10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2005.

OR

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

For the transition period from              to             

Commission file number 1-8895

HEALTH CARE PROPERTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Maryland	33-0091377
(State or other jurisdiction of incorporation of organization)	(I.R.S. Employer Identification No.)

3760 Kilroy Airport Way, Suite 300

Long Beach, CA 90806

(Address of principal executive offices)

(562) 733-5100

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   YES  ý    NO  o

As of July 29, 2005, there were 135,648,707 shares of $ 1.00 par value common stock outstanding.

HEALTH CARE PROPERTY INVESTORS, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets
	Condensed Consolidated Statements of Income
	Condensed Consolidated Statement of Stockholders’ Equity
	Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
	PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Stock Repurchases
Item 6.	Exhibits
Signatures

HEALTH CARE PROPERTY INVESTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	June 30, 2005			December 31, 2004
	(Unaudited)
ASSETS
Real estate:
Buildings and improvements	$	3,141,240		$	3,025,707
Developments in process	13,590			25,777
Land	306,761			299,461
Less accumulated depreciation and amortization	565,559			533,764
Net real estate	2,896,032			2,817,181
Loans receivable, net:
Joint venture partners	7,006			6,473
Others	140,643			139,919
Investments in and advances to unconsolidated joint ventures	48,694			60,506
Accounts receivable, net of allowance of $1,174 and $1,070, respectively	13,629			14,834
Cash and cash equivalents	18,890			16,962
Restricted cash	16,904			3,593
Intangibles, net	19,725			18,872
Other assets, net	26,237			24,294
Total assets	$	3,187,760		$	3,102,634
LIABILITIES AND STOCKHOLDERS’ EQUITY
Bank line of credit	$	115,300		$	300,100
Senior unsecured notes	1,284,476			1,046,690
Mortgage debt	165,933			139,416
Accounts payable and accrued liabilities	62,764			59,905
Deferred revenue	18,430			15,300
Total liabilities	1,646,903			1,561,411
Minority interests	120,436			121,781
Stockholders’ equity:
Preferred stock, $1.00 par value: 50,000,000 shares authorized; 11,820,000 shares issued and outstanding, liquidation preference of $25 per share	285,173			285,173
Common stock, $1.00 par value: 750,000,000 shares authorized; 135,629,718 and 133,658,318 shares issued and outstanding, respectively	135,630			133,658
Additional paid-in capital	1,440,380			1,403,335
Cumulative net income	1,434,594			1,348,089
Cumulative dividends	(1,863,313		)	(1,739,859		)
Other equity	(12,043		)	(10,954		)
Total stockholders’ equity	1,420,421			1,419,442
Total liabilities and stockholders’ equity	$	3,187,760		$	3,102,634

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEALTH CARE PROPERTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Revenues and other income:
Rental revenues	$	112,465		$	93,097		$	215,268		$	178,140
Equity income from unconsolidated joint ventures	88			849			299			2,086
Interest and other income	5,989			9,980			11,196			18,503
	118,542			103,926			226,763			198,729
Costs and expenses:
Interest	25,372			19,743			48,610			40,957
Depreciation and amortization	27,253			20,457			50,997			40,318
Operating	15,419			9,894			28,742			19,139
General and administrative	8,827			8,554			16,146			15,405
Impairments	—			1,216			—			1,216
	76,871			59,864			144,495			117,035
Income before minority interests	41,671			44,062			82,268			81,694
Minority interests	(3,031		)	(3,289		)	(6,178		)	(6,153		)
Income from continuing operations	38,640			40,773			76,090			75,541
Discontinued operations:
Operating income	241			1,771			1,511			4,830
Gain (loss) on sales of real estate, net of impairments	4,166			(960		)	8,904			8,048
	4,407			811			10,415			12,878
Net income	43,047			41,584			86,505			88,419
Preferred stock dividends	(5,283		)	(5,282		)	(10,566		)	(10,565		)
Net income applicable to common shares	$	37,764		$	36,302		$	75,939		$	77,854
Basic earnings per common share:
Continuing operations	$	0.25		$	0.27		$	0.49		$	0.50
Discontinued operations	0.03			0.01			0.08			0.09
Net income applicable to common shares	$	0.28		$	0.28		$	0.57		$	0.59
Diluted earnings per common share:
Continuing operations	$	0.25		$	0.27		$	0.49		$	0.49
Discontinued operations	0.03			—			0.07			0.10
Net income applicable to common shares	$	0.28		$	0.27		$	0.56		$	0.59
Weighted average shares used to calculate earnings per share:
Basic	134,445			131,653			133,968			131,196
Diluted	135,214			132,856			134,871			132,778

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEALTH CARE PROPERTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

							Additional
	Preferred Stock			Common Stock			Paid-In		Cumulative					Other
	Shares	Amount		Shares	Amount		Capital		Net Income		Dividends			Equity			Total
December 31, 2004	11,820	$	285,173	133,658	$	133,658	$	1,403,335	$	1,348,089	$	(1,739,859	)	$	(10,954	)	$	1,419,442
Issuances of common stock,net	—	—		597	597		15,113		—		—			(2,783		)	12,927
Exercise of stock options	—	—		1,375	1,375		20,407		—		—			—			21,782
Net income	—	—		—	—		—		86,505		—			—			86,505
Preferred stock dividends	—	—		—	—		—		—		(10,566		)	—			(10,566		)
Common stock dividends	—	—		—	—		—		—		(112,888		)	—			(112,888		)
Changes in other comprehensive income	—	—		—	—		—		—		—			21			21
Amortization of deferred compensation	—	—		—	—		1,525		—		—			1,673			3,198
June 30, 2005	11,820	$	285,173	135,630	$	135,630	$	1,440,380	$	1,434,594	$	(1,863,313	)	$	(12,043	)	$	1,420,421

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HEALTH CARE PROPERTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
Cash flows from operating activities:
Net income	$	86,505		$	88,419
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Continuing operations	50,997			40,318
Discontinued operations	381			2,158
Amortization of other lease intangibles	(1,427		)	—
Impairments	—			3,437
Amortization of deferred compensation and debt issuance costs	4,771			4,041
Provision for loan losses	(56		)	136
Straight-line rents	(2,742		)	(769		)
Equity income from unconsolidated joint ventures	(299		)	(2,086		)
Distributions of earnings from unconsolidated joint ventures	299			2,086
Minority interests	6,178			6,153
Net gain on sales of real estate	(8,904		)	(10,269		)
Changes in:
Accounts receivable	1,205			(606		)
Other assets	(324		)	(6,348		)
Accounts payable, accrued liabilities and deferred revenue	3,573			(2,492		)
Net cash provided by operating activities	140,157			124,178
Cash flows from investing activities:
Acquisition and development of real estate	(130,620		)	(160,716		)
Lease commissions and tenant and capital improvements	(1,464		)	(1,318		)
Net proceeds from sales of real estate	41,587			108,965
Distributions from unconsolidated joint ventures and other	8,000			82,192
Principal repayments on loans receivable and other	11,661			26,453
Increase in restricted cash	(13,311		)	(4		)
Investment in loans receivable	(6,634		)	(1,835		)
Net cash (used in) provided by investing activities	(90,781		)	53,737
Cash flows from financing activities:
Repayments under bank line of credit	(184,800		)	(44,000		)
Repayment of mortgage debt	(2,927		)	(2,549		)
Repayment of senior unsecured notes	(10,000		)	(87,000		)
Issuance of senior unsecured notes	247,357			50,000
Net proceeds from the issuance of common stock and exercise of options	34,324			27,547
Dividends paid on common and preferred stock	(123,454		)	(121,632		)
Distributions to minority interests	(7,948		)	(6,488		)
Net cash used in financing activities	(47,448		)	(184,122		)
Net increase (decrease) in cash and cash equivalents	1,928			(6,223		)
Cash and cash equivalents, beginning of period	16,962			16,829
Cash and cash equivalents, end of period	$	18,890		$	10,606

See accompanying Notes to Condensed Consolidated Financial Statements.

6

HEALTH CARE PROPERTY INVESTORS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Business

Health Care Property Investors, Inc. is a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “HCP” or the “Company”), invests directly, or through joint ventures and mortgage loans, in healthcare related properties located throughout the United States.

(2) Summary of Significant Accounting Policies

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ.

Principles of Consolidation

The consolidated financial statements include the accounts of HCP, its wholly owned subsidiaries and its controlled, through voting rights or other means, joint ventures. All material intercompany transactions and balances have been eliminated in consolidation.

The Company adopted Interpretation No. 46R, Consolidation of Variable Interest Entities, as revised (“FIN 46R”), effective January 1, 2004 for variable interest entities created before February 1, 2003 and effective immediately for variable interest entities created after January 31, 2003. FIN 46R provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise is the primary beneficiary of the VIE. A variable interest entity is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional financial support. The Company consolidates investments in VIEs when it is determined that the Company is the primary beneficiary of the VIE. The adoption of FIN 46R resulted in the consolidation of five joint ventures with aggregate assets of $18.5 million, effective January 1, 2004, that were previously accounted for under the equity method. The consolidation of these joint ventures did not have a significant effect on the Company’s consolidated financial statements or results of operations.

Investments in entities which the Company does not consolidate but has the ability to exercise significant influence over operating and financial policies are reported under the equity method. Generally, under the equity method of accounting, the Company’s share of the investee’s earnings or loss is included in the Company’s operating results.

Revenue Recognition

Rental income from tenants is recognized in accordance with GAAP, including Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”). For leases with minimum scheduled rent increases, the Company recognizes income on a straight-line basis over the lease term when collectibility is reasonably assured. Recognizing rental income on a straight-line basis for leases results in recognized revenue exceeding amounts contractually due from tenants. Such cumulative excess amounts are included in other assets and were $13.9 million and $11.0 million, net of allowances, at June 30, 2005 and December 31, 2004, respectively. In the event the Company determines that collectibility of straight-line rents is not reasonably assured, the Company limits future recognition to amounts contractually owed, and, where appropriate, the Company establishes an allowance for estimated losses. Certain leases provide for additional rents based upon a percentage of the facility’s revenue in excess of specified base periods or other thresholds. Such revenue is deferred until the related thresholds are achieved.

The Company monitors the liquidity and creditworthiness of its tenants and borrowers on an ongoing basis. This evaluation considers industry and economic conditions, property performance, security deposits and guarantees, and other matters. The Company establishes provisions and maintains an allowance for estimated losses resulting from the possible inability of its tenants and borrowers to make payments sufficient

7

to recover recognized assets. For straight-line rent amounts, the Company’s assessment is based on income recoverable over the term of the lease. At June 30, 2005 and December 31, 2004, respectively, the Company had an allowance of $18.7 million and $15.8 million, included in other assets, as a result of the Company’s determination that collectibility is not reasonably assured for certain straight-line rent amounts.

Loans Receivable

Loans receivable are classified as held-to-maturity because the Company has the intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. The Company recognizes interest income on loans, including the amortization of discounts and premiums, using the effective interest method.

Income Taxes

The Company has elected and believes it operates so as to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Under the Code, the Company generally is not subject to federal income tax on its taxable income distributed to stockholders if certain distribution, income, asset, and shareholder tests are met. A REIT must distribute to stockholders at least 90% of its annual taxable income.

Certain activities the Company undertakes must be conducted by entities which elect to be treated as taxable REIT subsidiaries (“TRSs”). TRSs are subject to both federal and state income taxes. The Company’s income tax expense for the six months ended June 30, 2005 and 2004 was insignificant.

Discontinued Operations

Certain long lived assets are classified as discontinued operations in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Long-lived assets to be disposed of are reported at the lower of their carrying amount or their fair value less cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as discontinued operations. Discontinued operations are defined in SFAS No. 144 as a component of an entity that has either been disposed of or is deemed to be held for sale if both the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

The Company periodically sells assets based on market conditions and the exercise of purchase options by tenants. The operating results of properties meeting the criteria established in SFAS No. 144 are reported as discontinued operations in the Company’s Condensed Consolidated Statements of Income. Discontinued operations for the three and six months ended June 30, 2005, include 14 and 18 properties with revenues of $0.5 and $2.1 million, respectively. The Company had 31 and 50 properties classified as discontinued operations for the three and six months ended June 30, 2004, with revenue of $2.7 and $8.9 million, respectively. While SFAS No. 144 provides that the assets and liabilities of discontinued operations be presented separately in the balance sheet, such amounts are immaterial for the Company. Accordingly, such reclassification has not been made.

Stock-Based Compensation

On January 1, 2002, the Company adopted the fair value method of accounting for stock-based compensation in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”). The fair value provisions of SFAS 123 were adopted prospectively with the fair value of all new stock option grants recognized as compensation expense beginning January 1, 2002. Since only new grants are accounted for under the fair value method, stock-based compensation expense is less than that which would have been recognized if the fair value method had been applied to all awards. Compensation expense for awards with graded vesting is generally recognized ratably over the vesting period.

8

The following table reflects net income and earnings per share, adjusted as if the fair value based method had been applied to all outstanding stock awards in each period (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2005			2004			2005			2004
Net income, as reported	$	43,047		$	41,584		$	86,505		$	88,419
Add: Stock-based compensation expense included in reported net income	1,870			1,328			3,198			2,338
Deduct: Stock-based employee compensation expense determined under the fair value based method	(1,950		)	(1,472		)	(3,358		)	(2,625		)
Pro forma net income	$	42,967		$	41,440		$	86,345		$	88,132
Earnings per share:
Basic – as reported	$	0.28		$	0.28		$	0.57		$	0.59
Basic – pro forma	$	0.28		$	0.27		$	0.57		$	0.59
Diluted – as reported	$	0.28		$	0.27		$	0.56		$	0.59
Diluted – pro forma	$	0.28		$	0.27		$	0.56		$	0.58

Cash and Cash Equivalents

Cash and cash equivalents represent short term investments with original maturities of three months or less when purchased.

Reclassifications

Certain reclassifications have been made for comparative financial statement presentation.

New Accounting Pronouncements

SFAS No. 123R, Share-Based Payments, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, was issued in December 2004. Generally, the approach in SFAS 123R is similar to that in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be adopted no later than January 1, 2006 for the Company. The Company believes the adoption of SFAS 123R will not have a significant impact on its consolidated financial statements since it previously adopted the fair value method under SFAS 123.

(3) Revenue Concentration

Tenet Healthcare Corporation (NYSE: THC) and American Retirement Corporation (NYSE: ARC) accounted for 11% and 9%, respectively, of the Company’s revenue during the six months ended June 30, 2005, and accounted for 12% and 10%, respectively, of the Company’s revenue during the six months ended June 30, 2004. The carrying amount of the Company’s real estate assets leased to Tenet and ARC was $348.4 million and $376.2 million at June 30, 2005, respectively.

