8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 31, 2006

NATIONWIDE HEALTH PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	1-9028	95-3997619
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

610 Newport Center Drive, Suite 1150, Newport Beach, California 92660-6429

(Address of Principal Executive Offices)

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

Not Applicable

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

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

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

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

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

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

On June 6, 2006, Registrant filed an initial Current Report on Form 8-K reporting the completions of its acquisition and master leaseback of the real estate holdings of Hearthstone Assisted Living, Inc., a Texas corporation, consisting of a portfolio of 32 assisted living and Alzheimer’s facilities. This report amends Item 9.01 Financial Statements and Exhibits, to include the financial statements of Hearthstone Assisted Living, Inc. required by Item 9.01(a) and Registrant’s pro forma financial information required by Item 9.01(b) and includes a First Amendment to Master Lease and Letter of Credit Agreement and Consent of Guarantor under Item 1.01.

ITEM 1.01  ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

Amendment to Master Lease Agreement

In connection with the acquisition and master leaseback of the real estate holdings of Hearthstone Assisted Living, Inc., a Master Lease Agreement (the “Master Lease”) was entered into between Registrant and the other entities listed as “Landlord” on Schedule I thereto (individually and collectively, the “Landlord”) and the entities listed as “Tenant” on Schedule I thereto (individually and collectively, the “Tenant”) for the real properties and improvements legally described on Exhibit A thereto and the personal property associated therewith as described on Exhibit B thereto. On June 29, 2006, Registrant entered into a First Amendment to the Master Lease and Letter of Credit Agreement and Consent of Guarantor (the “Amendment to the Master Lease”), to be retroactively effective as of June 1, 2006, with the entities listed on the signature pages thereto as “Landlord,” the entities listed on the signature page thereto as “Tenant,” and Hearthstone Senior Services, L.P., a Delaware limited partnership. The Amendment to the Master Lease made a technical correction to how minimum rent is calculated and clarified the definition of net working capital.

The foregoing description of the Master Lease Agreement is qualified in its entirety by the terms and conditions of the Master Lease Agreement, which was previously filed as Exhibit 2.3 to Registrant’s Current Report on Form 8-K filed on June 6, 2006. The foregoing description of the Amendment to the Master Lease is qualified in its entirety by the terms and conditions of the Amendment to the Master Lease, which is filed as Exhibit 10.1 hereto, and is incorporated by reference.

ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements of Business Acquired.

Hearthstone Assisted Living, Inc.’s combined (i) Audited Consolidated Financial Statements for the year ended December 31, 2005; (ii) Notes to the Audited Consolidated Financial Statements for the year ended December 31, 2005; (iii) Unaudited Consolidated Financial Statements for the quarter ended March 31, 2006; and (iv) Notes to the Unaudited Consolidated Financial Statements for the quarter ended March 31, 2006 are filed with this Current Report as Exhibit 99.1 and are incorporated herein by reference.

(b) Pro Forma Financial Information

Registrant’s combined (i) Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 2005; (ii) Unaudited Pro Forma Consolidated Statement of Income for the quarter ended March 31, 2006; (iii) Unaudited Pro Forma Balance Sheet as of March 31, 2006; and (iv) Notes to Unaudited Pro Forma Financial Statements are filed with this Current Report as Exhibit 99.2 and are incorporated herein by reference.

(d) Exhibits

Exhibit Number	Description
10.1	First Amendment to Master Lease and Letter of Credit Agreement and Consent of Guarantor, dated June 29, 2006 by and among Registrant, the entities listed on the signature pages thereto as “Landlord,” the entities listed on the signature pages thereto as “Tenant,” and Hearthstone Senior Services, L.P.
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm of Hearthstone Assisted Living, Inc.
99.1	Hearthstone Assisted Living, Inc.’s combined (i) Audited Consolidated Financial Statements for the year ended December 31, 2005; (ii) Notes to the Audited Consolidated Financial Statements for the year ended December 31, 2005; (iii) Unaudited Consolidated Financial Statements for the quarter ended March 31, 2006; and (iv) Notes to the Unaudited Consolidated Financial Statements for the quarter ended March 31, 2006.
99.2	Registrant’s combined (i) Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 2005; (ii) Unaudited Pro Forma Consolidated Statement of Income for the quarter ended March 31, 2006; (iii) Unaudited Pro Forma Balance Sheet as of March 31, 2006; and (iv) Notes to Unaudited Pro Forma Financial Statements.

SIGNATURES

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

	NATIONWIDE HEALTH PROPERTIES, INC.
Date: June 30, 2006	By:	/s/    ABDO H. KHOURY
		Name: Abdo H. Khoury Title: Senior Vice President and Chief Financial and           Portfolio Officer

EX-10.1

Exhibit 10.1

FIRST AMENDMENT TO MASTER LEASE

AND LETTER OF CREDIT AGREEMENT

AND CONSENT OF GUARANTOR

THIS FIRST AMENDMENT TO MASTER LEASE AND LETTER OF CREDIT AGREEMENT AND CONSENT OF GUARANTOR (the “Agreement”) is entered into on June 29, 2006, to be retroactively effective as of June 1, 2006 (the “Effective Date”), by and among the entities listed on the signature pages hereto as “Landlord” (individually and collectively, “Landlord”), the entities listed on the signature pages hereto as “Tenant” (individually and collectively, “Tenant”), and HEARTHSTONE SENIOR SERVICES, L.P., a Delaware limited partnership (“Guarantor”).

R E C I T A L S

A. Landlord, as lessor, and Tenant, as lessee, are parties to that certain Master Lease dated as of May 31, 2006 (the “Master Lease”), pursuant to which, among other things, Landlord leases to Tenant the “Premises” described therein. Initially capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Master Lease.

B. In connection with the Master Lease, Landlord and Tenant are also parties to that certain Letter of Credit Agreement of even date with the Master Lease (the “LC Agreement”), pursuant to which, among other things, Tenant has posted with Landlord the Letter of Credit described therein as partial collateral for the performance of its obligations under the Master Lease.

C. Pursuant to the Guaranty of even date with the Master Lease (the “Guaranty”), Guarantor has, among other things, guarantied to Landlord the performance by Tenant of its obligations under the Master Lease and LC Agreement.

D. Landlord, Tenant and Guarantor now desire to amend the Master Lease, LC Agreement and Guaranty to, among other things, make certain clarifications to the Master Lease, all as more particularly set forth herein.

A G R E E M E N T

NOW, THEREFORE, taking into account the foregoing Recitals, and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

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1. Amendments to Master Lease. The Master Lease is hereby specifically amended as set forth in this Section 2.

