Acquisitions of Real Estate Property

The following summarizes our acquisition and development activities during 2015, 2014 and 2013. We invest in seniors housing and healthcare properties primarily to achieve an expected yield on our investment, to grow and diversify our portfolio and revenue base, and to reduce our dependence on any single tenant, operator or manager, geographic location, asset type, business model or revenue source.

2015 Acquisitions

HCT Acquisition

In January 2015, we acquired HCT in a stock and cash transaction, which added 152 properties to our portfolio. At the effective time of the merger, each share of HCT common stock outstanding (other than shares held by us, HCT or our respective subsidiaries, which shares were canceled) was converted into the right to receive either 0.1688 shares of our common stock (with cash paid in lieu of fractional shares) or $11.33 per share in cash, at the election of each HCT shareholder. Shares of HCT common stock for which a valid election was not made were converted into the stock consideration. We funded the transaction through the issuance of approximately 28.4 million shares of our common stock and 1.1 million limited partnership units that are redeemable for shares of our common stock and the payment of approximately $11 million in cash (excluding cash in lieu of fractional shares). In addition, we assumed $167 million of mortgage debt and repaid approximately $730 million of debt, net of HCT cash on hand. In August 2015, 20 of the properties that we acquired in the HCT acquisition were disposed of as part of the CCP Spin-Off.

Ardent Health Services Acquisition

On August 4, 2015, we completed our acquisition of Ardent Medical Services, Inc. and simultaneous separation and sale of the Ardent hospital operating company to a consortium composed of an entity controlled by Equity Group Investments, Ardent’s management team and us (collectively the “Ardent Transaction”). As of the acquisition date, we recorded the estimated fair value of our investment in owned hospital and other real estate of approximately $1.3 billion. At closing, we paid $26.3 million for our 9.9% interest in Ardent which represents our estimate of the acquisition date fair value of this interest. Upon closing, we entered into a long-term triple-net master lease with Ardent to operate the ten hospital campuses and other real estate we acquired.

Other 2015 Acquisitions

In 2015, we made other investments totaling approximately $612 million, including the acquisition of eleven triple-net

leased properties; eleven MOBs (including eight MOBs that we had previously accounted for as investments in unconsolidated entities; see “Note 7—Investments in Unconsolidated Entities.”) and 12 skilled nursing facilities (all of which were disposed of as part of the CCP Spin-Off).

Completed Developments

During 2015, we completed the development of one triple-net leased seniors housing community, representing $9.3 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2015.

Estimated Fair Value

We are accounting for our 2015 acquisitions under the acquisition method in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Our initial accounting for the acquisitions completed during 2015 remains subject to further adjustment. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed, which we determined using level two and level three inputs:



	Triple-Net Leased Properties		Senior Living Operations		MOB Operations		Total
	(In thousands)
Land and improvements	$	190,566	$	70,713	$	173,307	$	434,586
Buildings and improvements	1,724,812		703,080		1,214,403		3,642,295
Acquired lease intangibles	169,362		83,867		184,540		437,769
Other assets	173,232		272,888		403,046		849,166
Total assets acquired	2,257,972		1,130,548		1,975,296		5,363,816
Notes payable and other debt	—		77,940		99,917		177,857
Other liabilities	43,811		45,408		46,734		135,953
Total liabilities assumed	43,811		123,348		146,651		313,810
Net assets acquired	2,214,161		1,007,200		1,828,645		4,961,921
Redeemable OP unitholder interests assumed							88,085
Cash acquired							59,584
Equity issued							2,216,355
Total cash used							$	2,685,982

For certain acquisitions, the determination of fair values of the assets acquired and liabilities assumed has changed and is subject to further adjustment. We made certain adjustments during 2015, including the fourth quarter, due primarily to reclassification adjustments for presentation and adjustments to our valuation assumptions. The changes to our valuation assumptions were based on more accurate information concerning the subject assets and liabilities. None of these changes had a material impact on our Consolidated Financial Statements.

Included in other assets above is $746.9 million of goodwill, which represents the excess of the purchase price over the fair value of the assets acquired and liabilities assumed as of the acquisition date. A substantial amount of this goodwill was due to an increase in our stock price between the announcement date and closing dates of the HCT acquisition. Goodwill has been allocated to our reportable business segments based on the respective fair value of the net assets acquired, as follows: triple-net leased properties - $133.6 million; senior living operations - $219.1 million; and MOB operations - $394.2 million.

Aggregate Revenue and NOI

For the year ended December 31, 2015, aggregate revenue and NOI derived from our 2015 real estate acquisitions during our period of ownership were $327.0 million and $201.9 million, respectively, excluding revenue and NOI for any assets contributed in the CCP Spin-Off.

Transaction Costs

Transaction costs are expensed as incurred and included in merger-related expenses and deal costs in our Consolidated Statements of Income. For the years ending December 31, 2015 and 2014, we expensed as incurred, $99.0 million and $10.8 million, respectively, costs related to our completed 2015 transactions, $4.1 million and $1.4 million of which are reported within discontinued operations. These transaction costs exclude any separation costs associated with the CCP Spin-Off (refer to “Note 5 - Dispositions”).

Unaudited Pro Forma

The following table illustrates the effect on net income and earnings per share if we had consummated the HCT acquisition and Ardent Transaction as of January 1, 2014 and excludes assets that were acquired in the HCT acquisition but subsequently disposed of as part of the CCP Spin-Off.