These companies are publicly traded and are subject to the informational filing requirements of the Securities and Exchange Act of 1934, as amended. Accordingly, each is required to file periodic reports on Form 10-K and Form 10-Q with the Securities and Exchange Commission.

Certain operators of our properties are experiencing financial, legal and regulatory difficulties. The loss of a significant operator or a combination of smaller operators could have a material impact on our results of operations or financial position.

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(4) Acquisitions and Dispositions

A summary of acquisitions through June 30, 2005, is as follows (in thousands):

Acquisition (1)	Cash Consideration		Assumed Debt		Real Estate		Intangibles
Medical office buildings	$	51,388	$	29,444	$	77,980	$	2,852
Assisted living facilities	58,000		—		56,794		1,206
	$	109,388	$	29,444	$	134,774	$	4,058

(1)   Includes transaction costs, if any.

On April 20, 2005, the Company acquired five assisted living facilities for $58 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options. The initial annual lease rate is approximately 9.0% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 2.75%. These properties are included in a new master lease along with five other properties currently leased to the operator.

On April 28, 2005, the Company acquired five medical office buildings for approximately $81 million including assumed debt valued at $29 million. The initial yield is 7.0% with two properties currently in lease- up. The yield following lease-up is expected to be 8.2%. As of June 30, 2005, the purchase price allocation is preliminary and is pending information necessary to complete the valuation of certain intangibles.

During the six months ended June 30, 2005, the Company sold eight properties valued at approximately $42 million and recognized gains of approximately $9 million.

See Note 14 to the Condensed Consolidated Financial Statements for a discussion of acquisitions subsequent to June 30, 2005.

(5) Investments in and Advances to Unconsolidated Joint Ventures

HCP Medical Office Portfolio, LLC

HCP Medical Office Portfolio, LLC (“HCP MOP”) is a joint venture formed in June 2003 between the Company and an affiliate of General Electric Company (“GE”). HCP MOP is engaged in the acquisition, development, and operation of medical office building (“MOB”) properties. The Company has a 33% ownership interest therein and is the managing member. Activities of the joint venture requiring equity capital are generally funded on a transactional basis by the members in proportion to their ownership interests. Cash distributions are made to the members in proportion to their ownership interests until GE’s cumulative return, as defined, exceeds specific thresholds. Thereafter, the Company’s economic interest increases.

The Company uses the equity method of accounting for its investment in HCP MOP because it exercises significant influence through voting rights and its position as managing member. However, the Company does not consolidate HCP MOP since it does not control, through voting rights or other means, the joint venture, as GE has significant participating decision-making rights and has the majority of the economic interest.

During the three month period ended June 30, 2005, HCP MOP revised its purchase price allocation related to its 2003 acquisition of certain properties acquired from MedCap Properties LLC.  The revisions made by HCP MOP to the purchase price allocation attributed more value to below market lease intangibles, other intangibles and real estate assets. Lease intangibles generally amortize over a shorter period of time relative to tangible real estate assets. The impact to net income for HCP MOP resulting from the purchase price allocation revisions above was a charge of $1.4 million through June 30, 2005.

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Summarized unaudited condensed financial information of HCP MOP follows:

Balance Sheets	June 30, 2005		December 31, 2004
	(In thousands)
Real estate, at cost	$	462,680	$	455,741
Less accumulated depreciation and amortization	20,404		13,950
Net real estate	442,276		441,791
Other assets, net	40,174		52,405
Total assets	$	482,450	$	494,196
Mortgage loans and notes payable	$	320,575	$	322,559
Other liabilities	19,875		22,220
GE’s capital	95,140		100,109
HCP’s capital	46,860		49,308
Total liabilities and members’ capital	$	482,450	$	494,196

Statement of Operations	Three Months Ended June 30,					Six Months Ended June 30,
	(in thousands)					(in thousands)
	2005			2004		2005			2004
Rental and other income	$	23,630		$	21,522	$	45,311		$	43,006
Net income (loss)	$	(148	)	$	2,415	$	(115	)	$	5,428
HCP’s equity income (loss)	$	(49	)	$	779	$	(38	)	$	1,753
Fees earned by HCP	$	776		$	776	$	1,551		$	1,551
Distributions received by HCP	$	335		$	1,071	$	3,382		$	93,506

The Company has not guaranteed any indebtedness or other obligations of HCP MOP. Generally, the Company may only be required to provide additional funding to HCP MOP under limited circumstances as specified in the related agreements. At June 30, 2005, investments in and advances to unconsolidated joint ventures include outstanding advances to HCP MOP of $0.9 million.

In January 2004, HCP MOP completed $288 million of non-recourse mortgage financings, including $254 million at a weighted average fixed interest rate of 5.57% with the balance based on LIBOR plus 1.75%. The Company received $92 million of distributions from HCP MOP in connection with this financing during early 2004.

Other Unconsolidated Joint Ventures

The Company owns minority interests in the following entities, which are accounted for on the equity method at June 30, 2005 (dollars in thousands):

Entity	Investment (1)		Ownership (2)
Arborwood Living Center, LLC	$	311	45	%
Edgewood Assisted Living Center, LLC	—		45	%
Greenleaf Living Center, LLC	178		45	%
Seminole Shores Living Center, LLC	—		50	%
	$	489

(1)Represents the Company’s net equity investment in the identified unconsolidated joint venture.

(2)The Company’s ownership interest and economic interest are substantially the same.

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On June 30, 2005, the Company sold its minority interests in two joint ventures with American Retirement Corporation (“ARC”) for $6.2 million in exchange for a note collateralized by certain partnership interests of ARC.  The note bears an interest rate of 9% per annum and pays interest monthly in arrears. The gain on the sale was deferred and will be recognized under the installment method of accounting as the principal balance of the note is repaid.  These joint ventures were accounted for by the Company under the equity method prior to June 30, 2005.

Summarized unaudited condensed combined financial information for the other unconsolidated joint ventures follows:

Balance Sheets	June 30, 2005			December 31, 2004 (1)
	(In thousands)
Real estate, at cost	$	19,998		$	135,048
Less accumulated depreciation and amortization	5,280			17,491
Net real estate	14,718			117,557
Other assets, net	1,466			1,376
Total assets	$	16,184		$	118,933
Notes payable	$	15,469		$	15,361
Mortgage notes payable	—			15,862
Accounts payable	375			767
Entrance fee liabilities and deferred life estate obligations	—			75,746
Other partners’ capital (deficit)	(149		)	6,855
HCP’s capital	489			4,342
Total liabilities and partners’ capital	$	16,184		$	118,933

(1)   Includes financial information related to two joint ventures with ARC that were sold on June 30, 2005.

Statement of Operations	Three Months Ended June 30,					Six Months Ended June 30,
	(in thousands)					(in thousands)
	2005			2004		2005		2004
Rental and other income	$	2,211		$	4,520	$	3,780	$	9,048
Net income (loss)	$	(119	)	$	1,067	$	301	$	2,150
HCP’s equity income	$	137		$	71	$	337	$	333
Distributions received	$	140		$	210	$	359	$	433

As of June 30, 2005, the Company has guaranteed approximately $7.2 million of a total of $15.5 million of notes payable for the joint ventures.

(6) Loans Receivable

Loans receivable consist of the following:

	June 30, 2005								December 31, 2004
	Secured		Unsecured			Total			Secured		Unsecured			Total
	(In thousands)
Joint venture partners	$	—	$	7,006		$	7,006		$	5,694	$	779		$	6,473
Other	135,756		7,258			143,014			135,006		7,340			142,346
Loan loss allowance	—		(2,371		)	(2,371		)	—		(2,427		)	(2,427		)
	$	135,756	$	11,893		$	147,649		$	140,700	$	5,692		$	146,392

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(7) Bank Line of Credit, Senior Unsecured Notes and Mortgage Debt

Bank line of credit.  At June 30, 2005, borrowings under the Company’s $500 million three-year line of credit were $115.3 million with a weighted average interest rate of 4.02%. Borrowings under the bank line of credit accrue interest at 65 basis points over LIBOR with a 15 basis point facility fee. In addition, a negotiated rate option, whereby the lenders participating in the credit facility bid on the interest to be charged and which may result in a reduced interest rate, is available for up to 50% of borrowings. The credit facility also contains an “accordion” feature allowing borrowings to be increased by $100 million under certain conditions.

The credit agreement contains certain financial restrictions and requirements customary in transactions of this type. The more significant covenants, using terms defined in the agreement, limit (i) Consolidated Total Indebtedness to Consolidated Total Asset Value to 60%, (ii) Secured Debt to Consolidated Total Asset Value to 30% and (iii) Unsecured Debt to Consolidated Unencumbered Asset Value to 60%. The Company must also maintain (i) a Fixed Charge Coverage ratio, as defined, of 1.75 times and (ii) a formula-determined Minimum Tangible Net Worth. As of June 30, 2005, the Company was in compliance with each of these restrictions and requirements.

Senior unsecured notes.  At June 30, 2005, the Company had $1.3 billion in aggregate principal amount of senior unsecured notes outstanding. Interest rates on the notes ranged from 4.31% to 7.88% with a weighted average rate of 6.41% at June 30, 2005.

On April 27, 2005, the Company issued $250 million of 5 5/8% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%.  The Company received proceeds of $247 million, which were used to repay borrowings under the Company’s bank line of credit and for general corporate purposes.

Senior unsecured notes at December 31, 2004 included $200 million principal amount of Mandatory Par Put Remarketed Securities (“MOPPRS”), due June 8, 2015. The MOPPRS contained an option (the “MOPPRS Option”) exercisable by the Remarketing Dealer, an investment bank affiliate, which derived its value from the yield on ten-year U.S. Treasury rates relative to a fixed strike rate of 5.565%. Generally, the value of the option to the Remarketing Dealer increased as ten-year Treasury rates declined and the option’s value to the Remarketing Dealer decreased as ten-year Treasury rates increased.

On June 3, 2005, the Remarketing Dealer exercised its option to redeem the Company’s $200 million principal amount of 6.875% MOPPRS.  The Remarketing Dealer redeemed the securities from the holders at par plus accrued interest, and reissued ten-year senior notes with a coupon of 7.072%.  The reissued notes are at an effective interest rate which is higher than what would otherwise have been available if the Company had issued new ten-year notes at par value. The Company determined that the Remarketing Dealer acted as principal in the transaction, which resulted in the Company not accounting for the transaction as an extinguishment.

On June 15, 2005, the Company repaid $10 million of maturing Medium Term Notes which accrued interest at a rate of 7.55%.  These notes were repaid with funds available under the Company’s bank line of credit.

Mortgage debt.  At June 30, 2005, the Company had $165.9 million in mortgage debt secured by 30 healthcare facilities with a carrying amount of $302 million. Interest rates on the mortgage notes ranged from 2.35% to 9.32% with a weighted average rate of 7.38% at June 30, 2005.

The instruments encumbering the properties restrict title transfer of the respective properties subject to the terms of the mortgage, prohibit additional liens, require payment of real estate taxes, maintenance of the properties in good condition, maintenance of insurance on the properties and include a requirement to obtain lender consent to enter into material tenant leases.

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(8) Shareholders’ Equity

Common Stock

During the six months ended June 30, 2005 and 2004, the Company issued 495,000 and 429,000 shares of common stock under its Dividend Reinvestment and Stock Purchase Plan, respectively. The Company issued 1,375,000 and 1,088,000 shares upon exercise of stock options during the six months ended June 30, 2005 and 2004, respectively.

In April 2005, the Company announced that its Board declared a quarterly cash dividend of $0.42 per share. The common stock cash dividend was paid on May 19, 2005 to stockholders of record as of the close of business on May 5, 2005.

In July 2005, the Company announced that its Board declared a quarterly cash dividend of $0.42 per share of common stock. The common stock cash dividend will be paid on August 19, 2005 to stockholders of record as of the close of business on August 8, 2005.

Preferred Stock

In April 2005, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.45313 per share on its Series E cumulative redeemable preferred stock and $0.44375 per share on its Series F cumulative redeemable preferred stock. These dividends were paid on June 30, 2005 to stockholders of record as of the close of business on June 15, 2005.

In July 2005, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.45313 per share on its Series E cumulative redeemable preferred stock and $0.44375 per share on its Series F cumulative redeemable preferred stock.  These dividends will be paid on September 30, 2005 to stockholders of record as of the close of business on September 15, 2005.

Comprehensive Income and Other Equity

	June 30, 2005		December 31, 2004
	(In thousands)
Unamortized balance of deferred compensation	$	9,896	$	8,786
Accumulated other comprehensive loss	2,147		2,168
Total other equity	$	12,043	$	10,954

Other comprehensive loss is a reduction of net income in calculating comprehensive income. Comprehensive income for the six months ended June 30, 2005, and 2004 was $86.5 million and $88.7 million, respectively.

(9) Rental Revenues

Rental and other property income consists of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2005		2004		2005		2004
	(in thousands)				(in thousands)
Medical office buildings	$	33,388	$	24,753	$	63,469	$	46,799
Other properties	79,077		68,344		151,799		131,341
	$	112,465	$	93,097	$	215,268	$	178,140

Included in rental revenues are tenant expense reimbursements of $5.3 million and $10.4 million for the three and six months ended June 30, 2005, respectively. Amounts for the three and six months ended June 30, 2004, have been reclassified to conform to the current period presentation.

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(10) Earnings Per Common Share

The Company computes earnings per share in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is calculated including the effect of dilutive securities. Approximately 2.1 million and 1.1 million options to purchase shares of common stock that had an exercise price in excess of the average market price of the common stock during the three months ended June 30, 2005 and 2004, respectively, were not included because they are anti-dilutive. Additionally, 5.0 million shares issuable upon conversion of 2.5 million non-managing member units during the three months ended June 30, 2005, and 5.3 million shares issuable upon the conversion of 2.6 million non-managing member units during the three months ended June 30, 2004, were not included because they are anti-dilutive.

