Director (Principal Executive Officer)	February 21, 2002
/s/    MARK L. DESMOND         Mark L. Desmond	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 21, 2002
/s/    JOHN C. ARGUE         John C. Argue	Director	February 21, 2002
/s/    DAVID R. BANKS         David R. Banks	Director	February 21, 2002
/s/    WILLIAM K. DOYLE         William K. Doyle	Director	February 21, 2002
/s/    JACK D. SAMUELSON         Jack D. Samuelson	Director	February 21, 2002

57

EX-10.7

                                                                    Exhibit 10.7

                             AMENDMENT NUMBER TWO TO
                             -----------------------
                      AMENDED AND RESTATED CREDIT AGREEMENT
                      -------------------------------------

                  This AMENDMENT NUMBER TWO TO AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of May 22, 2001 (this "Amendment"), is entered into among
NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation (the "Borrower"), the
Banks, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as agent for the Banks (in
such capacity, the "Agent").

                  WHEREAS, Borrower is a party to that certain Amended and
Restated Credit Agreement, dated as of July 27, 1999, as amended by that certain
Amendment Number One to Amended and Restated Credit Agreement, dated as of May
15, 2000 (as amended, restated, supplemented or otherwise modified, the "Credit
Agreement"), with the financial institutions listed on the signature pages
thereto (each, a "Bank", and collectively, the "Banks"), and Agent.

                  WHEREAS, the Borrower has requested that the Banks consent to
a proposed investment in a joint venture as set forth herein.

                  WHEREAS, subject to the terms and conditions contained herein,
the Banks signatory hereto are willing to consent to this proposed investment.

                  NOW, THEREFORE, in consideration of the mutual covenants,
conditions, and provisions hereinafter set forth, the parties hereto agree as
follows:

I.       DEFINITIONS FOR THIS AMENDMENT

                  Any and all initially capitalized terms used herein shall have
the meanings ascribed thereto in the Credit Agreement unless specifically
defined herein.

II.      AMENDMENT to CREDIT AGREEMENT

                  The definition of "Net Real Property Assets" contained in
Section 1.1 of the Credit Agreement hereby is hereby deleted in its entirety.
- -----------

III.     CONSENT TO THE PROPOSED INVESTMENT

                  Section 9.4(f) of the Credit Agreement, among other things,
                  --------------
restricts the ability of Borrower or any of its Subsidiaries to purchase or
otherwise acquire the capital stock, assets, obligations or other securities of
or any interest in any Person, or otherwise extend any credit to or make any
additional investments in any Person. Borrower has requested that Agent and the
Banks consent to a series of investments by the Borrower in a joint venture (the
"Joint Venture") to be formed by Borrower and one or more entities affiliated
with J.E.



                                       1




Robert Company, Inc., and to be managed solely by the Borrower, in an aggregate
amount not to exceed $16,250,000, which funds shall be used by the Joint Venture
solely to acquire Healthcare Properties or to invest in mortgage loans (other
than construction loans) on Healthcare Properties (the "Designated Investment").

                  The provisions of Section 9.4(f) of the Credit Agreement
                                    -------------
notwithstanding, Agent and the Banks consent to the transactions contemplated by
the Designated Investment and waive any Default or Event of Default that may
have otherwise been occasioned solely by the consummation of the Designated
Investment.

                  Borrower hereby represents and warrants that the execution,
delivery, and performance of this Amendment are within its corporate powers,
have been duly authorized by all necessary corporate action, and are not in
contravention of any law, rule, or regulation, or any order, judgment, decree,
writ, injunction, or award of any arbitrator, court, or governmental authority,
or of the terms of its charter or bylaws, or of any contract or undertaking to
which it is a party or by which any of its properties may be bound or affected.

                  The waivers and consents contained in this Section III are
                                                             -----------
limited to the specifics hereof and the terms and conditions described above,
shall not apply with respect to any facts or occurrences other than those on
which the same are based, shall not excuse future non-compliance with the Credit
Agreement, and, except as expressly set forth herein, shall not operate as a
waiver or an amendment of any right, power or remedy of the Agent or the Banks,
nor as a consent to any further or other matter, under the Loan Documents.

IV.      COVENANTS

                  Borrower covenants and agrees with Agent and the Banks as
follows:

                  A.       On or before a date which is thirty (30) days after
                           the formation of the Joint Venture, Borrower will
                           provide Agent with such information as Agent shall
                           require in its sole discretion concerning the
                           identity and ownership of the Joint Venture; and

                  B.       Borrower shall not fail, as of any date of
                           determination, to be the sole manager of the Joint
                           Venture, without Agent's prior written consent.

                  The failure of Borrower to comply with the covenants set forth
in this Section IV shall constitute an Event of Default under the Credit
        ----------
Agreement.

V.       CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AMENDMENT

                  The satisfaction of each of the following shall constitute
conditions precedent to the effectiveness of this Amendment and each and every
provision hereof:




                                       2


                  A.        The representations and warranties in the Credit
                            Agreement and the other Loan Documents shall be true
                            and correct in all respects on and as of the date
                            hereof, as though made on such date (except to the
                            extent that such representations and warranties
                            relate solely to an earlier date);

                  B.        No Default or Event of Default shall have occurred
                            and be continuing on the date hereof or as of the
                            date of the effectiveness of this Amendment; and

                  C.        No injunction, writ, restraining order, or other
                            order of any nature prohibiting, directly or
                            indirectly, the consummation of the transactions
                            contemplated herein shall have been issued and
                            remain in force by any Governmental Authority
                            against the Borrower, Agent or the Banks.

VI.      MISCELLANEOUS

                  A.        Loan Documents.  This Amendment shall be one of
                            --------------
                  the Loan Documents.

                  B.        Execution. This Amendment may be executed in any
                            ---------
                  number of counterparts, each of which when so executed and
                  delivered shall be deemed an original. All of such
                  counterparts shall constitute but one and the same instrument.
                  Delivery of an executed counterpart of the signature pages of
                  this Amendment by telecopier shall be equally effective as
                  delivery of a manually executed counterpart. Any party
                  delivering an executed counterpart of the signature pages of
                  this Amendment by telecopier shall thereafter also promptly
                  deliver a manually executed counterpart, but the failure to
                  deliver such manually executed counterpart shall not affect
                  the validity, enforceability, and binding effect of this
                  Amendment.

                  C.        Effectiveness.  This Amendment shall be effective
                            -------------
                  only after one or more counterparts hereof shall have been
                  executed by the Borrower, all the Banks, and the Agent, and
                  shall have been delivered to the Agent, and subject to the
                  satisfaction of the conditions precedent set forth in
                  Section V herein.
                  ---------

                  D.        No Other Amendment. Except as expressly amended
                            -------------------
                  hereby, the Credit Agreement shall remain unchanged and in
                  full force and effect. To the extent any terms or provisions
                  of this Amendment conflict with those of the Credit Agreement,
                  the terms and provisions of this Amendment shall control. This
                  Amendment shall be deemed a part of and is hereby incorporated
                  in the Credit Agreement.

                  E.        Governing Law.  This Amendment shall be governed by,
                            --------------
                  and construed and enforced in accordance with, the laws of the
                  State of California.




                                       3







               IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date first above written.

                    NATIONWIDE HEALTH PROPERTIES, INC.

                    By:  ____________________________
                        Title: ______________________


                    WELLS FARGO BANK, NATIONAL ASSOCIATION,
                    in its individual capacity and as Agent

                    By:  ____________________________
                        Title: ______________________



                    BANK OF AMERICA, N.A., formerly known as
                    NationsBank, N.A.

                    By:  ____________________________
                         Title: _____________________


                   THE BANK OF NEW YORK

                    By:  ____________________________
                         Title: ______________________


                    KBC BANK N.V.

                    By:  ____________________________
                         Title: _____________________



                                       4





                                      CITY NATIONAL BANK

                                      By:  ____________________________
                                           Title: _____________________

                                      By:  ____________________________
                                           Title: _____________________







                                        5

EX-10.14

                                                                   Exhibit 10.14




                       LIMITED LIABILITY COMPANY AGREEMENT

                                       of

                          JER/NHP SENIOR HOUSING, LLC,
                      a Delaware limited liability company

                                  by and among

                       NATIONWIDE HEALTH PROPERTIES, INC.,
                             a Maryland corporation
                                   (as "NHP"),

                                       and

                            JER SENIOR HOUSING, LLC,
                      a Delaware limited liability company
                                   (as "JER")



                                                                                                             
ARTICLE I - ORGANIZATION

         Section 1.1       Formation of Company ............................................................     1
         Section 1.2       Name ............................................................................     1
         Section 1.3       Term ............................................................................     1
         Section 1.4       Purpose .........................................................................     1
         Section 1.5       Names and Addresses of Members ..................................................     1
         Section 1.6       Principal Place of Business .....................................................     1
         Section 1.7       Registered Office and Registered Agent ..........................................     1
         Section 1.8       Certain Definitions .............................................................     2

ARTICLE II - MEMBERS

         Section 2.1       Admission of Members ............................................................     2
         Section 2.2       Limitation on Liability .........................................................     2
         Section 2.3       Return of Capital ...............................................................     2
         Section 2.4       Ownership; Ownership of the Projects ............................................     2
         Section 2.5       Waiver of Partition; Nature of Interests in the Company .........................     3

ARTICLE III - CONTRIBUTIONS AND FUNDING OF PROJECT COSTS

         Section 3.1       Financing .......................................................................     3
         Section 3.2       Capital Contributions ...........................................................     4
         Section 3.3       Procedure .......................................................................     4
         Section 3.4       Capital Contributions and Remedies ..............................................     6
         Section 3.5       Capital Accounts ................................................................     8
         Section 3.6       Member Loans and Other Advances .................................................     8

ARTICLE IV - MANAGEMENT AND OPERATION OF THE COMPANY AND THE PROJECTS

         Section 4.1       Member Management; NHP as Managing Member .......................................     8
         Section 4.2       Certain Obligations of the Managing Member ......................................    13
         Section 4.3       Termination of Managing Member ..................................................    14
         Section 4.4       Authority to Sign ...............................................................    16
         Section 4.5       No Company Employees ............................................................    16
         Section 4.6       Company Expenses ................................................................    16
         Section 4.7       Company Funds ....................................................................   16

ARTICLE V - COMPENSATION TO MEMBERS

         Section 5.1       Sole Right to Compensation For Services .........................................    17
         Section 5.2       Management Fee ..................................................................    17

ARTICLE VI - ACQUISITIONS AND MANAGEMENT OF PROJECTS AND EXCLUSIVITY

         Section 6.1       Role of the Members in Acquisition of Projects ..................................    17
         Section 6.2       Acquisition of Projects .........................................................    18
         Section 6.3       Exclusivity; JER Right of First Refusal .........................................    18
         Section 6.4       Management of Projects ..........................................................    20
         Section 6.5       Property in Default .............................................................    20
         Section 6.6       Sale of Projects ................................................................    21





                                                                                                             
         Section 6.7       Member Rights ...................................................................    22

ARTICLE VII - REPORTS

         Section 7.1       Books and Records ...............................................................    22
         Section 7.2       Accounting and Fiscal Year ......................................................    22
         Section 7.3       Financial Reports ...............................................................    23
         Section 7.4       Business Plans and Budgets ......................................................    23

ARTICLE VIII - INDEMNIFICATION

         Section 8.1       Indemnification by the Members ..................................................    24
         Section 8.2       Indemnification by the Company ..................................................    24
         Section 8.3       General Indemnity Provisions ....................................................    25

ARTICLE IX - DISTRIBUTIONS

         Section 9.1       Payments and Distributions of Available Cash ....................................    25
         Section 9.2       Withdrawal of Capital ...........................................................    26

ARTICLE X - TRANSFER AND CERTAIN OTHER RESTRICTIONS

         Section 10.1      No Transfers of Membership Rights or Member Economic Interests ..................    26
         Section 10.2      Change in Control of a Member ...................................................    27

ARTICLE XI - BUY/SELL RIGHTS

         Section 11.1      Exercise ........................................................................    28
         Section 11.2      Breach; Enforcement .............................................................    30

ARTICLE XII - DEFAULT; REMEDIES

         Section 12.1      Events of Default ...............................................................    31
         Section 12.2      Remedies ........................................................................    32
         Section 12.3      Cumulative Remedies .............................................................    32
         Section 12.4      Litigation Without Termination ..................................................    32
         Section 12.5      No Waiver .......................................................................    33

ARTICLE XIII - DISSOLUTION OF THE COMPANY

         Section 13.1      Events Giving Rise to Dissolution ...............................................    33
         Section 13.2      Winding Up ......................................................................    33

ARTICLE XIV - MISCELLANEOUS

         Section 14.1      Notices .........................................................................    34
         Section 14.2      Entire Agreement ................................................................    35
         Section 14.3      Arbitration; Governing Law ......................................................    35
         Section 14.4      Successors and Assigns ..........................................................    36
         Section 14.5      Captions ........................................................................    36
         Section 14.6      Severability ....................................................................    36
         Section 14.7      Counterparts ....................................................................    37
         Section 14.8      Further Assurances ..............................................................    37
         Section 14.9      Right to Specific Performance ...................................................    37
         Section 14.10     Relationship of Parties .........................................................    37





                                                                                                             
         Section 14.11     Waiver of Jury Trial ............................................................    37
         Section 14.12     Creditors Not Benefited .........................................................    37
         Section 14.13     No Third Party Rights ...........................................................    37
         Section 14.14     Survival ........................................................................    38
         Section 14.15     Usury ...........................................................................    38
         Section 14.16     Attorneys' Fees .................................................................    38
         Section 14.17     Time of the Essence .............................................................    38
         Section 14.18     Incorporation of Exhibits .......................................................    38
         Section 14.19     Certain Terminology .............................................................    38
         Section 14.20     Business Days ...................................................................    39
         Section 14.21     Member Estoppel Certificates ....................................................    39
         Section 14.22     Construction ....................................................................    39
         Section 14.23     Exculpation .....................................................................    39
         Section 14.24     Publicity and Confidentiality ...................................................    39



         EXHIBITS:

         Exhibit A         Defined Terms
         Exhibit B         Certain Tax Matters
         Exhibit C         Arbitration of Disputes
         Exhibit D         List of Approved Professionals
         Exhibit E         Internal Rate of Return Explanation and Sample
                           Calculation
         Exhibit F         Form of Acquisition Memorandum



                       LIMITED LIABILITY COMPANY AGREEMENT
                         OF JER/NHP SENIOR HOUSING, LLC

           THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement") is made
and entered into as of August 28, 2001 by and among NATIONWIDE HEALTH
PROPERTIES, INC., a Maryland Corporation ("NHP"), and JER SENIOR HOUSING, LLC, a
Delaware limited liability company ("JER"), as Members.

                                   ARTICLE I
                                  ORGANIZATION

           Section 1.1 Formation of Company. The Members hereby enter into a
                       --------------------
limited liability company (the "Company") pursuant to the provisions of the
Delaware Limited Liability Company Act, Delaware Code Annotated Title 6,
Sections 18-101 through 18-1109, as amended from time to time (the "Act"), upon
the terms and conditions contained in this Agreement. NHP and JER are hereby
admitted as Members of the Company and shall be shown as such on the books and
records of the Company.

           Section 1.2 Name. The business of the Company shall be conducted
                       ----
under the name of "JER/NHP Senior Housing, LLC."

           Section 1.3 Term. The term ("Term") of the Company shall commence on
                       ----
the date hereof and shall continue (unless the Company is sooner dissolved as
provided herein) until the tenth (10th) anniversary of the date hereof, unless
extended by written agreement of the Members.

           Section 1.4 Purpose. The purpose of the business of the Company is to
                       -------
purchase, hold, refurbish, operate, maintain, market, lease, finance, sell and
otherwise use, as applicable, the Projects for profit and engage in all
activities reasonably related thereto in accordance with the Budgets and the
Business Plans. Without limiting the generality of the foregoing or any other
provision of this Agreement, including without limitation Section 4.1 or Section
                                                          -----------    -------
6.2, NHP has informed JER of its intent to typically operate the Projects in
- ---
which Company or a Subsidiary Company has a fee or leasehold interest such that
it will be leased or subleased to third party operators on an absolute net basis
in accordance with the Budgets.

           Section 1.5 Names and Addresses of Members. The names of the Members
                       ------------------------------
are as shown above. The addresses of the Members are set forth in Section 14.1.
                                                                  ------------

           Section 1.6 Principal Place of Business. The principal place of
                       ---------------------------
business of the Company shall be located at 610 Newport Center Drive, Suite
1150, Newport Beach, California 92660, which is the business address of the
Company, or such other location as hereafter determined by the Members.

                                        1



           Section 1.7 Registered Office and Registered Agent.
                       --------------------------------------

           (a) For purposes of Section 18-104(a)(1) of the Act, the registered
office of the Company is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The Company may change the registered office of the
Company from time to time as permitted under the Act.

           (b) For purposes of Section 18-104(a)(2) of the Act, the Company's
registered agent for service of process is The Corporation Trust Company, whose
address is 1209 Orange Street, in the City of Wilmington, County of New Castle,
State of Delaware 19801. The Company may change the Company's registered agent
from time to time as permitted under the Act.

           Section 1.8 Certain Definitions. Initially capitalized terms that are
                       -------------------
not otherwise defined in this Agreement shall have the meaning ascribed to them
in Exhibit A attached hereto.
   ---------

                                   ARTICLE II
                                     MEMBERS

           Section 2.1 Admission of Members. NHP and JER shall be the Members of
                       --------------------
the Company. Except as expressly permitted by this Agreement, no other Person
shall be admitted as a member of the Company. The Members agree to execute all
documents and to undertake all other acts, as reasonably may be deemed necessary
in order to comply with all applicable laws for the formation, continuation,
registration, qualification and operation of a limited liability company. NHP
and JER and their respective permitted successors and assigns as members in the
Company are sometimes herein together referred to as the "Members" and each as a
"Member."

           Section 2.2 Limitation on Liability. Except as otherwise expressly
                       -----------------------
provided in the Act, the debts, obligations and liabilities of the Company,
whether arising in contract, tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company, and no Member shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a member of the Company. Except as otherwise expressly provided
in the Act, except in connection with a breach under ARTICLE VI or ARTICLE XI,
                                                     ----------    ----------
and except in the event a Member commits any act or omission that constitutes
fraud, dishonesty, bad faith, gross negligence or willful misconduct, the
liability of each Member to each other Member shall be limited to Fifty Million
Dollars ($50,000,000) in the aggregate.

           Section 2.3 Return of Capital. No Member shall be liable for the
                       -----------------
return of the Capital Contributions (or any portion thereof) of any other
Member, it being expressly understood that any such return shall be made solely
from the assets of the Company. No Member shall be entitled to withdraw or
receive a return of any part of its Capital Contributions or Capital Account, to
receive interest on its Capital Contributions or Capital Account or to receive
any distributions from the Company, except as expressly provided for in this
Agreement or under applicable law. No Member shall have any obligation to
restore any negative or deficit balance in its Capital Account upon liquidation
or dissolution of the Company.

                                       2



           Section 2.4 Ownership; Ownership of the Projects. All assets of the
                       ------------------------------------
Company shall be owned by the Company subject to the terms and provisions of
this Agreement. It is further contemplated and agreed by the Members that title
to each of the Projects will be acquired and held by separate special purpose
entities, each of which shall be one hundred percent (100%) owned by the Company
(each, a "Subsidiary Company").

           Section 2.5 Waiver of Partition; Nature of Interests in the Company.
                       -------------------------------------------------------
Except as otherwise expressly provided for in this Agreement, each of the
Members hereby irrevocably waives any right or power that such Member might
have:

           (a) to cause the Company or any of its assets to be partitioned;

           (b) to cause the appointment of a receiver for all or any portion of
the assets of the Company;

           (c) to compel any sale of all or any portion of the assets of the
Company pursuant to any applicable law; or

           (d) to file a complaint, or to institute any proceeding at law or in
equity, to cause the termination, dissolution or liquidation of the Company.

Each of the Members has been induced to enter into this Agreement in reliance
upon the waivers set forth in this Section 2.5, and without such waivers no
                                   -----------
Member would have entered into this Agreement. No Member shall have any interest
in any specific assets of the Company (including any Target Asset acquired by
the Company). The interests of all Members in this Company are personal
property.

                                   ARTICLE III
                   CONTRIBUTIONS AND FUNDING OF PROJECT COSTS

           Section 3.1 Financing.
                       ---------

           (a) To the extent nonrecourse third party financing is available in
connection with the acquisition of a Project, the Company will use commercially
reasonable efforts to obtain prudent amounts of such third-party financing to
facilitate the acquisition of Projects by the Company with aggregate purchase
prices of not less than One Hundred Thirty Million Dollars ($130,000,000).

           (b) To the extent the Members decide as a Major Decision to refinance
any existing third party financing in connection with any Project, the Company
will use commercially reasonable efforts to obtain such refinancing in
accordance with the parameters then set by the Members pursuant to such Major
Decision.

           (c) The primary terms of any third party financing and/or refinancing
with respect to the acquisition of a Target Asset or, thereafter, any material
amendment or modification thereto, shall be a Major Decision.

                                        3




           (d) To the extent a nonrecourse carveout guaranty or similar
indemnity agreement is required in relation to any such third party financing
and/or refinancing with respect to the acquisition of a Target Asset, Managing
Member agrees to execute and deliver the same; provided, however, that JER shall
                                               --------  -------
indemnify and hold Managing Member harmless, as an additional indemnifiable
Claim pursuant to Section 8.1, for its portion, based on its then Member
                  -----------
Percentage, of any liability incurred by Managing Member thereunder to the
extent the act or failure to act giving rise to liability thereunder was taken
at the direction of JER as a Major Decision hereunder or otherwise with the
consent of JER; provided, that Managing Member pr any Affiliate did not commit
                --------
gross negligence, fraud, willful misconduct or a material breach of this
Agreement or any Ancillary Agreement in its implementation of such JER-approved
or consented to act or omission.

           (e) If third party financing is not available on a nonrecourse basis
in prudent amounts, unless the Members agree to recourse financing, the
acquisition of a Project shall be funded one hundred percent (100%) by Capital
Contributions.