	For the Years Ended December 31,
	2015		2014
	(In thousands, except per share amounts)
Revenues	$	3,361,658	$	3,164,100
Income from continuing operations attributable to common stockholders, including real estate dispositions	$	475,017	$	465,671
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders, including real estate dispositions	$	1.44	$	1.44
Diluted:
Income from continuing operations attributable to common stockholders, including real estate dispositions	$	1.42	$	1.43
Weighted average shares used in computing earnings per common share:
Basic	330,311		322,590
Diluted	334,007		326,210

Acquisition-related costs related to the HCT acquisition and the Ardent Transaction are not expected to have a continuing impact and therefore have been excluded from these pro forma results. The pro forma results also do not include the impact of any synergies that may be achieved in the HCT acquisition and the Ardent Transaction, any lower costs of borrowing resulting from the acquisition or any strategies that management may consider in order to continue to efficiently manage our operations, nor do they give pro forma effect to any other acquisitions, dispositions or capital markets transactions that we completed during the periods presented. These pro forma results are not necessarily indicative of the operating results that would have been obtained had the HCT acquisition and Ardent Transaction occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

2014 Acquisitions

Holiday Canada Acquisition

In August 2014, we acquired 29 seniors housing communities located in Canada from Holiday Retirement (the “Holiday Canada Acquisition”) for a purchase price of CAD 957.0 million. We also paid CAD 26.9 million in costs relating to the early repayment of debt at closing. We funded the Holiday Canada Acquisition initially through borrowings under a CAD 791.0 million unsecured term loan that we incurred in July 2014 (and subsequently repaid primarily through a private placement of senior notes in Canada) and the assumption of CAD 193.7 million of debt.

Other 2014 Acquisitions

During the year ended December 31, 2014, we also acquired three triple-net leased private hospitals (located in the United Kingdom), 26 triple-net leased seniors housing communities and four seniors housing communities that are being operated by independent third-party managers for aggregate consideration of approximately $812.0 million. We also paid $18.8 million in costs relating to the early repayment of debt at closing of the applicable transactions. In addition, we acquired a construction design, planning and consulting business to complement our MOB operations through the issuance of 148,241 shares of our common stock.

Completed Developments

During 2014, we completed the development of two MOBs and one seniors housing community, representing $41.2 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2014.

Estimated Fair Value

We are accounting for our 2014 acquisitions under the acquisition method in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed in our 2014 real estate acquisitions, which we determined using level two and level three inputs:



	Triple-Net Leased Properties		Senior Living Operations		Total
	(In thousands)
Land and improvements	$	45,586	$	100,281	$	145,867
Buildings and improvements	546,849		1,081,630		1,628,479
Acquired lease intangibles	28,883		36,452		65,335
Other assets	227		12,394		12,621
Total assets acquired	621,545		1,230,757		1,852,302
Notes payable and other debt	12,927		228,150		241,077
Other liabilities	8,609		124,468		133,077
Total liabilities assumed	21,536		352,618		374,154
Net assets acquired	600,009		878,139		1,478,148
Cash acquired	227		8,704		8,931
Total cash used	$	599,782	$	869,435	$	1,469,217

Aggregate Revenue and NOI

For the year ended December 31, 2014, aggregate revenues and NOI derived from our 2014 real estate acquisitions (for our period of ownership) were $75.9 million and $41.5 million, respectively.

Transaction Costs

As of December 31, 2014, we had incurred a total of $26.2 million of acquisition-related costs related to our completed 2014 acquisitions, all of which were expensed as incurred and included in merger-related expenses and deal costs in our Consolidated Statements of Income for the applicable periods. For the year ended December 31, 2014, we expensed $23.8 million of these acquisition-related costs related to our completed 2014 acquisitions.

2013 Acquisitions

During the year ended December 31, 2013, we acquired 27 triple-net leased seniors housing communities, 24 seniors housing communities that are being operated by independent third-party managers (eight of which we previously leased pursuant to a capital lease) and 11 MOBs for aggregate consideration of approximately $1.8 billion.

Completed Developments

During the year ended December 31, 2013, we completed the development of two seniors housing communities, one MOB, and one hospital, representing $65.5 million of net real estate property on our Consolidated Balance Sheets as of December 31, 2013.

Estimated Fair Value

We accounted for our 2013 acquisitions under the acquisition method in accordance with ASC 805. We accounted for the acquisition of the eight seniors housing communities that we previously leased pursuant to a capital lease in accordance with ASC Topic 840, Leases. The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed in our 2013 real estate acquisitions, which we determined using level two and level three inputs:



	Triple-Net Leased Properties		Senior Living Operations (1)		MOB Operations		Total
	(In thousands)
Land and improvements	$	51,419	$	45,566	$	3,923	$	100,908
Buildings and improvements	803,227		579,577		138,792		1,521,596
Acquired lease intangibles	8,945		16,920		10,362		36,227
Other assets	3,285		2,607		2,453		8,345
Total assets acquired	866,876		644,670		155,530		1,667,076
Notes payable and other debt	36,300		5,136		—		41,436
Other liabilities	11,423		12,285		6,510		30,218
Total liabilities assumed	47,723		17,421		6,510		71,654
Noncontrolling interest assumed	10,113		—		1,672		11,785
Net assets acquired	809,040		627,249		147,348		1,583,637
Cash acquired	753		—		1,397		2,150
Total cash used	$	808,287	$	627,249	$	145,951	$	1,581,487

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(1) Includes settlement of a $142.2 million capital lease obligation related to eight seniors housing communities.