	Three Months Ended June 30,
	2005					2004
	Income		Shares	Per Share		Income		Shares	Per Share
	(In thousands, except per share amounts)
Basic earnings per common Share:
Net income applicable to common shares	$	37,764	134,445	$	0.28	$	36,302	131,653	$	0.28
Dilutive options and unvested restricted stock	—		769	—		—		1,203	(0.01		)
Diluted earnings per common share	$	37,764	135,214	$	0.28	$	36,302	132,856	$	0.27

	Six Months Ended June 30,
	2005						2004
	Income		Shares	Per Share			Income		Shares	Per Share
	(In thousands, except per share amounts)
Basic earnings per common Share:
Net income applicable to common shares	$	75,939	133,968	$	0.57		$	77,854	131,196	$	0.59
Dilutive options and unvested restricted stock	—		903	(0.01		)	—		1,582	—
Diluted earnings per common share	$	75,939	134,871	$	0.56		$	77,854	132,778	$	0.59

(11) Supplemental Cash Flow

Supplemental Cash Flow Information

	Six months ended June 30,
	2005		2004
	(In thousands)
Interest paid, net of capitalized interest and other	$	48,333	$	46,073
Taxes paid	94		301
Capitalized interest	372		881
Loans received upon sale of unconsolidated joint venture investments	6,228		—
Mortgages assumed with real estate purchases	29,444		—
Mortgages included with real estate dispositions	—		31,397
Restricted stock issued, net of cancellations	2,783		2,071
Conversion of non-managing member units into common stock	385		494

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(12) Commitments and Contingencies

The Company, from time to time, is party to legal proceedings, lawsuits and other claims in the ordinary course of our business. These claims, even if not meritorious, could force us to spend significant financial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or taken together, a material adverse effect on its business, prospects, financial condition or results of operations.

One of the Company’s hospitals, located in Tarzana, California, is affected by State of California Senate Bill 1953 (SB 1953), which requires certain seismic safety building standards for acute care hospital facilities. This hospital is operated by Tenet under a lease expiring in February 2009. The Company and Tenet are currently reviewing the SB 1953 compliance of this hospital, multiple plans of action to cause such compliance, the estimated time for completing the same, and the cost of performing necessary remediation of the property. The Company cannot currently estimate the remediation costs that will need to be incurred prior to 2013 in order to make the facility SB 1953-compliant through 2030, and the final allocation of such remediation costs between the Company and Tenet. Rent on the hospital for the six months ended June 30, 2005 was $4.2 million and for years ended December 31, 2004 and 2003, was $10.6 million and $10.8 million, respectively.  The carrying amount of the hospital was $77.2 million at June 30, 2005.

Certain residents of two of the Company’s CCRCs have entered into a master trust agreement with the operator of the facilities whereby amounts paid upfront by such residents were deposited into a trust account. These funds were then made available to the CCRC operator in the form of a non-interest bearing loan to provide permanent financing for the related communities. The operator of the CCRC is the borrower under these arrangements; however, two of the Company’s properties are collateral under the master trust agreements. As of June 30, 2005, the remaining obligation under the master trust agreements for these two properties is $11.3 million. The Company’s property will be released as collateral as the master trust liabilities are extinguished.

(13) Related Party Transactions

Pursuant to the original purchase agreement dated October 2, 2003, the Company paid $9.8 million during the six months ended June 30, 2005, in additional purchase consideration in the form of an earn-out to the former members of MedCap Properties, LLC related to the Company’s 2003 acquisition of four MOBs that were under development at the time of acquisition. The amounts paid included $3.7 million paid to former members who are now senior officers of the Company.  At the time that the original purchase agreement was entered into, the former members were not officers of the Company.

(14) Subsequent Events

On July 1, 2005, the Company acquired an assisted living facility for approximately $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options.  The initial annual lease rate is approximately 8.75% with annual CPI-based escalators that have a floor of 2.75%.  The property is currently 96% occupied and a 60-unit expansion is planned.

On July 22, 2005, the Company acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt valued at approximately $52 million through a sale-leaseback transaction.  These facilities have an initial lease term of 15 years, with three ten-year renewal options.  The initial annual lease rate is approximately 7.1% with annual CPI-based escalators that have a floor of 3%.  Eleven of the facilities have an average occupancy of 91%. One facility is expected to be placed in service in August 2005 and is currently 34% pre-leased.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Language Regarding Forward-looking Statements

Statements in this Quarterly Report that are not historical factual statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The statements include, among other things, statements regarding the intent, belief or expectations of Health Care Property Investors, Inc. and its officers and can be identified by the use of terminology such as “may,” “will,” “expect,” “believe,” “intend,” “plan,” “estimate,” “should” and other comparable terms or the negative thereof. In addition, we, through our senior management, from time to time make forward-looking oral and written public statements concerning our expected future operations and other developments. Readers are cautioned that, while forward-looking statements reflect our good faith belief and best judgment based upon current information, they are not guarantees of future performance and are subject to known and unknown risks and uncertainties. Actual results may differ materially from the expectations contained in the forward-looking statements as a result of various factors. In addition to the factors set forth under “Risk Factors” in this Quarterly Report, readers should consider the following:

(a)Legislative, regulatory, or other changes in the healthcare industry at the local, state or federal level which increase the costs of or otherwise affect the operations of, our tenants and mortgagors;

(b)Changes in the reimbursement available to our tenants and mortgagors by governmental or private payors, including changes in Medicare and Medicaid payment levels and the availability and cost of third party insurance coverage;

(c)Competition for tenants and mortgagors, including with respect to new leases and mortgages and the renewal or rollover of existing leases;

(d)Availability of suitable healthcare facilities to acquire at a favorable cost of capital and the competition for such acquisition and financing of healthcare facilities;

(e)The ability of our tenants and mortgagors to operate our properties in a manner sufficient to maintain or increase revenues and to generate sufficient income to make rent and loan payments;

(f)The financial weakness of some operators, including potential bankruptcies, which results in uncertainties in our ability to continue to realize the full benefit of such operators’ leases;

(g)Changes in national or regional economic conditions, including changes in interest rates and the availability and cost of capital;

(h)The risk that we will not be able to sell or lease facilities that are currently vacant;

(i)The potential costs of SB 1953 compliance with respect to our hospital in Tarzana, California;

(j)The financial, legal and regulatory difficulties of two significant operators, Tenet and HealthSouth; and

(k)The potential impact of existing and future litigation matters.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

We are a real estate investment trust (“REIT”) that invests in healthcare related properties located throughout the United States. We develop, acquire and manage healthcare real estate, and provide mortgage financing to healthcare providers. We invest directly, often structuring sale-leaseback transactions, and through joint ventures. At June 30, 2005, our real estate portfolio, including properties held through joint ventures and mortgage loans, consisted of interests in 529 facilities located in 42 states.

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Our business strategy is based on three principles: (i) opportunistic investing, (ii) portfolio diversification, and (iii) conservative financing. We actively redeploy capital from investments with lower return potential into assets with higher return potential, and recycle capital from shorter-term to longer-term investments. We make investments where the expected risk-adjusted return exceeds our cost of capital and strive to leverage our operator and other business relationships.

Our strategy contemplates acquiring and developing properties on favorable terms. We attempt to structure transactions that are tax-advantaged and mitigate risks in our underwriting process. Generally, we prefer larger, more complex “negotiated” transactions that leverage our management team’s experience and infrastructure.  We follow a disciplined approach to enhancing the value of our existing portfolio, including the ongoing evaluation of properties that no longer fit our strategy for potential disposition.

We primarily generate revenue by leasing healthcare related properties under long-term operating leases. Most of our rents are received under triple net leases; however, medical office building (“MOB”) rents are typically structured as gross or modified gross leases. Accordingly, for MOBs we incur certain property operating expenses, such as real estate taxes, repairs and maintenance, property management fees, utilities and insurance. Our growth depends, in part, on our ability to (i) increase rental income by increasing occupancy levels and rental rates, (ii) maximize tenant recoveries and (iii) control operating and other expenses. Our operations are impacted by property specific, market specific, general economic and other conditions.

Access to external capital on favorable terms is critical to the success of our strategy. We attempt to match the long-term duration of our leases with long-term fixed rate financing. At June 30, 2005, 10% of our consolidated debt was at variable interest rates. We intend to maintain an investment grade rating on our fixed income securities and manage various capital ratios and amounts within appropriate parameters. Our senior debt is rated BBB+ by both Standard & Poor’s and Fitch Ratings and Baa2 by Moody’s Investors Service.

Access to capital markets impacts our cost of capital and our ability to refinance existing indebtedness as it matures, as well as to fund future acquisitions and development through the issuance of additional securities. Our ability to access capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our securities, perception of our potential future earnings and cash distributions, and the market price of our capital stock.

2005 Overview

Real Estate Transactions

Year-to-date through August 1, 2005, we have made secured loans and acquired interests in properties aggregating $441 million, including the following:

•On July 22, 2005, we acquired twelve independent and assisted living facilities for approximately $252 million, including assumed debt valued at approximately $52 million, through a sale-leaseback transaction.  These facilities have an initial lease term of 15 years, with three ten-year renewal options.  The initial annual lease rate is approximately 7.1% with annual escalators based on the Consumer Price Index (“CPI”) that have a floor of 3%.  Eleven of the facilities have an average occupancy of 91% and one facility will be placed into service in August 2005 and is currently 34% pre-leased.

•On July 1, 2005, we acquired an assisted living facility for approximately $16 million through a sale-leaseback transaction. The facility has an initial lease term of 15 years, with two ten-year renewal options.  The initial annual lease rate is approximately 8.75% with annual CPI-based escalators that have a floor of 2.75%.  The property is currently 96% occupied and a 60-unit expansion is planned.

•On April 28, 2005, we acquired five medical office buildings for approximately $81 million including assumed debt valued at $29 million. The initial yield is 7.0% with two properties currently in lease-up.  The yield following lease-up is expected to be 8.2%.  The medical office buildings include approximately 537,000 rentable square feet.

•On April 20, 2005, we acquired five assisted living facilities for $58 million through a sale-leaseback transaction. These facilities have an initial lease term of 15 years, with two ten-year renewal options.

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The initial annual lease rate is approximately 9.0% with annual CPI-based escalators that have a floor of 2.75%. These properties will be included in a new master lease along with five other properties currently leased to the operator.

Year-to-date through August 1, 2005, we sold interests in ten properties for approximately $48 million and recognized gains of approximately $9 million. During the quarter ended June 30, 2005, the Company sold interests in six properties for approximately $13 million and recognized a gain of approximately $4 million.

Capital Market Transactions

On April 27, 2005, we issued $250 million of 5 5/8% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%.  We received proceeds of $247 million, which were used to repay borrowings under our bank line of credit facility and for general corporate purposes.

Other Events

On July 27, 2005, we announced that our Board declared a quarterly cash dividend of $0.42 per share of common stock. The common stock cash dividend will be paid on August 19, 2005 to stockholders of record as of the close of business on August 8, 2005.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on our experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. The critical accounting policies used in the preparation of the Company’s financial statements are described in our 2004 Annual Report on Form 10-K.

Results of Operations

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

Rental revenues.  Medical office building rental income increased 35% to $33.4 million for the three months ended June 30, 2005. The increase is primarily related to significant MOB acquisitions in December 2004 and April 2005 and development properties placed in service in mid-2004. Other property rental income increased 16% to $79.1 million primarily due to acquisitions completed in 2004 and 2005.

Equity income.  Equity income decreased 90% to $0.1 million primarily due to the Company’s investment in HCP MOP for which the Company recorded equity losses of $49,000 and equity income of $0.8 million for the three months ended June 30, 2005 and 2004, respectively.  During the three months ended September 30, 2004, and June 30, 2005, HCP MOP revised its purchase price allocation and attributed more of the purchase price of the properties acquired from MedCap Properties LLC to below market lease intangibles, other intangibles and real estate assets. Lease intangibles generally amortize over a shorter period of time relative to tangible real estate assets. The decrease in the equity in income from the Company’s investment in HCP MOP was primarily due to the revisions to the purchase price allocations referred to above. See Note 5 to the Condensed Consolidated Financial Statements for additional information on HCP MOP.

Interest and other income.  Interest and other income decreased 40% to $6.0 million for the three months ended June 30, 2005. The change reflects the effects of a reduced level of loans receivable following an $83 million repayment from ARC and a $17 million repayment from Emeritus during the third quarter of 2004. During the three months ended June 30, 2005 and 2004, we also recognized management and other fees from HCP MOP of $0.8 million in each period.

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Interest expense.  Interest expense increased 29% to $25.4 million for the three months ended June 30, 2005. The increase was due to the issuance of $250 million of 5 ⁵/₈ % senior unsecured notes, the assumption of $29 million of mortgages in connection with the acquisitions of real estate properties, and increases in average borrowing levels and a higher interest rate on our bank line of credit.

Operating costs and expenses.  Operating costs increased 56% to $15.4 million for the three months ended June 30, 2005. Operating costs are predominantly related to MOB properties that are leased under gross or modified gross lease agreements where we share certain costs with tenants. Additionally, we contract with third party property managers on most of our MOB properties. Accordingly, the number of properties in our MOB portfolio directly impacts operating costs. The increase was primarily attributable to significant MOB acquisitions in December 2004 and April 2005 and four development properties placed in service in mid-2004.

The presentation of expenses between general and administrative and operating expenses is based on the underlying nature of the costs.  Periodically, the Company reviews the classification of expenses between categories and makes revisions based on changes in the underlying nature of the expense.

General and administrative expenses.  General and administrative expenses increased 3% to $8.8 million for the three months ended June 30, 2005. The increase was due to higher compensation costs primarily resulting from an increase in head counts.  Also, during 2004, we implemented a new information system and expended considerable resources towards compliance with recent regulatory requirements, principally the Sarbanes-Oxley Act of 2002.

Depreciation and amortization.  Real estate depreciation and amortization increased 33% to $27.3 million for the three months ended June 30, 2005, primarily due to development properties placed in service and acquisitions aggregating approximately $149 million for six months ended June 30, 2005 and $538 million during 2004.

Discontinued operations.  Income from discontinued operations for the three months ended June 30, 2005 and 2004 was $4.4 million and $0.8 million, respectively. The increase is due to recognizing a net gain on real estate dispositions of $4.2 million for the three months ended June 30, 2005, while we recognized a net loss on real estate dispositions and impairments of $1.0 million for the three months ended June 30, 2004.

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

Rental revenues.  Medical office building rental income increased 36% to $63.5 million for the six months ended June 30, 2005. The increase is primarily related to significant MOB acquisitions in December 2004 and April 2005 and development properties placed in service in mid-2004. Other property rental income increased 16% to $151.8 million primarily due to acquisitions completed in 2004 and 2005.

Equity income.  Equity income decreased 86% to $0.3 million primarily due to the Company’s investment in HCP MOP for which the Company recorded equity losses of $38,000 and equity income of $1.8 million for the six months ended June 30, 2005 and 2004, respectively.  During the three months ended September 30, 2004, and June 30, 2005, HCP MOP revised its purchase price allocation and attributed more of the purchase price of the properties acquired from MedCap Properties LLC to below market lease intangibles, other intangibles and real estate assets. Lease intangibles generally amortize over a shorter period of time relative to tangible real estate assets. The decrease in the equity in income from the Company’s investment in HCP MOP was primarily due to the revisions to the purchase price allocations referred to above. See Note 5 to the Condensed Consolidated Financial Statements for additional information on HCP MOP.

