EX-99.2 5 l23251aexv99w2.htm EX-99.2 EX-99.2
 

Table of Contents

Health Care REIT, Inc.
 
Unaudited Pro Forma Condensed Consolidated Financial Statements
 
The unaudited pro forma condensed consolidated financial statements presented below have been prepared based on certain pro forma adjustments to the historical consolidated financial statements of Health Care REIT and Windrose as of and for the nine months ended September 30, 2006 and for the year ended December 31, 2005. The historical consolidated financial statements of Health Care REIT are contained in its Annual Report on Form 10-K for the year ended December 31, 2005, its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and its Current Report on Form 8-K filed on October 20, 2006, which modifies certain financial information included in its Annual Report on Form 10-K for the year ended December 31, 2005, each of which is incorporated by reference into this proxy statement/prospectus. The historical consolidated financial statements of Windrose are contained in its Annual Report on Form 10-K for the year ended December 31, 2005 and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, each of which is incorporated by reference into this proxy statement/prospectus. The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2006 has been prepared as if the merger of Health Care REIT and Windrose and the issuance of Health Care REIT common and preferred stock had occurred as of that date.
 
The accompanying unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2006 and for the year ended December 31, 2005 have been prepared as if the merger had occurred as of January 1, 2005 and reflect the issuance of Health Care REIT common stock and preferred stock in the mergers. In addition, the Windrose historical operations have been adjusted to reflect the historical combined operating results of all properties acquired by Windrose during 2005 for the period January 1, 2005 through the date of acquisition by Windrose and all properties acquired by Windrose during the first six months of 2006 for the periods January 1, 2005 through December 31, 2005 and January 1, 2006 through the date of acquisition by Windrose. Windrose has had no significant acquisitions since June 30, 2006. The allocation of the aggregate purchase price, including assumed liabilities, of Windrose as reflected in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. In the opinion of Health Care REIT’s and Windrose’s management, all significant adjustments necessary to reflect the effects of the mergers that can be factually supported within the SEC regulations covering the preparation of pro forma financial statements have been made.
 
A final determination of the fair values of Windrose’s assets and liabilities, which cannot be made prior to the completion of the mergers, will be based on the actual net tangible and intangible assets of Windrose that exist as of the date of completion of the mergers. Consequently, amounts preliminarily allocated to assets and liabilities could change significantly from those used in the unaudited pro forma condensed consolidated financial statements presented below.
 
The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily and should not be assumed to be an indication of the results that would have been achieved had the transactions been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed consolidated balance sheet does not include restructuring charges and other related liabilities that may result from Health Care REIT’s integration of Windrose following completion of the mergers. In addition to the uncertainties discussed above, the impact of integration activities, the timing of completion of the mergers and other changes in Windrose’s net tangible and intangible assets that occur prior to completion of the mergers could cause material differences in the information presented. Furthermore, following completion of the mergers, Health Care REIT expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired and assumed in the mergers. Those judgments and methodologies may differ from those reflected in Windrose’s adjusted historical financial statements and the unaudited pro forma condensed consolidated financial statements and notes thereto that follow.
 
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the respective historical financial statements and the notes thereto of Health Care REIT and Windrose, which are incorporated by reference in this proxy statement/prospectus. See the section titled “Where You Can Find More Information” for more information on where you can obtain copies of the documents incorporated by reference into this proxy statement/prospectus.


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Table of Contents

 
Health Care REIT, Inc.
 
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2006
 
                                 
    Health Care REIT
 		    Windrose
 		    Pro Forma
 		    Consolidated
 		 
    Historical(A)     Historical(B)     Adjustments(C)     Pro Forma  
    (In thousands)  
 
ASSETS
Real estate investments:
                               
Real property owned
                               
Land and land improvements
  $ 276,480     $ 50,781     $ 11,895 (D)   $ 339,156  
Buildings & improvements
    2,815,206       656,209       153,163 (D)     3,624,578  
Acquired lease intangibles
            39,179       3,432 (D)     42,611  
Assets held for sale
    27,678                       27,678  
Construction in progress
    98,675       1,937               100,612  
                                 
      3,218,039       748,106       168,490       4,134,635  
Less accumulated depreciation
    (332,925 )     (28,306 )     28,306 (D)     (332,925 )
Less accumulated lease intangible amortization
            (12,062 )     12,062 (D)     0  
                                 
Total real property owned
    2,885,114       707,738       208,858       3,801,710  
Loans receivable
    216,870                       216,870  
Less allowance for losses on loans receivable
    (7,156 )                     (7,156 )
                                 
      209,714       0       0       209,714  
                                 
Net real estate investments
    3,094,828       707,738       208,858       4,011,424  
Other assets:
                               