            Section 3.2 Capital Contributions. Subject to Section 4.1(b)(ii):
                        ---------------------             ------------------

           (a) Each Member shall be obligated to make cash capital contributions
pursuant to this Section 3.2(a) ("Base Capital Contributions"). Subject to the
                 --------------
conditions and procedures set forth in Section 3.3 and Section 4.1, Base Capital
                                       -----------     -----------
Contributions shall be made by each Member pro rata in accordance with its
Member Percentage in the amounts necessary (i) to acquire and operate the Target
Assets as approved by the Members; (ii) for all capital expenditures identified
in connection with such Target Asset in accordance with the applicable Capital
Budget; and (iii) to fund all operating expenditures of the Company in
accordance with the Operating Budgets to the extent of negative cash flow. JER
shall have the right, but not the obligation, to notify Managing Member of
anticipated capital requirements of the Company, in which event such capital
requirement shall be considered by the Members as a Major Decision. The
obligation contained in this Section 3.2(a) to make Base Capital Contributions
                             --------------
with respect to the acquisition of any Target Assets shall terminate upon the
expiration of the Exclusivity Period unless extended pursuant to the unanimous
consent of the Members.

           (b) Notwithstanding anything to the contrary in the foregoing, in no
event is NHP required to make aggregate Base Capital Contributions in excess of
the NHP Initial Capital Allocation and in no event is JER required to make
aggregate Base Capital Contributions in excess of the JER Initial Capital
Allocation. If, after funding all of the NHP Initial Capital Allocation and the
JER Initial Capital Allocation, the Company requires additional capital for any
reason as determined by the Managing Member and approved by the Members, the
Members shall contribute such additional capital to the Company (each, an
"Additional Contribution") pro rata in accordance with their respective Member
Percentages.

           Section 3.3 Procedure. Subject to Section 4.1(b)(ii):
                       ---------             ------------------

           (a) With respect to all Capital Contributions to be made by the
Members hereunder, if Managing Member reasonably anticipates that there will be
capital requirements, then, at least fifteen (15) business days prior to the
date such capital requirement is due, Managing Member shall submit a written
Capital Contribution request to the Members

                                        4



describing such Capital Contribution in a form and substance previously approved
by the Members as a Major Decision ("Contribution Request"). Each Contribution
Request shall constitute Managing Member's representation and warranty to JER
and the Company that all Capital Contributions made to date, as well as those
being currently requested, were and will be utilized in compliance with the
applicable Contribution Requests and in compliance with the Budgets (as
applicable) or as otherwise provided in this Agreement, unless Managing Member
has notified JER in writing to the contrary and JER has approved such deviation
in writing.

           (b) With respect to Capital Contributions to be made by the Members
hereunder for the initial acquisition of any Target Asset, the Members shall be
obligated to make Base Capital Contributions in accordance in such amounts
necessary to fund the acquisition and initial operation of such Target Assets as
approved by the Members pursuant to Section 6.2(c).
                                    --------------

           (c) With respect to Capital Contributions to be made by the Members
hereunder for capital improvements for any Project, the Members shall be
obligated to make Base Capital Contributions in such amounts set forth in the
applicable Capital Budget as approved by the Members pursuant to Section 6.2(c).
                                                                 --------------

           (d) With respect to Capital Contributions to be made by the Members
hereunder to fund the operation of the business of the Company and/or working
capital for any Project other than as set forth in Section 3.3(b) and (c) above,
                                                   --------------     ---
the Members shall be obligated to make Base Capital Contributions in such
amounts set forth in the applicable Operating Budget.

           (e) However, the following additional conditions must be satisfied
before JER shall be obligated to make its share of any Capital Contribution:

                  (i)   there is no breach, default or violation by the Company
in connection with any third party Project financing;

                  (ii)  there shall be no Event of Default or any condition or
event that after notice or lapse of time or both, would constitute an Event of
Default, by Managing Member or an Affiliate under this Agreement or any
Ancillary Agreement (including without limitation with respect to Managing
Member's management and reporting obligations pursuant to Section 4.2 and
                                                          -----------
ARTICLE VII, respectively); and
- -----------

                  (iii) JER shall have received a Contribution Request for such
Capital Contribution meeting the requirements and within the time period set
forth in Section 3.3(a).

Any waiver by JER of a condition of a Capital Contribution under this Section
                                                                      -------
3.3(e) must be expressly made by JER in writing. If JER makes a Capital
- ------
Contribution before fulfillment of one or more of such required conditions, such
Capital Contribution shall not be a waiver of such condition(s) except in that
instance, and JER reserves the right to require their fulfillment before making
its share of any further Capital Contributions pursuant to this Section 3.3(e).
                                                                --------------
If any such condition is not satisfied, JER, acting in its reasonable judgment
and without waiving any rights or conditions as to any other or further Capital
Contributions pursuant to this Section 3.3(e), may disburse selectively as to
                               --------------
certain items or categories of costs and not others.

                                        5



           (f) Capital Contributions must be approved by the Members as a Major
Decision at the time Managing Member requests funding pursuant to Section
                                                                  -------
3.3(a). Without limitation of the foregoing, approval of the Business Plans or
- ------
the Budgets shall not be deemed an approval of the Capital Contributions.
However, subject to Section 3.3(e), Major Decision approval of a Capital
                    --------------
Contribution at the time Managing Member requests funding pursuant to Section
                                                                      -------
3.3(a) shall not be required if each of the following conditions is then
- ------
satisfied: (i) such Capital Contribution is contemplated by the then approved
applicable Project Budget (i.e., the then approved Budget contemplates that
                           ----
revenues from the applicable Project and other available cash of the Company are
not sufficient to pay an amount equal to such Capital Contribution for expenses
specified by such Budget); (ii) such Capital Contribution is required to fund an
outstanding contractual obligation of the Company to an unrelated third party
under an approved contract; (iii) all contractual conditions precedent to the
Company's obligation to the applicable third party have been satisfied pursuant
to the applicable contractual documentation previously approved by JER
evidencing such obligation; (iv) subject to the Budget deviation permitted
pursuant to Section 4.1(b)(iii), the expenditures under the applicable Project
            -------------------
Budget to date with respect to the applicable line item(s), plus the anticipated
expenditures with respect to such line item, do not exceed the amount specified
in the applicable Project Budget for such line item; and (v) the aggregate
revenues then received with respect to such Project are not less than
ninety-five percent (95%) of the aggregate revenues budgeted for such period
under the applicable Project Budget.

           (g) JER's approval of any matter in connection with this Agreement,
including without limitation, any site visit, observation or examination by JER,
shall be for the sole purpose of protecting JER's investment in the Company, and
shall not constitute a (i) waiver of any Event of Default by Managing Member or
its Affiliates under this Agreement or any Ancillary Agreement (unless such
waiver is expressly made by JER in writing with specific reference to such Event
of Default and agreement) or (ii) representation by JER of any kind with regard
to the matter being approved. JER is under no duty to visit any portion of the
Property or to supervise or observe construction or to examine any books or
records. Managing Member shall not rely on any site visit, observation or
examination by JER. JER shall have the right to contact representatives of the
local, state and other governmental authorities having jurisdiction over any
part of the Property, or engineers, architects, contractors, suppliers or other
third parties involved with the Property, in order to verify compliance by
Managing Member with this Agreement (including satisfaction of the conditions
set forth in Section 3.3(e) above).
             --------------

           (h) Notwithstanding anything to the contrary contained herein, JER
shall not be required to make a Capital Contribution pursuant to an Operating
Budget for the Company for any expenses of the Company in its evaluation of any
Target Assets or for any other operating expenses of the Company, prior to the
closing of the Company's acquisition of its first Project; provided, however,
                                                           --------- -------
that, this Section 3.3(h) shall not prohibit NHP from pursuing any of its
           -------------
available right or remedies hereunder against JER in the event any controversy,
claim or dispute arises between the Members prior to the Company's acquisition
of its first Project.

           Section 3.4 Capital Contributions and Remedies.
                       ----------------------------------

           (a) All Capital Contributions required by or provided for in this
ARTICLE III shall be made by wire transfer of funds to the Company bank account
- -----------
designated by the

                                        6



Managing Member as the "Equity Account", from which withdrawals may be made only
upon signature of the Managing Member or officers of the Company as designated
by the Members.

           (b) If any Member fails to timely make any Capital Contribution (or
any portion thereof) required by Section 3.2, the other Member (the
                                 -----------
"Contributing Member") has made such Capital Contribution, and such failure
continues for more than three (3) business days after written notice from the
Company or the Contributing Member (after the passage of such three (3) business
day period, such non-contributing Member being referred to herein as the
"Non-Contributing Member"), then the Contributing Member shall select one of the
following remedies:

               (i)  The Contributing Member may contribute the Non-Contributing
Member's pro rata share of such required Capital Contributions, and the
Contributing Member that does so may designate all of the Capital Contributions
made by such Contributing Member in respect of the required Capital Contribution
(including both the Contributing Member's and the Non-Contributing Member's pro
rata portion thereof) as a Priority Loan to the Company; or

               (ii) The Contributing Member may withdraw its share of such
required Capital Contribution.

           (c) To the extent that the remedies set forth in Section 3.4(b) are
                                                            -------------
unenforceable or otherwise unavailable, (i) the Company or the Contributing
Member(s) on behalf of the Company, may exercise any rights or remedies
permitted by applicable law to enforce the Company's security interest in the
Membership Rights of the Non-Contributing Member granted pursuant to Section
                                                                     -------
3.4(d); or (ii) the Contributing Member may exercise any and all other rights
- ------
and remedies available at law or in equity to enforce the Non-Contributing
Member's obligation to make such Capital Contributions.

           (d) In order to allow for the exercise of remedies to the extent
permitted under Section 3.4 against a Non-Contributing Member, each Member
                -----------
hereby grants to the Company, as secured party, a security interest in such
Member's Membership Rights in the Company to secure its obligation to contribute
its Capital Contributions to the Company under this ARTICLE III, and the Company
                                                    -----------
shall have rights available to a secured party under the Delaware Uniform
Commercial Code and the laws of the state of organization of such Member. Either
Member becoming a Non-Contributing Member hereunder shall be an Event of Default
with respect to such Member, and, to the extent permitted under Section 3.4(c),
                                                                --------------
the Company or the Contributing Member on behalf of the Company may exercise any
rights or remedies permitted by applicable law to enforce the Company's security
interests.

           (e) Each Member acknowledges and agrees that the other Member would
not be entering into this Agreement were it not for (i) the Members agreeing to
make the Capital Contributions provided for in Section 3.2 of this Agreement,
                                               -----------
and (ii) the remedy provisions above in this Section 3.4. The parties hereto
                                             -----------
acknowledge and agree that the remedies provisions provided for herein could
result in a Member completely forfeiting its Membership Rights in the Company.
Each Member acknowledges and agrees that in the event any Member fails to make
its Capital Contributions pursuant to this Agreement, the other Member shall
suffer substantial damages and the remedy provisions set forth above are fair,
just and equitable in all respects and

                                        7



administratively superior to any other method for determining such damages. Each
Member hereby agrees that in the event its Membership Rights in the Company are
reduced or forfeited as described above, it shall execute and deliver such
conveyances, agreements, instruments or other documents which may be reasonably
necessary in the judgment of any of the other Member to confirm and render fully
effective the remedy provisions set forth above, including, an assignment of all
or a portion of its Membership Rights in the Company and any amendments to this
Agreement and to any Certificate of Formation.

               Section 3.5 Capital Accounts. A separate Capital Account will be
                           ----------------
maintained for each Member in accordance with Exhibit B.
                                              ---------

               Section 3.6 Member Loans and Other Advances.
                           -------------------------------

               (a) Except as expressly authorized or required in this Agreement,
no Member shall be obligated or authorized to lend money to the Company. If,
without the prior written consent of the Members, a loan not otherwise provided
for herein is made to the Company by a Member, no such loan or advance shall
entitle the lending Member to any increase in its interest in Company profits,
losses or distributions or to the payment of any interest charge or other
consideration for the use of such funds.

               (b) Any loan by a Member to the Company made pursuant to this
Agreement shall be a recourse obligation of the Company to the lending Member
and shall be repayable solely out of available cash as provided in ARTICLE IX
                                                                   ----------
and Section 13.2. In no event shall any Member be personally liable for loans
    ------------
made to the Company and the sole recourse of the creditor under such loans shall
be to the assets of the Company.

                                   ARTICLE IV
            MANAGEMENT AND OPERATION OF THE COMPANY AND THE PROJECTS

               Section 4.1 Member Management; NHP as Managing Member.
                           -----------------------------------------

               (a) Except as otherwise expressly provided for in this Agreement,
the business and affairs of the Company shall be vested in and controlled by the
Members. All decisions made with respect to the management and control of the
Company and approved by the Members shall be binding on the Company and the
Subsidiary Companies. Except with respect to Major Decisions set forth in
Section 4.1(b), the Members hereby delegate the day-to-day managerial and
- --------------
operational decisions with respect to the Company and each of the Projects to
NHP as the "Managing Member," including the implementation of the Budgets and
Business Plans. Managing Member shall have authority to manage and conduct the
day-to-day operations of the Company in accordance with the applicable Business
Plans, Budgets and any other guidelines or policies approved by the Members
subject to applicable laws, third party agreements and this Agreement, including
the Major Decisions.

               (b) Managing Member shall use diligent efforts to keep JER fully
informed regarding all material matters relating to the Company and any
Subsidiary Company and their respective operations and assets (and such other
specific matters as JER may reasonably request from time to time) and shall so
consult on a monthly basis and at all reasonable times requested by JER, and
without limitation on the foregoing, shall promptly inform JER with respect to
any

                                        8



major or significant Company matters, including Major Decisions, so that JER may
exercise its rights under this Agreement. The Managing Member shall not take any
of the following actions (in each case, a "Major Decision") without first
obtaining the written pre-approval of the Members:

               (i)   the adoption of, and any supplement to, or revision of, any
Budget, Business Plan, and, except as otherwise permitted under this Agreement,
any activity by the Company or any Subsidiary Company which is inconsistent with
the Budgets or the Business Plans in any material respect;

               (ii)  the making of any Capital Contributions except as otherwise
provided in Section 3.3(f);
            --------------

               (iii) any deviation from or expenditure inconsistent with any
Operating Budget or the Capital Budget with respect to any Project (or the entry
into any agreement requiring such deviation or expenditure). Notwithstanding the
foregoing, the consent of JER to an expenditure payable to a third party
exceeding the amount specified for such expenditure in the Budgets shall not be
required in any of the following circumstances: (A) Managing Member, in its
reasonable judgment, deems there to be an emergency requiring such expenditures
to effectuate immediate action necessary for the protection of Company assets or
to avoid property damage or personal injury; (B) such expenditure would not (1)
cause the line item in the applicable Budget to which such expenditure relates
to exceed one hundred and ten percent (110%) of the budgeted amount of such line
item in said Budget (taking into account the amounts expended to date and
reasonably anticipated expenses in connection with such line item), or (2) cause
the aggregate amount of the expenses (excluding the expenses described in clause
(C) below) within the applicable Budget to exceed one hundred and five percent
(105%) of the entire amount of budgeted expenses (excluding the expenses
described in clause (C) below) in said Budget, respectively (taking into account
the amounts expended to date and reasonably anticipated expenses); or (C)
expenditures for real property taxes and assessments and utilities. The
provisions of clause (B) above are intended to be in lieu of any contingency
category that covers, in whole or in part, costs of the types described in any
of the other categories under the applicable Budget (so that excess costs in a
specific category might be covered by such contingency category) and
accordingly, there shall be no such contingency line item in the Budgets; the
provisions of clause (B) above are not intended, however, to be in lieu of a
contingency category for unanticipated costs that are not of the types described
in other categories under the Budgets. Managing Member shall promptly notify the
Members, both by telephone and in writing, of each expenditure made pursuant to
this Section 4.1(b)(iii) and shall promptly supply the Members with such
     -------------------
information with respect thereto as the Members may reasonably request;

               (iv)  the entry by the Company or any Subsidiary Company into any
agreement which provides for a term greater than three (3) months (unless
terminable without cause or penalty upon ninety (90) days notice to the other
party) or contemplates an aggregate amount to be spent by the Company under such
agreement in excess of $150,000 (and a series of related agreements for amounts
less than such amount shall be construed as a single agreement for purposes of
this Section 4.1(b)(iv)), or any termination or material modification to any of
     -------------------
the foregoing;

                                        9



               (v)    the terms of any transaction or matter that is not in the
ordinary course of the business of the Company or any Subsidiary Company
relating to the Property, including (A) any capital transaction (including any
sale, financing or refinancing of the assets of the Company or any Subsidiary
Company or any portion thereof); (B) pledging, mortgaging, encumbering, leasing
or granting a security interest in, any assets of the Company or any Subsidiary
Company; and (C) the documentation evidencing the same or any termination or
material change to such documentation;

               (vi)   any agreement, compensation or reimbursement to, or other
transaction by the Company or any Subsidiary Company with Managing Member, any
Affiliate of Managing Member or any other person or entity with which Managing
Member or any of its Affiliates has a significant business relationship;

               (vii)  the establishment, maintenance and replenishment of cash
reserves ("Reserve Accounts") and contributions thereto for the Company or any
of the Subsidiary Companies in excess of the amount(s) set forth in Section
                                                                    -------
4.2(c);
- ------

               (viii) any uninsured litigation, arbitration or settlement
involving the Company or any Subsidiary Company or its assets with a total
amount in controversy in excess of fifty thousand dollars ($50,000);

               (ix)   all income tax elections, tax returns and tax audits for
the Company or any Subsidiary Company;

               (x)    any construction within the Property, including the
establishment of and any material amendment or supplement to the plans and
specifications for such construction work by the Company or any Subsidiary
Company;

               (xi)   the engagement of attorneys, accountants, consultants,
title companies and other professionals by the Company or any Subsidiary
Company; provided, however, that it shall not be a Major Decision for Managing
         --------  -------
Member to engage any professionals identified on Exhibit D hereto on behalf of
                                                 ---------
the Company or any Subsidiary Company for transactional matters; provided,
                                                                 ---------
further, that the engagement of any law firms (whether or not shown on Exhibit
- -------                                                                -------
D) in any Company litigation, arbitration or other adversarial proceeding shall
- -
constitute a Major Decision; provided, further, that Managing Member agrees to
                             --------  -------
consult with JER in the event JER reasonably objects to the performance of any
of the law firms engaged by Managing Member on behalf of the Company or any
Subsidiary Company pursuant to this Section 4.1(b)(xi); provided, further, that
                                    ------------------  --------  -------
any law firm engaged by Managing Member on behalf of the Company without JER's
consent (pursuant to the provisions of this Section 4.1(b)(xi)) must expressly
                                            ------------------
confirm in writing that they are representing the Company and neither Member
individually with respect to the matter so engaged and that such engagement
shall be treated as an approved Affiliate contract in accordance with the
provisions of Section 6.8;
              -----------

               (xii)  any material concessions by or restrictions on the Company
or any Subsidiary Company or the Property in connection with obtaining zoning,
variances, map approval, entitlements, permits or other governmental approvals;

                                       10




                (xiii)  extension of the Term of the Company or any of the
Subsidiary Companies;

                (xiv)   any act in contravention of this Agreement or which
would make it impossible to carry on the business of the Company or any
Subsidiary Company;

                (xv)    possession of any Company or any Subsidiary Company
assets or assignment of the rights of the Company or any Subsidiary Company in
specific Company or any Subsidiary Company assets for other than a Company or
any Subsidiary Company purpose;

                (xvi)   admission of a person or entity as a Member of the
Company except as provided in this Agreement, or as a member of any of the
Subsidiary Companies except as provided in the respective Subsidiary Company
constituent documents;

                (xvii)  the merger or consolidation of the Company or any of the
Subsidiary Companies with any other entity;

                (xviii) any assignment by the Company or any of the Subsidiary
Companies for the benefit of creditors or any guarantee, indemnity bond or
surety bond by the Company or any of the Subsidiary Companies;

                (xix)   a loan by the Company or any of the Subsidiary Companies
to any Member or third party or the extension of credit to any person, firm or
corporation, on behalf of the Company or any of the Subsidiary Companies except
for any forbearance or similar concession granted in accordance with Section
                                                                     -------
6.5;
- ----

                (xx)    confession, compromise or settlement of any claim made
by or against the Company or any Subsidiary Company or affecting any Project in
which the amount in controversy exceeds fifty thousand dollars ($50,000);

                (xxi)   the filing on behalf of the Company or any Subsidiary
Company of any petition, or consent to the appointment of a trustee or receiver
or any judgment or order, under state or federal bankruptcy laws;

                (xxii)  distribution of any property in kind of the Company or
any Subsidiary Company to any Member;

                (xxiii) the employment of employees of the Company or any of the
Subsidiary Companies (it being understood that Managing Member is to have its
own employees);

                (xxiv)  any other decision or action not otherwise provided for
in this Agreement or the Budgets which is reasonably likely to have a material
adverse affect on the Company or any Subsidiary Company;

                (xxv)   the form of the Subsidiary Company constituent documents
and any decision thereunder with respect to which any member other than the
Company may participate (whether through a veto right, approval, note or
otherwise); or

                                       11




               (xxvi) any other decision or action which requires the approval
of JER or the Members as provided elsewhere in this Agreement.

Any matter covered by any clause above, under this Section 4.1(b) shall
constitute a Major Decision even though it may not be covered by (or may be
excluded from) another clause under this Section 4.1(b). Without limitation of
                                         --------------
the foregoing, nothing set forth in the Business Plan shall be deemed an
approval of a Major Decision.

       (c) Except as expressly provided herein, any agreement, approval,
consent, judgment or other determination to be made by a Member under this
Agreement shall not be effective unless it is in writing and shall be in the
good faith discretion of such Member and within a reasonable time period given
the circumstances. For purposes of the preceding sentence, the exercise of "good
faith discretion" shall mean that at the time of making the decision the Member
believed it was the right decision for the interests of such Member and that the
decision was not arbitrary or malicious. Notwithstanding anything to the
contrary contained herein, either Member shall have the right to propose a Major
Decision. In the event any Member rejects or conditions any proposed Major
Decision or any other request for its consent or approval hereunder, such Member
shall, upon request, timely notify the other Member and indicate the reason
therefore with reasonable specificity.