Interest and other income.  Interest and other income decreased 39% to $11.2 million for the six months ended June 30, 2005. The change reflects the effects of a reduced level of loans receivable following an $83 million repayment from ARC and a $17 million repayment from Emeritus during the third quarter of 2004. During the six months ended June 30, 2005 and 2004, we also recognized management and other fees from HCP MOP of $1.6 million in each period.

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Interest expense.  Interest expense increased 19% to $48.6 million for the six months ended June 30, 2005. The increase was due to the issuance of $250 million of 5 ⁵/₈% senior unsecured notes, the assumption of $29 million of mortgages in connection with the acquisitions of real estate properties, and increases in average borrowing levels and a higher interest rate on our bank line of credit.

Operating costs and expenses.  Operating costs increase 50% to $28.7 million for the six months ended June 30, 2005.  Operating costs are predominantly related to MOB properties that are leased under gross or modified gross lease agreements where we share certain costs with tenants. Additionally, we contract with third party property managers on most of our MOB properties.  Accordingly, the number of properties in our MOB portfolio directly impacts operating costs. The increase was primarily attributable to significant MOB acquisitions in December 2004 and April 2005 and four development properties placed in service in mid-2004.

The presentation of expenses between general and administrative and operating expenses is based on the underlying nature of the expense.  Periodically, the Company reviews the classification of expenses between categories and makes revisions based on changes in the underlying nature of the expense.

General and administrative expenses.  General and administrative expenses increased 5% to $16.1 million for the six months ended June 30, 2005. The increase was primarily due to higher compensation costs primarily resulting from an increase in head counts.  Also, during 2004, we implemented a new information system and expended considerable resources towards compliance with certain regulatory requirements, principally the Sarbanes-Oxley Act of 2002.

Depreciation and amortization.  Real estate depreciation and amortization increased 26% to $51.0 million for the six months ended June 30, 2005, primarily due to development properties placed in service and acquisitions aggregating approximately $149 million for six months ended June 30, 2005 and $538 million during 2004.

Discontinued operations.  Income from discontinued operations for the six months ended June 30, 2005 and 2004, was $10.4 million and $12.9 million, respectively. The decrease is mainly due to a decline in operating income from discontinued operations which decreased from $4.8 million to $1.5 million during the six months ended June 30, 2004, compared with the year ago period.

Liquidity and Capital Resources

Our principal liquidity needs are to (i) fund normal operating expenses, (ii) meet debt service requirements, (iii) fund capital expenditures, including tenant improvements and leasing costs, (iv) fund acquisition and development activities and (v) make minimum distributions required to maintain our REIT qualification under the Internal Revenue Code.

We believe these needs will be satisfied from cash flows provided by operations and provided by financing activities. We intend to repay maturing debt with proceeds from future debt and/or equity offerings and anticipate making future investments dependent on the availability of cost-effective sources of capital. We use the public debt and equity markets as our principal source of financing. As of June 30, 2005, our senior debt is rated BBB+ by both Standard & Poor’s Ratings Group and Fitch Ratings and Baa2 by Moody’s Investors Service.

Net cash provided by operating activities was $140.2 million and $124.2 million for the six months ended June 30, 2005 and 2004, respectively. Cash flow from operations reflects increased revenues, offset by higher costs and expenses, and changes in receivables, payables, accruals, and deferred revenue. Our cash flows from operations are dependent upon the occupancy level of multi-tenant buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses and other factors.

Net cash used by investing activities was $90.8 million during the six months ended June 30, 2005 and principally reflects $130.6 million to acquire and develop real estate, net of $41.6 million in proceeds from the sale of real estate properties. During the six months ended June 30, 2005 and 2004, we invested $1.5 million and $1.3 million, respectively, to fund lease commissions and tenant and capital improvements.

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Net cash used in financing activities was $47.4 million during the six months ended June 30, 2005 and includes: (i) payment of common and preferred dividends aggregating $123.5 million and (ii) net repayments on our bank line of credit of $184.8 million. These uses were partially offset by proceeds of $247.4 million from the issuance of senior unsecured notes and $34.3 million from common stock issuances. In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our shareholders. Accordingly, we intend to continue to make regular quarterly distributions to holders of our common and preferred stock.

At June 30, 2005, we held approximately $11.3 million in deposits and $45.6 million in irrevocable letters of credit from commercial banks securing tenants’ lease obligations and borrowers’ loan obligations. We may draw upon the letters of credit or depository accounts if there are defaults under the related leases or loans. Amounts available under letters of credit could change based upon facility operating conditions and other factors and such changes may be material.

Debt

Bank line of credit.  At June 30, 2005, borrowings under our $500 million three-year bank line of credit were $115.3 million with a weighted average interest rate of 4.02%. Borrowings under the bank line of credit accrue interest at 65 basis points over LIBOR with a 15 basis point facility fee. In addition, a negotiated rate option, whereby the lenders participating in the credit facility bid on the interest to be charged and which may result in a reduced interest rate, is available for up to 50% of borrowings. The credit facility also contains an “accordion” feature allowing borrowings to be increased by $100 million in certain conditions.

The credit agreement contains certain financial restrictions and requirements customary in transactions of this type. The more significant covenants, using terms defined in the agreement, limit (i) Consolidated Total Indebtedness to Consolidated Total Asset Value to 60%, (ii) Secured Debt to Consolidated Total Asset Value to 30% and (iii) Unsecured Debt to Consolidated Unencumbered Asset Value to 60%. We must also maintain (i) a Fixed Charge Coverage ratio, as defined, of 1.75 times and (ii) a formula-determined Minimum Tangible Net Worth. As of June 30, 2005, we were in compliance with each of these restrictions and requirements.

Senior unsecured notes.  At June 30, 2005 we had $1.3 billion in aggregate principal amount of senior unsecured notes outstanding. Interest rates on the notes ranged from 4.31% to 7.88% with a weighted average rate of 6.41% at June 30, 2005.

On April 27, 2005, we issued $250 million of 5 5/8% senior unsecured notes due 2017. The notes were priced at 99.585% of the principal amount with an effective yield of 5.673%.  We received proceeds of $247 million, which were used to repay borrowings under the bank line of credit and for general corporate purposes.

Senior unsecured notes at December 31, 2004 included $200 million principal amount of Mandatory Par Put Remarketed Securities (“MOPPRS”), due June 8, 2015. The MOPPRS contained an option (the “MOPPRS Option”) exercisable by the Remarketing Dealer, an investment bank affiliate, which derived its value from the yield on ten-year U.S. Treasury rates relative to a fixed strike rate of 5.565%. Generally, the value of the option to the Remarketing Dealer increased as ten-year Treasury rates declined and the option’s value to the Remarketing Dealer decreased as ten-year Treasury rates increased.

On June 3, 2005, the Remarketing Dealer exercised its option to redeem the Company’s $200 million principal amount of 6.875% MOPPRS.  The Remarketing Dealer redeemed the securities from the holders at par plus accrued interest, and reissued ten-year senior notes with a coupon of 7.072%.  The reissued notes are at an effective interest rate which is higher than what would otherwise have been available if we had issued new ten-year notes at par value.

On June 15, 2005, we repaid $10 million of maturing Medium Term Notes which accrued interest at a rate of 7.55%.  These notes were repaid with funds available under our bank line of credit.

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Mortgage debt.  At June 30, 2005, we had $165.9 million in mortgage debt secured by 30 healthcare facilities with a carrying amount of $302 million. Interest rates on the mortgage notes ranged from 2.35% to 9.32% with a weighted average rate of 7.38% at June 30, 2005.

The instruments encumbering the properties restrict title transfer of the respective properties subject to the terms of the mortgage, prohibit additional liens, require payment of real estate taxes, maintenance of the properties in good condition, maintenance of insurance on the properties and include a requirement to obtain lender consent to enter into material tenant leases.

Debt Maturities

The following table summarizes our stated debt maturities and scheduled principal repayments at June 30, 2005 (in thousands):

Year	Amount
2005 (six months)	$	34,962
2006	139,707
2007	260,386
2008	8,262
2009	5,763
Thereafter	1,121,574
	$	1,570,654

Equity

At June 30, 2005, we had outstanding 4,000,000 shares of 7.25% Series E cumulative redeemable preferred stock, 7,820,000 shares of 7.10% Series F cumulative redeemable preferred stock, and 135.6 million shares of common stock.

During the six months ended June 30, 2005, we issued approximately 495,000 shares of our common stock under our Dividend Reinvestment and Stock Purchase Plan at an average price per share of $25.78 for an aggregate amount of $12.8 million. We also received $21.8 million in proceeds from stock option exercises. At June 30, 2005, stockholders’ equity totaled $1.4 billion and our equity securities had a market value of $4.1 billion.

As of June 30, 2005, there were a total of 2.5 million non-managing member units outstanding in four limited liability companies in which we are the managing member: (i) HCPI/Tennessee, LLC; (ii) HCPI/Utah, LLC; (iii) HCPI/Utah II, LLC; and (iv) HCPI/Indiana, LLC. The non-managing member units are exchangeable for an amount of cash approximating the then-current market value of two shares of our common stock or, at our option, two shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications).

As of June 30, 2005, we had $1.26 billion available for future issuances of debt and equity securities under a shelf registration statement filed with the Securities and Exchange Commission. These securities may be issued from time to time in the future based on our needs and the then-existing market conditions.

Off-Balance Sheet Arrangements

We own interests in certain unconsolidated joint ventures, including HCP MOP, as described under Note 5 to the Condensed Consolidated Financial Statements. Except in limited circumstances, our risk of loss is limited to our investment carrying amount and any outstanding loans receivable. We have no other off-balance sheet arrangements that we expect to materially affect our liquidity and capital resources except those described under “Contractual Obligations.”

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Contractual Obligations

The following schedule summarizes our material contractual payment obligations and commitments at June 30, 2005 (in thousands):

	Less than One Year		2006-2007		2008-2009		More than Five Years		Total
Senior unsecured notes and mortgage debt	$	34,962	$	284,793	$	14,025	$	1,121,574	$	1,455,354
Bank line of credit	—		115,300		—		—		115,300
Ground and other operating leases	519		2,139		2,227		95,725		100,610
Acquisition and construction commitments	19,690		—		—		—		19,690
Interest expense	40,132		128,799		114,668		245,165		528,764
Total	$	95,303	$	531,031	$	130,920	$	1,462,464	$	2,219,718

See Liquidity and Capital Resources — Debt for a discussion of the MOPPRS Option related to our senior unsecured notes.

Inflation

Our leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other measures, and/or additional rent based on increases in our tenant’s facility revenue. Substantially all of our MOB leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, utilities, etc. We believe that inflationary increases in expenses will be offset, in part, by the tenant expense reimbursements and contractual rent increases described above.

New Accounting Pronouncements

See Note 2 to the Condensed Consolidated Financial Statements for the impact of new accounting standards.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2005, we are exposed to market risks related to fluctuations in interest rates on $11.7 million of variable rate mortgage notes payable, $115.3 million of variable rate bank debt and $25.0 million of variable rate senior unsecured notes. Of our consolidated debt of $1.6 billion at June 30, 2005, approximately 10% is at variable interest rates with the balance at fixed interest rates.

Fluctuation in the interest rate environment will not affect our future earnings and cash flows on our fixed rate debt until that debt must be replaced or refinanced. However, interest rate changes will affect the fair value of our fixed rate instruments. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not affect the fair value of those instruments. Assuming a one percentage point increase in the interest rate related to the variable-rate debt including the mortgage notes payable, the bank line of credit and senior unsecured notes, and assuming no change in the outstanding balance as of June 30, 2005, interest expense for 2005 would increase by approximately $1.5 million, or $0.01 per common share on a diluted basis.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Also, we have investments in certain unconsolidated entities. Our disclosure controls and procedures with respect to such entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As required by Rule 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2005. Based on the foregoing, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting.  There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

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

The Company held its Annual Meeting of Stockholders on May 12, 2005. At the Annual Meeting, there were present in person or by proxy 126,620,820 shares of our common stock, representing approximately 94% of the total outstanding eligible votes. The proposals considered at the Annual Meeting were voted on as follows:

1. The following directors were elected to one year terms of office expiring at the 2006 Annual Meeting of Stockholders and until their successors are duly elected and qualified and received the number of votes set forth opposite their names, with no abstentions or broker non-votes.

Directors	Affirmative Votes	Against or Withheld
Mary A. Cirillo	125,098,280	1,522,540
Robert R. Fanning, Jr.	125,445,781	1,175,039
James F. Flaherty III	125,478,310	1,142,510
David B. Henry	125,203,233	1,417,587
Michael D. McKee	99,177,621	27,443,199
Harold M. Messmer, Jr.	107,354,274	19,266,546
Peter L. Rhein	125,441,355	1,179,465
Kenneth B. Roath	125,406,094	1,214,726
Richard M. Rosenberg	125,028,557	1,592,263
Joseph P. Sullivan	125,500,084	1,070,736

2.  A proposal to ratify the selection of Ernst & Young LLP as the Company’s independent public accountants for the fiscal year ending December 31, 2005, was approved by the Company’s stockholders. The proposal received 124,817,086 votes in favor and 1,535,153 votes against. There were 268,581 abstentions and no broker non-votes.

3.  A stockholder proposal regarding a report on greenhouse emissions and energy efficiency was rejected by the Company’s stockholders.  The proposal received 6,437,959 votes in favor and 66,097,837 votes against.  There were 8,421,338 abstentions and 45,663,686 broker non-votes.

Item 5.  Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The table below sets forth the information with respect to purchases of our common stock made by or on behalf of the Company during the quarter ended June 30, 2005.

PERIOD COVERED	TOTAL NUMBER OF SHARES PURCHASED(1)	AVERAGE PRICE PAID PER SHARE
April 1-30, 2005	—	N/A
May 1-31, 2005	928	$	23.24
June 1-30, 2005	501	$	27.32

(1)Represents restricted shares withheld under our Amended and Restated 2000 Stock Incentive Plan, as amended, to offset tax withholding obligations that occur upon vesting of restricted shares. Our Amended and Restated 2000 Stock Incentive Plan, as amended, provides that the value of the shares withheld shall be the closing price of the Company’s common stock on the date the relevant transaction occurs.