(a) Initial Term Rent. Section 2.1(a) of the Master Lease is amended and restated in its entirety as follows:

“During the Initial Term, subject to the redetermination thereof pursuant to Section 2.2, “Minimum Rent” is Thirty-One Million Five Hundred Eighty-Two Thousand One Hundred Eighty-One Dollars ($31,582,181) per Lease Year, payable in advance in twelve (12) equal monthly installments. Commencing with the second (2^nd) Lease Year and continuing thereafter during the Term (excluding the eighth (8^th) Lease Year of the Initial Term and the first (1^st) Lease Year of any Renewal Term as further provided in Section 2.2), Tenant agrees to pay “Additional Rent” to Landlord monthly in advance together with the payment of Minimum Rent. Such Additional Rent (which shall be expressed as an annual amount but shall be payable in equal monthly installments) shall be equal to the sum of (a) the Additional Rent for the immediately preceding Lease Year and (b) the sum of (I) the product of (i) the Minimum Rent and Additional Rent due for the immediately preceding Lease Year and (ii) one percent (1%), and (II) the product of (i) the Minimum Rent and Additional Rent due for the immediately preceding Lease Year and (ii) the lesser of (x) two percent (2.0%) or (y) a percentage equal to five (5) times the CPI Increase. During the Initial Term (but not during any Renewal Term), Tenant shall also pay “Supplemental Rent,” which shall be calculated on a quarterly basis in an amount equal to the Applicable Percentage of Revenue, multiplied by Revenue for the applicable fiscal quarter. Supplemental Rent shall be due and payable as follows: (A) during each of the first two (2) Lease Years (each an “Accrual Year”), Supplemental Rent shall accrue but shall not be payable; (B) in the third (3^rd) Lease Year, in addition to amounts payable pursuant to the following clause (C), Tenant shall pay the aggregate amount of Supplement Rent for the first two (2) Lease Years accrued in accordance with the preceding clause (A) in twelve (12) equal monthly installments, which shall be payable with each payment of Minimum Rent during such Lease Year, and (C) in each Lease Year during the Initial Term commencing with the third (3^rd) Lease Year, Tenant shall pay Supplemental Rent for each fiscal quarter within thirty (30) days after the end of such quarter, provided that Landlord may, in its sole and absolute discretion, allow Tenant to defer payment of all or a portion of the Supplemental Rent payable in the third (3^rd) Lease Year until the fourth (4^th) Lease Year, in which case the aggregate amount deferred shall be payable in twelve (12) equal monthly installments in the fourth (4^th) Lease Year, each payable with each payment of Minimum Rent during such Lease Year. Notwithstanding the foregoing, in the event that, in accordance with Section 16, Landlord in its sole and absolute discretion consents to any change of control in Guarantor, or to any other transaction constituting an assignment of this Lease pursuant to the terms of Section 16, all accrued but unpaid Supplemental Rent shall be immediately due and payable.”

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(b) Restrictions on Distributions. Section 4.3(b) of the Master Lease is amended and restated in its entirety as follows:

“As used herein, (1) “Restricted Dividend” means any Dividend, other than a Tax Dividend, that is made at any time that the Dividend Conditions are not then satisfied; (2) “Dividend” means any dividend, payment or other distribution of cash or property by Guarantor to its shareholders or any other Person on account of or with respect to the capital stock of Guarantor; (3) “Dividend Conditions” means that (i) the Rent Coverage Ratio for the Preceding Fiscal Quarter is greater than or equal to 1.20 to 1.00 and (ii) that Guarantor shall have had Minimum Net Working Capital Balances for the Preceding Fiscal Quarter; and (4) “Preceding Fiscal Quarter” means the fiscal quarter immediately preceding the fiscal quarter in which the Dividend in question is made or to be made; (5) “Minimum Net Working Capital Balances” means that Guarantor shall have Net Working Capital as of the end of any applicable fiscal quarter equal to or greater than the lesser of (i) an amount equal to forty-one percent (41%) of Revenue for such quarter, or (ii) Fifteen Million Four Hundred Fifty Thousand Dollars ($15,450,000); (6) “Net Working Capital” means the sum of the amounts of the line items on Guarantor’s consolidated balance sheet for “Cash,” “Restricted Funds, short term,” “Accounts Receivable,” “Other Current Assets (Inventory and Prepaid Expenses)” and “Restricted Funds, long term” minus the sum of the amounts of the line items on Guarantor’s consolidated balance sheet for “Accounts Payable” and “Accrued Expenses,” as each of the same line items may be re-named or amended from time to time, and including as appropriate such similar line items created by Guarantor after the date hereof, each as determined as of the relevant date and calculated in a manner consistent with Guarantor’s and HAL’s respective past practices and the Contribution Agreement; (7) “Tax Dividend” means a Dividend in an amount which does not exceed the Tax Expense for all the members of the Guarantor for the Tax Period most recently ended; (8) “Tax Expense” shall mean for any member of Guarantor, an amount equal to the product of (i) the amount of federal and state taxable income of Guarantor for the applicable Tax Period, (ii) the Presumed Tax Rate, giving effect to the character of such taxable income as ordinary income or capital gain income, and (iii) such member’s percentage interest in Guarantor; (9) “Tax Period” means the calendar year or quarter to which any applicable Tax Expense is attributable, and (10) “Presumed Tax Rate” means (i) with respect to income taxable as ordinary income or short term capital gains, the highest combined federal and state income tax rate applicable during the applicable Tax Period, and (ii) with respect to income taxable as long-term capital gains, the highest rate then applicable to the gains on capital held for at least twelve (12) months, in both cases as determined without regard to the adjustment provided in Sections 67 and 68 of the Internal Revenue Code.”

2. Amendments to Letter of Credit Agreement. The LC Agreement is hereby specifically amended as set forth in this Section 2. As set forth and used in the LC Agreement, the term “Lease” shall mean “the Master Lease dated as of even date with this Agreement, as amended, modified or revised from time to time.”

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3. Affirmation of Obligations under Lease Documents and Guaranty.

(a) Notwithstanding the modifications to the Master Lease and LC Agreement contained herein, Tenant and Landlord each hereby acknowledges and affirms its respective obligations under the Master Lease and LC Agreement (each as modified hereby) and all other documents executed by such party in connection therewith.

(b) Guarantor hereby consents to the terms of this Agreement in all respects. Notwithstanding the modifications to the Master Lease and LC Agreement contained herein, Guarantor hereby acknowledges and affirms its obligations under the Guaranty and all documents executed by Guarantor in connection therewith.

4. Interpretation. This Agreement shall be construed as a whole and in accordance with its fair meaning. Headings are for convenience only and shall not be used in construing meaning.

5. Further Instruments. Each party will, whenever and as often as it shall be reasonably requested so to do by another party, cause to be executed, acknowledged or delivered, any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement.

6. Incorporation of Recitals. The Recitals to this Agreement are incorporated hereby by reference.

7. Counterparts. This Agreement may be executed in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.

8. Effect of Amendment. Except as specifically amended pursuant to the terms of this Agreement, the terms and conditions of the Master Lease, LC Agreement and Guaranty shall remain unmodified and in full force and effect. In the event of any inconsistencies between the terms of this Agreement and any terms of the Master Lease, LC Agreement or Guaranty, the terms of this Agreement shall govern and prevail.

9. Entire Agreement. This Agreement contains the entire agreement between the parties relating to the subject matters contained herein. Any oral representations or statements concerning the subject matters herein shall be of no force or effect.

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the Effective Date.

“TENANT”:

ARLINGTON ASSISTED LIVING, LTD., a Texas limited partnership By:   Arlington Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
BARTLETT ASSISTED LIVING, LTD., a Texas limited partnership By:   Bartlett Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
CHATTANOOGA ASSISTED LIVING, LTD., a Texas limited partnership By:   Chattanooga Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

AUSTIN ASSISTED LIVING, LTD., a Texas limited partnership By:   Austin Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

BIRMINGHAM ASSISTED LIVING, LTD., a Texas limited partnership By:   Birmingham Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

CONROE ASSISTED LIVING, LTD., a Texas limited partnership By:   Conroe Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

Signature Page - 1

GARLAND ASSISTED LIVING, LTD., a Texas limited partnership By:   Garland Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
CY-FAIR ASSISTED LIVING, LTD., a Texas limited partnership By:   Cy-Fair Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
IRVING ASSISTED LIVING, LTD., a Texas limited partnership By:   Irving Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
KENTWOOD ASSISTED LIVING, LTD., a Texas limited partnership By:   Kentwood Assisted Living, G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

BRAESWOOD ASSISTED LIVING, LTD., a Texas limited partnership By:   Braeswood Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