       (d) Managing Member shall call regular monthly meetings with JER to
discuss the business and affairs of the Company. Any such meeting shall be held
at such time and at such place as the Managing Member and JER shall mutually
agree. Special meetings shall be held on the call of either of the Members by
reasonable oral or written notice to the other. Any meeting held between the
Members may be held either in person or by telephone. The Members may reach
decisions regarding any matter which requires the approval of all Members with
or without a meeting if the decision is approved in writing by all of the
Members.

       (e) Each Member shall designate in writing to the other Member certain
representatives, any one of which shall be authorized to act under this
Agreement for and on behalf of such Member (each, a "Designated
Representative"). Neither the Managing Member nor the Company shall take any
action that constitutes a Major Decision until such time as one of the
Designated Representatives for both NHP and JER have executed a writing
describing in detail the action proposed to be taken. Any Designated
Representative(s) may be replaced by the Member designating such Designated
Representative(s) by giving written notice to the other Member. Until further
notice, the Designated Representatives of the Members shall be as follows:

                  For NHP:          R. Bruce Andrews

                                    T. Andrew Stokes

                                    Mark Desmond

                                    Donald D. Bradley



                                       12




                  For JER:          Paul A. Froning

                                    Cia Buckley

                                    Luann S. Sinclair.

        Section 4.2       Certain Obligations of the Managing Member.
                          -------------------------------------------

       (a) Managing Member shall fully and faithfully discharge its obligations
and responsibilities, shall devote such time and attention to Company affairs as
may be reasonably necessary for the proper management and supervision of the
business of the Company and the discharge of its duties under this Agreement and
the Company's duties under the Subsidiary Company constituent documents.
Managing Member shall, at all times, exercise good faith and shall use diligent
and professional efforts to promote and protect the best interests of the
Property, the Company and the Subsidiary Companies. Managing Member shall
diligently and continuously pursue the purpose of the Company as set forth in
the Business Plans in accordance with all applicable laws, third party
agreements, the Budgets and this Agreement and shall make its personnel and the
personnel of its Affiliates available to the Company to the extent necessary in
order that its obligations may be fully discharged in a timely manner.

       (b) Without limitation on the foregoing or other provisions of this
ARTICLE IV, Managing Member shall use commercially reasonable efforts to
- ----------
coordinate and manage the operation, leasing, refurbishment, marketing and sale
of the Property within the time schedules set forth in, and in full compliance
with, this Agreement, the Business Plans and the Budgets.

       (c) Managing Member shall establish, maintain and replenish reasonable
Reserve Accounts as set forth in the Budgets for future costs, expenses and
payments or for substantial costs (including capital repairs, improvements and
replacements), to the extent the payment of such costs is not contemplated by
other reserves maintained by or on behalf of the Company. The amount of such
Reserve Accounts in excess of the amount set forth in the preceding sentence
shall be approved by the Members as a Major Decision.

       (d) All funds of the Company shall be deposited by Managing Member into a
federally insured operating account ("Operating Account"). In addition, Managing
Member shall transfer portions of the balance of the Operating Account which it
determines are not immediately needed to pay for Company operations from time to
time to a federally insured money market account in accordance with sound cash
management principles ("Money Market Account"). The Operating Account and Money
Market Account (collectively, the "Accounts") shall be maintained in the name of
the Company with a money center financial institution approved by JER. The funds
within the Accounts shall be segregated from, and not commingled with any
accounts of any Member or Affiliate thereof, or any other accounts that the
Members may hereafter establish for the Company or the Subsidiary Companies from
time to time. The investment of the funds within the Accounts shall be directed
by Managing Member, subject to the approval by JER. Withdrawals from the
Accounts shall be made upon such signature or signatures as Managing Member may
designate (provided that such signatories are approved by JER), and shall be
made only in connection with expenses related to the assets of the Company



                                       13




or the Subsidiary Companies, as applicable, which are either approved as a Major
Decision or otherwise in conformance with the Budgets, Business Plans and/or
this Agreement.

       (e) NHP will comply with such supplemental obligations as may be
expressly agreed to by JER and NHP in connection with each new Project.

       Section 4.3 Termination of Managing Member.
       ------------------------------------------

       (a) JER may deliver a termination notice to NHP ("Termination Notice")
removing NHP as Managing Member upon the occurrence of any of the following
events:

               (i)   any act or omission that constitutes fraud, dishonesty, bad
faith, gross negligence or willful misconduct by NHP or any of its Affiliates
with respect to this Agreement or any Ancillary Agreement or the Property;

               (ii)  NHP becoming a Non-Contributing Member or any other Event
of Default resulting from a material breach of this Agreement or any Ancillary
Agreement by NHP or any of its Affiliates which is not cured within the
applicable cure periods set forth in Section 12.1;
                                     ------------

               (iii) a Bankruptcy/Dissolution Event with respect to Managing
Member; or

               (iv)  in the event JER becomes the Purchasing Member hereunder
pursuant to the provisions of ARTICLE XI.
                              ----------

       (b) The Termination Notice shall set forth with reasonable particularity
the basis for the same and shall become effective upon the later of the date of
the Termination Notice, or, if applicable, after the expiration without cure of
the applicable cure period; provided, however, that a Termination Notice shall
                            --------  -------
become effective immediately in connection with a termination described in
Section 4.3(a)(iii). NHP may dispute the existence of grounds for the
- -------------------
termination described in Section 4.3(a)(i) or (ii), but not Section 4.3(a)(iii),
                         -----------------    ----          -------------------
by written notice ("Arbitration Notice") to JER within ten (10) days after its
receipt of the Termination Notice. If NHP fails to provide an Arbitration Notice
within such ten (10) day period, then notwithstanding anything to the contrary
herein, NHP shall have no right to dispute the correctness of the Termination
Notice, which shall be conclusive. Whether or not an Arbitration Notice is given
within the period set forth above, NHP shall be removed as Managing Member upon
the date such Termination Notice becomes effective; provided, however, if NHP
                                                    --------  -------
has delivered an Arbitration Notice then the effectiveness of the applicable
Termination Notice may be set aside by the arbitrator in the Arbitration
Proceeding pursuant to Section 14.3. If, pursuant to such Arbitration
                       ------------
Proceeding, the arbitrator does set aside the applicable Termination Notice,
then, notwithstanding anything to the contrary contained herein and in addition
to any damages or rights to reimbursement NHP may be entitled to hereunder, (x)
NHP shall be entitled to receive the Management Fee with respect to the period
it was wrongfully removed as the Managing Member, and (y) NHP shall be entitled
to resume its position as Managing Member hereunder. Further, in addition to the
provisions of the preceding sentence, if, pursuant to such Arbitration
Proceeding, the arbitrator finds that JER delivered such Termination Notice in
bad faith, then NHP shall be entitled to receive additional damages from JER in
an amount equal to



                                       14



its actual damages arising from such wrongful Termination Notice.
Notwithstanding anything contained herein to the contrary, NHP shall be entitled
to arbitrate the basis of a Termination Notice as provided above, regardless of
the triggering of either Member's buy/sell rights pursuant to ARTICLE XI in
                                                              ----------
relation thereto.

       (c) If a Termination Notice becomes effective pursuant to Section 4.3(b),
                                                                 --------------
then:

               (i)   JER or its designee shall be entitled to become the
Managing Member hereunder with all the power and authority previously possessed
by NHP as Managing Member and with the right to receive the Management Fee
payable to Managing Member hereunder; and NHP shall remain a Member in the
Company, but with no power, authority or right to vote, approve or act for or
bind the Company or any Subsidiary Company with respect to any matter in
connection with the Company or any of the Subsidiary Companies or their
respective operations;

               (ii)  Notwithstanding the provisions of ARTICLE IX, all Company
                                                      ----------
distributions will thereafter be made in accordance with the Member Percentages;
provided, however, that, in the event NHP is subsequently reinstated as the
- --------  -------
Managing Member, all such Company distributions will again be made in accordance
with the provisions of ARTICLE IX and JER shall be obligated to immediately pay
                       ----------
to NHP the amount of any distributions it received as a result of this Section
                                                                       -------
4.3(c)(ii) that would otherwise have been made to NHP with respect to the period
- ----------
it was wrongfully removed as the Managing Member;

               (iii) any sums distributable or payable to NHP or its Affiliates
shall be offset against any damages which are established to be the direct
result of NHP's or an Affiliate's fraud, dishonesty, bad faith, gross negligence
or willful misconduct or breach of this Agreement or any Ancillary Agreement, or
a bankruptcy or dissolution event with respect to NHP due the Company or JER
from NHP or its Affiliates and shall be paid instead to the Company or JER in
such order as JER shall determine (but shall be deemed to have been distributed
or paid to NHP or its Affiliates and then paid over to the Company or JER, as
the case may be, until such damages have been fully offset);

               (iv)  NHP shall, upon written request from JER, execute and
acknowledge any required amendments to this Agreement reflecting the foregoing,
in such form and content as JER may reasonably prescribe;

               (v)   NHP shall not be responsible for any obligation of the
Managing Member first accruing after the Termination Notice becomes effective
(other than obligations that would apply to NHP under this Agreement regardless
of its status as Managing Member, including Capital Contribution obligations);

               (vi)  NHP shall forthwith: (w) deliver to JER a final accounting
upon JER's request; (x) surrender and deliver to JER all rents and income,
including tenant security deposits, of the Property and other monies of the
Company held by, or under the control of NHP; (y) deliver to JER, as received,
any monies due the Company and supplies, keys, leases, contracts and documents,
all other accounting papers and records of the company or the Subsidiary
Companies, and all books and records, contracts, leases, receipts for deposits,
bills


                                       15



and other materials in NHP's possession that relate to the Property; and (z)
execute and deliver to JER a notice to third parties directly involved with the
Property in form reasonably satisfactory to JER and NHP to the effect that NHP
is no longer Managing Member; and

                        (vii)   NHP shall allow the Company to continue its
development, leasing, operation and other business activities.

                Section 4.4     Authority to Sign. JER's signature (or a written
                                -----------------
consent granting Managing Member sole authority to sign) shall be required for
all contracts, agreements, instruments or other documents to which the Company
will be a party or bound (including documents related to the acquisition, sale,
financing, leasing or transfer of any portion of the Property) entered into by
or on behalf of the Company or any of the Subsidiary Companies; provided
                                                                --------
however, that Managing Member, acting alone, shall have the authority to execute
- -------
and deliver on behalf of the Company all contracts, agreements, instruments or
other documents to which the Company will be a party or bound to the extent such
agreement would not constitute a Major Decision.

                Section 4.5     No Company Employees.  The Company shall not
                                --------------------
have employees.

                Section 4.6     Company Expenses. Managing Member shall be
                                ----------------
responsible for the payment of all of its general administrative and overhead
expenses incurred in the management, maintenance and operation of the Company in
accordance with the Budgets. Each Member (or any Affiliate thereof) shall be
responsible for its own internal costs and expenses incurred in the
identification, evaluation and acquisition of the Target Assets. To the extent
set forth in the Budgets and the Business Plans, the Company shall be
responsible for paying, and shall pay, all direct third party costs and expenses
incurred by the Members and related to the management, maintenance and/or
operation of the business of the Company and the Subsidiary Companies, including
without limitation, the third party costs and expenses incurred by Managing
Member in performing its due diligence, market, financial and other evaluation
of the Target Assets and of acquiring, holding, owning, developing, renovating,
operating, developing and implementing Workout Plans and disposing of the
Property, including costs of financing, third party fees and disbursements of
attorneys, financial advisors, accountants, appraisers, environmental
consultants, brokers, engineers, travel, marketing, title, and all other fees,
costs and expenses directly attributable to the management, maintenance and/or
operation of the business of the Company and the Subsidiary Companies in
accordance with the Budgets. If any such costs and expenses are or have been
paid by any Member, officer or employee of the Company, such Member, officer or
employee shall be entitled to be reimbursed for such payment so long as such
payment is reasonably necessary for Company business and either set forth in the
Budgets, expressly authorized in this Agreement or otherwise approved by the
Members.

                Section 4.7     Company Funds. No Company funds, assets, credit
                                -------------
or other resources of any kind or description shall be paid to, or used for, the
benefit of any Member or officer of the Company, except as specifically provided
in this Agreement or in accordance with the Budgets.

                                       16



                                   ARTICLE V
                             COMPENSATION TO MEMBERS

                Section 5.1     Sole Right to Compensation For Services. Except
                                ---------------------------------------
as otherwise provided in this Agreement or as otherwise agreed by the Members,
neither any Member, nor any member, partner, shareholder, officer, director,
employee, agent or representative of a Member shall receive any salary, fees,
compensation, overhead expenses or other remuneration in connection with its
activities as a Member or for its services rendered pursuant to this Agreement.
Neither NHP nor JER shall receive any brokerage commissions, fees or other
compensation in connection with the acquisition of any Target Asset by the
Company.

                Section 5.2     Management Fee. The Management Fee shall be paid
                                --------------
by the Company, as a Company expense, to Managing Member on the last day of each
calendar month of the next succeeding calendar month during which the applicable
Gross Revenue was received. In the event the Company does not then have
sufficient cash available to pay the Management Fee, any unpaid portion shall
accrue interest at the rate of Prime plus two percent (2%). The payment of the
Management Fee shall be considered to be a guaranteed payment as defined in
Section 707(c) of the Code.

                                   ARTICLE VI
             ACQUISITIONS AND MANAGEMENT OF PROJECTS AND EXCLUSIVITY

                Section 6.1     Role of the Members in Acquisition of Projects.
                                ----------------------------------------------

                (a)  The Members shall work together to identify, evaluate and
acquire the Target Assets.

                (b)  The Company will seek third party financing opportunities
with respect to the acquisition of the Target Assets to the extent prudent with
a target weighted average portfolio leverage ratio of not more than fifty
percent (50%) on a loan-to-cost basis.

                (c)  NHP shall be primarily responsible for sourcing,
structuring, negotiating and executing any Target Asset purchase transactions
and nonrecourse financing for the acquisition of the Target Assets; provided,
                                                                    --------
however, that JER shall also use its diligent and professional efforts to
- -------
sourcing nonrecourse financing for the Target Assets and Projects. Managing
Member shall have primary responsibility for the performance of all due
diligence on the Target Assets (including site inspections) and provide cash
flow projections based on various valuation methodologies/approaches (including
the preparation of an acquisition plan and an initial Capital Budget and
Operating Budget with respect to such Target Assets).

                (d)  Managing Member shall keep JER informed of all material
developments with respect to any pending approved Target Asset acquisition by
the Company and shall provide JER with copies or all materially modified
transaction and financing documentation with respect to the same. As provided in
Section 4.4, the final form of all such transaction and financing documentation
- -----------
must be approved by JER before being entered into by or on behalf of the
Company. JER shall use its diligent and professional efforts to review and
comment on all such developments and documentation in order to facilitate an
expeditious Major Decision by the Members with respect to the same.

                                       17



                (e)  Notwithstanding the foregoing, at any time prior to closing
an acquisition of a Target Asset, either Member shall have the right to change
its Major Decision (by written notice to the other Member) with respect to the
acquisition of such previously-approved Target Asset, in which event the
terminating Member will no longer be required to use diligent and professional
efforts with respect to such Target Asset. If either Member elects to proceed
with the acquisition of such Target Asset separate from the Company despite the
other Member's rejection, then the proceeding Member shall reimburse the Company
for all costs incurred by it in connection with such acquisition. In the event
neither Member elects to proceed with the acquisition of such Target Asset
separate from the Company, the amounts necessary to fund any due diligence costs
and deposits (i.e., dead deal costs), if any, shall be funded by each Member pro
rata in accordance with its Member Percentage.

                Section 6.2     Acquisition of Projects. The terms of any
                                -----------------------
acquisition of a Target Asset by the Company and the correlative Business Plan,
Capital Budget and Operating Budget with respect thereto must first be approved
by the Members as a Major Decision as follows:

                (a)  the Managing Member shall prepare and the Members must
approve the Target Asset Offer Notice, which shall be delivered pursuant to
Section 6.3(a), at which time the Members shall also review and approve a
- --------------
preliminary Operating Budget with respect to any due diligence, market,
financial and other evaluation, documentation and other anticipated costs to be
incurred by or on behalf of the Company in its evaluation and pursuit of the
possible acquisition of such Target Asset;

                (b)  if applicable, the Members must review and approve any
subsequent material changes to the terms of the acquisition of such Target Asset
pursuant to Section 6.3(c); and
            --------------

                (c)  thereafter, upon the completion of the foregoing approved
due diligence, evaluation, documentation and other activities approved by the
Members, the Managing Member shall prepare and the Members must approve an
Acquisition Memorandum with respect to the contemplated acquisition of such
Target Assets, substantially in the form attached hereto as Exhibit F, which
shall include without limitation the final proposed Business Plan, Budgets
(including the contemplated Capital Contributions), acquisition documentation
and any additional information reasonably requested by JER to facilitate its
final review and approval of the Company's acquisition of such Target Asset. In
addition, NHP shall deliver to JER a true and complete copy of the investment
information provided to the Board of Directors or the Investment Committee of
the Board of Directors of NHP (as applicable) in its approval of such
acquisition.

                Section 6.3     Exclusivity; JER Right of First Refusal.
                                ---------------------------------------

                (a)  Throughout the Exclusivity Period, NHP shall be obligated
to present all Target Assets considered suitable for acquisition by NHP or its
Affiliates for potential acquisition by the Company. Throughout the Exclusivity
Period, NHP shall not acquire a Target Asset without first providing written
notice to JER of the opportunity for the Company to participate in the same as
described in this Agreement (the "Target Asset Offer Notice"). The Target Asset
Offer Notice shall include all of the documentation and information specified in
Section 6.3(b). JER shall have thirty (30) days following the receipt of such
- -------------
Target Asset Offer

                                       18



Notice within which to approve the evaluation and pursuit of the possible
acquisition by the Company of such Target Asset in writing to NHP.

                (b) With respect to each proposed Target Asset, NHP shall
present in writing to JER a Target Asset Offer Notice which shall include: (i)
the identity and description of the Target Asset; (ii) a preliminary letter of
intent, including the then proposed or contemplated material terms of the
acquisition and any proposed third-party nonrecourse financing for the
applicable Target Asset (if any); and (iii) any other matter or information that
JER may reasonably request with respect to the proposed Target Asset and/or the
applicable valuation or financing related thereto.

                (c) If JER does not so elect to approve the participation by the
Company in the evaluation and pursuit of the possible acquisition of such Target
Asset within such thirty (30) day period, NHP or any of its Affiliates may,
participate in the acquisition of such Target Asset for its own account with its
own capital or third party debt financing; provided, that all material terms of
                                           --------
the acquisition of such Target Asset (excluding financing), when considered as a
whole, (i) are not materially more favorable to NHP than those described to JER
in the Target Asset Offer Notice; and (ii) were disclosed to JER in the Target
Asset Offer Notice. For purposes of verifying NHP's compliance with the
provisions of this Section 6.3 with respect to the acquisition of any Target
                   -----------
Asset that JER declines to approve, NHP shall deliVer to JER certified complete
copies of the applicable purchase agreement and all other material documentation
pertaining to the acquisition of such Target Asset within thirty (30) days of
its consummation of such acquisition. In the event NHP has breached its
obligations to JER under this Section 6.3, then JER shall be entitled to pursue
                              -----------
all of its rights and remedies under this Agreement, including without
limitation, its right to seek specific performance of such obligations pursuant
to the provisions of Section 14.3 and Section 14.9.
                     ------------     ------------

                (d) Notwithstanding anything to the contrary contained herein,
(i) NHP shall not be entitled to participate in the acquisition of such Target
Asset through a separate joint venture, partnership or similar equity capital
arrangement with a Person other than JER throughout the Exclusivity Period;
provided, however, that in the event the Exclusivity Period is terminated as a
- --------  -------
result of NHP's triggering of its buy/sell rights pursuant to ARTICLE XI prior
                                                              ----------
to the date that is twelve (12) months from the date of this Agreement, then the
restriction contained in this clause (i) of this Section 6.3(d) shall continue
                                                 --------------
until the date that is twelve (12) months from the date of this Agreement, and
(ii) NHP shall in no way be restricted or prohibited from raising capital, in
relation to the acquisition of a Target Asset or otherwise, through the issuance
of its own common stock or debt securities through a marketed public or private
offering.

                (e) If JER declines to approve the participation of the Company
in the evaluation and pursuit of the possible acquisition of any Target Asset
offered by NHP pursuant to Section 6.3(a) and if, before such Target Asset
                           --------------
acquisition is then separately consummated by NHP or its Affiliate, the terms of
such acquisition change materially from those previously set forth in the
applicable Target Asset Acquisition Notice (including, without limitation, a
reduction in the purchase price), NHP or its Affiliate shall not consummate the
proposed acquisition on such materially changed terms unless and until such
Target Asset is again offered to JER in accordance with Section 6.3(a), except
                                                        --------------
that, in the event of such subsequent notice, JER shall have fifteen (15) days
following the receipt of such notice within which to approve of the



                                       19



participation of the Company in the evaluation and pursuit of the possible
acquisition of such Target Asset in writing to NHP or such notice shall be
automatically deemed rejected by JER. In the event JER elects to approve the
participation of the Company in the evaluation and pursuit of the possible
acquisition of any Target Asset offered by NHP pursuant to Section 6.3(a) and
                                                           --------------
if, before such acquisition is consummated by the Company, the terms of such
acquisition change materially from those previously approved by the Members
pursuant to Section 6.2(a), such materially changed terms shall require the
            --------------
further approval of the Members, except that, in the event JER does not approve
of such materially changed terms within fifteen (15) days of written notice of
the same from NHP, NHP shall then be entitled to separately consummate the
acquisition of such Target Asset separate from the Company; provided such
                                                            --------
acquisition is on terms not materially more favorable to NHP than those
described to JER.