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Item 6. Exhibits

3.1	Articles of Restatement of HCP (incorporated by reference in exhibit 3.1 to HCP report on form 10-Q for the period of June 30, 2004).
3.2	Third Amended and Restated Bylaws of HCP. (Incorporated by reference in exhibit 3.2 to HCP is report on form 10-Q for the period of June 30, 2004).
4.1	Indenture, dated as of September 1, 1993, between HCP and The Bank of New York, as Trustee, (incorporated by reference to exhibit 4.1 to HCP’s registration statement on Form S-3 dated September 9, 1993).
4.2	Form of Fixed Rate Note (incorporated by reference to exhibit 4.2 to HCP’s registration statement on Form S-3 dated March 20, 1989).
4.3	Form of Floating Rate Note (incorporated by reference to exhibit 4.3 to HCP’s registration statement on Form S-3 dated March 20, 1989).
4.4	Registration Rights Agreement dated November 20, 1998 between HCP and James D. Bremner (incorporated by reference to exhibit 4.8 to HCP’s annual report on Form 10-K for the year ended December 31, 1999). This exhibit is identical in all material respects to two other documents except the parties thereto. The parties to these other documents, other than HCP, were James P. Revel and Michael F. Wiley.
4.5	Registration Rights Agreement dated January 20, 1999 between HCP and Boyer Castle Dale Medical Clinic, L.L.C. (incorporated by reference to exhibit 4.9 to HCP’s annual report on Form 10-K for the year ended December 31, 1999). This exhibit is identical in all material respects to 13 other documents except the parties thereto. The parties to these other documents, other than HCP, were Boyer Centerville Clinic Company, L.C., Boyer Elko, L.C., Boyer Desert Springs, L.C., Boyer Grantsville Medical, L.C., Boyer-Ogden Medical Associates, LTD., Boyer Ogden Medical Associates No. 2, LTD., Boyer Salt Lake Industrial Clinic Associates, LTD., Boyer-St. Mark’s Medical Associates, LTD., Boyer McKay-Dee Associates, LTD., Boyer St. Mark’s Medical Associates #2, LTD., Boyer Iomega, L.C., Boyer Springville, L.C., and—Boyer Primary Care Clinic Associates, LTD. #2.
4.6	Indenture, dated as of January 15, 1997, between American Health Properties, Inc. and The Bank of New York, as trustee (incorporated herein by reference to exhibit 4.1 to American Health Properties, Inc.’s current report on Form 8-K (file no. 001-09381), dated January 21, 1997).
4.7	First Supplemental Indenture, dated as of November 4, 1999, between HCP and The Bank of New York, as trustee (incorporated by reference to HCP’s quarterly report on Form 10-Q for the period ended September 30, 1999).
4.8	Registration Rights Agreement dated August 17, 2001 between HCP, Boyer Old Mill II, L.C., Boyer-Research Park Associates, LTD., Boyer Research Park Associates VII, L.C., Chimney Ridge, L.C., Boyer-Foothill Associates, LTD., Boyer Research Park Associates VI, L.C., Boyer Stansbury II, L.C., Boyer Rancho Vistoso, L.C., Boyer-Alta View Associates, LTD., Boyer Kaysville Associates, L.C., Boyer Tatum Highlands Dental Clinic, L.C., Amarillo Bell Associates, Boyer Evanston, L.C., Boyer Denver Medical, L.C., Boyer Northwest Medical Center Two, L.C., and Boyer Caldwell Medical, L.C. (incorporated by reference to exhibit 4.12 to HCP’s annual report on Form 10-K for the year ended December 31, 2001).
4.9	Acknowledgment and Consent dated as of March 1, 2005 by and among Merrill Lynch Bank USA, Gardner Property Holdings, L.C., HCPI/Utah, LLC, the unit holders of HCPI/Utah, LLC and HCP (incorporated by reference to exhibit 4.12 to HCP’s annual report on Form 10-K for the year ended December 31, 2004).*

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4.10	Acknowledgment and Consent dated as of March 1, 2005 by and among Merrill Lynch Bank USA, The Boyer Company, L.C., HCPI/Utah, LLC, the unit holders of HCPI/Utah, LLC and HCP (incorporated by reference to exhibit 4.13 to HCP’s annual report on Form 10-K for the year ended December 31, 2004).*
4.11	Officers’ Certificate pursuant to Section 301 of the Indenture dated as of September 1, 1993 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled “6.5% Senior Notes due February 15, 2006” (incorporated by reference to exhibit 4.1 to HCP’s report on form 8-K, dated February 21, 1996).
4.12	Officers’ Certificate pursuant to Section 301 of the Indenture dated as of September 1, 1993 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled “6 7/8% MandatOry Par Put Remarketed Securities due June 8, 2015” (incorporated by reference to exhibit 4.1 to HCP’s report on form 8-K, dated June 3, 1998).
4.13	Officers’ Certificate pursuant to Section 301 of the Indenture dated as of September 1, 1993 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled “6.45% Senior Notes due June 25, 2012” (incorporated by reference to exhibit 4.1 to HCP’s report on form 8-K, dated June 19, 2002).
4.14	Officers’ Certificate pursuant to Section 301 of the Indenture dated as of September 1, 1993 between HCP and the Bank of New York, as Trustee, establishing a series of securities entitled “6.00% Senior Notes due March 1, 2015” (incorporated by reference to exhibit 3.1 to HCP’s report on form 8-K (file no. 001-08895), dated February 25, 2003).
4.15	Officers’ Certificate pursuant to Section 301 of the Indenture dated as of September 1, 1993 between the Company and The Bank of New York, as Trustee, establishing a series of securities entitled “5 5/8% Senior Notes due May 1 , 2017” (incorporated by reference to exhibit 4.2 to HCP’s report on form 8-K, dated April 22, 2005).
4.16	Registration Rights Agreement dated October 1, 2003 between HCP, Charles Crews, Charles A. Elcan, Thomas W. Hulme, Thomas M. Klaritch, R. Wayne Price, Glenn T. Preston, Janet Reynolds, Angela M. Playle, James A. Croy, John Klaritch as Trustee of the 2002 Trust F/B/O Erica Ann Klaritch, John Klaritch as Trustee of the 2002 Trust F/B/O Adam Joseph Klaritch, John Klaritch as Trustee of the 2002 Trust F/B/O Thomas Michael Klaritch, Jr. and John Klaritch as Trustee of the 2002 Trust F/B/O Nicholas James Klaritch (incorporated by reference to exhibit 4.16 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 2003).
4.17	Amended and Restated Dividend Reinvestment and Stock Purchase Plan, dated October 23, 2003 (incorporated by reference to HCP’s registration statement on Form S-3 dated December 5, 2003, registration number 333-110939).
4.18	Specimen of Stock Certificate representing the Series E Cumulative Redeemable Preferred Stock, par value $1.00 per share (incorporated herein by reference to exhibit 4.1 of HCP’s 8-A12B filed on September 12, 2003).
4.19	Specimen of Stock Certificate representing the Series F Cumulative Redeemable Preferred Stock, par value $1.00 per share (incorporated herein by reference to exhibit 4.1 of HCP’s 8-A12B filed on December 2, 2003).
4.20	Form of Floating Rate Note (incorporated by reference to exhibit 4.3 to HCP’s Current Report on Form 8-K dated November 19, 2003).
4.21	Form of Fixed Rate Note (incorporated by reference to exhibit 4.4 to HCP’s Current Report on Form 8-K dated November 19, 2003).
4.22	Acknowledgment and Consent dated as of March 1, 2005 by and among Merrill Lynch Bank USA, Gardner Property Holdings, L.C., HCPI/Utah II, LLC, the unit holders of HCPI/Utah II, LLC and HCP (incorporated by reference to exhibit 4.21 to HCP’s annual report on Form 10-K for the year ended December 31, 2004).*

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4.23	Acknowledgment and Consent dated as of March 1, 2005 by and among Merrill Lynch Bank USA, The Boyer Company, L.C., HCPI/Utah II, LLC, the unit holders of HCPI/Utah II, LLC and HCP (incorporated by reference to exhibit 4.22 to HCP’s annual report on Form 10-K for the year ended December 31, 2004).*
4.24	Registration Rights Agreement date July 22, 2005 between HCP, William P. Gallaher, Trustee for the William P. & Cynthia J. Gallaher Trust, Dwayne J. Clark, Patrick R. Gallaher, Trustee for the Patrick R. & Cynthia M. Gallaher Trust, Jeffrey D. Civian, Trustee for the Jeffrey D. Civian Trust dated August 8, 1986, Jeffrey Meyer, Steven L. Gallaher, Richard Coombs, Larry L. Wasem, Joseph H. Ward, Jr., Trustee for the Joseph H. Ward, Jr. and Pamela K. Ward Trust, Borue H. O’Brien, William R. Mabry, Charles N. Elsbree, Trustee for the Charles N. Elsbree Jr. Living Trust dated February 14, 2002, Gary A. Robinson, Thomas H. Persons, Trustee for the Persons Family Revocable Trust under trust dated February 15, 2005, Glen Hammel, Marilyn E. Montero, Joseph G. Lin, Trustee for the Lin Revocable Living Trust, Ned B. Stein, John Gladstein, Trustee for the John & Andrea Gladstein Family Trust dated February 11, 2003, John Gladstein, Trustee for the John & Andrea Gladstein Family Trust dated February 11, 2003, Francis Connelly, Trustee for the The Francis J & Shannon A Connelly Trust, Al Coppin, Trustee for the Al Coppin Trust, Stephen B. McCullagh, Trustee for the Stephen B. & Pamela McCullagh Trust dated October 22, 2001, and Larry L. Wasem – SEP IRA.
10.1	Amendment No. 1, dated as of May 30, 1985, to Partnership Agreement of Health Care Property Partners, a California general partnership, the general partners of which consist of HCP and certain affiliates of Tenet (incorporated by reference to exhibit 10.1 to HCP’s annual report on Form 10-K for the year ended December 31, 1985).
10.2	HCP Second Amended and Restated Directors Stock Incentive Plan (incorporated by reference to exhibit 10.43 to HCP’s quarterly report on Form 10-Q for the period ended March 31, 1997).*
10.2.1	First Amendment to Second Amended and Restated Directors Stock Incentive Plan, effective as of November 3, 1999 (incorporated by reference to exhibit 10.1 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 1999).*
10.2.2	Second Amendment to Second Amended and Restated Directors Stock Incentive Plan, effective as of January 4, 2000 (incorporated by reference to exhibit 10.15 to HCP’s annual report on Form 10-K for the year ended December 31, 1999).*
10.3	HCP Second Amended and Restated Stock Incentive Plan (incorporated by reference to exhibit 10.44 to HCP’s quarterly report on Form 10-Q for the period ended March 31, 1997).*
10.3.1	First Amendment to Second Amended and Restated Stock Incentive Plan effective as of November 3, 1999 (incorporated by reference to exhibit 10.3 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 1999).*
10.4	HCP 2000 Stock Incentive Plan, effective as of May 7, 2003 (incorporated by reference to HCP’s Proxy Statement regarding HCP’s annual meeting of shareholders held May 7, 2003).*
10.4.1	Amendment to the Company’s Amended and Restated 2000 Stock Incentive Plan (effective as of May 7, 2003) (incorporated herein by reference to exhibit 10.1 to HCP’s current report on Form 8-K, dated January 28, 2005).*
10.5	HCP Second Amended and Restated Directors Deferred Compensation Plan (incorporated by reference to exhibit 10.45 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 1997).*
10.5.1	First Amendment to Second Amended and Restated Directors Deferred Compensation Plan, effective as of April 11, 1997 (incorporated by reference to exhibit 10.5.1 to HCP’s quarterly report on Form 10-Q for the period ended March 31, 2005).*
10.5.2	Second Amendment to Second Amended and Restated Directors Deferred Compensation Plan, effective as of July 17, 1997 (incorporated by reference to exhibit 10.5.2 to HCP’s quarterly report on Form 10-Q for the period ended March 31, 2005).*
10.5.3	Third Amendment to Second Amended and Restated Directors Deferred Compensation Plan, effective as of November 3, 1999 (incorporated by reference to exhibit 10.2 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 1999).*
10.5.4	Fourth Amendment to Second Amended and Restated Director Deferred Compensation Plan, effective as of January 4, 2000 (incorporated by reference to exhibit 10.19 to HCP’s annual report on Form 10-K for the year ended December 31, 1999).*
10.6	Various letter agreements, each dated as of October 16, 2000, among HCP and certain key employees of the Company (incorporated by reference to exhibit 10.12 to HCP’s annual report on Form 10-K for the year ended December 31, 2000).*
10.7	HCP Amended and Restated Executive Retirement Plan (incorporated by reference to exhibit 10.13 to HCP’s annual report on Form 10-K for the year ended December 31, 2001).*

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10.8	Amended and Restated Limited Liability Company Agreement dated November 20, 1998 of HCPI/Indiana, LLC (incorporated by reference to exhibit 10.15 to HCP’s annual report on Form 10-K for the year ended December 31, 1998).
10.9	Amended and Restated Limited Liability Company Agreement dated January 20, 1999 of HCPI/Utah, LLC (incorporated by reference to exhibit 10.16 to HCP’s annual report on Form 10-K for the year ended December 31, 1998).
10.10	Cross-Collateralization, Cross-Contribution and Cross-Default Agreement, dated as of July 20, 2000, by HCP Medical Office Buildings II, LLC, and Texas HCP Medical Office Buildings, L.P., for the benefit of First Union National Bank (incorporated by reference to exhibit 10.20 to HCP’s annual report on Form 10-K for the year ended December 31, 2000).
10.11	Cross-Collateralization, Cross-Contribution and Cross-Default Agreement, dated as of August 31, 2000, by HCP Medical Office Buildings I, LLC, and Meadowdome, LLC, for the benefit of First Union National Bank (incorporated by reference to exhibit 10.21 to HCP’s annual report on Form 10-K for the year ended December 31, 2000).
10.12	Amended and Restated Limited Liability Company Agreement dated August 17, 2001 of HCPI/Utah II, LLC (incorporated by reference to exhibit 10.21 to HCP’s annual report on Form 10-K for the year ended December 31, 2001).
10.12.1	First Amendment to Amended and Restated Limited Liability Company Agreement dated October 30, 2001 of HCPI/Utah II, LLC (incorporated by reference to exhibit 10.22 to HCP’s annual report on Form 10-K for the year ended December 31, 2001).
10.13	Employment Agreement dated October 8, 2002 between HCP and James F. Flaherty III (incorporated by reference to exhibit 10.24 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 2002).*
10.14	Amended and Restated Limited Liability Company Agreement dated as of October 2, 2003 of HCPI/Tennessee, LLC (incorporated by reference to exhibit 10.28 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 2003).
10.14.1	Amendment No.1 to Amended and Restated Limited Liability Company Agreement dated September 29, 2004 of HCPI/Tennessee, LLC (incorporated by reference to exhibit 10.37 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 2004).
10.14.2	Amendment No.2 to Amended and Restated Limited Liability Company Agreement dated October 29, 2004 of HCPI/Tennessee, LLC (incorporated by reference to exhibit 10.43 to HCP’s annual report on Form 10-K for the year ended December 31, 2004).
10.15	Employment Agreement dated October 1, 2003 between HCP and Charles A. Elcan (incorporated by reference to exhibit 10.29 to HCP’s quarterly report on Form 10-Q for the period ended September 30, 2003).*
10.15.1	Amendment No.1 to the Employment Agreement dated October 1, 2003 between HCP and Charles A. Elcan (incorporated herein by reference to exhibit 10.5 to HCP’s current report on Form 8-K, dated January 28, 2005).*
10.16	Form of Restricted Stock Agreement for employees and consultants effective as of May 7, 2003, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated by reference to exhibit 10.30 to HCP’s annual report on Form 10-K for the year ended December 31, 2003).*
10.17	Form of Restricted Stock Agreement for directors effective as of May 7, 2003, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated by reference to exhibit 10.31 to HCP’s annual report on Form 10-K for the year ended December 31, 2003).*