HUNTSVILLE ASSISTED LIVING, LTD., a Texas limited partnership By:   Huntsville Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

CLAYTON COUNTY ASSISTED LIVING, LTD., a Texas limited partnership By:   Clayton Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

LAKE JACKSON ASSISTED LIVING, LTD., a Texas limited partnership By:   Lake Jackson Assisted Living, G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

Signature Page - 2

LEWISVILLE ASSISTED LIVING, LTD., a Texas limited partnership By:   Lewisville Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
COBB COUNTY ASSISTED LIVING, LTD., a Texas limited partnership By:   Cobb County Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
MADISON ASSISTED LIVING, LTD., a Texas limited partnership By:   Madison Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
OKLAHOMA CITY ASSISTED LIVING LIMITED PARTNERSHIP, a Texas limited partnership By:   Oklahoma City Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

LORAIN ASSISTED LIVING, LTD., a Texas limited partnership By:   Lorain Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

MOBILE ASSISTED LIVING, LTD., a Texas limited partnership By:   Mobile Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

NASHVILLE ASSISTED LIVING, LTD., a Texas limited partnership By:   Nashville Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
SAN ANTONIO ASSISTED LIVING, LTD., a Texas limited partnership By:   San Antonio Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

Signature Page - 3

CARROLLWOOD ASSISTED LIVING OPERATIONS, LTD., a Texas limited partnership By:   Carrolwood Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
TEMPLE ASSISTED LIVING, LTD., a Texas limited partnership By:   Temple Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
TUCSON ASSISTED LIVING LIMITED PARTNERSHIP, a Texas limited partnership By:   Tucson Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President
WHARTON ASSISTED LIVING, LTD., a Texas limited partnership By:   Wharton Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

TEMPE ASSISTED LIVING LIMITED PARTNERSHIP, a Texas limited partnership By:   Tempe Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

TEXAS CITY ASSISTED LIVING, LTD., a Texas limited partnership By:   Texas City Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

VICTORIA ASSISTED LIVING, LTD., a Texas limited partnership By:   Victoria Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

ALBUQUERQUE ASSISTED LIVING, LTD., a Texas limited partnership By:   Albuquerque Assisted Living G.P., Inc.,          a Texas corporation, its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

Signature Page - 4

“GUARANTOR”:

HEARTHSTONE SENIOR SERVICES, L.P., a Delaware limited partnership By:   Hearthstone Senior Living Services, LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    RICHARD ROSENBERG
Name: Title:	Richard Rosenberg Vice President

Signature Page - 5

“LANDLORD”:

NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President
AUSTIN ASSISTED RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President
BIRMINGHAM AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President

ARLINGTON AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President

BARTLETT AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President

CHATTANOOGA AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name:	Abdo H. Khoury
Title:	Senior Vice President

Signature Page - 6

CONROE AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
BRAESWOOD AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
HUNTSVILLE AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
CLAYTON COUNTY AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

GARLAND AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

CY-FAIR AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

IRVING AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

LAKE JACKSON ASSISTED LIVING R.E., LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

Signature Page - 7

LEWISVILLE AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
MOBILE AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
NASHVILLE AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
CARROLLWOOD ASSISTED LIVING, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

COBB COUNTY AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

MADISON AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

SAN ANTONIO AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

TEMPE AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

Signature Page - 8

TEMPLE AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
TUCSON AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
VICTORIA AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President
KENTWOOD AL RE LIMITED PARTNERSHIP, a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

TEXAS CITY AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

WHARTON AL RE, LTD., a Texas limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

ALBUQUERQUE AL RE, L.P., a Delaware limited partnership By:   NHP Master RE G.P., LLC,          a Delaware limited liability company,          its General Partner
By:	/s/    ABDO H. KHOURY
Name: Title:	Abdo H. Khoury Senior Vice President

Signature Page - 9

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-127366 and in the related Prospectus and No. 333-106730) of Nationwide Health Properties, Inc. and on Form S-8 (No. 333-125908, No. 333-20589, and No. 33-35276) pertaining to the securities to be offered to employees in employee benefit plans of Nationwide Health Properties, Inc. of our report dated March 31, 2006 with respect to the consolidated financial statements of Hearthstone Assisted Living, Inc. included in the Current Report on Form 8-K/A of Nationwide Health Properties, Inc.

/s/ Ernst & Young LLP

Houston, Texas

June 23, 2006

EX-99.1

Exhibit 99.1

Hearthstone Assisted Living, Inc. and Subsidiaries

Consolidated Financial Statements

Year Ended December 31, 2005

Contents

Report of Independent Auditors	2
Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005	3
Consolidated Statements of Income and Retained Deficit for the Year Ended December 31, 2005 and the Three Months Ended March 31, 2006 and 2005 (Unaudited)	4
Consolidated Statements of Stockholders’ Deficit at December 31, 2005 and 2004 and the Three Months Ended March 31, 2006 (Unaudited)	5
Consolidated Statements of Cash Flows for the Year Ended December 31, 2005 and the Three Months Ended March 31, 2006 and 2005 (Unaudited)	6
Notes to Consolidated Financial Statements	7

1

Report of Independent Auditors

Board of Directors

Hearthstone Assisted Living, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Hearthstone Assisted Living, Inc. and Subsidiaries (the Company) as of December 31, 2005, and the related consolidated statements of operations and accumulated deficit, stockholders’ deficit, and cash flows for the year then ended. 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 audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hearthstone Assisted Living, Inc. and Subsidiaries at December 31, 2005, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

March 31, 2006

2

HEARTHSTONE ASSISTED LIVING, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31, 2005			March 31, 2006
				(unaudited)
Assets
Current assets:
Cash	$	6,909,211		$	9,423,413
Restricted funds, short term		4,428,640			4,167,913
Accounts receivable		1,878,908			1,803,803
Other current assets		3,436,636			2,971,739
Total current assets		16,653,395			18,366,868
Long-term assets:
Property and equipment
Buildings and improvements		123,465,889			123,516,455
Furniture and fixtures		8,161,272			8,164,149
Equipment		7,974,358			8,062,058
Vehicles		165,229			173,362
		139,766,748			139,916,024
Less accumulated depreciation		(34,611,488	)		(35,743,621	)
		105,155,260			104,172,403
Construction in progress		43,521			57,442
Land		14,556,023			14,556,023
		119,754,804			118,785,868
Other assets:
Restricted funds, long-term		1,175,410			1,177,558
Deferred financing costs, net of amortization		2,250,151			2,047,531
Goodwill		2,490,441			2,490,441
Other assets		460,610			458,230
		6,376,612			6,173,760
Total assets	$	142,784,811		$	143,326,496
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	3,413,668		$	2,912,202
Accrued expenses		6,481,861			6,169,858
Current portion of long-term debt		50,661,773			52,753,782
Current portion of accrued exit fees		1,331,873			1,440,147
Total current liabilities		61,889,175			63,275,989
Long-term liabilities:
Notes payable		124,575,215			121,574,960
Other long-term liabilities		88,717			88,717
		124,663,932			121,663,677
Stockholders’ deficit:
Preferred stock, $1 par value: 7,000,0000 authorized, issued and outstanding shares: 4,084,161 in 2004 and 2003		61,963,434			61,963,434
Common stock, $0.02 par value: 15,000,000 authorized 1,562,700 shares issued and outstanding		31,254			31,254
Paid-in capital		247,281			247,281
Accumulated deficit		(105,910,265	)		(103,755,139	)
Treasury stock at cost - 31,250 shares		(100,000	)		(100,000	)
Total stockholders’ deficit		(43,768,296	)		(41,613,170	)
Total liabilities and stockholders’ deficit	$	142,784,811		$	143,326,496