                (f) Notwithstanding anything to the contrary contained in this
Section 6.3, during the pendency of JER's Target Asset review periods set forth
- -----------
in Section 6.3(a) or Section 6.3(e) or in the event the Members have approved of
   --------------    --------------
the material terms of the acquisition of a Target Asset pursuant to Section 6.2,
                                                                    -----------
but the Members are not yet obligated to make their Capital Contributions
pursuant to the provisions of Section 3.3, NHP shall be in no way prohibited
                              -----------
from then contracting to acquire or acquiring any then subject Target Asset
separate from the Company, so long as NHP shall then be obligated, upon JER's
(i) timely approval of such Target Asset, (ii) funding of its applicable Capital
Contribution, and (iii) satisfaction of all other applicable terms and
conditions under this Agreement, to transfer such Target Asset to the Company on
the same economic terms and conditions pursuant to which it acquired the same
and to make reasonable representations and warranties relating to the
documentation pertaining to such acquisition.

                (g) (i) Notwithstanding anything to the contrary contained in
this Agreement, NHP shall have no obligation to offer JER any participation in
the acquisition or ownership of the NHP Excluded Assets at any time; (ii) except
as provided in Section 6.3(e) above with respect to material modifications and
               --------------
Section 6.3(f) with respect to contracts entered into or consummated
- --------------
acquisitions during the Exclusivity Period, upon the expiration of the
Exclusivity Period or upon the removal of NHP, NHP shall have no obligation to
offer JER any participation in the acquisition or ownership of any Target
Assets, and (iii) NHP shall have no obligation to offer JER any participation in
the acquisition or ownership of any Target Assets while any material breach by
JER of its obligations under this Agreement remains uncured after notice from
NHP and the expiration of any applicable cure period.

                Section 6.4     Management of Projects. Managing Member will be
                                ----------------------
responsible for the daily management and operation of each Project, including
implementation of any development or capital improvement activity approved by
the Company prior to acquisition of such Project and as otherwise set forth in
the Budgets and Business Plans. It is contemplated that the Projects shall
consist of Target Assets acquired by the Company which are, in turn, either
owned or operated by third party health care operators on an absolute net basis
to the Company. In the ordinary course of business, such third party operators
shall be responsible for all aspects of the actual operation of the Projects and
Managing Member's management obligations shall consist of collecting regular
periodic payments of rent or interest and verifying compliance by such third
party operators under the applicable Project operating documentation. In the
event of a material default by any such third party operators, the provisions of
Section 6.5 shall apply.
- -----------

                                       20



                Section 6.5     Property in Default.
                                -------------------

                (a) Notwithstanding anything to the contrary contained herein,
it shall not constitute a Major Decision for Managing Member to cause the
Company to forbear the collection of any rental or similar payment obligations
with respect to any third party operator of a Project that is less than two (2)
months and less than twenty-five thousand ($25,000) in arrears; provided, that
                                                                --------
such forbearance will not result in a default under any of Company's then
outstanding third party financing with respect to such Project. If the Managing
Member obtains actual knowledge of the occurrence of a material default by any
of the third party operators of the Projects beyond the limitations set forth in
the preceding sentence, the Managing Member shall notify the Members of such
occurrence and send notice to such third party operator of such default and
requiring compliance under such Project operating documentation within the
applicable cure period. If such default is not cured within the applicable cure
period, Managing Member shall then send such third party operator (each, a
"Defaulting Operator") a declaration of default under the applicable Project
operating documentation (each, a "Declared Default").

                (b) With respect to each Declared Default, Managing Member shall
prepare a recommended course of action for the exercise of remedies by the
Company against the Defaulting Operator under such Project operating
documentation (a "Workout Plan"). The Workout Plan shall contain recommendations
and pro forma budgets regarding (i) the manner that all rights under the Project
operating documentation shall be exercised and whether all or any portion of the
collateral thereunder shall be exercised or realized upon; (ii) the range of
concessions, rental reductions, restructurings and/or any other forgiveness that
the Company should be willing to accept in negotiations with such Defaulting
Operator; (iii) the suspension of any funding obligations by the Company under
such Project operating documentation; (iv) the acceleration of any outstanding
obligations owed to the Company by the Defaulting Operator; (v) entering into
any interim management arrangements; (vi) the extension of credit or additional
funding for capital improvements to such Defaulting operator; (vii) the
increased Management Fee to be paid to the Managing Member with respect to each
Workout Plan approved by the Members; and (viii) any other information that JER
may reasonably request at such time.

                (c) The approval of a Workout Plan shall constitute a Major
Decision requiring the approval of the Members pursuant to Section 4.1(b).
                                                           --------------
Managing Member shall, as applicable, manage, operate, repair, administer,
complete, construct, restore or otherwise deal with the Projects after a
Declared Default in accordance with the final approved Workout Plan and the
budgets set forth therein.

                Section 6.6     Sale of Projects. If neither Member has
                                ----------------
exercised the buy/sell provisions pursuant to ARTICLE XI, on the fifth (5/th/)
                                              ----------
anniversary of the date hereof, the Members shall cause the Company to begin to
actively identify and review disposition opportunities for the Projects. The
material terms of any sale, conveyance, lease, hypothecation, assignment,
transfer or other disposition of all or any portion of a Project must first be
approved by the Members as a Major Decision; provided, however, that, except for
                                             --------  -------
a disposition under ARTICLE XIII, no Project disposition shall be permitted
                    ------------
hereunder if in the written opinion of counsel to NHP, which counsel shall be
reasonably approved by JER, such disposition would cause NHP to be subject to
the one hundred percent (100%) tax on net income from "prohibited transactions"
pursuant to Code Section 857(b)(6).

                                       21



                Section 6.7     Member Rights. The Company recognizes that the
                                -------------
Members and their members, partners, shareholders, officers, directors,
employees, agents, representatives and Affiliates (collectively, the "Member
Parties"), have or may in the future have other business interests, activities
and investments, some of which may be in conflict or competition with the
business of the Company and that subject to the restrictions in Section 6.3 in
                                                                -----------
connection with NHP, the Member Parties are entitled to carry on such other
business interests, activities and investments. Subject to the restrictions in
Section 6.3 in connection with NHP, the Member Parties may engage in or possess
- -----------
an interest in any other business or venture of any kind, independently or with
others, including owning, financing, acquiring, leasing, promoting, developing,
improving, operating, managing and servicing real property on their own behalf
or on behalf of other entities with which they are affiliated or otherwise, and
each of the Member Parties may engage in any such activities, whether or not
competitive with the Company, without any obligation to offer any interest in
such activities to the Company. Except as hereinafter provided, neither the
Company nor the other Member shall have any right, by virtue of this Agreement,
in or to such activities, or the income or profits derived there from, and the
pursuit of such activities, even if competitive with the business of the
Company, shall not be deemed wrongful or improper. Notwithstanding the foregoing
provisions of this Section 6.7, no Member, without the other's prior written
                   -----------
consent, shall actively solicit or negotiate with any existing resident of any
Company Property that is not then leased to an independent third party operator
for relocation from such Company Property to any other property owned, directly
or indirectly, by such Member or any of its Affiliates that is of the same
primary designated healthcare use (e.g., skilled nursing facility, assisted
                                   ----
living facility, etc.).

                Section 6.8     Affiliate Transactions. Notwithstanding anything
                                ----------------------
to the contrary contained herein (but without limitation on the Major Decision
approval rights of the Members), if there is a contract between the Company and
a Member or an Affiliate of a Member, then the other Member shall have the right
unilaterally (but not the obligation) to make any decision by the Company to
terminate or to exercise any right (including any right to approve or any right
to receive documents) or remedy under such contract on behalf of Company. If any
such contract with an Affiliate is terminated, any substitute contract shall be
with a third party reasonably satisfactory to the Members.

                                  ARTICLE VII
                                    REPORTS

                Section 7.1     Books and Records. Managing Member shall cause
                                -----------------
to be kept proper and complete records and books of account in which shall be
entered fully and accurately all transactions and other matters relating to the
business of the Company as are usually entered into such records and books of
account kept for businesses of a like character. Such records and books shall be
kept on an accrual basis, except as the Members may otherwise determine. At all
times, such books and records shall be available at the Company's principal
place of business for inspection, examination, photocopying or audit by any
Member, or the duly authorized representative thereof, during reasonable
business hours and upon reasonable advance notice for any purpose reasonably
related to such Member's interest as a Member.

                Section 7.2     Accounting and Fiscal Year.  The Company shall
                                --------------------------
retain Ernst & Young LLP as the regular accountant and auditor for the Company
(the "Company

                                       22



Accountant"). Any termination or replacement of the Company Accountant shall
constitute a Major Decision. The fees and expenses of the Company Accountant
shall be a Company expense. The Company shall report its operations for tax
purposes on the accrual method. The taxable year of the Company shall end on
December 31 of each year, unless a different taxable year shall be required by
the Code. Managing Member shall cause the Company Accountant to prepare and
submit to the Members for their review and approval the Company's federal, state
and local tax returns no later than ninety (90) days after the most recent
fiscal year.

                Section 7.3     Financial Reports. Managing Member shall prepare
                                -----------------
or cause to be prepared at Company expense for the Members reports in form and
substance reasonably acceptable to JER as follows:

                (a) an annual report of all income and all expenses of the
Company and the Subsidiary Companies within ninety (90) days of the end of the
calendar year, audited by an independent nationally recognized accounting firm
reasonably satisfactory to the Members;

                (b) to the extent required for tax purposes, copies of the
Company's and the Subsidiary Companies' annual federal and state income tax
returns together with a copy of that certain IRS form commonly referred to as a
"Schedule K-1," plus a copy of its Virginia and Delaware equivalents, within
ninety (90) days following the end of each calendar year;

                (c) a monthly report for each calendar month, certified by
Managing Member to be true, accurate and complete in all material respects, and
submitted to JER within thirty (30) days of the end of each such calendar month
(the "Periodic Report"). Each Periodic Report shall include the following: (i)
an operating statement and report of financial condition of the Company for such
period; (ii) if applicable, a Contribution Request containing Managing Member's
estimate of the amount needed to be contributed by the Members pursuant to
ARTICLE III for the succeeding month; (iii) all reports required under the
- -----------
constituent documents for the Subsidiary Companies; (iv) copies of all reports
and information required to be provided to the Company by the third party
operators of the Projects; (v) general ledger income statements for each of the
Subsidiary Companies; and (vi) if applicable, a calculation by Managing Member
of the amount of all distributable cash for the preceding calendar month and a
calculation by Managing Member of the respective distributions if any, to
Members pursuant to ARTICLE IV; and
                    ----------

                (d) such other reports as may be required by the Company's or
any of the Subsidiary Companies' lenders or reasonably requested by JER.

                Section 7.4     Business Plans and Budgets. A Business Plan and
                                --------------------------
Operating Budget for the Company shall be approved by the Members as a Major
Decision prior to the Company's acquisition of its first Project and an
Operating Budget, Capital Budget and Business Plan for each Project shall be
approved by the Members as a Major Decision prior to the Company's acquisition
thereof as set forth in Section 6.2(c). No less than thirty (30) days prior to
                        --------------
the expiration of each Company fiscal year thereafter or from time to time as
determined appropriate by the Managing Member, the Operating Budgets shall be
updated in proposed form by Managing Member with respect to the next fiscal year
and be made available for review and approval by the Members. Each proposed form
of Operating Budget shall set forth on a monthly

                                       23



basis all anticipated income, operating expenses, proposed and/or actual debt
service terms and payments and capital and other costs and expenses of the
Property and/or for the Company (as applicable). In the event the Members have
not approved an updated Operating Budget with respect to the then current fiscal
year of the Company, the immediately prior version of the applicable Operating
Budget shall remain in full force and effect.

                                  ARTICLE VIII
                                 INDEMNIFICATION

                Section 8.1     Indemnification by the Members. Each Member
                                ------------------------------
hereby agrees to indemnify, defend and hold harmless the other Member and the
Company (and their respective direct and indirect agents, employees,
representatives, officers, directors, shareholders, members and partners) from
and against all claims, losses, damages, cost, expense, demands, liabilities,
obligations, liens, encumbrances, rights of action or attorneys' fees ("Claims")
which may arise as a result of any of the following on the part of such
indemnifying Member, its agents, employees or other representatives: a default
under or breach of this Agreement or any act or omission that constitutes fraud,
bad faith, gross negligence or willful misconduct on the part of the
indemnifying Member. Such indemnity shall survive the termination or expiration
of the Term, the sale of all of the Property and the transfer or sale of the
Membership Rights of the indemnifying Member.

                Section 8.2     Indemnification by the Company. No Member or its
                                ------------------------------
direct or indirect agents, employees, representatives, officers, directors,
shareholders or members, nor any officer or employee of the Company, shall be
liable to the Company or to any Member for any act performed, or omitted to be
performed, by it in the conduct of its duties as a Member or Company officer or
employee, if such act or omission is performed or omitted in good faith and was
reasonably believed to be in the best interests of the Company and was within
the scope of authority granted to such Member or Company officer and is
performed or omitted without fraud, bad faith, gross negligence or willful
misconduct on the part of such Member or Company officer or employee, except for
breaches by such Member of its obligations under this Agreement. The Company
shall defend, indemnify and save harmless each Member, and their direct or
indirect agents, employees, representatives, officers, directors, shareholders,
members or partners, and each Company officer, employee from any Claim sustained
by such Member, employee or officer by reason of any act performed, or omitted
to be performed, in good faith and was reasonably believed to be in the best
interests of the Company and was within the scope of authority granted to such
Member, employee or officer and without fraud, bad faith, gross negligence or
willful misconduct in the conduct of their duties, except for breaches by such
Member of its obligations under this Agreement. Such indemnity shall not be
construed to limit or diminish the coverage of any Member or Company officer
under any insurance obtained by the Company and any such insurance policies
obtained by the Company shall contain endorsements waiving any right of
subrogation which the insurer may otherwise have against any Member or other
indemnified Persons. Payment shall not be a condition precedent to any
indemnification provided in this Agreement. The indemnification and agreement to
hold harmless from the Company contained in this Section 8.2 shall be
                                                 -----------
recoverable only out of assets of the Company and not from any Member.

                                       24



                Section 8.3     General Indemnity Provisions.  Each indemnity
                                ----------------------------
provided for under this Agreement shall be subject to the following provisions:

                (a) The indemnity shall cover the costs and expenses of the
indemnitee, including reasonable attorneys' fees and court costs, related to any
actions, suits or judgments incident to any of the matters covered by such
indemnity.

                (b) The indemnitee shall notify the indemnitor of any Claim
against the indemnitee covered by the indemnity within forty-five (45) days
after the indemnitee has notice of such Claim, but failure to notify the
indemnitor shall in no case prejudice the rights of the indemnitee under this
Agreement unless the indemnitor shall be prejudiced by such failure and then
only to the extent the indemnitor shall be prejudiced by such failure. Should
the indemnitor fail to discharge or undertake to defend the indemnitee against
such liability with counsel reasonably acceptable to the indemnified party upon
learning of the same, then the indemnitee may reasonably settle such liability,
and the liability of the indemnitor hereunder shall be conclusively established
by such reasonable settlement, which amount of such liability shall include both
the settlement consideration and the reasonable costs and expenses, including
attorneys' fees, incurred by the indemnitee in effecting such settlement.

                                   ARTICLE IX
                                  DISTRIBUTIONS

                Section 9.1     Payments and Distributions of Available Cash.
                                --------------------------------------------

                (a) Managing Member shall cause the Company to make payments of
or distribute all available cash in excess of Reserve Accounts (as are approved
by the Members) and only after the payment or reasonable provision for all
Company expenses in accordance with the Budgets (including, without limitation,
the Management Fee) to the Members, on the last day of each calendar month next
succeeding the calendar month during which such cash was received (except in the
case of a sale or refinancing of any Property, whereupon distributions shall be
made at the time of such sale or refinancing or as soon as reasonably
practicable thereafter), in the following order of priority:

                    (i) First, to the Members in an aggregate amount equal to
                        -----
the aggregate interest (for the current period and all previous periods) and
principal outstanding under its Priority Loans (amounts distributable under this
Section 9.1(a)(i) shall be distributed to the Members pro rata based on the then
- -----------------
outstanding amounts of accrued interest and then principal; all distributions
which would otherwise be made to the Non-Contributing Member under this Section

9.1(a) shall until the outstanding balance of principal and interest under any
such Priority Loan(s) is satisfied in full, be made instead, to the Contributing
Member with respect to such Priority Loan. Any such payment from distributions
shall be deemed to have been received by the Non-Contributing Member and turned
over in payment of such Priority Loan);

                    (ii) Second, to the Members in proportion to their
                         ------
then-current Member Percentages at the time of such distribution, until such
time as the Members shall have received aggregate distributions pursuant to this
Section 9.1(a)(ii) equal to an amount which
- ------------------

                                       25



provides each Member with a twenty percent (20%) Internal Rate of Return on
their aggregate Capital Contributions;

                (iii) Third, (x) ninety percent (90%) to the Members in
                      -----
proportion to their then-current Member Percentages at the time of such
distribution, and (y) ten percent (10%) to NHP, until such time as JER shall
have received aggregate distributions pursuant to Section 9.1(a)(ii) and this
                                                  ------------------
Section 9.1(a)(iii) equal to an amount which provides each Member with a thirty
- -------------------
percent (30%) Internal Rate of Return on their aggregate Capital Contributions;
and

                (iv)  Thereafter, (x) eighty percent (80%) to the Members in
                      ----------
proportion to their then-current Member Percentages at the time of such
distribution, and (y) twenty percent (20%) to NHP.

          (b) It is not intended that JER will be in a worse position by reason
of the fact that the Projects may be sold separately. Accordingly,
notwithstanding the provisions of this Section 9.1, if at the time (the
                                       -----------
"Applicable Time") a Project is sold, (i) the aggregate amount of distributions
then or previously received by JER under this Section 9.1, with each such
                                              -----------
distribution increased, for purposes of this clause (i) by twenty percent (20%)
per annum, compounded monthly (the "Rate of Return"), from the date received to
the Applicable Time, is less than (ii) what JER would have received pursuant to
the provisions of this Section 9.1 had all distributions then or theretofore
                       -----------
received been made simultaneously in a single distribution at the Applicable
Time, with each prior distribution increased, for purposes of calculating the
amount of such single distribution under this clause (ii) by the Rate of Return
from the date each such prior distribution was made to the Applicable Time, then
NHP shall immediately pay to JER the amount of such deficiency, regardless of
whether NHP's share of the distributions from such sale are sufficient to pay
the same; provided, however, that in no event shall any amounts payable to JER
          --------  -------
from NHP pursuant to this Section 9.1(b) exceed the actual distributions that
                          --------------
NHP received pursuant to the provisions of Section 9.1(a)(iii)(y) and Section
                                           ----------------------     -------
9.1(a)(iv)(y), with each such prior distribution increased for this purpose by
- -------------
the Rate of Return from the date each such prior distribution was made to the
Applicable Time. To the extent necessary, the Managing Member will make
appropriate adjustments to the Members' Capital Accounts and allocations (as set
forth in Exhibit B hereto) if any such payments are made pursuant to this
         ---------
Section 9.1(b).
- --------------

          Section 9.2 Withdrawal of Capital. Except as expressly provided in
                      ---------------------
this Agreement or as otherwise approved by the Members, no Member shall be
entitled to withdraw capital or to receive distributions of or against capital
without the prior approval of, and upon the terms and conditions agreed upon, by
all Members.

                                    ARTICLE X
                    TRANSFER AND CERTAIN OTHER RESTRICTIONS

          Section 10.1 No Transfers of Membership Rights or Member Economic
                       ----------------------------------------------------
Interests.
- ---------

          (a) Neither Member shall have the right or power to Transfer its
Membership Rights or Member Economic Interest, or any portion thereof or any
interest therein, nor shall it have the right to substitute another person or
party in its place or stead as a Member hereof, in

                                       26



each case without the prior written approval of all of the other Members. Any
purported Transfer in violation of the terms hereof shall be null and void.
Notwithstanding the foregoing, JER shall have the right to Transfer its
respective Membership Rights to its Affiliate without the consent of NHP;
provided, that (i) the transferee shall have assumed any and all of the
- --------
obligations under this Agreement with respect to the Membership Rights to which
the Transfer relates; (ii) all reasonable expenses incurred in connection with
the Transfer shall have been paid by or for the account of such transferee
(including, without limitation, all Company and NHP costs and expenses incurred
in its review and documentation of such Transfer); and (iii) all agreements,
articles, minutes, written consents and all other necessary documents and
instruments shall have been executed and filed and all other acts shall have
been performed which NHP reasonably deems necessary to make the transferee a
"Substitute Member" of the Company and to preserve the status of the Company as
a limited liability company.

          (b) Any permitted transferee may become a Substitute Member of the
Company. All references to NHP contained herein shall be deemed to refer to NHP
and all permitted transferees. All references to JER contained herein shall be
deemed to refer to JER and all permitted transferees. Any such Substitute Member
shall expressly assume and be bound by all of the terms and conditions of this
Agreement from and after the effective date of the admission of such Substitute
Member. A transferee of a Member's Member Economic Interest shall be entitled to
be an Assignee of Record. "Assignee of Record" as used herein means a person who
has acquired a beneficial interest in all or a portion of the Member Economic
Interest of a Member as evidenced by a written instrument of assignment, the
effective date of which has passed, and whose Member Economic Interest has been
reflected on the books of the Company, but who has not been admitted to the
Company as a Substituted Member.

          Section 10.2 Change in Control of a Member. Without limiting the
                       -----------------------------
generality of the provisions of Section 11.1(a), upon the occurrence of a Change
                                ---------------
of Control Event with respect to either Member, the sole remedy of the other
Member shall be to trigger its buy/sell rights pursuant to ARTICLE XI. A "Change
                                                           ----------
of Control Event" shall mean a transaction or a series of related transactions
(voluntary or involuntary, by operation of law or otherwise) resulting in (i) a
merger of (or other business combination with respect to) such Member, where the
Person(s) owning such Member prior to such event constitute less than fifty
percent (50%) of the Person(s) owning such Member after such event or where the
Person(s) owning such Member prior to such event do not retain possession,
directly or indirectly, of the right to direct or cause the direction of the
management and policies of such Member, whether through the ownership of voting
securities, by contract or otherwise, (ii) a change in the beneficial ownership
of more than fifty percent (50%) of the outstanding voting securities of such
Member, or (iii) a sale of all or substantially all of the assets of such
Member; provided, however, that a Transfer permitted pursuant to Section 10.1
        --------  -------                                        ------------
shall not constitute a Change of Control Event for purposes of the foregoing.

