Real Estate Transactions

Dispositions of Real Estate

Held for Sale

At September 30, 2018, 14 SHOP facilities, 11 senior housing triple-net facilities and one undeveloped life science land parcel were classified as held for sale, with an aggregate carrying value of $423 million, primarily comprised of real estate assets of $407 million, net of accumulated depreciation of $109 million. At December 31, 2017, two senior housing triple-net facilities, four life science facilities and six SHOP facilities were classified as held for sale, with an aggregate carrying value of $417 million, primarily comprised of real estate assets of $393 million, net of accumulated depreciation of $93 million. Liabilities of assets held for sale is primarily comprised of intangible and other liabilities at both September 30, 2018 and December 31, 2017.

RIDEA II Sale Transaction

In January 2017, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated JV owned by HCP and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (the “HCP/CPA JV”). Also in January 2017, RIDEA II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by HCP. In return for both transaction elements, the Company received combined proceeds of $480 million from the HCP/CPA JV and $242 million in loans receivable and retained an approximately 40% ownership interest in RIDEA II. This transaction resulted in the Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. Refer to Note 2 for the impact of adopting the Revenue ASUs on January 1, 2018 to the Company’s partial sale of RIDEA II in the first quarter of 2017.

On November 1, 2017, the Company entered into a definitive agreement with an investor group led by CPA to sell its remaining 40% ownership interest in RIDEA II for $90 million and cause CPA to refinance the Company’s $242 million of loans receivable from RIDEA II. The Company completed the transaction in June 2018, resulting in proceeds of $332 million. The Company no longer holds an economic interest in RIDEA II.

U.K. Portfolio

In June 2018, the Company entered into a joint venture with an institutional investor (the “U.K. JV”) through which the Company sold a 51% interest in substantially all United Kingdom (“U.K.”) assets previously owned by the Company (the “U.K. Portfolio”) based on a total value of £382 million ($507 million). The Company retained a 49% noncontrolling interest in the joint venture and received gross proceeds of $402 million, including proceeds from the refinancing of the Company’s previously held intercompany loans. Upon closing the U.K. JV, the Company deconsolidated the U.K. Portfolio, recognized its retained noncontrolling interest investment at fair value ($105 million) and recognized a gain on sale of $11 million, net of $17 million of cumulative foreign currency translation reclassified from other comprehensive income (see Note 18 for the reclassification impact of the Company’s hedge of its net investment in the U.K.). The U.K. JV provides numerous mechanisms by which the joint venture partner can acquire the Company’s remaining interest in the U.K. JV. The fair value of the Company’s retained noncontrolling interest investment is based on Level 2 measurements within the fair value hierarchy.

Additionally, in August 2018, the Company sold its remaining £11 million U.K. development loan at par.

2018 Dispositions

During the quarter ended March 31, 2018, the Company sold two SHOP assets for $35 million, resulting in total gain on sales of $21 million (includes asset sales to Brookdale as discussed in Note 3 above).

During the quarter ended June 30, 2018, the Company sold eight SHOP assets for $268 million and two senior housing triple-net assets for $35 million, resulting in total gain on sales of $25 million (includes asset sales to Brookdale as discussed in Note 3 above).

During the quarter ended September 30, 2018, the Company sold four life science assets for $269 million, 11 SHOP assets for $76 million and two medical office buildings (“MOBs”) for $21 million, resulting in total gain on sales of $95 million.

In October 2018, the Company entered into a definitive agreement to sell its Shoreline Technology Center life science campus located in Mountain View, California for $1.0 billion. Under the agreement, the buyer funded a $65 million nonrefundable deposit. The sale is expected to generate a gain on sale of approximately $700 million upon its anticipated closing in the fourth quarter 2018.

2017 Dispositions

In March 2017, the Company sold 64 senior housing triple-net assets, previously under triple-net leases with Brookdale, for $1.125 billion to affiliates of Blackstone Real Estate Partners VIII, L.P., resulting in a gain on sale of $170 million.

Additionally, during the quarter ended March 31, 2017, the Company sold four life science facilities for $76 million and a SHOP asset for $3 million, resulting in total gain on sales of $45 million.

During the quarter ended June 30, 2017, the Company sold a land parcel for $27 million and one life science facility for $5 million, resulting in total gain on sales of $1 million.