3

HEARTHSTONE ASSISTED LIVING, INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME and RETAINED DEFICIT

	December 31, 2005			March 31,
				2006			2005
				(unaudited)
Income
Revenue	$	89,401,372		$	23,412,492		$	21,350,035
Management fees		22,611			—			21,019
Other income		362,391			37,151			143,777
Total income		89,786,374			23,449,643			21,514,831
Operating Expenses
Salaries and benefits		35,769,832			8,923,254			8,876,253
Purchased services		1,747,812			443,876			425,795
Rent		265,700			69,706			63,369
General and administrative expenses		6,989,753			1,661,752			1,538,333
Marketing		4,210,124			916,085			1,199,981
Food and dining services		4,768,871			1,202,090			1,147,308
Property and plant		7,867,567			2,098,480			1,963,286
Community start up costs		—			2,720			—
Other expenses		1,216,842			689,774			317,572
Total operating expenses		62,836,501			16,007,737			15,531,897
Net operating income		26,949,873			7,441,906			5,982,934
Other income (expense)
Depreciation		(5,015,401	)		(1,204,937	)		(1,294,379	)
Amortization		(1,154,976	)		(253,596	)		(293,434	)
Interest expense		(14,342,210	)		(3,811,102	)		(3,965,655	)
Interest income		222,699			80,686			38,884
		(20,289,888	)		(5,188,949	)		(5,514,584	)
Minority interest		(362,003	)		—			—
Income before taxes		6,297,982			2,252,957			468,350
Income tax expense		(329,941	)		(97,831	)		(24,536	)
Net income		5,968,041			2,155,126			443,814
Retained deficit at beginning of year		(111,878,306	)		(105,910,265	)		(111,878,306	)
Retained deficit at end of year	$	(105,910,265	)	$	(103,755,139	)	$	(111,434,492	)

4

HEARTHSTONE ASSISTED LIVING, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings Deficit			Treasury Stock			Total Stockholders’ Deficit
	Shares	Dollars		Shares	Dollars
Balance at December 31, 2004	4,675,836	$	61,963,434	1,562,700	$	31,254	$	247,281	$	(111,878,306	)	$	(100,000	)	$	(49,736,337	)
Net income at December 31, 2005	—		—	—		—		—		5,968,041			—			5,968,041
Balance at December 31, 2005	4,675,836		61,963,434	1,562,700		31,254		247,281		(105,910,265	)		(100,000	)		(43,768,296	)
Net income at March 31, 2006 (Unaudited)	—		—	—		—		—		2,155,126			—		$	2,155,126
Balance at March 31, 2006 (Unaudited)	4,675,836	$	61,963,434	1,562,700	$	31,254	$	247,281	$	(103,755,139	)	$	(100,000	)	$	(41,613,170	)

5

Hearthstone Assisted Living, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

	For the Year Ended 12/31/2005			For the Three Months Ended
				3/31/2006			3/31/2005
				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,968,041		$	2,155,126		$	443,814
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		5,015,401			1,204,937			1,294,379
Amortization		1,154,976			253,596			293,434
Gain from debt cancellation		(1,062,572	)		—			—
Loss on sale of assets		48,976			11,233			12,621
Minority interest		264,201			—			—
Changes in operating assets and liabilities:
Accounts receivable, net		(569,040	)		75,105			18,638
Other current assets		(1,496,781	)		294,022			(73,820	)
Other assets		140,491			1,414			146,541
Accounts payable		(240,033	)		(501,475	)		(753,670	)
Accrued expenses		(183,695	)		(312,003	)		826,066
Accrued exit fees		(103,225	)		108,274			349,038
Net cash provided by operating activities		8,936,740			3,290,229			2,557,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(1,448,657	)		(248,954	)		(302,779	)
Proceeds from sale of assets		5,000			1,720			4,000
Net cash used in investing activities		(1,443,657	)		(247,234	)		(298,779	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from of long-term debt		3,541,239			—			73,371
Principal payments on long-term debt		(7,084,228	)		(737,371	)		(1,266,171	)
Purchase of minority interest		(2,490,441	)		—			—
Additions to deferred financing costs, net		(261,314	)		(50,000	)		(34,005	)
Net deposits of restricted cash		265,305			258,578			389,885
Net cash used in financing activities		(6,029,439	)		(528,793	)		(836,920	)
Net increase in cash and cash equivalents		1,463,644			2,514,202			1,421,342
Cash and cash equivalents at beginning of period		5,445,567			6,909,211			5,445,567
Cash and cash equivalents at end of period	$	6,909,211		$	9,423,413		$	6,866,909

6

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

As of December 31, 2005 and unaudited information as March 31, 2006 and for the three months ended March 31, 2006 and 2005.

December 31, 2005

1. Organization, Nature of Operations, and Basis of Presentation

Hearthstone Assisted Living, Inc. and Subsidiaries (the Company) is engaged in the development, operation, and management of assisted living communities. At December 31, 2005 and March 31, 2006, the Company operated 32 communities, of which all are owned, in ten states, including Texas, Tennessee, New Mexico, Arizona, Alabama, Oklahoma, Georgia, Michigan, Florida, and Ohio. The accompanying consolidated financial statements include the accounts of Hearthstone Management, Inc., H/C Realty Group, Inc., Hearthstone G.P., Inc., 12 community-specific general partners, 32 community limited partnerships (the Partnerships) (one for each assisted living community), and Long Horn Insurance Company Ltd. Until December 31, 2005, Hearthstone Assisted Living, Inc. had a minority interest stockholder in five of the Partnerships. The minority interest in the earnings of the subsidiary limited partnerships are presented separately in the consolidated financial statements. On December 23, 2005, the Company purchased the 15% minority interest in the five Partnerships. See Note 10 for further discussion. All significant intercompany transactions have been eliminated in consolidation. See Note 13 for further discussion related to the Company’s organization.

The consolidated financial statements as of March 31, 2006 and for the three months ended March 31, 2006 and 2005 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with auditing standards generally accepted in the United States. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair presentation of the financial position and the results of operations for the periods presented. Operating results for any interim period are not necessarily indicative of results for the full fiscal year or any future period.

7

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reported period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The Company, pursuant to its investment policy, invests its cash primarily in short-term money market funds, bank CDs, U.S. Treasury securities, and investment-grade commercial paper.

Fair Value of Financial Instruments

The carrying amounts of accounts receivable, other assets, accounts payable, accrued expenses, notes payable, and accrued exit fees approximate fair value.

Deferred Financing Costs

Deferred financing costs consist primarily of origination and commitment fees paid by the Company in connection with obtaining long-term financing. These costs are amortized over the term of the loan or commitment.

Revenue

Revenue includes amounts earned from residents of the Company’s assisted living communities under month-to-month rental agreements, which require the payment of rent at the beginning of each month. Revenue also includes amounts earned from residents for ancillary services as well as one-time community fees. Revenue is recognized by the Company when rental and other related services have been provided and earned under the terms of the rental agreements.

8

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses was $697,212 for the year ended December 31, 2005 and $167,826 and $282,226 for the three months ended March 31, 2006 and 2005, respectively.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for specific types of property and equipment are as follows:

Buildings	40 years
Food service equipment	10 years
Furniture and fixtures	5 – 7 years
Computer equipment	3 – 5 years
Vehicles	5 – 8 years

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the related carrying amount may not be recoverable. When the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount, impairment losses are recognized based on the excess of the assets’ carrying value over their fair value. No impairment losses were recognized during 2005.