                                       27



                                   ARTICLE XI
                                 BUY/SELL RIGHTS

          Section 11.1 Exercise.
                       --------

          (a) Each Member shall have the right to purchase or sell its
respective Membership Rights in the Company to the other Member in the manner
set forth in this Section 11.1 at any time without restriction.
                  ------------

          (b) Either Member (the "Offeror") may serve upon the other Member (the
"Offeree") a notice in writing (the "Offering Notice") which shall contain the
following terms:

                (i)  a statement of intent to rely on this Section 11.1; and
                                                           ------------

                (ii) a valuation stating the aggregate dollar amount (the
"Property Valuation Amount") which the Offeror, as a third party, would be
willing to pay for all of the Property as of the date of the Offering Notice
(the "Offering Notice Date") free and clear of all liabilities on such Property
and the amount (the "Buy/Sell Distribution Amount") that each Member would have
been entitled to receive if the Company had sold all of the Property to a third
party for the Property Valuation Amount and paid all Company liabilities (and
liabilities secured by the Property) and distributed the net proceeds of such
sale to the Members in accordance with this Agreement on the Offering Notice
Date.

          (c) The Offeree shall then have the obligation either:

                (i)  to sell all, but not less than all, of its Membership
Rights in the Company to the Offeror for an amount equal to its respective
Buy/Sell Distribution Amount; or

                (ii) to purchase all, but not less than all, of the Membership
Rights in the Company of the Offeror for an amount equal to the Offeror's
respective Buy/Sell Distribution Amount.

If the Offeree disagrees with any Buy/Sell Distribution Amount set forth in an
Offering Notice, then the Offeree shall have the right to challenge the
determination thereof by delivering a written notice to the Offeror within ten
(10) days of the Offering Notice Date. Failure to give such notice of challenge
within such period shall be deemed approval of such determination by the
Offeree. If the Offeree timely delivers such notice of challenge, and if within
ten (10) days of the Offeror's receipt of such notice, the Members have not
agreed in writing on the determination of the Buy/Sell Distribution Amount in
dispute, then the Members shall jointly select a certified public accounting
firm (the "Selected Accountant") to determine the proper Buy/Sell Distribution
Amount in dispute. If the Members are unable to agree upon the Selected
Accountant, the Offeror shall deliver to the Offeree a list of three (3) of the
"big five" (or then commonly referred to equivalent thereof) accounting firms.
The Offeree shall within three (3) business days of its receipt of such list
choose one (1) of the firms on the list to be the Selected Accountant. If the
Offeree does not make a timely selection, the Offeror shall choose the Selected
Accountant from the list and such determination shall be binding upon the
Offeree. Each of the Members shall cooperate fully with the Selected Accountant
to assist in such determination, including, without limitation, providing copies
of all books and records of the

                                       28



Company and such other information requested by the Selected Accountant. The
Selected Accountant shall make its determination of the Buy/Sell Distribution
Amount in dispute within sixty (60) days from the Offering Notice Date and the
results thereof shall be binding on the Members for the sole purpose of
determining the Buy/Sell Distribution Amount in dispute. Each of the Members
shall bear equally the costs and fees of the Selected Accountant in making its
determinations. Each of the Members hereby agree that the Selected Accountant
shall have no liability to any of the Members for its determination of the
Buy/Sell Distribution Amount in dispute, unless in making such determination the
Selected Accountant has committed gross negligence or willful misconduct. In
connection therewith, each Member hereby indemnifies and holds harmless the
Selected Accountant from any liabilities, damages, costs or expenses (including,
without limitation, actual attorneys' fees) arising from any claim asserted by
such Member against the Selected Accountant in connection with making the
determination required by this Section 11.1(c), provided that the Selected
                               ------------     --------
Accountant has not committed gross negligence or willful misconduct.

          (d) Within forty-five (45) days after the date on which the Buy/Sell
Distribution Amounts for each of the Members are determined in accordance with
Section 11.1(c) (the "Buy/Sell Option Period"), the Offeree shall notify the
- ------------
Offeror as to whether the Offeree will elect to purchase the Membership Rights
of the Offeror (a "Purchase Notice") or will elect to sell its Membership Rights
in the Company to the Offeror (a "Sale Notice"). If the Offeree does not notify
the Offeror of its election prior to expiration of the Buy/Sell Option Period,
the Offeree shall for all purposes be conclusively deemed to have elected to
sell its Membership Rights in the Company to the Offeror as provided in this
Section 11.1. To be effective, a Purchase Notice shall be accompanied by a
- ------------
deposit (in the form of a certified or cashier's check payable to the Offeror)
by the Offeree (the "Offeree Deposit") in an amount equal to ten percent (10%)
of the applicable Buy/Sell Distribution Amount. If the Offeree either delivers a
Sale Notice to the Offeror, as set forth above, or is deemed to have elected to
sell its Membership Rights in the Company to the Offeror, the Offeror shall have
ten (10) business days after the date of its receipt of the Sale Notice or the
date of such deemed election, as applicable, to deliver a deposit (in the form
of a certified or cashier's check payable to the Offeree) by the Offeror (the
"Offeror Deposit"; the Offeree Deposit or the Offeror Deposit, as applicable,
the "Deposit") in an amount equal to ten percent (10%) of the Offeree's Buy/Sell
Distribution Amount.

          (e) The Member obligated to purchase under this Section 11.1 (the
                                                          ------------
"Purchasing Member") shall fix a date (the "Buy/Sell Closing Date") upon which
the closing of such purchase (the "Buy/Sell Closing") shall occur not later than
ninety (90) days following the stated expiration of the Buy/Sell Option Period.
The Member which is obligated to sell its Membership Rights pursuant to this
Section 11.1 shall be referred to herein as the "Selling Member." The Buy/Sell
- ------------
Closing shall take place at a location in the United States as designated by the
Purchasing Member. The Deposit shall be credited toward the purchase price of
the Membership Rights in the Company being sold at the Buy/Sell Closing. The
costs of the Buy/Sell Closing shall be borne equally between the Members.

          (f) At the Buy/Sell Closing, the Selling Member shall execute and
deliver to the Purchasing Member assignments of interest, deeds, bills of sale,
instruments of conveyance, and other instruments as the Purchasing Member may
reasonably require (collectively, the "Transfer Documents"), to give it title to
all of the selling Member's Membership Rights in the Company,

                                       29




and of the Company's right, title and interest in and to the Property, and the
Selling Member hereby irrevocably constitutes and appoints the Purchasing Member
its attorney-in-fact to execute, acknowledge and deliver such instruments as may
be necessary or appropriate to carry out and enforce the provisions of this
Section 11.1(f). The Transfer Documents shall contain no representations or
- ---------------
warranties other than customary representations and warranties as to authority
and representations and warranties regarding the Selling Member's Membership
Rights being transferred. The Purchasing Member shall deliver to the Selling
Member cash for the full amount of the consideration for such Membership Rights,
and shall deliver any other documents necessary from the Purchasing Member to
conclude the Buy/Sell Closing. The Selling Member shall transfer its Membership
Rights free of all liens or encumbrances. Any loans made to the Company by the
Selling Member and/or its Affiliates shall be repaid in full by the Company at
the Buy/Sell Closing. Further, upon the Buy/Sell Closing, the Selling Member and
its Affiliates shall be released from its liability under any loans to the
Company (including, without limitation, any Priority Loans) and any guarantees
made in connection therewith. If a Company creditor refuses to so release the
Selling Member and its Affiliates, the Purchasing Member shall indemnify the
Selling Member and its Affiliates from liability under such loans and
guarantees.

          (g) Unless otherwise agreed by the Members prior to Buy/Sell Closing,
payment of the amount due at the Buy/Sell Closing to the Selling Member shall be
by wire transfer of federal funds (United States dollars) to accounts at a bank
or other financial institution designated by the Selling Member. Distributions
with respect to all Company income and expenses shall be prorated as of midnight
on the day preceding the Buy/Sell Closing. For purposes of calculating such
prorations, Purchasing Member shall be deemed to be in title to the Company and
the Property as of the date of the Buy/Sell Closing. Within sixty (60) days
following the Buy/Sell Closing, the Company Accountant shall deliver to the
Selling Member a final audit setting forth the final determination of all such
Company income and expenses to be prorated as of the Buy/Sell Closing along with
any remaining distributions with respect thereto. Any disputes between the
Members over such final report and distributions shall be resolved pursuant to
the arbitration provisions set forth in Section 14.3.
                                        ------------

          Section 11.2  Breach; Enforcement.
                        -------------------

          (a) Subject to the provisions of this Section 11.2 and Section 14.3,
                                                ------------     ------------
the remedies available for the breach of a Member's obligations under Section
                                                                      -------
11.1 shall be all those available under law and equity, including specific
- ----
performance since the Members understand and acknowledge that damages alone
would be inadequate. If the Purchasing Member defaults in its obligation to
purchase under Section 11.1, the same shall be deemed an Event of Default
               ------------
hereunder by the Purchasing Member and (i) all actions requiring the consent of
both Members under this Agreement from and after the date of such default shall
require only the consent of the Selling Member, and (ii) the Selling Member
shall be entitled to retain the Deposit as liquidated damages and shall not be
entitled to other damages for such breach, but the foregoing shall not limit any
rights of the Members under Section 14.16.
                            -------------

          (b) The Members acknowledge and agree that each Member's Interest is
extraordinary and unique, and the provisions of this ARTICLE XI relating to a
                                                     ----------
purchase and sale of its Membership Rights shall be specifically enforceable as
if such Member's Membership Rights were an interest in real property.

                                       30




          (c) The Members hereby agree that the provisions contained in this
ARTICLE XI shall remain in full force and effect until the Company has been
- ----------
completely wound up and all of the Property has been liquidated and otherwise
distributed among the Members pursuant to the provisions of Section 13.2.
                                                            ------------

                                  ARTICLE XII
                                DEFAULT; REMEDIES

          Section 12.1 Events of Default. The occurrence of any of the following
                       -----------------
events by or with respect to a Member (the "Defaulting Member"; and the other
Member shall be referred to herein as the "Non-Defaulting Member"), shall be
defaults under this Agreement and if not cured within the applicable notice and
cure period provided below, if any, with respect to such default shall
constitute an "Event of Default" hereunder:

          (a) The (i) failure of a Member to make a required Capital
Contribution pursuant to Section 3.2 within the time period set forth in Section
                         -----------                                     -------
3.4(b), (ii) occurrence of any Transfer prohibited under ARTICLE X or (iii)
- ------                                                   ---------
failure to timely comply with the purchase and/or sale obligations pursuant to
ARTICLE XI.
- ----------

          (b) Other than as set forth in Section 12.1(a), the failure of a
                                         ---------------
Member (or any Affiliate thereof) to make any contribution, advance or other
payment as required pursuant to this Agreement or any Ancillary Agreement that
is not cured within five (5) business days (or any other applicable cure period
specified herein or therein) of written notice to the Defaulting Member.

          (c) Other than as set forth in Section 12.1(a) and (b), the failure of
                                         ---------------     ---
a Member (or any Affiliate thereof) to perform any of its other obligations
under this Agreement or any Ancillary Agreement or the breach by a Member of any
of the terms, conditions, representations, warranties or covenants of this
Agreement or any Ancillary Agreement and a continuation of such failure or
breach for more than thirty (30) days after notice by a Non-Defaulting Member to
the Defaulting Member that such Member has failed to perform any of its
obligations under, or has breached, this Agreement or any Ancillary Agreement;
provided, that if such failure or breach is of the nature that it can be cured
- --------
but cannot reasonably be cured within such thirty (30) day period, such period
shall be extended for up to an additional one hundred eighty (180) days so long
as the Defaulting Member in good faith commences all reasonable curative efforts
within thirty (30) days of its receipt of such notice from the Non-Defaulting
Member and diligently and expeditiously continues its curative efforts to
completion; provided, further, that such thirty (30) day cure period shall not
            --------  -------
be applicable to the breach of any representations or warranties by a Member
under this Agreement or any Ancillary Agreement that are actually known to be
false by such Member at the time they are made.

          (d) As to any Member or any Affiliate thereof (a
"Bankruptcy/Dissolution Event"): a case or proceeding shall be commenced by any
Member seeking relief under the federal Bankruptcy Code or any other federal or
state law relating to insolvency, bankruptcy or reorganization; an adjudication
that any Member is insolvent or bankrupt; the entry of an order for relief under
the federal Bankruptcy Code with respect to any Member; the filing of any such
petition or the commencement of any such case or proceeding against any Member,
unless such

                                       31



petition and the case or proceeding initiated thereby are dismissed within
ninety (90) days from the date of such filing; the filing of an answer by any
Member admitting or failing to contest the allegations of any such petition; the
appointment of (or seeking, consenting to or acquiescing in the appointment of)
a trustee, receiver or custodian for all or substantially all of the assets of
any Member unless such appointment is vacated or dismissed within ninety (90)
days from the date of such appointment but not less than five (5) days before
the proposed sale of any assets of any Member (or if such appointment is stayed
within such ninety (90) day period, such appointment is not vacated within
ninety (90) days of the expiration of such stay); the insolvency of any Member
or the execution by any Member of a general assignment for the benefit of
creditors; the convening by any Member of a meeting of its creditors, or any
class thereof, for purposes of effecting a moratorium upon or extension or
composition of its debts; or the failure generally of any Member to pay its
debts as they become due; any Member's failure to prevent the levy and
attachment (other than mechanic's liens that are removed in the ordinary cause
of business) or execution or other seizure of the Property or any portion
thereof where the same is not discharged within thirty (30) days thereafter; the
levy, attachment, execution or other seizure of all or substantially all of the
assets or the Member Economic Interest of any Member where such seizure is not
discharged within thirty (30) days thereafter; the admission by any Member in
writing of its inability to pay its debts as they mature or that it is generally
not paying its debts as they become due; provided, with respect to an Affiliate
                                         --------
of a Member, in each case, such event could reasonably affect such Member's
ability to perform its obligations under this Agreement.

          Section 12.2 Remedies. Upon the occurrence of any Event of Default,
                       --------
the Non-Defaulting Member(s) may elect to do one or more of the following:

          (a) if as a result of the failure of the Defaulting Member to make a
required Capital Contribution, to elect one of its remedies pursuant to Section
                                                                        -------
3.4;
- ---

          (b) enforce any covenant by the Defaulting Member to advance money or
to take or forbear from any other action hereunder; or

          (c) except as otherwise expressly provided herein, pursue any other
remedy permitted by this Agreement or at law or in equity, including without
limitation, to trigger its buy/sell rights pursuant to ARTICLE XI.
                                                       ----------

          Section 12.3 Cumulative Remedies. Except as otherwise expressly
                       -------------------
provided herein, no remedy conferred upon the Company or any Member in this
Agreement is intended to be exclusive of any other remedy herein or by law
provided or permitted, but rather each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law, in equity or by statute.

          Section 12.4 Litigation Without Termination. Any action or proceeding
                       ------------------------------
brought by any Member or the Company against any Member or the Company
(including any action for damages, specific performance or declaratory relief)
for or by reason of a breach by such party of this Agreement or any other
agreement entered into in connection with the same, shall not, in and of itself,
result in a termination of the Company (other than an action to terminate the
Company that is successful).

                                       32



          Section 12.5 No Waiver. No waiver by a Member or the Company of any
                       ---------
breach of or default under this Agreement shall be deemed to be a waiver of any
other breach or default of any kind or nature, and no acceptance of payment or
performance by a Member or the Company after any such breach or default shall be
deemed to be a waiver of any breach or default of this Agreement, whether or not
such Member or the Company knows of such breach or default at the time it
accepts such payment or performance. No failure or delay on the part of a Member
or the Company to exercise any right it may have shall prevent the exercise
thereof by such Member or the Company at any time such other may continue to be
so in default, and no such failure or delay shall operate as a waiver of any
default.

                                  ARTICLE XIII
                           DISSOLUTION OF THE COMPANY

          Section 13.1 Events Giving Rise to Dissolution. No act, thing,
                       ---------------------------------
occurrence, event or circumstance shall cause or result in the dissolution of
the Company, except that the happening of any one of the following events shall
cause a dissolution of the Company:

          (a) the sale or other disposition of all or substantially all of the
Property of the Company and the receipt of the proceeds therefore;

          (b) the unanimous agreement in writing by the Members to dissolve the
Company;

          (c) the occurrence of a Bankruptcy/Dissolution event with respect to
any Member if the other Member so elects;

          (d) the expiration of the Term pursuant to Section 1.3; or
                                                     -----------

          (e) any other event which is deemed to cause dissolution of the
Company under the Act.

          Except as otherwise provided in this Agreement, each Member agrees
that, without the prior written consent of the Members, (i) a Member shall not
have the right to resign or withdraw from the Company, and (ii) a withdrawing
Member shall not be entitled to receive any Company distributions and shall not
otherwise be entitled to receive the fair value of its Membership Rights in the
Company.

          Section 13.2 Winding Up. Upon the dissolution of the Company as herein
                       ----------
provided, the Company shall engage in no further business thereafter other than
that necessary to wind up the business and distribute the assets. In the event
of a dissolution of the Company, Managing Member shall be the "Liquidating
Member" hereunder and shall wind up the affairs of the Company and liquidate its
assets; provided, however, that if Section 13.1(c) applies with respect to the
        --------  -------          ---------------
Managing Member, then JER shall be the Liquidating Member hereunder. Cash (other
than proceeds from the liquidation of the assets of the Company) shall continue
to be applied and distributed during the winding-up period in the same manner as
provided for in ARTICLE IX (subject, however, to the provisions of Section 3.2
                ----------                                         -----------
and Section 3.4). The Liquidating Member shall have the right and unlimited
    ------------
discretion to determine, in good faith, the time, manner and terms of any sale
or sales of the assets of the Company pursuant to such

                                       33



liquidation, subject to the Major Decision approval rights of the Members
hereunder; provided, however, that such decisions shall not constitute Major
           --------  -------
Decisions requiring the approval of the Members in the event such dissolution
arises pursuant to Section 13.1(c). The proceeds from the liquidation of the
                   ---------------
assets of the Company shall be applied as follows:

          (a) First, to the payment of third party financing and liabilities of
              -----
the Company (including any outstanding amounts due on any indebtedness
encumbering the Property, or any part thereof) and the Company's expenses of
liquidation;

          (b) Second, to any reserves which the Liquidating Member shall
              ------
reasonably determine to be necessary for contingent, unliquidated or unforeseen
liabilities of the Company; and

          (c) Third, not later than the latest time specified for such
              -----
distributions pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(2) to
the Members in accordance with their respective positive Capital Account
balances (after adjustment to reflect the allocations pursuant to Exhibit B).
                                                                  ----------
With the approval of the Members, a pro rata portion of the distributions that
would otherwise be made to the Members under the preceding sentence may be
distributed to a trust established for the benefit of the Members for the
purposes of liquidating Company assets, collecting amounts owed to the Company,
and paying any contingent or unforeseen liabilities or obligations of the
Company arising out of or in connection with the Company. The assets of any
trust established under this Section 13.2(c) shall be distributed to the Members
                             ---------------
from time to time by the trustee of the trust upon approval of the Members in
the same proportions as the amount distributed to the trust by the Company would
otherwise have been distributed to the Members under this Agreement.

                                  ARTICLE XIV
                                  MISCELLANEOUS

          Section 14.1 Notices. Any notice with a Member is required or may
                       -------
desire to give the other Member shall be in writing and may be delivered (a)
personally, (b) by United States registered or certified mail, postage prepaid,
(c) by Federal Express or other reputable courier service regularly providing
evidence of delivery (with charges paid by the party sending the notice), or (d)
by telecopy; provided, that such telecopy shall be immediately followed by
             --------
delivery of such notice pursuant to clause (a), (b) or (c) above. Any such
notice to a Member shall be addressed at the address set forth below (subject to
the right of a Member to designate a different address for itself by notice
similarly given):

    If to NHP:                  Nationwide Health Properties, Inc.
                                610 Newport Center Drive, Suite 1150
                                Newport Beach, California 92660
                                Attn: Chief Executive Officer
                                      with a copy to General Counsel
                                Telecopy No.: (949) 759-6887

                                       34



              With copies to:       O'Melveny & Myers LLP
                                    610 Newport Center Drive, 17/th/ Floor
                                    Newport Beach, California  92660-6429
                                    Attn:  Steven L. Edwards, Esq.
                                    Telecopy No.: (949) 823-6994

         If to JER:                 JER Partners
                                    1650 Tysons Boulevard
                                    Suite 1600
                                    McLean, Virginia 22101
                                    Attn: Mr. Paul A. Froning
                                    Telecopy No.: (703) 714-8107

              With copies to:       JER Partners
                                    1650 Tysons Boulevard
                                    Suite 1600
                                    McLean, Virginia 22101
                                    Attn: Luann S. Sinclair, Esq.
                                    Telecopy No.: (703) 714-8102

Service of any such notice or other communications so made shall be deemed
effective on the day of actual delivery (whether accepted or refused) as
evidenced by confirmed answerback if by facsimile; provided, that if any notice
                                                   --------
or other communication to be delivered by facsimile is unable to be transmitted
because of a problem affecting the receiving party's facsimile machine, the
deadline for receiving such notice or other communication shall be extended
through the next business day, as shown by the addressee's return receipt if by
certified mail, and as confirmed by the courier service if by courier; provided,
                                                                       --------
however, that if such actual delivery occurs after 5:00 p.m. (local time where
- -------
received) or on a non-business day, then such notice or demand so made shall be
deemed effective on the first business day after the day of actual delivery. No
communications via electronic mail shall be effective to give any notice,
request, direction, demand, consent, waiver, approval or other communications
hereunder.

              Section 14.2 Entire Agreement. This Agreement, together with the
                           ----------------
Exhibits hereto, represent the entire agreement of the parties with respect to
the subject matter hereof and supersedes any and all prior agreements, writings
or understandings between the parties with respect to the subject matter hereof.
Except as otherwise expressly provided herein, no amendment or modification to
this Agreement shall be binding unless same shall be in writing and signed by
all Members.