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10.18	Form of Performance Award Letter for employees effective as of May 7, 2003, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated by reference to exhibit 10.32 to HCP’s annual report on Form 10-K for the year ended December 31, 2003).*
10.19	Form of Stock Option Agreement for eligible participants effective as of May 7, 2003, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated by reference to exhibit 10.33 to HCP’s annual report on Form 10-K for the year ended December 31, 2003).*
10.20	Amended and Restated Executive Retirement Plan effective as of May 7, 2003 (incorporated by reference to exhibit 10.34 to HCP’s annual report on Form 10-K for the year ended December 31, 2003).*
10.21	Revolving Credit Agreement, dated as of October 26, 2004, among HCP, each of the banks identified on the signature pages hereof, Bank of America, N.A., as administrative agent, JPMorgan Chase Bank, as syndicating agent, Barclays Bank PLC, Wachovia Bank , National Association, and Wells Fargo Bank, N.A., as documentation agents, with Calyon New York Branch, Citicorp, USA, and Key National Association as managing agents, and Banc of America Securities LLC and J.P. Morgan Securities, Inc., as joint lead arrangers and joint book managers (incorporated herein by reference to exhibit 10.1 to HCP’s current report on Form 8-K (file no. 001-08895), dated November 1, 2004).
10.22	Form of CEO Performance Restricted Stock Unit Agreement with a five year installment vesting effective as of March 15, 2004, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 4.22 to HCP’s current report on Form 10-K, dated March 15, 2005).*
10.23	Form of CEO Performance Restricted Stock Unit Agreement with a three year cliff vesting effective as of March 15, 2004, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 4.22 to HCP’s current report on Form 10-K, dated March 15, 2005).*
10.24	Form of employee Performance Restricted Stock Unit Agreement with a five year installment vesting effective as of March 15, 2004, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 4.22 to HCP’s current report on Form 10-K, dated March 15, 2005).*
10.25	Form of employee Performance Restricted Stock Unit Agreement with a three year cliff vesting effective as of March 15, 2004, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 4.22 to HCP’s current report on Form 10-K, dated March 15, 2005).*
10.26	Form of CEO Performance Restricted Stock Unit Agreement with a five year installment vesting effective as of March 15, 2004, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 10.4 to HCP’s current report on Form 8-K, dated January 28, 2005).*
10.27	Form of CEO Performance Restricted Stock Unit Agreement with a three year cliff vesting, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 10.2 to HCP’s current report on Form 8-K, dated January 28, 2005).*

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10.28	Form of employee Performance Restricted Stock Unit Agreement with a five year installment vesting, as approved by the Compensation Committee of the Board of Directors of the Company, relating to the Company’s Amended and Restated 2000 Stock Incentive Plan (incorporated herein by reference to exhibit 10.3 to HCP’s current report on Form 8-K, dated January 28, 2005).*
31.1	Certification by James F. Flaherty III, the Company’s Principal Executive Officer, Pursuant to Securities Exchange Act Rule 13a-14(a).
31.2	Certification by Mark A. Wallace, the Company’s Principal Financial Officer, Pursuant to Securities Exchange Act Rule 13a-14(a).
32.1	Certification by James F. Flaherty III, the Company’s Principal Executive Officer, Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2	Certification by Mark A. Wallace, the Company’s Principal Financial Officer, Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

*Management Contract or Compensatory Plan or Arrangement.

For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant’s Registration Statement on Form S-8 Nos. 33-28483 and 333-90353 filed May 11, 1989 and November 5, 1999, respectively, Form S-8 Nos. 333-54786 and 333-54784 each filed February 1, 2001, and Form S-8 No. 333-108838 filed September 16, 2003.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

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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 thereunto duly authorized.

Date: August 2, 2005	HEALTH CARE PROPERTY INVESTORS, INC. (Registrant)
	/s/ Mark A. Wallace
	Mark A. Wallace
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)
	/s/ George P. Doyle
	George P. Doyle
	Vice President and Chief Accounting Officer (Principal Accounting Officer)

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EX-4.24

Exhibit 4.24

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 22, 2005, is entered into by and between Health Care Property Investors, Inc., a Maryland corporation (the “Company”), and the parties identified on the signature page hereof as a “Unitholder” (each, a “Unitholder” and collectively, the “Unitholders”).

RECITALS

WHEREAS, the Company, the Unitholders, HCP DR California, LLC, a Delaware limited liability company (the “Operating LLC”) and certain other parties have entered into that certain Contribution and Purchase Agreement and Joint Escrow Instructions dated as of July 22, 2005 (the “Contribution Agreement”) providing, among other things, for the contribution of certain properties by the Unitholders to the Operating LLC and the contribution of cash by the Company to the Operating LLC; and

WHEREAS, it is a condition to the closing of the transactions contemplated by the Contribution Agreement with respect to the Properties (as defined in the Contribution Agreement) that the parties hereto enter into this Agreement;

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

ARTICLE I.
DEFINITIONS

Section 1.1            Definitions. The following capitalized terms, as used in this Agreement, have the following meanings:

“Agreement” means this Registration Rights Agreement, as it may be amended, supplemented or restated from time to time.

“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in New York, New York or Los Angeles, California are authorized by law to close.

“Closing Price” means (i) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any, or (ii) if the Common Stock is not traded on an exchange but is quoted on the NASDAQ or a successor quotation system, (1) the last sales price (if the Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Common Stock as reported by NASDAQ or such successor quotation system or (iii) if the Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Common Stock.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock, par value $1.00 per share, of the Company.

“Company” has the meaning set forth in the preamble to this Agreement.

“Contribution Agreement” has the meaning set forth in the recitals to this Agreement.

“Demand Registration” has the meaning set forth in Section 3.1(a) hereof.

“Demand Registration Statement” has the meaning set forth in Section 3.1(a) hereof.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 “Full Conversion Date” has the meaning set forth in Section 2.1 hereof.

“Holder” means a Unitholder who is the record or beneficial owner of any Registrable Security or any assignee or transferee of such Registrable Security (including assignments or transfers of Registrable Securities to such assignees or transferees as a result of the foreclosure on any loans secured by such Registrable Securities) unless such Registrable Security is acquired in a sale pursuant to a registration statement under the Securities Act or pursuant to a transaction exempt from registration under the Securities Act, in each such case where the security sold in such transaction may be resold without subsequent registration under the Securities Act.

“Inspectors” has the meaning set forth in Section 3.2(h).

“Issuance Registration Statement” has the meaning set forth in Section 2.1.

“LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Operating LLC dated as of the date of this Agreement, as the same may be further amended, modified or restated from time to time.

“LLC Units” has the meaning set forth in the LLC Agreement.

“Operating LLC” has the meaning set forth in the recitals to this Agreement.

“Person” means an individual or a corporation, partnership, limited liability company, association, trust, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Piggyback Registration Statement” means any registration statement of the Company in which Registrable Securities are included pursuant to Section 3.1(b) hereof.

“Records” has the meaning set forth in Section 3.2(h).

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“Redeemable LLC Units” means LLC Units which may be redeemed for Common Stock pursuant to the LLC Agreement.

“Registration Expenses” has the meaning set forth in Section 3.4.

“Registrable Securities” means shares of Common Stock of the Company issued upon exchange of Redeemable LLC Units pursuant to the terms of the LLC Agreement at any time owned, either of record or beneficially, by any Holder unless and until (i) a registration statement covering such shares has been declared effective by the Commission and (A) the shares have been issued by the Company to a Holder upon exchange of Redeemable LLC Units pursuant to an effective registration statement or (B) have been sold or transferred by a Holder to another Person pursuant to an effective registration statement, (ii) such shares are sold pursuant to the provisions of Rule 144 under the Securities Act (or any similar provisions then in force) (“Rule 144”), (iii) such shares are held by a Holder who is not an affiliate of the Company within the meaning of Rule 144 (a “Rule 144 Affiliate”) and may be eligible for immediate sale pursuant to Rule 144(k) under the Securities Act, (iv) such shares are held by a Holder who is a Rule 144 Affiliate and all such shares may be sold pursuant to Rule 144 within a period of three months in accordance with the volume limitations set forth in Rule 144(e)(1), or (iv) such shares have been otherwise transferred in a transaction that would constitute a sale under the Securities Act and such shares may be resold without subsequent registration under the Securities Act.

 “Resale Prospectus” has the meaning set forth in Section 3.5.

“Resale Registration Statement” has the meaning set forth in Section 3.5.

“S-3 Expiration Date” means the date on which Form S-3 (or a similar successor form of registration statement) is not available to the Company for the registration of Registrable Securities pursuant to the Securities Act.

“Secondary Offering Security Holders” has the meaning set forth in Section 3.1(b).

“Securities Act” means the Securities Act of 1933, as amended.

“Selling Holder” means a Holder who is selling Registrable Securities pursuant to a Demand Registration Statement or a Piggyback Registration Statement.

“Supplemental Rights Period” has the meaning set forth in Section 3.1.

“Unitholder” has the meaning set forth in the preamble to this Agreement.

ARTICLE II.
REGISTRATION

Section 2.1            Registration Statement Covering Issuance of Common Stock.  The Company will use commercially reasonable efforts to file with the Commission a registration statement on Form S-3 (the “Issuance Registration Statement”) under Rule 415 under the Securities Act that complies as to form in all material respects with applicable

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Commission rules registering the issuance to Holders of all shares of Common Stock to be issued upon the redemption of the Redeemable LLC Units, such filing to be made (i) during the period beginning fourteen (14) days prior to the first date on which the Redeemable LLC Units issued pursuant to the Contribution Agreement may be redeemed for shares of Common Stock pursuant to the provisions of the LLC Agreement and ending fourteen (14) days after the first date such Redeemable LLC Units may be redeemed or (ii) during such other period as may be required by the Commission pursuant to its interpretation of applicable federal securities laws and the rules and regulations promulgated thereunder.  The Company shall use its commercially reasonable efforts to cause the Issuance Registration Statement filed with the Commission to be declared effective by the Commission as soon as practicable following the filing thereof and within sixty (60) days after the filing.  In the event the Company is unable to cause the Issuance Registration Statement to be declared effective by the Commission within sixty (60) days after the original filing date, then the rights of the Holders set forth in Sections 3.1 and 3.2 hereof shall apply to Registrable Securities.  Notwithstanding the availability of rights under Section 3.1 hereof, the Company shall continue to use its commercially reasonable efforts to cause the Issuance Registration Statement to be declared effective by the Commission and if it shall be declared effective by the Commission, the obligations of the Company under Section 3.1 hereof shall cease.  Subject to the provisions of Section 3.3 hereof, the Company agrees to use its commercially reasonable efforts to keep the Issuance Registration Statement continuously effective (a) until the earlier of (i) the S-3 Expiration Date, or (ii) the first date on which no Redeemable LLC Units (other than those held by the Company) or Registrable Securities remain outstanding (the “Full Conversion Date”).

ARTICLE III.
REGISTRATION RIGHTS

Section 3.1            Registration Rights.  The following provisions shall apply with respect to Registrable Securities during the period, if any, beginning on the earlier of (a) the S-3 Expiration Date (or, if the S-3 Expiration Date shall occur before the 30th day prior to the first date on which the Redeemable LLC Units issued pursuant to the Contribution Agreement may be exchanged for shares of Common Stock, beginning on such 30th prior day), (b) the Company’s failure to file the Issuance Registration Statement by the last day on which the Issuance Registration Statement may be filed as provided in Section 2.1 or (c) if the Issuance Registration Statement has been filed but has not been declared effective by the Commission within sixty (60) days after such original filing date, the sixtieth (60th) day after the original filing date, and ending on the Full Conversion Date (the “Supplemental Rights Period”);provided, however, that, except as permitted in Section 3.3 hereof, if the Company is unable to keep the Issuance Registration Statement effective until the Full Conversion Date, the Holders shall be entitled to exercise the rights provided under this Section 3.1.  During the Supplemental Rights Period, the Holders shall have the following rights:

(a)           Demand Rights.  Holders may make a written demand for registration under the Securities Act of all or part of the Registrable Securities (a “Demand Registration”); provided, however, that (i) the Company shall not be obligated to effect more than two (2) Demand Registrations for Holders in any twelve month period, and (ii) the number of Registrable Securities proposed to be sold by the Holder(s) making such written demand either (x) shall be all the Registrable Securities owned by, or that may be issued upon exchange

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of Redeemable LLC Units to, such Holders , (y) shall have an estimated market value at the time of such demand (based upon the then market price of a share of Common Stock) of at least $2,000,000 or (z) shall not be less than 100,000 shares of Common Stock.  The Company shall file any registration statement required by this Section 3.1(a), which registration statement shall comply as to form in all material respects with applicable Commission rules providing for the sale by the Holder(s) of such Registrable Securities (a “Demand Registration Statement”), with the Commission within thirty (30) days after receipt of the requisite Holder demand and shall use its commercially reasonable efforts to cause the Demand Registration Statement to be declared effective by the Commission as soon as practicable thereafter.  The Company shall give written notice of the proposed filing of the Demand Registration Statement to all Holders of Registrable Securities and Redeemable LLC Units as soon as practicable (but in no event less than twenty (20) days before the anticipated filing date), and such notice shall offer such Holders the opportunity to participate in such Demand Registration and to register such number of shares of Registrable Securities as each such Holder may request.  The Company shall use its commercially reasonable efforts to keep each such Demand Registration Statement continuously effective for a period of one hundred eighty (180) days (such period, in each case, to be extended by the number of days, if any, during which Holders were not permitted to make offers or sales under the Demand Registration Statement by reason of Section 3.3 hereof); provided that in no case shall the Company be obligated to maintain the effectiveness of any Demand Registration Statement once all the Registrable Securities covered thereby cease to be Registrable Securities.  The Company may elect to include in any Demand Registration Statement additional shares of Common Stock to be issued by the Company; provided, however, that the inclusion of such additional shares will not adversely affect the marketability of the offering and, subject, in the case of an underwritten secondary Demand Registration, to cutback by the managing underwriters.  A registration shall not constitute a Demand Registration under this Section 3.1(a): (i) unless and until the Demand Registration Statement has been declared effective or (ii) if the Demand Registration Statement is suspended for more than ninety (90) days at any one time.  Notwithstanding any provision of this Section 3.1(a) to the contrary, the Company shall have the option, in its sole discretion, to register pursuant to any Demand Registration Statement, along with Registrable Securities that Holders have requested to be included in such Demand Registration Statement in accordance with this Section 3.1(a), any or all additional Registrable Securities that are outstanding or issuable upon exchange of Redeemable LLC Units (such additional Registrable Securities, the “Additional Demand Securities”); provided, however, that if the Company elects to register any Additional Demand Securities in any Demand Registration Statement, the Company shall use its commercially reasonable efforts to keep such Demand Registration Statement continuously effective for the longer of (A) one hundred eighty (180) days (such period, in each case, to be extended by the number of days, if any, during which Holders were not permitted to make offers or sales under the Demand Registration Statement by reason of Section 3.3 hereof) or (B) until all Registrable Securities covered thereby cease to be Registrable Securities; provided, further, that in no case shall the Company be obligated to maintain the effectiveness of any such Demand Registration Statement once all the Registrable Securities covered thereby cease to be Registrable Securities.