Concentration of Credit Risk

The Company maintains an allowance for doubtful accounts for accounts receivable by providing for specifically identified accounts where collectibility is doubtful based on the aging of the receivables compared to past experience and current trends. Receivables are only written off after the Company and a contracted collection agency have exhausted all collection processes.

The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and short-term investments. The Company places its funds into high credit quality financial institutions and, at times, such funds may be in excess of the Federal Deposit Insurance Corporation limits.

9

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Polices (continued)

Stock Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123 (Revised), Share-Based Payment. The statement eliminates the ability to account for stock-based compensation using APB 25 and requires such transactions be recognized as compensation expense in the income statement based on their fair values on the date of the grant, with the compensation expense recognized over the period in which an employee is required to provide service in exchange for the stock award. The Company will adopt this statement on January 1, 2006, using a modified prospective application. As such, the compensation expense recognition provisions will apply to new awards and to any awards modified, repurchased, or canceled after the adoption date. Additionally, for any unvested awards outstanding at the adoption date, the Company will recognize compensation expense over the remaining vested period. The Company adopted SFAS 123 (Revised) on January 1, 2006 and there is no impact on adoption of this statement. No new option grants were made for the three months ended March 31, 2006.

Previously, the Company had elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net loss is required by SFAS 123. The Company’s pro forma net income (loss) for the year ended December 31, 2005 and for the three months ended March 31, 2005 was the same as its reported net income (loss) of $5,968,041 and $443,814, respectively. The fair value of granted options was estimated at the date of grant using a nonpublic company option pricing model with the following weighted-average assumptions for 2005: risk-free interest rate of 4.5%, dividend yield rate of 0%, and a weighted-average expected life of the options of four years. Using the above-described model, options granted during the year ended December 31, 2005, were estimated to have a zero fair value at the date of grant. On May 31, 2006 the Company terminated the 1997 Stock Option Plan. See Note 13 for further discussion

Goodwill

Goodwill represents the excess of costs over fair value of purchase of minority interests and is not amortized. Goodwill will be reviewed for impairment at least annually or if an indicator of impairment exists.

Income Tax

The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which provides for a liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

10

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Preferred Stock

As of December 31, 2005, the Company had five classes of preferred stock outstanding. All shares of preferred stock rank senior to the shares of the Company’s common stock relative to dividends, liquidation, or dissolution. The Company’s various classes of preferred stock as of December 31, 2005, are summarized as follows:

	Number of Preferred Shares Originally Issued	Issuance Date	50-to-1 Split of Series A Shares	Total Common Shares on a Fully Converted Basis
Series A	12,075	October 1996	603,750	638,502
Series B	1,070,937	October 1997	1,070,937	1,136,853
Series C	1,096,929	August 1998	1,096,929	1,209,604
Series D	1,333,333	January 2000	1,333,333	1,418,439
Series F	570,887	January 2001	570,887	607,327
	4,084,161		4,675,836	5,010,725

Series A shares were subsequently split 50:1 to a total of 603,750 shares. All classes of preferred stock are convertible to common stock. Preferred stock is convertible into a number of common shares computed by multiplying the number of shares to be converted by $7.87 (Series A post-split), $9.81 (Series B), $16.55 (Series C), $11.28 (Series D), and $11.28 (Series F) and dividing the results by conversion prices then in effect.

The Series D preferred stock ranks senior to the Series A, B, and C preferred stock relative to preferences and rights. The Series F preferred stock ranks senior to the Series A, B, C, and D preferred stock.

Holders of the Series A, B, and C preferred stock are entitled to receive, as and when declared, cumulative preferential dividends of 8% compounded annually. Holders of the Series D and F preferred stock are entitled to receive, as and when declared, cumulative

11

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Preferred Stock (continued)

preferential dividends of 11.5% compounded annually. Through December 31, 2005, no such dividends have been declared or paid. Cumulative unpaid dividends are summarized as follows for the year ended December 31, 2005 and the three months ended March 31, 2006.

	March 31, 2006		December 31, 2005
Series A	$	5,381,080	$	5,182,931
Series B		10,108,191		9,702,107
Series C		17,579,859		16,835,954
Series D		15,491,772		14,617,328
Series F		5,250,102		4,914,407
Total	$	53,811,004	$	51,252,727

Upon liquidation, holders of the Series F preferred stock are entitled to receive a premium (the Series F Premium). During the year ended December 31, 2005, the Series F Premium was $18.00 per share. In future years, the Series F Premium will continue to be $18.00 per share. As of December 31, 2005, the Series F Premium totaled $10,275,966.

On or after December 31, 2003, at the election of the holders of at least one-half of Series A, B, C, or D, or at least one-third of Series F preferred stockholders, the Company shall redeem the shares of such series at a price per share equal to the liquidation value per share for that series. The Company would be required to undertake such redemptions only if the Company, based on its own assessment, had sufficient liquidity after undertaking such redemptions to meet all its other obligations and maintain a prudent level of ongoing liquidity in the normal course of operating the business. The Company does not intend to redeem these shares based on the analysis of its liquidity. Shares can be settled in cash, shares, or a combination of both.

The Company used the proceeds from the issuance of preferred stock to finance development.

See Note 13 for further discussion of preferred stock.

12

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. 1997 Stock Option Plan

On January 1, 1997, the Company approved the adoption of the Hearthstone Assisted Living, Inc. 1997 Stock Option Plan (the Plan). As of December 31, 2005, the Company reserved 650,947 shares of common stock for future issuance. The options may be granted at prices not less than 100% of the fair market value at the date of the option grant. The options have a ten-year term from issue date and are exercisable at such time or times, whether or not in installments, as shall be determined by the compensation committee.

A summary of the Company’s stock option activity for the year ended December 31, 2005 and the three months ended March 31, 2006, is as follows:

	March 31, 2006				December 31, 2005
	Options		Exercise Price		Options		Exercise Price
Outstanding at beginning of period	401,448		$	2.00 – 4.00	403,385		$	2.00 – 4.00
Granted					6,000		$	2.00
Canceled	(2,063	)	$	2.00	(7,937	)	$	2.00 – 4.00
Outstanding at end of period	399,385				401,448
Exercisable at end of period	68,448				68,448
Weighted-average exercise price of exercisable options at end of period			$	2.58			$	2.64
Weighted-average remaining contractual life of options outstanding at end of period				4.10				4.25

13

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Stock Warrants

In addition to the stock options issued under the Plan, warrants to purchase 83,826 shares of common stock remain outstanding at December 31, 2005. All of these warrants were granted in 2003, have an exercise price of $2.00 share, and will expire on April 1, 2008. As of December 31, 2005, no warrants have been exercised and the value of the warrants is zero. As of March 31, 2006, no warrants had been exercised, and while the value of the warrants was determined to be greater than zero, the exact amount could not be determined.

6. Notes Payable

The Company’s notes payable consist of the following at December 31 and March 31, 2006.