              Section 14.3 Arbitration; Governing Law.
                           --------------------------

              (a) Except as set forth in Section 14.3(b) below and except to the
                                         ---------------
extent another dispute resolution procedure is set forth in this Agreement, any
controversy, claim or dispute between the Members arising out of or related to
this Agreement or the rights of the parties hereunder shall be resolved pursuant
to an arbitration proceeding ("Arbitration Proceeding") in accordance with the
terms set forth on Exhibit C attached hereto.
                   ---------

                                       35



          (b) Each Member shall have the right to apply to any court of
competent jurisdiction and/or to the arbitrator(s) for an order or award of
interim, provisional or conservatory measures in order to maintain the status
quo or to protect its rights or property pending arbitration pursuant to this
Agreement, and any such application shall not be deemed incompatible with, or a
waiver of, the Members' agreement to arbitrate.

          (c) Nothing herein shall in any way limit the right of any Member to
exercise self-help remedies or to obtain provisional or ancillary remedies from
a court of competent jurisdiction before, after or during the pendency of any
Arbitration Proceeding. The award rendered by the arbitrator(s) shall be final
and binding between the parties and not subject to appeal or other recourse.
Recognition and enforcement of any award rendered by the arbitrator(s) may be
sought in any court of competent jurisdiction.

          (d) The Members and any of their permitted transferees hereby waive
all rights to (i) bring any derivative action pursuant to Sections 18-1001
through 18-1004 of the Act, or (ii) apply to a Delaware Court of Chancery to
hear and determine any matter related to managers, contested votes, or any other
matter under Section 18-110 of the Act, or to interpret, apply or enforce the
provisions of this Agreement or to take any other action described in Section
18-111 of the Act.

          (e) Notwithstanding the commencement of an Arbitration Proceeding
pursuant to this Section 14.3 and under the terms of Exhibit C, the Members
                 ------------                        ---------
shall be required to continue to perform such obligations and to take such
actions as are necessary to continue to the operations and business of the
Company unless an order or direction to the contrary is issued by a court of
competent jurisdiction or the arbitrator(s).

          (f) Subject to the provisions of Section 14.3(d), the laws of the
                                           --------------
State of Delaware, including, without limitation, the Act, shall govern the
organization and internal affairs of the Company and the liability of the
Members. Nevertheless, to the extent that reference need be made to the law of
any state to enforce the decision made in any Arbitration Proceeding or any
legal proceeding brought pursuant to, or to apply or interpret the procedural
rules applicable to any Arbitration Proceeding or any legal proceeding brought
pursuant to Section 14.3(b), the internal laws of the State of New York (without
            --------------
reference to the rules regarding conflict or choice of laws of such State) shall
be utilized for such purpose.

          Section 14.4 Successors and Assigns. Except as herein otherwise
                       ----------------------
specifically provided, this Agreement shall be binding upon and inure to the
benefit of the Members and their permitted successors and assigns.

          Section 14.5 Captions. Captions contained in this Agreement in no way
                       --------
define, limit or extend the scope or intent of this Agreement.

          Section 14.6 Severability. If any provision of this Agreement,
                       ------------
including the arbitration provisions, or the application of such provision to
any person or circumstance, shall be held invalid, the remainder of this
Agreement, or the application of such provision to the persons or circumstances,
shall not be affected thereby.

                                       36



          Section 14.7  Counterparts. This Agreement may be executed in several
                        ------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document. Any signature page of this Agreement may
be detached from any counterpart of this Agreement and re-attached to any other
counterpart of this Agreement identical in form hereto but having attached to it
one or more additional signature pages.

          Section 14.8  Further Assurances. Each Member covenants and agrees
                        ------------------
that it shall at any time and from time to time do, execute, acknowledge and
deliver, or shall cause to be done, executed, acknowledged and delivered, all
such further acts, documents and instruments as may reasonably be required by
any other Member in order to carry out and effectuate fully the transactions
herein contemplated in accordance with this Agreement.

          Section 14.9  Right to Specific Performance. The failure or refusal by
                        -----------------------------
a Member to comply with any or all of the provisions of this Agreement shall
entitle any other Member to specific performance of the terms, covenants and
conditions of this Agreement or any part hereof in addition to any and all other
remedies available to such Member at law or in equity.

          Section 14.10 Relationship of Parties. The relationships between the
                        -----------------------
Members under this Agreement shall be that of a limited liability company, for
the sole and limited purpose of carrying on the business of the Company. Except
insofar as otherwise provided in this Agreement, nothing herein shall be deemed
to create a limited liability company between the Members for the carrying on of
business outside the scope of this Agreement, nor shall any Member have the
ability to act as agent for any other Member.

          Section 14.11 Waiver of Jury Trial. THE MEMBERS HEREBY WAIVE TRIAL BY
                        --------------------
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE MEMBERS
AGAINST THE OTHER OR THE COMPANY IN CONNECTION WITH ANY MATTER WHATSOEVER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE RELATIONSHIP OF
THE MEMBERS OR ANY CLAIM OF INJURY OR DAMAGE RELATING TO ANY OF THE FOREGOING,
OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE WITH RESPECT THERETO.

          Section 14.12 Creditors Not Benefited. Nothing contained in this
                        -----------------------
Agreement is intended or shall be deemed to benefit any creditor of the Company
or any Member, and no creditor of the Company shall be entitled to require the
Company or the Members to solicit or accept any Additional Contribution for the
Company or to enforce any right which the Company or any Member may have against
any Member under this Agreement or otherwise.

          Section 14.13 No Third Party Rights. Except as expressly provided
                        ---------------------
herein or in the Act, this Agreement is for the sole benefit of the Members and
their respective permitted successors and assignees, and shall not confer, nor
shall be construed as conferring, directly, indirectly, contingently or
otherwise, any rights or benefits on any person or party other than the Members
and their permitted successors and assignees. Without limiting the generality of
the foregoing, a deficit Capital Account of a Member shall not be deemed to be a
liability of such Member nor an asset or property of the Company.

                                       37



          Section 14.14 Survival. The indemnifications provided herein and any
                        --------
other provisions hereof which state that they expressly survive the Term or the
termination hereof shall survive the termination or expiration of this
Agreement.

          Section 14.15 Usury. If any applicable law is ever judicially
                        -----
interpreted so as to deem any distribution, contribution, payment or other
amount received by any Member or the Company under this Agreement as interest
and so as to render any such amount in excess of the maximum rate or amount of
interest permitted by applicable law, then it is the express intent of the
Members and the Company that all amounts in excess of the highest lawful rate or
amount theretofore collected be credited against any other distributions,
contributions, payments or other amounts to be paid by the recipient of the
excess amount or refunded to the appropriate Person, and the provisions of this
Agreement immediately be deemed reformed, without the necessity of the execution
of any new document, so as to comply with the applicable law, but so as to
permit the payment of the fullest amount otherwise required hereunder. All sums
paid or agreed to be paid that are judicially determined to be interest shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the term of such obligation so that the rate or amount of
interest on account of such obligation does not exceed the maximum rate or
amount of interest permitted under applicable law.

          Section 14.16 Attorneys' Fees. In the event of any litigation between
                        ---------------
the Members to enforce or interpret any provision or right hereunder, the
unsuccessful party to such litigation covenants and agrees to pay the successful
party or parties all costs and expenses reasonably incurred, including
reasonable attorneys' fees. For the purpose of this Agreement, the term
"attorneys' fees" shall mean expert expenses and fees and the fees and expenses
of counsel to the Members, which may include printing, Photostating, duplicating
and other expenses, air freight charges and fees billed for law clerks,
paralegals, librarians and others not admitted to the bar but performing
services under the supervision of an attorney. Such term shall also include all
such fees and expenses incurred with respect to appeals, arbitrations, reference
out and bankruptcy proceedings, and whether or not any action or proceeding is
brought with respect to the matter for which said fees and expenses were
incurred.

          Section 14.17 Time of the Essence. Time is of the essence of this
                        -------------------
Agreement.

          Section 14.18 Incorporation of Exhibits. All exhibits, schedules and
                        -------------------------
appendices attached and referred to in this Agreement are incorporated herein as
if fully set forth in this Agreement.

          Section 14.19 Certain Terminology.
                        -------------------

          (a) Whenever the words "including", "include" or "includes" are used
in this Agreement, they should be interpreted in a non-exclusive manner as
though the words "but [is] not limited to" immediately followed the same.

          (b) Except as otherwise indicated herein, all Article and Section
references in this Agreement shall be deemed to refer to the corresponding
Articles and Sections of this Agreement.

                                       38



          Section 14.20 Business Days. Any reference in this Agreement to
                        -------------
"business days" shall mean all calendar days except Saturdays, Sundays and New
York and federal legal holidays. Any other reference to "days" shall mean
calendar days.

          Section 14.21 Member Estoppel Certificates. Upon the written request
                        ----------------------------
of a Member, the other Member shall, within fifteen (15) days of its receipt of
such request, execute and deliver a written statement certifying: (A) that this
Agreement is unmodified and in full force and effect (or, if modified, that this
Agreement is in full force and effect as modified and stating any and all
modifications), (B) that such Member is not in default hereunder and, to its
actual knowledge, the requesting Member is not in default hereunder, in each
case except as specified in such statement, (C) that to its actual knowledge, no
event has occurred which with the passage of time or the giving of notice, or
both, would ripen into a default hereunder, except as specified in such
statement and (D) as to the then current balances of its accounts provided under
ARTICLE III. Such written statement may be relied upon by a Member's prospective
- -----------
purchasers, investors or lenders.

          Section 14.22 Construction. The Members have each been represented by
                        ------------
counsel of their respective choice in connection with this Agreement, the terms
of which have been fully and fairly negotiated. The language in all parts of
this Agreement shall in all cases be construed simply according to the fair
meaning thereof and not strictly against the party which drafted such language.

          Section 14.23 Exculpation. Notwithstanding anything to the contrary
                        -----------
contained herein, no direct or indirect partner, shareholder, member, officer,
director, trustee or employee in or of either Member (collectively, the
"Nonrecourse Parties") shall be personally liable in any manner or to any extent
under or in connection with this Agreement, and neither any Member nor the
Company shall have any recourse to any assets of a Nonrecourse Party other than
such party's Membership Rights to satisfy any liability, judgment or claim that
may be obtained or made against any such Nonrecourse Party under this Agreement.
The limitation of liability provided in this Section 14.23 is in addition to,
                                             -------------
and not in limitation of, any limitation on liability applicable to a
Nonrecourse Party provided by law or by this Agreement or any other contract,
agreement or instrument.

          Section 14.24 Publicity and Confidentiality. JER acknowledges that NHP
                        -----------------------------
is a publicly traded company and, as such, is subject to extensive reporting and
disclosure requirements under statutory and common law duties owed to its
shareholders and in accordance with applicable securities laws. These
requirements include, but are not limited to: (A) filing a copy of this
Agreement with the Securities and Exchange Commissions, (B) reporting on the
results of the Company in NHP's filings and/or reports under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and
related press releases; and (C) describing the Company and its activities
consistent with this Agreement in such filings, reports and/or releases (the
"NHP's Unrestricted Disclosures"). "NHP's Unrestricted Disclosures" also
includes disclosures of information about the Company by representatives of NHP
in the ordinary course of business to The New York Stock Exchange, financial
analysts, rating agencies, banks and other similar Persons or institutions,
which information is of the same general nature as that disclosed about NHP to
such Persons or institutions in its ordinary course of business. Except for
NHP's Unrestricted Disclosures, no Member or any of its advisors shall

                                       39



issue any press release or otherwise publicize or disclose the terms of this
Agreement, the identity of any Person with whom the Company may be holding
discussions with respect to any Target Asset or Project and all other business,
financial or other information relating directly to the conduct of the business
and affairs of the Company or the relative or absolute rights or interests of
any of the Members (collectively, the "Confidential Information") that has not
been publicly disclosed pursuant to the provisions of this Section 14.24 or the
                                                           -------------
express authorization by the Members; provided, however, that "Confidential
                                      --------  -------
Information" shall not include any such information that the disclosing Member
can establish to have (i) been publicly known prior to disclosure by the other
Member, (ii) become publicly known, without fault on the part of the disclosing
Member subsequent to disclosure by the other Member, (iii) been received by the
disclosing Member at any time from a source other than the other Member lawfully
having possession of and the right to disclose such information, or (iv) been
otherwise known by the disclosing Member prior to disclosure by the other
Member. Each Member represents that it has not and agrees that it shall not (and
shall direct its members, shareholders, partners, directors, officers, agents,
advisors and Affiliates not to) disclose to any Person any Confidential
Information or confirm any statement made by third Persons regarding
Confidential Information until the Company has publicly disclosed the
Confidential Information in accordance with this Section 14.24. Notwithstanding
                                                 -------------
the foregoing provisions of this Section 14.24, (x) any Member may disclose the
                                 -------------
fact that such Member is a participant in the Company and/or that the Company or
any Subsidiary Company owns the Property; (y) either Member may disclose such
Confidential Information in the course of its normal reporting practices to its
members, shareholders, advisors, partners directors, officers, agents,
Affiliates, or prospective buyers, operators and lenders with respect to the
Projects or the acquisition or financing of any Target Assets, and (z) any such
press release or other disclosure of Confidential Information may be made as
required by any applicable law (as reasonably interpreted by such Member). In
case of a disclosure pursuant to clause (y) or (z) above, to the extent
determined reasonably possible by the disclosing Member, the disclosing Member
shall notify the other Member prior to such disclosure and provide it with a
copy of the proposed disclosure and an up to twenty-four (24) hour period to
comment on such disclosure before the disclosure is made).

                            [Signatures on next page]

                                       40



IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
                              first above written.

NHP:

NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation

By:  ________________________________
Name: _______________________________
Title: ______________________________


JER:

JER SENIOR HOUSING, LLC,
a Delaware limited liability company

By:  ________________________________
Name: _______________________________
Its: ________________________________


By:  ________________________________
Name: _______________________________
Its: ________________________________

                                       41



                                    EXHIBIT A
                                    ---------

                                  DEFINED TERMS

          "Act" has the meaning given such term in Section 1.1.
           ---                                     -----------

          "Accounts" has the meaning given such term in Section 4.2(d).
           --------                                     --------------

          "Additional Contribution" has the meaning given such term in Section
           -----------------------                                     -------
3.2(b).
- ------
          "Adjusted Capital Account Balance" means, with respect to any Member
           --------------------------------
for any period, the balance, if any, in such Member's Capital Account as of the
end of such period, after giving effect to the following adjustments:

               (i)  Credit to such Capital Account any amounts that such Member
is obligated to restore or is deemed obligated to restore as described in the
penultimate sentence of Treasury Regulation Section 1.704-2(g)(1) and in
Treasury Regulation Section 1.704-2(i)(5); and

               (ii) Debit to such Capital Account the items described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

          "Affiliate" means, with respect to any Person, (a) any other Person
           ---------
directly or indirectly controlling, controlled by, or under common control with
such Person, or (b) any other Person owning or controlling fifty-one percent
(51%) or more of the outstanding voting interests of such Person, or (c) any
officer, director, general partner or managing member of such Person, or (d) any
other Person which is an officer, director, general partner, managing member or
holder of fifty-one percent (51%) or more of the voting interests of any other
Person described in clauses (a) through (c) of this definition.

          "Agreement" has the meaning given such term in the preamble.
           ---------

          "Ancillary Agreement" means any agreement, instrument, guaranty,
           -------------------
document or covenant made or entered into under, pursuant to, or in connection
or concurrently with the acquisition or financing of a Project and any amendment
or amendments made at any time or times heretofore or hereafter to any of the
same.

          "Applicable Time" has the meaning given such term in Section 9.1(b).
           ---------------                                     --------------

          "Arbitration Notice" has the meaning given such term in Section
           ------------------                                     -------
4.3(b).
- ------

          "Arbitration Proceeding" has the meaning given such term in Section
           ----------------------                                     -------
14.3(a).
- -------
          "Bankruptcy/Dissolution Event" has the meaning given such term in
           ----------------------------
Section 12.1(d).
- ---------------

          "Base Capital Contribution" has the meaning given such term in Section
           -------------------------                                     -------
3.2(a).
- ------
          "Book Basis" means, with respect to any asset of the Company, the
           ----------
adjusted basis of such asset for federal income tax purposes; provided, however,
                                                              --------  -------
that (i) if any asset is

                                       42



contributed to the Company, the initial Book Basis of such asset shall equal its
fair market value on the date of contribution (as agreed to by all of the
Members), (ii) the Book Basis of all Company assets shall be adjusted in
accordance with Section 1.4 of Exhibit B, and (iii) the Book Basis of any
                               ---------
Company assets shall be adjusted each fiscal year by the Depreciation with
respect to such asset taken into account for purposes of computing Net Profits
or Net Losses for such year.

          "Budgets" means, collectively, the Operating Budgets and the Capital
           -------
Budgets.

          "Business Plan" means, with respect to each Project acquired by the
           -------------
Company, an overall plan and pro forma budget for the acquisition, improvement,
financing, operation and sale of such Project, approved by the Members pursuant
to Section 6.2(c).
   --------------

          "Buy/Sell Closing" has the meaning given such term in Section 11.1(e).
           ----------------                                     ---------------

          "Buy/Sell Closing Date" has the meaning given such term in Section
           ---------------------                                     -------
11.1(e).
- -------

          "Buy/Sell Distribution Amount" has the meaning given such term in
           ----------------------------
Section 11.1(b)(ii).
- -------------------

          "Buy/Sell Option Period" has the meaning given such term in Section
           ----------------------                                     -------
11.1(d).
- -------

          "Capital Account" means the separate account maintained for each
           ---------------
Member under Section 3.5.
             -----------

          "Capital Budget" means, with respect to each Project acquired by the
           --------------
Company, a capital improvements budget, approved by the Members pursuant to
Section 6.2, for the operation of such Project after acquisition by the Company,
- -----------
including furniture, fixtures, equipment, demolition/renovation and Project
improvements.

          "Capital Contribution" means, with respect to any Member, any Base
           --------------------
Capital Contribution or Additional Contribution made by such Member to the
Company pursuant to the Agreement.

          "Certificate of Formation" means the certificate referred to in
           ------------------------
Section 18-201 of the Act.

          "Change of Control Event" has the meaning given such term in Section
           -----------------------                                     -------
10.2.
- ----

          "Claims" has the meaning given such term in Section 8.1.
           ------                                     -----------

          "Code" means the Internal Revenue Code, Title 26 of the United States
           ----
Code, as such may be now or hereafter amended.

          "Company" has the meaning given such term in Section 1.1.
           -------                                     -----------

          "Company Accountant" has the meaning given such term in Section 7.2.
           ------------------                                     -----------

          "Confidential Information" has the meaning given such term in Section
           ------------------------                                     -------
14.24.
- -----

                                       43



          "Contribution Request" has the meaning given such term in Section
           --------------------                                     -------
3.3(a).
- ------

          "Contributing Member" has the meaning given such term in Section
           -------------------                                     -------
3.4(b).
- ------

          "Declared Default" has the meaning given such term in Section 6.5(a).
           ----------------                                     --------------

          "Defaulting Member" has the meaning given such term in Section 12.1.
           -----------------                                     ------------

          "Defaulting Operator" has the meaning given such term in Section
           -------------------                                     -------
6.5(a).
- ------

          "Deposit" has the meaning given such term in Section 11.1(d).
           -------                                     ---------------

          "Depreciation" means, for each fiscal year, an amount equal to the
           ------------
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such fiscal year, except that if the Book Basis of an
asset differs from its adjusted basis for federal income tax purposes at the
beginning of such fiscal year, Depreciation shall be an amount which bears the
same ratio to such beginning Book Basis as the federal income tax depreciation,
amortization or other cost recovery deduction for such fiscal year bears to such
beginning adjusted tax basis; provided, however, that if the adjusted basis for
federal income tax purposes of an asset at the beginning of such fiscal year is
zero, Depreciation shall be determined with reference to such beginning Book
Basis using any reasonable method selected by the Managing Member.

          "Designated Representative" has the meaning given such term in Section
           -------------------------                                     -------
4.1(e).
- ------

          "Equity Account" has the meaning given such term in Section 3.4(a).
           --------------                                     --------------

          "Event of Default" has the meaning given such term in Section 12.1.
           ----------------                                     ------------

          "Exclusivity Period" means the period from the date of the Agreement
           ------------------
until the earlier of the date: (i) the Company has entered into binding
commitments for the acquisition of Target Assets with aggregate purchase prices
of not less than One Hundred and Thirty Million Dollars ($130,000,000) and
received aggregate Capital Contributions by the Members of not less than
Sixty-five Million Dollars ($65,000,000); (ii) which is twelve (12) months from
the date of the Agreement; (iii) the removal of NHP as the Managing Member of
the Company; (iv) of the termination of the Agreement in accordance with the
terms thereof; or (v) upon the Offering Notice Date in the event either Member
elects to trigger its buy/sell rights pursuant to ARTICLE XI.
                                                  ----------

          "Gross Revenue" means all revenue or income derived from a Project;
           -------------
provided, however, that Gross Revenues shall include only those actually
- --------  -------
received from tenants at the Properties in the normal course of business. This
includes all gross rental receipts (but not any sums which, under normal
accounting practice, are attributable to capital) derived from the operation of
the Properties, including all rent, and all other sums and charges received from
tenants, including expense reimbursements and amounts actually recovered through
litigation for nonpayment of rent (net of the cost incurred in recovering the
same). Gross Revenues, for purposes of calculating the Management Fee, shall not
include: any allowance or compensation for any tenant improvement allowances or
other concessions; any monies paid by tenants (whether or not characterized as
rent) for capital expenses, sums collected through litigation for

                                       44



other than nonpayment of rent; security deposits prior to forfeiture thereof;
capital improvements; security fees; insurance proceeds; proceeds from the sale
or financing of assets; fees paid to Managing Member; interest earned on funds
from time to time on deposits; proceeds from condemnation; and other
nonrecurring items. If the Company is required to refund to a tenant any amount
paid by the tenant, Managing Member shall promptly pay to the Company, or
subtract from the next Management Fee, all Management Fees originally paid to
Managing Member on the amount of such refund.