(b)           Piggyback Rights.  If the Company at any time during the Supplemental Rights Period proposes to file a registration statement under the Securities Act with respect to an offering of shares of Common Stock for its own account or for the account of any holders of shares of its Common Stock, in each case solely for cash (other than Demand

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Registration Statement (in which case the ability of a Holder to participate in such Demand Registration Statement shall be governed by Section 3.1(a) hereof) or a registration statement (i) on Form S-8 or any successor form to Form S-8 or in connection with any employee or director welfare, benefit or compensation plan, (ii) in connection with an exchange offer or an offering of securities exclusively to existing security holders of the Company or its subsidiaries or (iii) relating to a transaction pursuant to Rule 145 of the Securities Act), the Company shall give written notice of the proposed registration to the record owners of Registrable Securities and Redeemable LLC Units at least twenty (20) days prior to the filing of the registration statement.  The Holders of Registrable Securities shall have the right to request that all or any part of its Registrable Securities be included in the registration statement by giving written notice to the Company within ten (10) days after receipt of the foregoing notice by the Company; provided, however, (A) if the registration relates to an underwritten primary offering on behalf of the Company and the managing underwriters of the offering determine in good faith that the aggregate amount of securities which the Company, Holders of Registrable Securities and holders of other piggyback registration rights propose to include in the registration statement exceeds the maximum amount of securities that could practicably be included therein without adversely affecting the marketability of the offering, then the Company will include in the registration, up to such maximum amount, first, the securities which the Company proposes to sell, and second, pro rata, the Registrable Securities requested to be included and the securities proposed to be included by any holders of other piggyback registration rights, and (B) if the registration is an underwritten secondary registration on behalf of any of the other security holders of the Company (the “Secondary Offering Security Holders”) and the managing underwriters determine in good faith that the aggregate amount of securities which the Holders of Registrable Securities, the Secondary Offering Security Holders and the holders of other piggyback registration rights propose to include in such registration statement exceeds the maximum amount of securities that could practicably be included therein without adversely affecting the marketability of the offering, then the Company will include in the registration, up to such maximum amount, first, the securities to be sold for the account of the Secondary Offering Security Holders, and second, pro rata, the Registrable Securities requested to be included in such registration and the securities proposed to be included by any holders of other piggyback registration rights.  The Company shall use its commercially reasonable efforts to cause, but shall not be obligated to cause, the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a piggyback registration to be included on the same terms and conditions as any similar securities of the Company included therein.  It is understood, however, that the underwriters shall have the right to terminate entirely the participation of the Holders of Registrable Securities if the underwriters eliminate entirely the participation in the registration of all the other holders electing to include securities in the registration (other than the Company and the Secondary Offering Security Holders) because it is not practicable to include such securities in the registration.  If the registration is not an underwritten registration, then all of the Registrable Securities requested to be included in the registration shall be included.  Registrable Securities proposed to be registered and sold pursuant to an underwritten offering for the account of the Holders of Registrable Securities shall be sold to prospective underwriters selected by the Company and on the terms and subject to the conditions of one or more underwriting agreements negotiated between the Company, the Secondary Offering Security Holders, the Holders of Registrable Securities and any other holders demanding registration and the prospective

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underwriters.  Registrable Securities need not be included in any registration statement pursuant to this provision if in the opinion of counsel to the Company (a copy of which opinion is delivered to the record owners of Registrable Securities) registration under the Securities Act is not required for public distribution of the Registrable Securities.  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3.1(b) prior to the effectiveness of the registration statement whether or not any holder has elected to include any Registrable Securities in the registration statement.

(c)           Company Repurchase. Upon receipt by the Company of a registration demand pursuant to Section 3.1(a), the Company may, but will not be obligated to, purchase for cash from any Holder so requesting registration all, but not less than all, of the Registrable Securities which are the subject of the request at a price per share equal to the average of the Closing Prices of a share of Common Stock for the ten (10) trading days immediately preceding the date of receipt by the Company of the registration request.  In the event the Company elects to purchase the Registrable Securities which are the subject of a registration request, the Company shall notify the Holder within five (5) Business Days of the date of receipt of the request by the Company, which notice shall indicate (i) that the Company will purchase for cash the Registrable Securities held by the Holder which are the subject of the request, (ii) the price per share, calculated in accordance with the preceding sentence, which the Company will pay the Holder and (iii) the date upon which the Company shall purchase the Registrable Securities, which date shall not be later than the tenth (10^th) Business Day after receipt of the registration request.  If the Company so elects to purchase the Registrable Securities which are the subject of a registration request, then upon such purchase the Company shall be relieved of its obligations under this Section 3.1 with respect to such Registrable Securities.

Section 3.2            Additional Registration Procedures.  In connection with any registration statement filed by the Company pursuant to Section 2.1 or 3.1 hereof:

(a)           Each Holder agrees to provide in a timely manner information requested by the Company regarding the proposed distribution by that Holder of the Registrable Securities and all other information reasonably requested by the Company in connection with the preparation of the registration statement covering the Registrable Securities.

(b)           Subject to Section 3.3 hereof, the Company will prepare and file with the Commission such amendments and supplements as to the registration statement and the prospectus used in connection therewith as may be necessary (i) to keep such registration statement effective and (ii) to comply with the provisions of the Securities Act with respect to the disposition of the securities covered by such registration statement, in each case for such time as is contemplated in Section 2.1 or 3.1 above.

(c)           The Company will, if requested by any of the Holders, prior to filing a registration statement or prospectus, or any amendment or supplement thereto in connection with any Demand Registration Statement or Piggyback Registration Statement, furnish to each Selling Holder and each underwriter, if any, of the Registrable Securities covered by such registration statement or prospectus copies of such registration statement or prospectus or any amendment or supplement thereto as proposed to be filed, and thereafter will furnish,

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without charge, to each Selling Holder and underwriter, if any, such number of conformed copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Selling Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Selling Holder.  The Company shall also promptly notify each Selling Holder of Registrable Securities covered by any Demand Registration Statement or Piggyback Registration Statement when such registration statement, or any post-effective amendment thereto, has become effective.

(d)           After the filing of the registration statement, the Company will promptly notify each holder of securities covered by the registration statement of any stop order issued or threatened by the Commission and shall take all commercially reasonable actions required to prevent the entry of such stop order or to remove it if entered.

(e)           In connection with any Demand Registration Statement or Piggyback Registration Statement, the Company will use commercially reasonable efforts to register or qualify the Registrable Securities under such state securities or blue sky laws of those jurisdictions in the United States (where an exemption is not available) as any Selling Holder or managing underwriter or underwriters, if any, reasonably (in light of the Selling Holder’s intended plan of distribution) requests, and shall use commercially reasonable efforts to keep each such registration or qualification effective during the period such registration statement is required to be kept effective pursuant to this Agreement, and to do any and all other similar acts and things which may be reasonably necessary or advisable to enable the Holders to consummate the disposition of the Registrable Securities owned by the Holders in each such jurisdiction; provided, however, that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (ii) subject itself to taxation in any jurisdiction where it would not otherwise be subject to taxation or (iii) consent to general service of process in any jurisdiction where it is not then so subject.

(f)            In connection with any Demand Registration Statement or Piggyback Registration Statement, the Company will enter into customary agreements (including an underwriting agreement, if any, in customary form) as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities pursuant to the Demand Registration Statement or Piggyback Registration Statement.  Each Selling Holder participating in an underwritten offering shall also enter into and perform its or his obligations under the underwriting agreement.

(g)           The Company shall cause all such Registrable Securities to be listed on each securities exchange on which the Common Stock of the Company is then listed.

(h)           If the Registrable Securities are of a class of securities that is listed on a national securities exchange, file copies of any prospectus covering Registrable Securities with such exchange so that the Selling Holders shall benefit from the prospectus delivery procedures described in Rule 153 under the Securities Act.

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(i)            The Company will promptly notify each Selling Holder of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the existence of any fact of which the Company is aware or the occurrence of an event requiring the preparation of a supplement or amendment to either the registration statement or related prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such registration statement or related prospectus, both as then in effect, will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances then existing, not misleading and promptly make available to each Selling Holder a reasonable number of copies of any such supplement or amendment.

(j)            The Company will make available for inspection by any Selling Holder of such Registrable Securities, any underwriter participating in any disposition pursuant to such Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any such Selling Holder or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”) as shall be reasonably necessary to enable them to discharge their due diligence responsibility under the Securities Act, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with the discharge of their due diligence responsibility.  Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction.  Each Selling Holder of such Registrable Securities agrees that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its Affiliates or otherwise disclosed by it unless and until such is made generally available to the public and further agrees, if the Company so requests, to enter into a confidentiality agreement with the Company that is reasonably acceptable to the Selling Holder and the Company.  Each Selling Holder of such Registrable Securities further agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential.

(k)           If requested by any Holder participating in the offering of Registrable Securities, incorporate in a prospectus supplement or post-effective amendment such information concerning the Holder or the intended method of distribution as the Holder reasonably requests to be included therein and is reasonably necessary to permit the sale of the Registrable Securities pursuant to the registration statement, including, without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other material terms of the offering of the Registrable Securities to be sold in such offering; provided, however, that the Company shall not be obligated to include in any such prospectus supplement or post-effective amendment any requested information that is not required by the rules of the Commission and is unreasonable in scope compared with the Company’s most recent prospectus or prospectus supplement used in connection with a primary or secondary offering of equity securities by the Company; provided, further, that the Company

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shall not be required to file more than one (1) prospectus supplement or post-effective amendment pursuant to this Section 3.2(k) in any six month period.

(l)            In connection with a disposition of the Registrable Securities in which there is a participating underwriter or underwriters, the Company will furnish to each Selling Holder and to each underwriter, a signed counterpart, addressed to such Selling Holder or underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company’s independent public accountants (to the extent permitted by the standards of the American Institute of Certified Public Accountants), each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the Holders of a majority of the Registrable Securities included in such offering or the managing underwriter or underwriters therefor reasonably requests.

(m)          The Company will otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of twelve (12) months, beginning within three (3) months after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder (or any successor rule or regulation hereafter adopted by the Commission).

(n)           Provide and cause to be maintained a transfer agent for all Registrable Securities covered by the registration statement from and after a date not later than the effective date of the registration statement.

Section 3.3            Material Developments; Suspension of Offering.

(a)           Notwithstanding the provisions of Sections 2.1 or 3.1 hereof or any other provisions of this Agreement to the contrary, the Company shall not be required to file a registration statement or to keep any registration statement effective if the negotiation or consummation of a transaction by the Company or any of its subsidiaries is pending or an event has occurred, which negotiation, consummation or event would require additional disclosure by the Company in the registration statement of material information which the Company (in the reasonable judgment of management of the Company) has a bona fide business purpose for keeping confidential and the nondisclosure of which in the registration statement would be expected, in the Company’s reasonable determination, to cause the registration statement to fail to comply with applicable disclosure requirements; provided, however, that the Company (i) will promptly notify the Holders of Registrable Securities otherwise entitled to registration of a delay, suspension or withdrawal pursuant to this Section 3.3(a) and (ii) may not delay, suspend or withdraw the registration statement for such reason under this Section 3.3(a) more than twice in any twelve (12) month period or three times in any twenty-four (24) month period or for more than ninety (90) days at any time.  Upon receipt of any notice from the Company of the happening of any event during the period the registration statement is effective which is of a type specified in the preceding sentence or as a result of which the registration statement or related prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made not misleading, the Holders agree that they will

10

immediately discontinue offers and sales of the Registrable Securities under the registration statement (until they receive copies of a supplemental or amended prospectus that corrects the misstatements or omissions and receive notice that any post-effective amendment has become effective or unless notified by the Company that they may resume such offers and sales).  If so directed by the Company, Holders will deliver to the Company any copies of the prospectus covering the Registrable Securities in their possession at the time of receipt of such notice.  Each Holder agrees to keep confidential the fact that the Company has exercised its rights under this Section 3.3 and all facts and circumstances relating to such exercise until such information is made public by the Company.

(b)           If all reports required to be filed by the Company pursuant to the Exchange Act have not been filed by the required date without regard to any extension, or if the consummation of any business combination by the Company has occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation S-X under the Securities Act, upon written notice thereof by the Company to the Holders, the rights of the Holders to acquire Registrable Securities pursuant to the Issuance Registration Statement or to offer, sell or distribute any Registrable Securities pursuant to any Demand Registration Statement or Piggyback Registration Statement or to require the Company to take action with respect to the registration of any Registrable Securities pursuant to this Agreement shall be suspended until the date on which the Company has filed such reports or obtained and filed the financial information required by Rule 3-05 or Article 11 of Regulation S-X to be included or incorporated by reference, as applicable, in the Issuance Registration Statement, the Demand Registration Statement or the Piggyback Registration Statement and the Company shall notify the Holders as promptly as practicable when such suspension is no longer required.  The Company’s rights to suspend its obligations under this Section 3.3(b) shall be in additional to its rights under Section 3.3(a).