	March 31, 2006		December 31, 2005
Floating-rate notes payable, accruing interest at variable rates generally based on LIBOR plus margins ranging from 3.25% to 4.25%. Annual interest rates in effect for these loans ranged from 6.0% to 7.92% at December 31, 2005 and March 31, 2006. Monthly payments of principal and interest are required. These notes are secured by first lien deeds of trust on certain of the Company’s assisted living communities	$	67,504,208	$	67,725,596
Fixed-rate notes payable, accruing interest at annual fixed rates ranging from 5.88% to 9.13%. Monthly principal and interest payments are required based on 25- to 40-year amortization schedules. Prepayments are not allowed during certain periods and, otherwise, may be subject to certain prepayment penalties. These notes are primarily secured by first lien deeds of trust on certain of the Company’s assisted living communities		94,489,200		94,965,192

14

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Notes Payable (continued)

	March 31, 2006			December 31, 2005
Notes payable under mezzanine financing agreements. These notes are secured by second lien deeds of trust on certain of the Company’s assisted living communities, require monthly interest payments at annual fixed rates ranging from 12% to 13%, and mature at various times through 2007. Additionally, at maturity, these notes require the Company to pay additional amounts (Exit Fees) that allow the lenders to generate internal rates of return of 20% and 22% over the terms of the notes. The Company accrues the Exit Fees monthly. At December 31, 2005 and March 31, 2006, accrued Exit Fees on these mezzanine financing agreements totaled $29,016 and $27,884 respectively.		9,678,720			9,689,974
Junior, secured debenture. This note is secured by the Company’s excess land and excess cash flows from its assisted living communities. The note requires monthly interest-only payments based on an annual rate of 12.5% and matured in March 2006 and extended to July 2006. It contains a provision under which the Company may be required to pay to the lender an amount (the Royalty Payment) equal to 75.0% of the amount by which the Company’s consolidated revenues for the preceding 12-month period exceeds $41,742,888 (such Royalty Payment is limited to a gradually escalating maximum amount over the term of the note ranging from $21,090 in January 2002 to $1,564,795 at maturity) upon the occurrence of certain events such as prepayment of the note, an event of default, an initial public offering, etc. As of December 31, 2005 and March 31, 2006, the accrued Royalty Payment on this note totaled $1,302,857 and $1,412,263 respectively.		2,500,000			2,500,000
Capital leases secured by telephone and other equipment at the Company’s assisted living communities. These notes accrue annual interest ranging from 10.5% to 18% and mature at various times through 2010		156,614			356,226
Total notes payable		174,328,742			175,236,988
Current portion		(52,753,782	)		(50,661,773	)
Notes payable, net of current portion	$	121,574,960		$	124,575,215

15

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Notes Payable (continued)

Restricted cash includes restricted amounts held by certain lenders. These funds serve as additional security under the notes and, under certain circumstances, may be released to the Company. Restricted cash is summarized as follows, between current and noncurrent, at December 31, 2005 and March 31, 2006.

	March 31, 2006				December 31, 2005
	Current		Noncurrent		Current		Noncurrent
Funds reserved for property taxes, insurance, and current working capital	$	2,657,259	$	—	$	2,918,590	$	—
Debt service reserves		56,486		1,177,558		55,882		1,175,410
Certificate of deposit		1,454,168		—		1,454,168		—
	$	4,167,913	$	1,177,558	$	4,428,640	$	1,175,410

Certain loan agreements require the Company to maintain specified minimum debt service coverage ratios and other related liquidity covenants. Although the Company has made the required payments of principal and interest through December 31, 2005, certain minimum debt service coverage covenants were not in compliance. In accordance with the loan agreements, the lenders may, at their discretion, require the Company to deposit additional cash collateral (in amounts determined in accordance with specified calculations) in order to avoid a declaration of default by the lender. Through December 31, 2005 and March 31, 2006, the Company has not been required to post such additional cash collateral amounts and there have been no declarations of default by the lenders. Should the Company be required to deposit additional amounts with the lenders in order to avoid a default declaration, management believes the Company would have sufficient liquidity in order to do so. Accordingly, all amounts are classified based on their original maturity date.

16

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

6. Notes Payable (continued)

Scheduled maturities of notes payable at December 31, 2005 and March 31, 2006 are as follows:

	March 31, 2006		December 31, 2005
2006	$	52,753,782	$	50,661,773
2007		45,628,570		13,234,551
2008		1,873,632		36,766,546
2009		2,010,380		1,901,016
2010		2,138,715		20,330,748
Thereafter		69,923,663		52,342,354
	$	174,328,742	$	175,236,988

The Company had four subordinated loans from Dynex Capital (Dynex) for a total principal balance outstanding of $1,854,869 and accrued interest, accrued exit fees, late fees, and penalties of $2,607,703 in addition to principal. After extended settlement discussions, an agreement was reached whereby Dynex agreed to accept $3,400,000 as settlement in full of all amounts owed by the Company. This settlement was closed on August 16, 2005, and the Company wrote off $1,062,572 of the remaining Dynex obligations through other income.

7. Related-Party Transactions

On January 14, 2000, the Company issued 14,583 shares of Series D preferred stock to Timothy P. Hekker, its president, in exchange for a note receivable of $175,000. This note accrues annual interest at 5%, matures on April 1, 2008, and is included in other assets in the consolidated balance sheets.

8. Federal Income Taxes

The Company had a federal net operating loss carryforward of approximately $105,547,853 at December 31, 2005. The net operating loss carryforward expires in the years 2008 through 2022. The net operating loss carryforward and other significant deferred tax assets and liabilities, including those related to property, plant, and equipment and accrued liabilities, yield a deferred tax asset of approximately $31,840,952 as of December 31, 2005. A valuation allowance was recorded against this deferred tax asset, resulting in a net deferred tax asset of zero at December 31, 2005. During the year ended December 31, 2005 and the three months ended March 31, 2006 and 2005, the

17

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

8. Federal Income Taxes (continued)

Company accrued a federal and state tax liability of $329,941, $97,831,and $24,536, respectively.

9. Commitments Contingencies

The Company is obligated under operating leases for its corporate offices and for vehicles used in operations. These leases contain minimum lease terms expiring at various times through 2008. The corporate office lease requires the Company to pay additional amounts for future increases, if any, in property operating expenses and real estate taxes. Rent expense was $265,700 for the year ended December 31, 2005. Assets under capital leases in the amount of $463,619 and accumulated amortization of $324,664 are included in property and equipment as of December 31, 2005.

The following is a schedule of future minimum annual rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2005:

2007	$	731,981
2008		700,643
2009		544,554
2010		303,310
2011 and thereafter		278,825
	$	2,559,313

The Company is involved in various claims and pending or threatened legal actions involving a variety of matters. The total liability on these matters at December 31, 2005, cannot be determined; however, in management’s opinion, any ultimate liability, to the extent not otherwise provided for, should not materially affect the Company’s consolidated financial position, liquidity, or results of operations.

On September 24, 2002, the compensation committee approved the 2002 Executive Interim Compensation Plan (Executive Plan). The Executive Plan was created to provide key executive personnel with a long-term proprietary incentive. The incentive is based on the attainment of certain earnings before interest, taxes, depreciation, and amortization thresholds and is only payable upon the occurrence of certain specified events. No

18

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

9. Commitments and Contingencies (continued)

amounts were accrued under the Executive Plan as of December 31, 2005, as no specified events had occurred.

On November 15, 2004, the compensation committee approved the 2004 Gain Sharing Plan (Gain Sharing Plan). The Gain Sharing Plan was created to provide key executive personnel with a long-term proprietary incentive. The incentive is based on the net distributable proceeds to stockholders from a recapitalization. No amounts were accrued under the Gain Sharing Plan as of December 31, 2005, as no specific events had occurred.

10. Purchase of a Minority Interest

A buy-out agreement was entered into on August 2, 2005, between Hearthstone Assisted Living and Hearthstone Investments L.C. (minority interests) to purchase Hearthstone Investments L.C.’s 15% interests in the five Partnerships of Wharton Assisted Living, Ltd., Texas City Assisted Living Ltd., Conroe Assisted Living, Ltd., Victoria Assisted Living, Ltd., and Temple Assisted Living, Ltd., for $2,400,000. Pursuant to that buy-out agreement, a distribution totaling $398,243 was made on August 1, 2005, to Hearthstone Investments L.C. representing distributions to minority interest investors in the Texas City and Conroe partnerships reflecting partnership cash balances as of December 31, 2004. The Company has recorded the $2,400,000 as goodwill.