During the quarter ended September 31, 2017, the Company sold two senior housing triple-net assets for $15 million, resulting in a gain on sale of $5 million.

During the quarter ended December 31, 2017, the Company sold four SHOP assets for $41 million, three MOBs for $14 million and two senior housing triple-net assets for $12 million, resulting in total gain on sales of $34 million.

Investments in Real Estate

MSREI MOB JV

In August 2018, the Company and Morgan Stanley Real Estate Investment (“MSREI”) formed a joint venture (the “MSREI JV”) to own a portfolio of MOBs, which the Company owns 51% of and consolidates. To form the joint venture, MSREI contributed cash of $298 million and HCP contributed nine wholly-owned MOBs (the “Contributed Assets”). The Contributed Assets are primarily located in Texas and Florida and were valued at approximately $320 million at the time of contribution. The MSREI JV used substantially all of the cash contributed by MSREI to acquire an additional portfolio of 16 MOBs in Greenville, South Carolina (the “Greenville Portfolio”) for $285 million. Concurrent with acquiring the additional MOBs, the MSREI JV entered into 10-year leases with an anchor tenant on each MOB in the Greenville Portfolio, which accounts for approximately 93% of the total leasable space in the portfolio.

The Contributed Assets are accounted for at historical depreciated cost by the Company, as the assets continue to be consolidated. The Greenville Portfolio is accounted for as an asset acquisition, which requires the Company to record the individual components of the acquisition at each component’s relative fair value. As a result, the Company recorded net real estate of $273 million and net intangible assets of $20 million during the three months ended September 30, 2018 related to the Greenville Portfolio. Additionally, the Company recognized a noncontrolling interest of $298 million related to the interest owned by MSREI. Refer to Note 15 for a discussion of the Company’s consolidation of the MSREI JV.

Other Real Estate Investments

During the nine months ended September 30, 2018, the Company acquired development rights on a land parcel in the Boston suburb of Lexington, Massachusetts for $21 million. The Company commenced a life science development on the land in 2018.

During the year ended December 31, 2017, the Company acquired 20 properties, the impact of which is summarized in the following table (dollars in thousands):



	Consideration				Assets Acquired
Segment	Cash Paid		Liabilities Assumed		Real Estate		Net Intangibles
SHOP	$	44,258	$	797	$	37,940	$	7,115
Life science	315,255		3,524		305,760		13,019
Medical office	201,240		1,104		184,115		18,229
	$	560,753	$	5,425	$	527,815	$	38,363

Impairments of Real Estate

2018

During the second quarter 2018, in conjunction with classifying two underperforming SHOP portfolios (13 assets total) and an undeveloped life science land parcel as held for sale, the Company concluded that the assets were impaired and wrote-down the carrying value of the assets to their fair value less estimated costs to sell. Accordingly, the Company recognized a $14 million impairment charge during the second quarter of 2018. The fair value of the assets was based on contracted sales prices, which are considered to be Level 2 measurements within the fair value hierarchy.

During the third quarter 2018, in conjunction with classifying three underperforming SHOP assets as held for sale, the Company concluded that the assets were impaired and wrote-down the carrying value of the assets to their fair value less estimated costs to sell. Accordingly, the Company recognized a $5 million impairment charge during the third quarter of 2018. The fair value of the assets was based on contracted sales prices which are considered to be Level 2 measurements within the fair value hierarchy.

2017

During the third quarter 2017, the Company determined that 11 underperforming senior housing triple-net assets that are candidates for potential future sale were impaired. Accordingly, the Company wrote-down the carrying amount of these 11 assets to their fair value, which resulted in an aggregate impairment charge of $23 million. The fair value of the assets was based on forecasted sales prices which are considered to be Level 2 measurements within the fair value hierarchy.

Casualty-Related Losses

As a result of Hurricane Harvey and Hurricane Irma, the Company recorded an estimated $11 million of casualty-related losses, net of a small insurance recovery, during the third quarter of 2017. The losses are comprised of $6 million of property damage and $5 million of other associated costs, including storm preparation, clean up, relocation and other costs. Of the total $11 million casualty losses incurred, $10 million was recorded in other income (expense), net, and $1 million was recorded in equity income (loss) from unconsolidated joint ventures as it relates to casualty losses for properties owned by certain of our unconsolidated joint ventures. In addition, the Company recorded a $2 million deferred tax benefit associated with the casualty-related losses.