          "Internal Rate of Return" means the annualized discount rate,
           -----------------------
determined by iterative process on a cumulative basis, which results in a net
present value of zero, calculated and compounded on a monthly basis (as
calculated using the XIRR function using Excel or equivalent accounting
program), when such discount rate is applied to specified Capital Contributions
from the date when such contributions were made and to specified distributions
to the date such distributions were initially made, but exclusive of any
distributions applied against the payment of principal or interest under any
Priority Loans or Management Fees. A further explanation and sample Internal
Rate of Return calculation is attached hereto as Exhibit E.
                                                 ---------

          "JER" has the meaning given such term in the preamble.
           ---

          "JER Initial Capital Allocation" means the sum of Forty-Eight Million
           ------------------------------
Seven Hundred Fifty Thousand Dollars ($48,750,000).

          "Laws" means all federal, state and local laws, moratoria,
           ----
initiatives, referenda, ordinances, rules, regulations, standards, orders,
judicial decisions, common law and other governmental requirements (including
those relating to the environment, health and safety or handicapped persons).

          "Liquidating Member" has the meaning given such term in Section 13.2.
           ------------------                                     ------------

          "Major Decision" has the meaning given such term in Section 4.1(b).
           --------------                                     --------------

          "Managing Member" has the meaning given such term in Section 4.1(a).
           ---------------                                     --------------
Except as otherwise provided in this Agreement, NHP shall act as the Managing
Member and shall have the duty and authority, on behalf of the Company, to do
all things appropriate for the accomplishment of the purposes of the Company
subject to and in accordance with the Budgets.

          "Management Fee" means a fee equal to two and one-half percent (2.50%)
           --------------
of all Gross Revenue received by the Company.

          "Member" has the meaning given such term in Section 2.1.
           ------                                     -----------

          "Member Economic Interest" means all of the right, title and interest
           ------------------------
of a Member in and to Net Profits, Net Losses, capital and distributions of and
from the Company. The foregoing definition of "Member Economic Interest" is
intended to comply with the definition of "limited liability company interest"
as set forth in Section 18-101 of the Act, and shall be interpreted consistently
therewith.

          "Member Parties" has the meaning given such term in Section 6.7.
           --------------                                     -----------

                                       45



              "Member Percentage" means, with respect to each Member, the
               -----------------
applicable percentage interests of the Members as set forth below:

                      NHP                      25%
                      JER                      75%

              "Membership Rights" means all of the right, title and interest of
               -----------------
a Member in, to and against the Company, the Property and Company Net Profits,
Net Losses, capital and distributions, all in accordance with the terms of the
Agreement, including a Member's:

                      (i)   Member Economic Interest;

                      (ii)  right to inspect the Company's books and records;

                      (iii) right to participate in the business and affairs and
        management of and vote on matters coming before the Company;

                      (iv)  unless the Agreement or the Certificate of Formation
        provide to the contrary, right to act as an agent of the Company; and

                      (v)   any other rights or powers of a Member under the
        Act.

              "Money Market Account" has the meaning given such term in Section
               --------------------                                     -------
4.2(d).
- ------

              "NHP" has the meaning given such term in the preamble.
               ---

              "NHP Excluded Target Assets" means any assets (i) which currently
               --------------------------
exist in NHP's portfolio, including, without limitation, the assets specified in
NHP's Annual Report on Form 10-K for the year ending December 31, 2000, and (ii)
the ten (10) assets currently owned by MediTrust Companies and operated by
Balanced Care Corporation.

              "NHP Initial Capital Allocation" means the sum of Sixteen Million
               ------------------------------
Two Hundred Fifty Thousand Dollars ($16,250,000).

              "NHP's Unrestricted Disclosures" has the meaning given such term
               ------------------------------
in Section 14.24.
   -------------

              "Net Profits" or "Net Losses" means for each fiscal year or other
               -----------      ----------
period, an amount equal to the Company's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:

              (i)     any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profits or Net
Losses shall be added to such taxable income or loss;

                                       46



                  (ii)  any expenditures of the Company described in Code
         Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
         expenditures pursuant to Treasury Regulation Section
         1.704-1(b)(2)(iv)(1), and not otherwise taken into account either in
         computing Net Profits or Net Losses or under clause (iii) below shall
         be subtracted from such taxable income or loss;

                  (iii) in lieu of the depreciation, amortization and other cost
         recovery deductions taken into account in computing such taxable income
         or loss, there shall be taken into account Depreciation for the
         relevant fiscal year;

                  (iv)  in the event the Book Basis of any Company asset is
         adjusted pursuant to Section 1.4 of Exhibit B, the amount of such
                                             ---------
         adjustment shall be taken into account as gain or loss from the
         disposition of such asset for purposes of computing Net Profits or Net
         Losses;

                  (v)   gain or loss resulting from any disposition of Company
         assets where such gain or loss is recognized for federal income tax
         purposes shall be computed by reference to the Book Basis of the
         applicable Company assets, notwithstanding that the adjusted tax basis
         of such Company assets differs from its Book Basis;

                  (vi)  if the Book Basis of any Company asset is adjusted in
         accordance with Section 1.4 of Exhibit B, the amount of such adjustment
                                        ---------
         shall be taken into account in the taxable year of such adjustment as
         gain or loss from the disposition of such asset for purposes of
         computing Net Profits or Net Losses; and

                  (vii) any income, gain, losses and expenses specially
         allocated pursuant to the Agreement shall not be taken into account in
         computing Net Profits or Net Losses.

                  "Non-Contributing Member" has the meaning given such term in
                   -----------------------
Section 3.4(b).
- --------------

                  "Non-Defaulting Member" has the meaning given such term in
                   ---------------------
Section 12.1.
- ------------

                  "Nonrecourse Parties" has the meaning given such term in
                   -------------------
Section 14.23.
- -------------

                  "Offering Notice" has the meaning given such term in Section
                   ---------------
11.1(b).
- -------

                  "Offering Notice Date" has the meaning given such term in
                   --------------------
Section 11.1(b)(ii).
- -------------------

                  "Offeree" has the meaning given such term in Section 11.1(b).
                   -------                                     ---------------

                  "Offeree Deposit" has the meaning given such term in Section
                   ---------------                                     -------
11.1(d).
- -------

                  "Offeror" has the meaning given such term in Section 11.1(b).
                   -------                                     ---------------

                  "Offeror Deposit" has the meaning given such term in Section
                   ---------------                                     -------
11.1(d).
- -------

                  "Operating Account" has the meaning given such term in Section
                   -----------------                                     -------
4.2(d).
- ------

                                       47



                  "Operating Budget" means, with respect to the business of the
                   ----------------
Company and with respect to each Project acquired by the Company, an overall
operating budget approved by the Members and updated at least annually or from
time to time pursuant to Section 7.4. All references to the "Operating Budgets"
                         -----------
hereunder, shall be to the then current and approved Operating Budgets, as
applicable.

                  "Ownership Interests" means controlling ownership interests in
                   -------------------
Persons that own as a material part of their assets, loans and/or fee or ground
leasehold interests in Target Assets.

                  "Periodic Report" has the meaning given such term in Section
                   ---------------                                     -------
7.3(c).
- ------

                  "Person" means any individual, partnership, corporation,
                   ------
limited liability company, trust or other entity.

                  "Prime" means the "prime rate" then in effect as published
                   -----
from time to time in The Wall Street Journal.
                     -----------------------

                  "Priority Loan" means, with respect to any Member, any Capital
                   -------------
Contribution made by such Member pursuant to Section 3.2(a) or Section 3.2(b)
                                             --------------    --------------
and designated by such Member as a Priority Loan pursuant to Section 3.4(b)(i),
                                                             -----------------
including both the Non-Contributing Member's share of such Capital Contribution
(contributed by the Contributing Member pursuant to Section 3.4(b)(i)) and the
                                                    ------------------
Contributing Member's share of such Capital Contribution (contributed by the
Contributing Member pursuant to Section 3.2(a) or Section 3.2(b)), which
                                --------------    ---------------
Priority Loan shall bear interest at a rate of twenty-five percent (25%) per
annum (but not more than the maximum amount allowable under applicable law)
compounded monthly, and shall be due and payable on the sixty (60) calendar days
after the making of such Priority Loan.

                  "Project" or "Projects" means one or more Target Assets owned
                   -------      --------
by the Company or the Subsidiary Companies.

                  "Property" means all real or personal property from time to
                   --------
time owned by the Company or the Subsidiary Companies.

                  "Property Valuation Amount" has the meaning given such term in
                   -------------------------
Section 11.1(b)(ii).
- -------------------

                  "Purchase Notice" has the meaning given such term in Section
                   ---------------                                     --------
11.1(d).
- -------

                  "Purchasing Member" has the meaning given such term in Section
                   -----------------                                     -------
11.1(e).
- -------

                  "Rate of Return" has the meaning given such term in Section
                   --------------                                     -------
9.1(b).
- ------

                  "Reserve Accounts" has the meaning given such term in Section
                   ----------------                                     -------
4.1(b)(vii).
- -----------

                  "Sale Notice" has the meaning given such term in Section
                   -----------                                     -------
11.1(d).
- -------

                  "Selected Accountant" has the meaning given such term in
                   -------------------
Section 11.1(c).
- ---------------

                                       48



                  "Selling Member" has the meaning given such term in Section
                   --------------                                     -------
11.1(e).
- -------

                  "Substitute Member" has the meaning given such term in Section
                   -----------------                                     -------
10.1(a).
- -------

                  "Subsidiary Company" has the meaning given such term in
                   ------------------
Section 2.4. Except as expressly provided to the contrary, all references to the
- -----------
business, assets or ownership of the "Company" hereunder shall mean and include
the business, assets or ownership of each Subsidiary Company.

                  "Target Asset Offer Notice" has the meaning given such term in
                   -------------------------
Section 6.3(a).
- --------------

                  "Target Assets" means any fee or ground leasehold interests,
                   -------------
Ownership Interests, loans or other instruments for the provision of capital to
continuing care retirement communities, assisted living facilities, independent
living facilities, skilled nursing facilities and any other form of senior
housing properties; provided, however, the NHP Excluded Target Assets are
                    --------  -------
expressly deemed not to be Target Assets hereunder. If the Company acquires a
Target Asset, from and after such acquisition, the terms "Project" and
"Property" shall include such Target Asset.

                  "Term" has the meaning given such term in Section 1.3.
                   ----                                     -----------

                  "Termination Notice" has the meaning given such term in
                   ------------------
Section 4.3(a).
- --------------

                  "Transfer" means any sale, mortgage, encumbrance, pledge,
                   --------
hypothecation, assignment or other transfer, whether directly or indirectly, by
operation of law or otherwise.

                  "Transfer Documents" has the meaning given such term in
                   ------------------
Section 11.1(f).
- ---------------

                  "Treasury Regulation" means, with respect to any referenced
                   -------------------
provision, such provision of the regulations of the United States Department of
the Treasury or any successor provision.

                  "Workout Plan" has the meaning given such term in Section
                   ------------                                     -------
6.5(b).
- ------

                                       49



                                    EXHIBIT B
                                    ---------

                               CERTAIN TAX MATTERS

Section 1.1 - Certain Definitions Relating to Tax Issues. For purposes of the
              ------------------------------------------
Agreement, the following terms shall have the meanings ascribed to them in this
Section 1.1 of this Exhibit B:
                    ---------

                  "Adjusted Capital Account Deficit" means, with respect to any
                   --------------------------------
Member for any taxable year of the Company, the deficit balance, if any, in such
Member's Adjusted Capital Account Balance as of the end of such taxable year.

                  "Company Minimum Gain" shall have the meaning ascribed to
                   --------------------
"partnership minimum gain" in Treasury Regulation Section 1.704-2(d).
                                                  ------------------

                  "Member Minimum Gain" shall have the meaning ascribed to
                   -------------------
"partner nonrecourse debt minimum gain" in Treasury Regulation Section
1.704-2(i)(2).

                  "Member Nonrecourse Debt" shall have the meaning ascribed to
                   -----------------------
"partner nonrecourse debt" in Treasury Regulation Section 1.704-2(b)(4).

                  "Member Nonrecourse Deductions" shall have the meaning
                   -----------------------------
ascribed to "partner nonrecourse deductions" in Treasury Regulation Section
1.704-2(i)(2).

                  "Nonrecourse Deductions" has the meaning set forth in Treasury
                   ----------------------
Regulation 1.704-2(b)(1).

                  "Target Account" means, with respect to any Member for any
                   --------------
taxable year of the Company, the difference (which difference may be a positive
or negative number) between (i) an amount (which may be either a positive
balance or a negative balance) equal to the hypothetical distribution (or
contribution) such Member would receive (or contribute) if all assets of the
Company, including cash, were sold for cash equal to their Book Basis (taking
into account any adjustments to Book Basis for such year), all liabilities
allocable to such assets were then satisfied according to their terms (except
that if the nonrecourse liabilities secured by an asset exceed the Book Basis of
such asset, such calculation shall be made assuming that the asset were
transferred to the lender in satisfaction of the debt) and all remaining
proceeds from such sale were distributed pursuant to Section 9.1(a) of the
                                                     --------------
Agreement, minus (ii) such Member's share of Company Minimum Gain and Member
Minimum Gain immediately prior to such hypothetical sale.

                  "Unrealized Gain" means, with respect to any Company asset as
                   ---------------
of any particular date, the excess of (i) the gross fair market value of such
asset on such date as determined in accordance with Section 1.4 of this Exhibit
                                                                        -------
B, over (ii) the Book Basis of such asset to the Company on such date.
- -

                  "Unrealized Loss" means, with respect to any Company asset as
                   ---------------
of any particular date, the excess of (i) the Book Basis of such asset to the
Company on such date, over (ii) the gross fair market value of such asset on
such date, as determined in accordance with Section 1.4 of this Exhibit B as of
                                                                ---------
such date.

                                       50



Section 1.2 - Maintenance of Capital Accounts. The Company shall establish and
              -------------------------------
maintain for each Member a separate account ("Capital Account") in accordance
with the rules of Regulations Section 1.704-1(b)(2)(iv) and this Exhibit B. The
                                                                 ---------
Capital Account of each Member shall be increased by (i) the amount of all
Capital Contributions made by such Member to the Company pursuant to the
Agreement, (ii) the amount of Net Profits allocated to such Member pursuant to
Section 1.5 of this Exhibit B, and (iii) the amount of any other items of income
                    ---------
or gain specially allocated to such Member pursuant to Section 1.6 of this
Exhibit B. The Capital Account of each Member shall be decreased by (x) the
- ---------
amount of cash or Book Basis of any assets distributed to such Member (net of
any liabilities assumed by the receiving Member or to which such property is
subject) pursuant to the Agreement, (y) the amount of Net Losses allocated to
such Member pursuant to Section 1.5 of this Exhibit B, and (z) the amount of any
                                            ---------
other items of deduction or loss specially allocated to such Member pursuant to
Section 1.6 of this Exhibit B. The Capital Accounts of each Member shall be
                    ---------
increased or decreased to reflect the revaluation of Company property under
Section 1.4 of this Exhibit B.
                    ---------

Section 1.3 - Transferees. A transferee (including any assignee) of a Member
              -----------
Economic Interest shall succeed to a pro rata portion of the Capital Account of
the transferor corresponding to the percentage of the transferor's Member
Economic Interest acquired by such transferee.

Section 1.4 - Revaluations of Company Assets.
              ------------------------------

              (a) Consistent with the provisions of Regulations Section
         1.704-1(b)(2)(iv)(f), and as provided in this Section 1.4 of this
         Exhibit B, the Book Basis of all Company assets shall be adjusted
         ---------
         upward or downward to reflect any Unrealized Gain or Unrealized Loss
         attributable to such Company assets, as of the times of the adjustments
         provided in Section 1.4(b) of this Exhibit B, as if such Unrealized
                                            ---------
         Gain or Unrealized Loss had been recognized on an actual sale of such
         assets and allocated pursuant to this Exhibit B.
                                               ---------

              (b) Adjustments to the Book Basis of the Company's assets shall be
         made as of the following times: (i) immediately prior to the
         acquisition of an additional ownership interest in the Company by any
         new or existing Member in exchange for more than a de minimis Capital
                                                            ----------
         Contribution (including without limitation pursuant to Section
                                                                -------
         3.4(b)(i) of the Agreement); (ii) immediately prior to the distribution
         ---------
         by the Company to a Member of more than a de minimis amount of property
                                                   ----------
         as consideration for an ownership interest in the Company; and (iii)
         immediately prior to the liquidation of the Company within the meaning
         of Regulations Section 1.704-1(b)(2)(ii)(g).

              (c) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
         the Book Basis of Company assets distributed in kind shall be adjusted
         upward or downward to reflect any Unrealized Gain or Unrealized Loss
         attributable to such Company assets, as of the time any such asset is
         distributed.

              (d) In determining Unrealized Gain or Unrealized Loss for purposes
         of this Exhibit B, the aggregate cash amount and fair market value of
                 ---------
         all Company assets (including cash or cash equivalents) shall be
         determined by the Company using such reasonable method of valuation as
         the Company may adopt, or in the case of a liquidating

                                       51



          distribution pursuant to ARTICLE XIII of the Agreement, be determined
                                   ------------
          and allocated by the Liquidating Member using such reasonable methods
          of valuation as it may adopt.

Section 1.5 - General Allocations. Except as otherwise provided in this Exhibit
              -------------------                                       -------
B, all items of income, gain, loss and deduction comprising the Net Profits or
- -
Net Losses of the Company for any fiscal year will be allocated among the
Members so that the balance in the Member's Capital Account, immediately after
making all allocations required for the relevant fiscal year is, as nearly as
possible, equal (proportionately) to the Member's Target Account.

Section 1.6 - Regulatory Allocations.
              ----------------------

               (a) Subject to the exceptions stated in Treasury Regulation
         Sections 1.704-2(f) and 1.704-2(i)(4), if there is a net decrease in
         Company Minimum Gain or Member Minimum Gain during a fiscal year, each
         Member will be specially allocated items of income and gain for the
         year (and, if necessary, for subsequent years) in an amount equal to
         the Member's share of the net decrease during the year (which share of
         the net decrease will be determined under Treasury Regulation Sections
         1.704-2(g)(2) and 1.704-2(i)(5), respectively). The Members intend that
         this Section 1.6(a) complies with the "minimum gain chargeback"
         requirements in Treasury Regulation Sections 1.704-2(f) and 1.704-2(i)
         and will be interpreted consistently therewith.

               (b) Any Nonrecourse Deductions will be specially allocated to the
         Members in accordance with the Members' Member Percentages.

               (c) Any Member Nonrecourse Deductions will be specially allocated
         to the Members as provided in Treasury Regulation Section
         1.704-2(i)(1).

               (d) If any Member unexpectedly receives any adjustments,
         allocations or distributions described in Treasury Regulation Sections
         1.704-1(b)(2)(ii)(d)(4),(5) or (6) (modified as appropriate, by
         Regulations Section 1.704-2(g)(1) and 1.704-2(i)(5)), items of Company
         income and gain for the fiscal year will be specially allocated to the
         Member in an amount and manner sufficient to eliminate, to the extent
         required by the Treasury Regulations, any Adjusted Capital Account
         Deficit of the Member as quickly as possible, provided, that an
         allocation pursuant to this Section 1.6(d) of this Exhibit B will be
                                                            ---------
         made if and only to the extent that the Member would have an Adjusted
         Capital Account Deficit after all other allocations provided for in
         this Exhibit B have been tentatively made as if this Section 1.6(d) of
              ---------
         this Exhibit B were not in the Agreement.
              ---------

               (e) To the extent any adjustment to the adjusted tax basis of any
         Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
         required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m),
         to be taken into account in determining Capital Accounts, appropriate
         adjustments to the Capital Accounts will be made in accordance with the
         Treasury Regulations.

               (f) The allocations provided for in this Section 1.6 of this
         Exhibit B (the "Regulatory Allocations"), are intended to comply with
         ---------
         certain requirements of the Treasury Regulations. The Company can take
         the Regulatory Allocations into account in allocating other items of
         income, gain, loss and deduction among the Members so that, to

                                       52



          the extent possible, the net amount of the allocations of other items
          and the Regulatory Allocations to each Member will be equal to the net
          amount that would have been allocated to each the Member if the
          Regulatory Allocations had not occurred.

Section 1.7 - Tax Allocations. All items of income, gain, loss or deduction will
              ---------------
be allocated in the same manner as the corresponding "book" items are allocated
under Sections 1.5 and 1.6 of this Exhibit B; provided, however, in the case of
                                   ---------  --------  -------
any Company asset the Book Basis of which differs from its adjusted tax basis,
income, gain, loss and deduction with respect to the asset will be allocated
among the Members so as to take account of any variation between the adjusted
basis of the asset and its Book Basis in accordance with the principles of
Section 704(c) of the Code (in any permissible manner determined by the
Company).

Section 1.8 - Tax Matters. The Members intend for the Company to be treated as a
              -----------
partnership under the Code. The Company shall make all applicable elections,
determinations and other decisions under the Code, including the deductibility
of a particular item of expense and the positions to be taken on the Company's
tax return, and shall approve the settlement or compromise of all audit matters
raised by the Internal Revenue Service affecting the Members generally. The
Members shall each take reporting positions on their respective federal, state
and local income tax returns consistent with the positions taken by the Company.

Section 1.9 - Tax Matters Partner. Managing Member shall be the tax matters
              -------------------
partner within the meaning of Section 6231(a)(7) of the Code and, subject to
Section 4.1(b) of the Agreement and Section 1.8 of this Exhibit B, shall
- --------------                                          ---------
exercise all rights, obligations and duties of a tax matters partner under the
Code.

Section 1.10 - Compliance with Section 514(c)(9)(E) of the Code. Notwithstanding
               ------------------------------------------------
anything to the contrary contained in the Agreement or this Exhibit B:
                                                            ---------

               (a) Under no circumstance shall JER be allocated in any fiscal
         year more than its Member Percentage of the "overall partnership
         income" of the Company (within the meaning of Section
         514(c)(9)(E)(i)(I) of the Code and Treasury Regulation Section
         1.514(c)-2(c)(1)) or less than its Member Percentage of the "overall
         partnership loss" of the Company (within the meaning of Section
         514(c)(9)(E)(i)(I) of the Code and Treasury Regulation Section
         1.514-2(c)(1)).