11. 401(k) Plan

The Company had a 401(k) plan for all full-time employees. The Company has the option to match employee contributions up to a specified limit. The Company did not make contributions to the plan in December 31, 2005 or in the three months ended March 31, 2006 and 2005.

12. Health Benefits and Insurance

Effective August 1, 2001, the Company began self-insuring its health benefits provided to its employees under a group program. The program provides health benefits (hospital, surgical, major medical, and prescription) to the employees of the Company. The program entered into contracts with service agents who supervise and administer this program. The program entered into a stop-loss insurance contract consisting of medical-specific and

19

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

12. Health Benefits and Insurance (continued)

aggregate stop-loss insurance to protect assets against significant claims expense. Specific stop-loss insurance provides coverage on individual claims incurred in excess of $75,000.

Aggregate stop-loss insurance provides coverage on aggregate claims based on a monthly factor and the number of covered units.

Current health benefit losses are estimated based upon the group program’s experience. Unpaid estimated health benefit losses are reserved in the year of the loss. As of December 31, 2005 accrued expenses include $76,000 relating to the Company’s self-insurance program.

In March 2003, the Company formed Long Horn Insurance Company, Ltd. (Long Horn). Long Horn is a captive insurance company that insures the Company’s assisted living facilities for professional, general, and employee benefit liability risks. For the policy period, the limits of the claims-made policy were $3,000,000 in aggregate and $1,000,000 per occurrence in excess of $100,000. As of December 31, 2005 accrued expenses include $957,480 relating to the Company’s captive insurance program. Additionally, as of December 31, 2005, accrued expenses include $424,880 relating to the Company’s professional liability deductible.

The Company became a nonsubscriber to workers’ compensation for facilities located in Texas during 2001 in an effort to reduce expenses. Stop-loss insurance was purchased from Combined Insurance Company in 2004 for the facilities in Texas. The Company is liable for the first $100,000 in claims in Texas. Outside of Texas, the Company is liable for the first $300,000 in claims. As of December 31, 2005 accrued expenses include $427,587 relating to the Company’s self-insurance program.

20

Hearthstone Assisted Living, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (continued)

13. Subsequent Events

On March 22, 2006, Nationwide Health Properties, Inc. (NHP), announced that it entered into definitive agreements for the acquisition and master leaseback of the 32-facility, 10-state real estate holdings of the Company. Under the sale-leaseback arrangement with NHP, the Company will enter into leases with NHP with an initial term of 15 years with two 10-year renewal options. The Company will continue to operate the 32 facilities.

All existing Hearthstone preferred and common stock would be redeemed by the contemplated NHP transaction. The NHP transaction closed on June 1, 2006 as described in the NHP Form 8-K filed on June 6, 2006.

21

EX-99.2

Exhibit 99.2

Unaudited pro forma consolidated financial data

The following unaudited pro forma consolidated financial data has been derived by the application of pro forma adjustments to the historical consolidated financial statements of Nationwide Health Properties, Inc. (“NHP”) and Hearthstone Assisted Living, Inc. (“Hearthstone”) for the year ended December 31, 2005 and as of and for the quarter ended March 31, 2006. The historical consolidated data with respect to Hearthstone for the year ended December 31, 2005 has been derived from Hearthstone’s audited financial information. The historical consolidated data with respect to Hearthstone for the quarter ended March 31, 2006 has been derived from unaudited financial data. The unaudited pro forma consolidated statements of income give effect to our acquisition and master leaseback of the real estate holdings of Hearthstone for approximately $419 million plus approximately $12 million in debt defeasance and closing costs (the “Acquisition”), the issuance of 5,850,000 shares of our common stock on April 5, 2006 and the issuance of an additional 4,500,000 shares of our common stock on June 29, 2006 upon our exercise of an option under forward sale agreements between affiliates of certain underwriters and us (the “Equity Issuance”) and the long-term financing of the Acquisition as if they had occurred on January 1, 2005. The unaudited pro forma balance sheet gives effect to the Acquisition, the Equity Issuance and the long-term financing of the Acquisition as if they had occurred on March 31, 2006. The long-term financing of the Acquisition for purposes of the following pro forma consolidated financial data consists of the net proceeds from the Equity Issuance of approximately $211.5 million, a $250 million debt financing (the “$250 Million Financing”), the proceeds of which will be used to reduce borrowings under our unsecured credit facility (the “Credit Facility”), and the assumption of approximately $20 million in secured debt from Hearthstone.

Assumptions underlying the pro forma adjustments necessary to present fairly this pro forma data are described in the accompanying notes, which should be read in conjunction with this pro forma consolidated financial data. The pro forma adjustments described in the accompanying notes have been made based on available information and, in the opinion of management, are reasonable. The pro forma consolidated financial data should not be considered indicative of actual results that would have been achieved had the transactions occurred on the respective dates indicated and do not purport to indicate results of operations as of any future date or for any future period. We cannot assure you that the assumptions used in the preparation of the pro forma consolidated financial data will prove to be correct.

The Acquisition will be accounted for using the purchase method as prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” with intangible assets, if any, to be recorded in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The total cost of the Acquisition has been allocated entirely to the real estate to be acquired for purposes of the following pro forma consolidated financial information. The excess of the purchase price over the fair values of the net assets acquired, if any, will be allocated to goodwill. The final purchase price allocation and the resulting effect on income from operations may differ from the pro forma amounts reported herein.

The unaudited pro forma consolidated statements of income include interest expense from the $250 Million Financing at an assumed annual rate of 6.6%. The actual interest rate associated with the $250 Million Financing may differ from the pro forma amount reflected below.

Nationwide Health Properties, Inc.

Unaudited pro forma consolidated statement of income

for the year ended December 31, 2005

(in thousands except per share amounts)	Historical NHP			Historical Hearthstone			Pro forma adjustments			Pro forma
Revenues:
Rental Income	$	206,031		$	—		$	37,302	(1)	$	243,333
Interest and other income		10,446			222			(222	)(2)		10,446
Hearthstone income		—			89,786			(89,786	)(2)		—
		216,477			90,008			(52,706	)		253,779
Expenses:
Interest and amortization of deferred financing costs		67,031			14,342			660	(3)		82,033
Depreciation and amortization		55,354			6,170			4,913	(4)		66,437
General and administrative		14,356			—			—			14,356
Impairment of assets		310			—			—			310
Loss of extinguishment of debt		8,565			—			—			8,565
Hearthstone operating expenses		—			62,836			(62,836	)(2)		—
		145,616			83,348			(57,263	)		171,701
Income before minority interest		70,861			6,660			4,557			82,078
Income from unconsolidated joint venture		689			—			—			689
Minority interest expense		—			(362	)		362	(2)		—
Income from continuing operations		71,550			6,298			4,919			82,767
Preferred stock dividends		(15,622	)		—			—			(15,622	)
Preferred stock redemption charge		(795	)		—			—			(795	)
Income from continuing operations available to common stockholders	$	55,133		$	6,298		$	4,919		$	66,350
Basic/diluted income from continuing operations available to common stockholders per share	$	0.82								$	0.85
Diluted weighted average shares outstanding		67,446						10,350	(5)		77,796

(1) Reflects rental income to be received from Hearthstone Senior Services, L.P. and its subsidiaries (collectively, “New Hearthstone”) under the master lease calculated using a total investment of $431 million and an effective starting lease rate of 8.65% (the actual starting lease rate is 8.06% and the straightlining impact is 0.59%).