Section 3.4            Registration Expenses.  In connection with any registration statement required to be filed hereunder, except as provided below, the Company shall pay all registration expenses incurred in connection with the registration (the “Registration Expenses”), including the following: (i) all registration and filing fees, (ii) fees and expenses of compliance with securities or blue sky laws (including the fees and expenses of counsel to the Company), (iii) printing and distribution expenses, (iv) internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing of the Registrable Securities on each securities exchange on which similar securities issued by the Company are then listed, (vi) fees and disbursements of counsel for the Company and the independent public accountants of the Company, and (vii) the fees and expenses of any experts retained by the Company in connection with such registration; provided, however, that, promptly after the filing of the first registration statement hereunder, Aegis Assisted Living, LLC shall pay or cause to be paid to the Company an aggregate of $75,000 as provided in the Contribution Agreement. The Holders shall be responsible for the payment of any and all other expenses incurred by them in connection with the registration and sale of Registrable Securities, including, without limitation, brokerage and sales commissions, underwriting and placement agent fees, discounts and commissions attributable to the Registrable Securities, fees and disbursements of counsel representing the Holders, all salaries and expenses of its officers and employees performing legal or accounting duties and any transfer taxes relating to the sale or disposition of the Registrable Securities.

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Section 3.5            Indemnification by the Company.  The Company agrees to indemnify and hold harmless each Selling Holder, its partners, members, officers, directors, employees, representatives, and agents, and each Person, if any, who controls such Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, actions, damages, liabilities, costs and expenses (including, without limitation, but subject to the provisions of Section 3.7 hereof, reasonable attorneys’ fees and disbursements) caused by any untrue statement or alleged untrue statement of a material fact contained in any Demand Registration Statement or Piggyback Registration Statement (or any amendment thereto) (individually, a “Resale Registration Statement”), including all documents incorporated therein by reference, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus (or any amendment thereto) contained in a Resale Registration Statement at the time it became effective (a “Resale Prospectus”), including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information furnished in writing to the Company by such Selling Holder or on such Selling Holder’s behalf expressly for inclusion therein; provided, however, that the Company will not be liable in any case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission contained in a Resale Prospectus which was corrected in a supplement or amendment thereto if such claim is brought by a purchaser of Registrable Securities from the Selling Holder and the Selling Holder failed to deliver to such purchaser the supplement or amendment to the Resale Prospectus in a timely manner.

Section 3.6            Indemnification by Holders of Registrable Securities.  Each Selling Holder of Registrable Securities covered by a Resale Registration Statement agrees to indemnify and hold harmless the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in Section 3.5 from the Company to Selling Holders, but only with respect to information relating to such Selling Holder furnished in writing by such Selling Holder or on such Selling Holder’s behalf expressly for use in any Resale Registration Statement or Resale Prospectus or any amendment or supplement thereto.  Each Holder also agrees to indemnify and hold harmless underwriters of the Registrable Securities, their officers and directors and each Person who controls such underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act on substantially the same basis as that of the indemnification of the Company provided in this Section 3.6.

Section 3.7            Conduct of Indemnification Proceedings.  Each indemnified party shall give reasonably prompt notice to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify the indemnifying party (i) shall not relieve it from any liability which it may have under the indemnity agreement provided in Section 3.5 or 3.6 above, unless and to the extent it did not otherwise learn of such action and the lack of notice by the indemnified party results in the

12

forfeiture by the indemnifying party of substantial rights and defenses and (ii) shall not, in any event, relieve the indemnifying party from any obligations to the indemnified party other than the indemnification obligation provided under Section 3.5 or 3.6 above.  If the indemnifying party so elects within a reasonable time after receipt of notice, the indemnifying party may assume the defense of the action or proceeding at the indemnifying party’s own expense with counsel chosen by the indemnifying party and approved by the indemnified party, which approval shall not be unreasonably withheld; provided, however, that the indemnifying party will not settle, compromise or consent to the entry of any judgment with respect to any such action or proceeding without the written consent of the indemnified party unless such settlement, compromise or consent secures the unconditional release of the indemnified party; provided, further, that if the defendants in any such action or proceeding include both the indemnified party and the indemnifying party and the indemnified party reasonably determine based upon advice of legal counsel experienced in such matters, that there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party, then the indemnifying party shall not be entitled to assume the defense of the indemnified party and the indemnified party shall be entitled to separate counsel at the indemnifying party’s expense, which counsel shall be chosen by the indemnified party and approved by the indemnifying party, which approval shall not be unreasonably withheld; and provided, further, that it is understood that the indemnifying party shall not be liable for the fees, charges and disbursements of more than one separate firm.  If the indemnifying party is not entitled to assume the defense of such action or proceeding as a result of the second proviso to the preceding sentence, the indemnifying party’s counsel shall be entitled to conduct the indemnifying party’s defense and counsel for the indemnified party shall be entitled to conduct the defense of the indemnified party, it being understood that both such counsel will cooperate with each other, to the extent feasible in light of the conflict of interest or different available legal defenses, to conduct the defense of such action or proceeding as efficiently as possible.  If the indemnifying party is not so entitled to assume the defense of such action or does not assume the defense, after having received the notice referred to in the first sentence of this Section 3.7, the indemnifying party will pay the reasonable fees and expenses of counsel for the indemnified party; in that event, however, the indemnifying party will not be liable for any settlement effected without the written consent of the indemnifying party.  If an indemnifying party is entitled to assume, and assumes, the defense of an action or proceeding in accordance with this Section, the indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified party incurred thereafter in connection with that action or proceeding except as set forth in the proviso in the second sentence of this Section 3.7.  Unless and until a final judgment is rendered that an indemnified party is not entitled to the costs of defense under the provisions of this Section, the indemnifying party shall reimburse, promptly as they are incurred, the indemnified party’s costs of defense.

Section 3.8            Contribution.

(a)           If the indemnification provided for in Section 3.5 or 3.6 hereof is applicable in accordance with its terms, but if determined by a court of competent jurisdiction to be legally unenforceable in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by indemnified party as a result of such losses, claims, damages or liabilities as between the Company on the one hand and each Selling Holder on the

13

other, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and of each Selling Holder on the other in connection with such statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations.  The relative fault of the Company on the one hand and of each Selling Holder on the other shall be determined by reference to, among other things, whether the action in question, including any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, the Company or such Selling Holder, and the Company’s and the Selling Holder’s relative intent, knowledge, access to information and opportunity to correct or prevent such action.

(b)           The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in Section 3.8(a).  The amount paid or payable by an indemnifying party as a result of the losses, claims, damages or liabilities referred to in Sections 3.5 and 3.6 hereof shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by the indemnified party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 3.8, no Selling Holder shall be required to contribute any amount in excess of the amount of the total proceeds to such Selling Holder from sales of the Registrable Securities of the Selling Holder under the registration statement that is the subject of the claim.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  For purposes of this Section 3.8, each person, if any, who controls a Selling Holder within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Selling Holder, and each director of the Company, each officer of the Company who signed a registration statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company.

Section 3.9            Participation in Underwritten Registrations.  No Holder may participate in any underwritten registration hereunder unless the Holder (a) agrees to sell his or its Registrable Securities on the basis provided in the applicable underwriting arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents in customary form as reasonably required under the terms of such underwriting arrangements.

Section 3.10         Holdback Agreements.  Each Holder whose securities are included in a Demand Registration Statement or Piggyback Registration Statement agrees not to effect any sale or distribution of the securities registered or any similar security of the Company, or any securities convertible into or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 under the Securities Act, during the fourteen (14) days prior to, and during the ninety (90)-day period beginning on, the effective date of such registration statement (except as part of such registration) if and to the extent requested in writing by the managing underwriter or underwriters in the case of an underwritten public offering.

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ARTICLE IV.
MISCELLANEOUS

Section 4.1            Specific Performance.  The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to seek specific performance of the obligations, covenants and agreements of any other party under this Agreement in accordance with the terms and conditions of this Agreement in any court of the United States or any State thereof having jurisdiction.

Section 4.2            Amendments and Waivers.  The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the prior written consent of the Company and the Holders holding at least a majority of the then outstanding Registrable Securities and Redeemable LLC Units, taken together as one class assuming all Redeemable LLC Units were exchanged for Registrable Securities.  No failure or delay by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon any breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition.

Section 4.3            Notices.  Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given (a) when delivered by hand or upon transmission by telecopier or similar facsimile transmission device, (b) on the date delivered by a courier service, or (c) on the third Business Day after mailing by registered or certified mail, postage prepaid, return receipt requested, in any case addressed as follows:

(a)           if to any Holder, to such Holder at the address set forth under such Holder’s name on the signature page hereto, or to such other address and to such other Persons as the Holders may hereafter notify the Company in writing; and

(b)           if to the Company, to Health Care Property Investors, Inc., 3760 Kilroy Airport Way, Suite 300, Long Beach, California 90806 (Attention:  Legal Department), or to such other address as the Company may hereafter specify in writing.

Section 4.4            Successors and Assigns.  The rights and obligations of the Holders under this Agreement shall not be assignable by any Holder to any Person that is not a Holder; provided,however, that a Unitholder may assign its rights and obligations hereunder, following prior written notice to the Company, to a permitted transferee in connection with a transfer of some or all of such Unitholder’s LLC Units in accordance with the terms of the LLC Agreement, if such transferee agrees in writing to be bound by all of the provisions hereof.  This Agreement shall be binding upon the parties hereto, the Holders and their respective successors and assigns (including lenders in foreclosure).

Section 4.5            Counterparts.  This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so

15

executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

Section 4.6            Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of California without regard to the conflicts of law provisions thereof.

Section 4.7            Severability.  In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

Section 4.8            Entire Agreement.  This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter of this Agreement.

Section 4.9            Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of any provision of this Agreement.

Section 4.10         Selling Holders Become Party to this Agreement.  By asserting or participating in the benefits of registration of Registrable Securities pursuant to this Agreement, each Holder agrees that it or he will be deemed a party to this Agreement and be bound by each of its terms.

Section 4.11         Rule 144.  The Company covenants that it will file any reports required to be filed by it under the Securities Act and the Exchange Act to the extent required from time to time to enable Holders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission.  Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has filed such reports.  In connection with any sale, transfer or other disposition by a Holder of any Registrable Securities pursuant to Rule 144 under the Securities Act, the Company shall cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold and not bearing any Securities Act legend, and enable certificates for such Registrable Securities to be for such number of shares and registered in such names as Holder may reasonably request; provided, that any such request shall be made at least five (5) Business Days prior to any sale of Registrable Securities hereunder.

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

COMPANY:
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By:		/s/ Stephen R. Maulbetsch
Name:		Stephen R. Maulbetsch
Title:		Executive Vice President
UNITHOLDERS:
/s/ William P. Gallaher
William P. Gallaher, Trustee for the William P.
& Cynthia L. Trust
/s/ Dwayne J. Clark
Dwayne J. Clark, an individual
See Schedule A for additional Unitholders:
By:	/s/ William P. Gallaher
	William P. Gallaher, as attorney-in-fact
	for each Unitholder other than those Unitholders
	whose signature appears above
	Address for Notices to Unitholders:
	[See Schedule A attached hereto]

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Schedule A to
Registration Rights Agreement

Unitholders		Addresses
1	William P. Gallaher, Trustee for the William P. & Cynthia J. Gallaher Trust	220 Concourse Blvd., Santa Rosa, CA 95403
2	Dwayne J. Clark	18200 NE Union Hill Rd., Suite 110, Redmond, WA 98052
3	Patrick R. Gallaher, Trustee for the Patrick R. & Cynthia M. Gallaher Trust	531 Sauvignon Place, Windsor, CA 95492
4	Jeffrey D. Civian, Trustee for the Jeffrey D. Civian Trust dated August 8, 1986	3375 Montecito Lane, Santa Rosa, CA 95404
5	Jeffrey Meyer	8335 Starr Rd., Windsor, CA 95492
6	Steven L. Gallaher	2 Rutland Ct., Alameda, CA 94502
7	Richard Coombs	9982 Troon Ct., Windsor, CA 95492
8	Larry L. Wasem	414 Aviation Blvd., Santa Rosa, CA 95403
9	Joseph H. Ward, Jr., Trustee for the Joseph H. Ward, Jr. and Pamela K. Ward Trust	2170 Grace Dr., Santa Rosa, CA 95404
10	Borue H. O’Brien	200 Queens Lane, Petaluma, CA 94952
11	William R. Mabry	6840 Giovanetti Rd., Forestville, CA 95436
12	Charles N. Elsbree, Trustee for the Charles N. Elsbree Jr. Living Trust dated February 14, 2002	P.O. Box 867, Windsor, CA 95492
13	Gary A. Robinson	6171 Anderson Rd., Forestville, CA 95436
14	Thomas H. Persons, Trustee for the Persons Family Revocable Trust under trust dated February 15, 2005	500 Washington St., Suite 700, San Francisco, CA 94111
15	Glen Hammel	3540 Mono Place, Davis, CA 95616
16	Marilyn E. Montero	6171 Anderson Rd., Forestville, CA 95436
17	Joseph G. Lin, Trustee for the Lin Revocable Living Trust	220 Concourse Blvd., Santa Rosa, CA 95403
18	Ned B. Stein	326 Blabcock Rd., Houston, TX 77024
19	John Gladstein, Trustee for the John & Andrea Gladstein Family Trust dated February 11, 2003	3350 Calistoga Rd., Santa Rosa, CA 95404
20	Francis Connelly, Trustee for the The Francis J & Shannon A Connelly Trust	P.O. Box 972 St., Helena, CA 94574
21	Al Coppin, Trustee for the Al Coppin Trust	1355 N. Dutton Ave., Santa Rosa, CA 95401
22	Stephen B. McCullagh, Trustee for the Stephen B. & Pamela McCullagh Trust dated October 22, 2001	3564 Foxwood Pl., Santa Rosa, CA 95405
23	Larry L. Wasem – SEP IRA	414 Aviation Blvd., Santa Rosa, CA 95403

S-A

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James F. Flaherty III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Health Care Property Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 2, 2005	/s/ JAMES F. FLAHERTY III
	James F. Flaherty III
	Chairman and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Mark A. Wallace, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Health Care Property Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 2, 2005	/s/ MARK A. WALLACE
	Mark A. Wallace
	Senior Vice President and Chief Financial Officer  (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Health Care Property Investors, Inc., a Maryland corporation (the “Company”), hereby certifies, to his knowledge, that:

(i) the accompanying quarterly report on Form 10-Q of the Company for the period ended June 30, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 2, 2005	/s/ JAMES F. FLAHERTY III
	James F. Flaherty III
	Chairman and Chief Executive Officer (Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Health Care Property Investors, Inc. and will be retained by Health Care Property Investors, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Health Care Property Investors, Inc., a Maryland corporation (the “Company”), hereby certifies, to his knowledge, that:

(i) the accompanying quarterly report on Form 10-Q of the Company for the period ended June 30, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 2, 2005	/s/ MARK A. WALLACE
	Mark A. Wallace
	Senior Vice President and Chief Financial Officer (Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Health Care Property Investors, Inc. and will be retained by Health Care Property Investors, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.