               (b) If any item of income shall be allocated to a Member other
         than JER solely by application of Section 1.10(a) of this Exhibit B,
                                                                   ---------
         items of deduction or loss of the Company shall be allocated to such
         other Member as soon as possible in a manner that is consistent with
         the provisions of Section 514(c)(9)(E)(ii)(I) of the Code and Treasury
         Regulation Section 1.514(c)-2(e) to chargeback and offset the effects
         of such prior allocation of income to such other Member. If any item of
         deduction or loss shall be allocated to JER solely by application of
         Section 1.10(a) of this Exhibit B, items of income or gain of the
                                 ---------
         Company shall be allocated to JER as soon as possible in a manner that
         is consistent with the provisions of Section 514(c)(9)(E)(ii)(I) of the
         Code and Treasury Regulation Section 1.514(c)-2(e) to chargeback and
         offset the effects of such prior allocation of deduction or loss to
         JER.

                                       53



               (c) The provisions of the Agreement and this Exhibit B shall be
                                                            ---------
         interpreted consistent with the Members' intent that the allocations
         contained herein are "permitted allocations" under Section 514(c)(9)(E)
         of the Code and the Treasury Regulations thereunder. Managing Member
         agrees to make such amendments or changes to the Agreement and this
         Exhibit B as are reasonably requested by JER to effectuate this intent.
         ---------

                                       54



                                    EXHIBIT C
                                    ---------

                             ARBITRATION OF DISPUTES

          Except as set forth in Section 14.3(b) of the Agreement and except to
                                 ---------------
the extent another dispute resolution procedure is set forth in the Agreement,
any controversy, claim or dispute between the Members arising out of or related
to the Agreement or arising out of or related to the rights of the Members
thereunder ("Arbitrable Dispute"), shall be submitted to arbitration pursuant to
the applicable laws of the State of New York and the terms and provisions of
this Exhibit C.
     ---------

          1.  Location. Subject to the last sentence of this Section, all
              --------
Arbitration Proceedings shall be held and conducted in the City and County of
New York (the "Arbitration County"). The location for an Arbitration Proceeding
within the Arbitration County shall be as mutually agreed by the Members, but
failing such agreement within ten (10) days of a written request by any Member,
the Arbitration Proceeding shall be conducted in the regional office of the AAA
in the Arbitration County (or if no such office exists in such County, then in
the AAA regional office closest to the Arbitration County).

          2.  Rules and Selection of Arbitrator(s). Each Arbitration Proceeding
              ------------------------------------
shall be conducted under the Commercial Arbitration Rules of the American
Arbitration Association ("AAA") then in effect (provided that in the event of
                                                --------
any conflict between such Rules and this Exhibit C, the terms of this Exhibit C
                                         ---------                    ---------
shall control). In no event shall a demand for arbitration be made after the
date when institution of legal or equitable proceedings based on the Arbitrable
Dispute in question would be barred by any applicable statute of limitations.
The arbitrator(s) shall be selected as follows:

              (a) Any Arbitration Proceeding involving an amount in controversy
          less than One Million Dollars ($1,000,000) shall be heard by a single
          neutral arbitrator. The arbitrator appointed must be (i) a former or
          retired justice of the Supreme Court, New York County, or of the
          Appellate Division (First or Second Departments), or former or retired
          judge of the U.S. District Court for Southern District of New York or
          the U.S. Court of Appeals for the Second Circuit, or (ii) an attorney
          with at least fifteen (15) years experience with real estate
          development and/or real estate investment joint ventures. If agreement
          is not reached by the Members on the selection of the arbitrator
          within one (1) month after commencement of an Arbitration Proceeding
          by (x) submission of a matter to the AAA in accordance with its
          Commercial Arbitration Rules and (y) notice to the other Member of the
          initiating Member's intention to arbitrate, then such arbitrator shall
          be appointed by the AAA in accordance with its Commercial Arbitration
          Rules.

              (b) Any Arbitration Proceeding involving an amount in controversy
          equal to or greater than One Million Dollars ($1,000,000) shall be
          heard by a panel of three (3) neutral arbitrators. Each arbitrator
          appointed must be (i) a former or retired justice of the Supreme
          Court, New York County, or of the Appellate Division (First or Second
          Departments), or former or retired judge of the U.S. District Court
          for Southern District of New York or the U.S. Court of Appeals for the
          Second Circuit, or (ii) an attorney with

                                       55



     at least fifteen (15) years experience with real estate development and/or
     real estate investment joint ventures. If agreement is not reached by the
     Members on the selection of the three arbitrators within one (1) month
     after commencement of an Arbitration Proceeding by (x) submission of a
     matter to the AAA in accordance with its Commercial Arbitration Rules and
     (y) notice to the other Member of the initiating Member's intention to
     arbitrate, then such arbitrators shall be appointed by the AAA in
     accordance with its Commercial Arbitration Rules.

          (c)  For purposes of determining whether an Arbitration Proceeding
     shall be heard by one arbitrator or by three, the term "amount in
     controversy" shall mean the dollar amount sought by either the Member
     initiating the Arbitration Proceeding or the Member responding to the
     Arbitration Proceeding, whichever is greater.

     3.   Powers of Arbitrator(s). The arbitrator(s) shall have the power to
          -----------------------
grant all appropriate legal and equitable relief, including without limitation
specific performance of contract (both by way of interim relief and as a part of
its final award), other than punitive damages, as may be granted by any court of
the State of New York, to carry out the terms of the Agreement (e.g.,
declaratory and injunctive relief and damages). The Members expressly waive any
right to punitive damages arising out of any Arbitrable Dispute. All awards and
orders of the arbitrator(s) (including, but not limited to interim relief) shall
be final and binding.

     4.   Discovery and Rules of Evidence. It is the intention of the Members
          -------------------------------
that all Arbitration Proceedings be conducted as expeditiously as reasonably
possible in keeping with fairness and with a minimum of legal formalities.
Therefore, the Members have agreed that the rules of evidence shall not apply to
any Arbitration Proceeding, except that notwithstanding the foregoing the
attorney/client privilege and work product protection shall be applicable in all
Arbitration Proceedings. The Members agree that only limited discovery should be
allowed in an Arbitration Proceeding and incorporate the applicable laws of the
State of New York for this purpose. Unless otherwise ordered by the
arbitrator(s) on a showing of substantial need, each side shall be limited to
one document production request and one deposition and such discovery shall be
complete within sixty (60) days following appointment of the arbitrator(s). In
addition the parties shall exchange the names, qualifications and a narrative
report stating the opinion and basis therefor of any expert who may be called
fifteen (15) days prior to the start of the arbitration.

     5.   Timing. In furtherance of the intent of the Members expressed in the
          ------
first sentence of Section 4 of this Exhibit C, and unless modified by the
                                    ---------
arbitrator(s) upon a showing of good cause, all Arbitration Proceedings shall
proceed upon the following schedule: (a) within one (1) month from the service
of the notice of the request to arbitrate, the parties shall select the
arbitrator(s); (b) within fifteen (15) days after selection of the
arbitrator(s), the parties shall conduct a pre-arbitration conference at which a
schedule of pre-arbitration discovery shall be set, all pre-arbitration motions
scheduled and any other necessary pre-arbitration matters decided; (c) all
discovery allowed by the arbitrator(s) shall be completed within forty-five (45)
days following the pre-arbitration conference; (d) all pre-arbitration motions
shall be filed and briefed so that they may be heard no later than one (1) month
following the discovery cut-off; (e) the arbitration shall be scheduled to
commence no later than one (1) month after the decision on all pre-arbitration
motions but in any event no later than five (5) months following the service of
the


                                       56



notice of arbitration; and (f) the arbitrator(s) shall render his or her or
their written decision (including without limitation any and all findings of
fact and conclusions of law) within one (1) month following the submission of
the matter. The Members intend the foregoing schedule to be an outside maximum
timetable, and nothing herein shall prevent the arbitrator(s) from ordering a
shorter timetable if the arbitrator(s) conclude(s) that the same is warranted by
the circumstances of any particular Arbitration Proceeding.

     6.   Transcript. All proceedings involving the Members in an Arbitration
          ----------
Proceeding shall be reported by a certified shorthand court reporter and written
transcripts of the proceedings shall be prepared and made available to the
Members.

     7.   Costs. The prevailing party shall be awarded reasonable attorneys'
          -----
fees, expert and non-expert witness costs and expenses, and other costs and
expenses incurred in connection with the arbitration unless the arbitrator(s),
for good cause, determine(s) otherwise. A post-arbitration proceeding to
determine costs, if needed, shall be held within ten (10) days of notice of the
award. Costs and fees of the arbitrator(s) (including the cost of the record of
transcripts of the arbitration) shall be borne by the non-prevailing party,
unless the arbitrator(s) for good cause determine(s) otherwise. Costs and fees
payable in advance shall be advanced equally by the Members, subject to ultimate
payment by the non-prevailing party in accordance with the preceding sentence.

     8.   Reconsideration. Upon receipt of the written opinion of the
          ---------------
arbitrator(s), any Member shall have the right within ten (10) days to file with
the arbitrator(s) a motion to reconsider, and the arbitrator(s) shall then
reconsider the issues raised by the motion, may allow the other Member an
opportunity to respond thereto, and shall either confirm or change the decision
within ten (10) days after such filing. Such revised or confirmed decision shall
then be final and conclusive upon the Members. The costs (other than the
attorneys' fees of the respective parties) of a motion for reconsideration and
related proceedings shall be borne by the moving Member.

     9.   Specific Enforcement. The terms of this Exhibit C shall be
          --------------------                    ---------
specifically enforceable under applicable law in any court of competent
jurisdiction. The award rendered by the arbitrator(s) shall be final and binding
and judgment may be entered in accordance with applicable law and in any court
having jurisdiction thereof.

     10.  Interest on Award. Any monetary award of the arbitrator(s) may include
          -----------------
interest at Prime plus five percent (5%), which interest shall accrue from the
date the claim, dispute or other matter in question was rightfully due and
payable under the Agreement until the date the award is paid to the prevailing
party.

     11.  Extraordinary Remedies. No provision of this Exhibit C shall limit the
          ----------------------                       ---------
right of any Member to obtain provisional or ancillary remedies from a court of
competent jurisdiction in accordance with Section 14.3(b) of the Agreement.
                                          ---------------

     NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL


                                       57



ARBITRATION AS PROVIDED BY NEW YORK LAW AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL AND ANY
RIGHT YOU MAY HAVE TO RECOVER PUNITIVE DAMAGES ARISING OUT OF AN ARBITRABLE
DISPUTE. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF APPLICABLE LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.



_______________________                       _______________________
NHP                                           JER
Initials                                      Initials


                                       58



                                    EXHIBIT D
                                    ---------
                         LIST OF APPROVED PROFESSIONALS


Primary Law Firms*
O'Melveny & Myers LLP                        Cordray & Goodrich - Houston, TX
Sherry & Holthouse, LLP - Newport Beach, CA  Snell & Wilmer

Other Transactional/Healthcare Law Firms*
Alabama                                      Michigan
- -------                                      --------
Johnston, Barton, Proctor & Powell           Clark Hill, PLC
Haskill, Slaughter, Young, Lewis

Arizona                                      Minnesota
- -------                                      ---------
Fennimore & Craig                            Oppenheimer, Wolf & Donnelly LLP

Arkansas                                     Mississippi
- --------                                     -----------
Wright & Bonds                               Baker, Donelson, Bearman & Caldwell

Connecticut                                  Missouri
- -----------                                  --------
Wiggin & Dana                                Lathrop & Gage

Florida                                      Nevada
- -------                                      ------
Bruce McKibben                               Vargas & Bartlett

Illinois                                     Ohio
- --------                                     ----
Fioretti & Desjardines Ltd.                  Buckingham, Doolittle & Burroughs
                                             Mansour, Gavin, Gerlack & Manos

Indiana                                      Oregon
- -------                                      ------
McHale, Cook & Welch                         Saalfeld, Griggs, Gorsuch,
                                             Alexander & Emerick

Louisiana                                    Pennsylvania
- ---------                                    ------------
Locke, Liddell & Sapp, LLP                   Keefer Wood Allen & Rahal, LLP
                                             Klett Rooney Lieber & Schorling, a
                                             Professional Corporation

Maryland                                     South Carolina
- --------                                     --------------
Miles & Stockbridge                          McNair Law Firm, P.A.

Massachusetts                                South Dakota
- -------------                                ------------
Posternak, Blankstein & Lund                 Bennett, Main & Frederickson P.C.
Hale & Dorr
Nutter, McClennen & Fish, LLP


                                       59



Tennessee
- ---------
Boult, Cummings, Conners & Berry

Texas
- -----
Akin, Gump, Strauss, Hauer & Feld, LLP

Washington
- ----------
Alston, Cournage, MacAulay & Proctor
Inslee, Best, Doezie & Ryder PS

West Virginia
- -------------
Jackson & Kelly

Accountants
BDO Seidman LLP
Deloitte & Touche LLP
Ernst & Young LLP
Grant Thornton LLP
KPMG Peat Marwick LLP
McGladrey & Pullen
Moss Adams
PricewaterhouseCoopers LLP

Environmental Consultants
Jones, Hill, McFarland & Ellis
ENSR Corporation - Houston, TX

Surveyors
Jones, Hill, McFarland & Ellis
U.S. Surveyor/AES Group Incorporated

Title Companies
First American Title Insurance Company Partners Title
Company - Houston, TX





* - As set forth in Section 4.1(b)(xi), all law firms are only approved with
                    ------------------
respect to Company transactional matters.


                                       60



                                    EXHIBIT E
                                    ---------

           INTERNAL RATE OF RETURN EXPLANATION AND SAMPLE CALCULATION

XIRR
Returns the internal rate of return for a schedule of cash flows that is not
necessarily periodic. To calculate the internal rate of return for a series of
periodic cash flows, use the IRR function.

XIRR (Values, Dates, Guess)
*        Values is a series of cash flows that corresponds to a schedule of
payments in dates. The first payment is optional and corresponds to a cost or
payment that occurs at the beginning of the investment. If the first value is a
cost or payment, it must be a negative value. All succeeding payments are
discounted based on a 365-day year. The series of values must contain at least
one positive and one negative value.

*        Dates is a schedule of payment dates that corresponds to the cash flow
payments. The first payment date indicates the beginning of the schedule of
payments. All other dates must be later than this date, but they may occur in
any order.

* Guess is a number that you guess is close to the result of XIRR.

REMARKS

*        Microsoft Excel stores dates as sequential serial numbers so that it
can perform calculations on them. Excel stores January 1, 1900, as serial number
1 if your workbook uses the 1900 date system. If your workbook uses the 1904
date system, Excel stores January 1, 1904, as serial number 0 (January 2, 1904,
is serial number 1). For example, in the 1900 date system, Excel stores January
1, 1998, as serial number 35796 because it is 35,795 days after January 1, 1900.

*        Numbers in dates are truncated to integers.

*        XIRR expects at least one positive cash flow and one negative cash
flow; otherwise, XIRR returns the #NUM! error value.

*        If any number in dates is not a valid date, XIRR returns the #NUM!
error value.

*        If any number in dates precedes the starting date, XIRR returns the
#NUM! error value.

*        If values and dates contain a different number of values, XIRR returns
the #NUM! error value.

*        In most cases you do not need to provide guess for the XIRR
calculation. If omitted, guess is assumed to be 0.1 (10 percent).

*        XIRR is closely related to XNPV, the net present value function. The
rate of return calculated by XIRR is the interest rate corresponding to XNPV =
0.


                                       61





*      Excel uses an iterative technique for calculating XIRR. Using a changing
rate (starting with guess), XIRR cycles through the calculation until the result
is accurate within 0.000001 percent. If XIRR can't find a result that works
after 100 tries, the #NUM! error value is returned. The rate is changed until:

         (OLE_Obj...) (OLE_Obj...)

         where:

         di = the ith, or last, payment date.
         d1 = the 0th payment date.
         Pi = the ith, or last, payment.

EXAMPLE

Consider an investment that requires a $10,000 cash payment on January 1, 1998,
and returns $2,750 on March 1, 1998, $4,250 on October 30, 1998, $3,250 on
February 15, 1999, and $2,750 on April 1, 1999. The internal rate of return (in
the 1900 date system) is:

         XIRR({-10000,2750,4250,3250,2750},
         {"1/1/1998","3/1/1998","10/30/1998","2/15/1999","4/1/1999"},0.1)
         equals:

         0.374859 or 37.4859 percent

                                       62



                                    EXHIBIT F
                                    ---------

                         FORM OF ACQUISITION MEMORANDUM

     THIS ACQUISITION MEMORANDUM is made and entered into as of the ___ day of
___________, 200_, by NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation
("NHP"), in favor of JER SENIOR HOUSING, LLC, a Delaware limited liability
company ("JER"), ___________________, a ______________("Subsidiary Company"),
and JER/NHP SENIOR HOUSING, LLC, a Delaware limited liability company (the
"Company"), with reference to the following facts:

                                    RECITALS:

     A.  NHP and JER are parties to that certain limited liability company
agreement (the "Agreement") captioned "Limited Liability Company Agreement of
JER/NHP Senior Housing, LLC" dated as of August 28, 2001. Except as otherwise
indicated, each capitalized term used herein shall have the meaning set forth
for the same in the Agreement.

     B.  The Agreement requires the delivery of this Memorandum with respect to
the contemplated acquisition by the Subsidiary Company of the ____________
facility commonly known as __________ located at ________________ (the
"Property") .

     IN LIGHT OF THE FOREGOING FACTS, NHP hereby represents and warrants to JER,
Subsidiary Company and the Company, and each of them, as follows:

     1.  Letter of Intent. The Letter of Intent (the "LOI") attached hereto as
Attachment "1" is a true, complete and correct copy of the same and all
amendments, supplements and other modifications thereto. There are no oral
modifications or understandings with respect to the LOI.

     2.  Purchase Agreement. The proposed Purchase Agreement (the "Purchase
Agreement") attached hereto as Attachment "2" is a true, complete and correct
copy of the same and all amendments, supplements, extensions and other
modifications thereto. There are no oral modifications or understandings with
respect to the Purchase Agreement, and, without limitation, the "Buyer" or
"Purchaser" thereunder has not delivered to the "Seller" thereunder, and has not
received from Seller, any notice or demand under or in connection with the
Purchase Agreement that is not included in Attachment "2" hereto. There is no
material breach or default by the Buyer under the Purchase Agreement and to the
actual knowledge of NHP, there is no material breach or default by Seller under
the Purchase Agreement. The Company is the holder of all right, title and
interest to the Buyer's interest under the Purchase Agreement and, upon the
Closing Date, the Company will acquire all such right, title and interest.

     3.  Lease With Operator. The Lease attached hereto as Attachment "3" is a
true, complete and correct copy of the lease with the operator and all
amendments, supplements,



                                       63



extensions and other modifications thereto. There are no oral modifications or
understandings with respect to the Lease.

     4.  Actions Previously Taken Under the LOI.

     (a) Title. Attached as Attachment "4" is a preliminary title report or
title commitment for the Property. The Buyer is required to accept (by specific
written approvals or deemed approvals under the Purchase Agreement) only those
matters specifically identified in Attachment "4" as the Permitted Exceptions.

     (b) Leases. To the actual knowledge of NHP, no leases affect the Property,
except as follows: ____________________________________________________________

     (c) Contracts. The Buyer is required to accept (by reason of specific
written approvals or deemed approvals under the Purchase Agreement) the
Permitted Exceptions and only those agreements specifically identified in
Attachment "5" (the "Contracts"). To the actual knowledge of NHP, there are no
matters which will affect the Property on the Closing Date other than the
Permitted Exceptions, the Contracts and Laws.

     (d) Due Diligence. To the actual knowledge of NHP, there is no basis for
any Claim by Seller for indemnification under the LOI or the Purchase Agreement
(including any Claim based on Buyer's due diligence activities).

     (e) Environmental and Soils Reports. A Phase I Environmental Report and
Soils Report for the Property are attached as Attachment "6".

     (f) Survey. An ALTA Survey of the Property is attached as Attachment "7".

     (g) Proposed Business Plan. Attachment "8" is a proposed business plan for
the property, which contains the following:

         (i)   a proposed Operating Budget, which shall include a NOI and
         sensitivity analysis;
         (ii)  a proposed Capital Budget;
         (iii) a market analysis of the Property and its immediate marketing
         area; and
         (iv)  information acquired from Due Diligence.

     (h) Investment Presentation. The investment information provided to the
Board of Directors or the Investment Committee of the Board of Directors of NHP
(as applicable) in its approval of such acquisition.

                                       64




     Except as disclosed by this Acquisition Memorandum and its Attachments,
neither NHP nor any of its Affiliates has any actual knowledge of any
circumstances affecting the Property which would have a material and adverse
affect on the Property contemplated by this Acquisition Memorandum.

                                            NATIONWIDE HEALTH PROPERTIES, INC.,
                                            a Maryland corporation

                                            By:  _______________________
                                                     Name:


                     .....................................................

                                       65

EX-21

                                                                      Exhibit 21

                           Subsidiaries of the Company
                             As of December 31, 2001

                                                                  State of
                                                              Incorporation or
                         Name                                   Organization
                         ----                                   ------------

Nationwide Health Properties Finance Corporation ...........     Delaware
MLD Financial Capital Corporation ..........................     Delaware
MLD Wisconsin SNF, Inc. ....................................     Wisconsin
MLD Delaware Trust .........................................     Delaware
MLD Properties, Inc. .......................................     Delaware
MLD Properties, LLC ........................................     Delaware
NH Texas Properties Limited Partnership ....................     Texas
MLD Properties Limited Partnership .........................     Delaware
NHP Finance Corporation ....................................     Delaware

EX-23.1

                                                                    EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-35276, Registration Statement File No.
33-64798, Registration Statement File No. 333-32135, Registration Statement File
No. 333-17061, Registration Statement File No. 333-20589, and Registration
Statement File No. 333-70707.


/s/ Arthur Andersen LLP
Orange County, California
February 20, 2002