(2) All revenues and operating expenses associated with Hearthstone’s historical operations were retained by New Hearthstone in connection with the Acquisition.

(3) Reflects the interest expense on the $250 Million Financing, partially offset by the reduction in interest expense as a result of the repayment by Hearthstone of all but $20 million of its debt, and by a reduction in interest expense on the Credit Facility. In connection with the Acquisition, we assumed $20 million of secured debt from Hearthstone, which bears interest at a weighted average rate of 6.39% per annum.

(4) Reflects the increase in annual depreciation and amortization from that recorded by Hearthstone. Our depreciation is calculated based on an expected useful life of 35 years assuming 90% of the investment value is allocated to buildings and 10% is allocated to land. This allocation is based on our existing portfolio of assets. The actual allocation may vary. The allocation of investment value between building and land for the properties acquired in the Acquisition will not be assigned until the appraisal of such properties is completed. There can be no assurance that the allocation assumed herein will be the actual allocation assigned to such properties.

(5) Reflects the issuance of 10,350,000 shares of common stock to partially fund the Acquisition, including the 4,500,000 shares of common stock issued upon physical settlement of the forward sale agreements.

Nationwide Health Properties, Inc.

Unaudited pro forma consolidated statement of income

for the quarter ended March 31, 2006

(in thousands except per share amounts)	Historical NHP			Historical Hearthstone		Pro forma adjustments			Pro forma
Revenues:
Rental income	$	57,563		$	—	$	9,326	(1)	$	66,889
Interest and other income		2,994			81		(81	)(2)		2,994
Hearthstone income		—			23,450		(23,450	)(2)		—
		60,557			23,531		(14,205	)		69,883
Expenses:
Interest and amortization of deferred financing costs		19,228			3,811		(61	)(3)		22,978
Depreciation and amortization		16,208			1,459		1,312	(4)		18,979
General and administrative		3,797			—		—			3,797
Medical office building operating expenses		999			—		—			999
Hearthstone operating expenses		—			16,008		(16,008	)(2)		—
		40,232			21,278		(14,757	)		46,753
Income before minority interest		20,325			2,253		552			23,130
Minority interest in medical office building joint venture		(48	)		—		—			(48	)
Income from continuing operations		20,373			2,253		552			23,178
Preferred stock dividends		(3,791	)		—		—			(3,791	)
Income from continuing operations available to common stockholders	$	16,582		$	2,253	$	552		$	19,387
Basic/diluted income from continuing operations available to common stockholders per share	$	0.24							$	0.25
Diluted weighted average shares outstanding		68,449					10,350	(5)		78,799

(1) Reflects rental income to be received from New Hearthstone under the master lease calculated using a total investment of $431 million and an effective starting lease rate of 8.65% (the actual starting lease rate is 8.06% and the straightlining impact is 0.59%).

(2) All revenues and operating expenses associated with Hearthstone’s historical operations were retained by New Hearthstone in connection with the Acquisition.

(3) Reflects the reduction in interest expense as a result of the repayment by Hearthstone of all but $20 million of its debt, and a reduction in interest expense on the Credit Facility, partially offset by the interest expense on the $250 Million Financing. In connection with the Acquisition, we assumed $20 million of secured debt from Hearthstone, which bears interest at a weighted average rate of 6.39% per annum.

(4) Reflects the increase in annual depreciation and amortization from that recorded by Hearthstone. Our depreciation is calculated based on an expected useful life of 35 years assuming 90% of the investment value is allocated to buildings and 10% is allocated to land. This allocation is based on our existing portfolio of assets. The actual allocation may vary. The allocation of investment value between building and land for the properties acquired in the Acquisition will not be assigned until the appraisal of such properties is completed. There can be no assurance that the allocation assumed herein will be the actual allocation assigned to such properties.

(5) Reflects the issuance of 10,350,000 shares of common stock to partially fund the Acquisition, including the 4,500,000 shares of common stock issued upon physical settlement of the forward sale agreements.

Nationwide Health Properties, Inc.

Unaudited pro forma balance sheet

as of March 31, 2006

(in thousands)	Historical NHP			Historical Hearthstone			Pro forma adjustments			Pro forma
ASSETS
Investments in real estate:
Real estate properties	$	2,230,191		$	154,529		$	276,471	(1)	$	2,661,191
Less accumulated depreciation		(354,861	)		(35,744	)		35,744	(2)		(354,861	)
		1,875,330			118,785			312,215			2,306,330
Mortgage loans receivable, net		83,729			—			—			83,729
		1,959,059			118,785			312,215			2,390,059
Cash and cash equivalents		12,399			9,423			(9,268	)(3)		12,554
All other assets		92,255			15,118			(13,218	)(4)		94,155
	$	2,063,713		$	143,326		$	289,729		$	2,496,768
LIABILITIES AND STOCKHOLDERS’ EQUITY
Borrowings under the Credit Facility	$	335,000		$	—		$	(248,000	)(5)	$	87,000
Borrowings under the Bridge Facility		—			—			200,000	(6)		200,000
Senior notes due 2006 – 2038		570,225			—			—			570,225
$250 Million Financing		—			—			250,000			250,000
Notes and bonds payable		293,762			174,329			(154,763	)(7)		313,328
Accounts payable and accrued liabilities		61,338			10,611			(10,611	)(4)		61,338
Total liabilities		1,260,325			184,940			36,626			1,481,891
Minority interest		1,825			—			—			1,825
Stockholders’ Equity:
Series A Preferred Stock		90,049			—			—			90,049
Series B Preferred Stock		106,450			—			—			106,450
Hearthstone preferred stock		—			61,963			(61,963	)(8)		—
Common stock		6,889			31			1,004	(9)		7,924
Capital in excess of par value		911,429			247			210,207	(10)		1,121,883
Cumulative net income (deficit)		906,789			(103,755	)		103,755	(8)		906,789
Cumulative dividends		(1,220,043	)		(100	)		100			(1,220,043	)
Total stockholders’ equity		801,563			(41,614	)		253,103			1,013,052
	$	2,063,713		$	143,326		$	289,729		$	2,496,768

(1) Reflects the amount by which the Acquisition purchase price of $419 million and estimated transaction costs of $12 million (total of $431 million) exceed the Hearthstone historical book value.

(2) Reflects the elimination of all of Hearthstone’s accumulated depreciation as a result of the Acquisition.

(3) Reflects the retention by New Hearthstone of Hearthstone’s cash and cash equivalents in connection with the Acquisition partially offset by the remaining cash proceeds from the $250 Million Financing, after repayment of a portion of the outstanding borrowings under the Credit Facility.

(4) Reflects retention of all non-real estate related assets, accounts payable and accrued liabilities by New Hearthstone in connection with the Acquisition.

(5) Reflects the repayment of a portion of the outstanding borrowings under the Credit Facility with the proceeds from the $250 Million Financing.

(6) Reflects borrowings on a new $200 million credit agreement entered into in connection with the Acquisition (the “Bridge Facility”) to finance a portion of the Acquisition.

(7) Reflects repayment by Hearthstone of all debt except for approximately $20 million of secured debt that we assumed from Hearthstone in connection with the Acquisition.

(8) The equity capitalization of Hearthstone was eliminated in connection with the Acquisition.

(9) The adjustment for common stock represents the $0.10 par value per share of our common stock multiplied by the 10,350,000 shares of common stock issued by us in connection with the Acquisition partially offset by the elimination of the Hearthstone capitalization.

(10) The adjustment for capital in excess of par value represents the approximate net proceeds from the issuance of 10,350,000 shares of common stock issued by us in connection with the Acquisition partially offset by the elimination of the Hearthstone capitalization.