Equity investments
    5,070       1,000               6,070  
Deferred loan expenses
    12,309       3,102       (1,544 )(E)     13,867  
Cash and cash equivalents
    15,490       11,910               27,400  
Receivables and other assets
    73,132       49,298       (8,321 )(F)     114,109  
                                 
      106,001       65,310       (9,865 )     161,446  
                                 
Total assets
  $ 3,200,829     $ 773,048     $ 198,993     $ 4,172,870  
                                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
                               
Borrowings under unsecured lines of credit arrangements
  $ 276,000             $ 88,850 (G)   $ 364,850  
Senior unsecured notes
    1,196,897                       1,196,897  
Secured debt
    130,405     $ 417,036       (52,490 )(H)     494,951  
Liability to subsidiary trust issuing preferred securities
            51,000       2,513 (I)     53,513  
Accrued expenses and other liabilities
    50,558       22,981       3,967 (J)     77,506  
                                 
Total liabilities
    1,653,860       491,017       42,840       2,187,717  
Minority interest
            5,799       (3,619 )(K)     2,180  
Stockholders’ equity:
                               
Preferred stock
    276,875       21       52,479 (L)     329,375  
Common stock
    63,005       211       9,616 (L)     72,881  
                      49 (M)        
Capital in excess of par value
    1,469,491       305,372       72,378 (L)     1,848,792  
                      1,901 (M)        
                      (350 )(N)        
Treasury stock
    (2,714 )                     (2,714 )
Cumulative net income
    909,894       13,577       (5,673 )(N)     904,221  
                      (13,577 )(L)        
Cumulative dividends
    (1,171,302 )     (42,390 )     42,390 (L)     (1,171,302 )
Accumulated other comprehensive income
            (559 )     559 (L)     0  
Other equity
    1,720                       1,720  
                                 
Total stockholders’ equity
    1,546,969       276,232       159,772       1,982,973  
                                 
Total liabilities and stockholders’ equity
  $ 3,200,829     $ 773,048     $ 198,993     $ 4,172,870  
                                 
 
The accompanying notes are an integral part of these unaudited
pro forma condensed consolidated financial statements.


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Table of Contents

 
Health Care REIT, Inc.
 
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 2005
 
                                 
    Health Care REIT
 		    Windrose
 		    Pro Forma
 		    Consolidated
 		 
    Historical(O)     Adjusted(P)     Adjustments     Pro Forma  
    (In thousands, except per share amounts)  
 
Revenues:
                               
Rental income
  $ 246,776     $ 80,120     $ 2,041 (Q)   $ 328,937  
Interest income
    23,993                       23,993  
Development and project management fees
            2,134               2,134  
Transaction fees and other income
    4,548       272               4,820  
                                 
Total revenues
    275,317       82,526       2,041       359,884  
Expenses:
                               
Interest expense
    78,339       26,558       1,513 (R)     106,410  
Depreciation and amortization
    77,314       19,972       8,650 (S)     105,936  
Property operating expenses
            20,788               20,788  
Property taxes
            6,835               6,835  
Cost of sales and project costs
            1,327               1,327  
General and administrative expenses
    16,967       5,137       225 (T)     22,329  
Loan expense
    2,710       864       (620 )(U)     2,954  
Loss on extinguishment of debt
    21,484                       21,484  
Provision for loan losses
    1,200                       1,200  
                                 
Total expenses
    198,014       81,481       9,768       289,263  
                                 
Income (loss) before income taxes and minority interests
    77,303       1,045       (7,727 )     70,621  
Income tax (expense) benefit
    (282 )     (49 )             (331 )
                                 
Income (loss) before minority interests
    77,021       996       (7,727 )     70,290  
Minority interests
            (262 )     151 (K)     (111 )
                                 
Income (loss) from continuing operations
    77,021       734       (7,576 )     70,179  
Preferred stock dividends
    21,594       1,995               23,589  
                                 
Income (loss) from continuing operations available to common stockholders
  $ 55,427     $ (1,261 )   $ (7,576 )   $ 46,590  
                                 
Weighted average number of common shares outstanding:
                               
Basic
    54,110       13,620       9,876 (V)     63,986  
Diluted
    54,499       13,620       10,187 (V)     64,686  
Income (loss) from continuing operations available to common stockholders per common share (W):
                               
Basic
  $ 1.02     $ (0.09 )           $ 0.73  
Diluted
  $ 1.02     $ (0.09 )           $ 0.72  
 
The accompanying notes are an integral part of these unaudited
pro forma condensed consolidated financial statements.


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Health Care REIT, Inc.
 
Unaudited Pro Forma Condensed Consolidated Statement of Income
For the Nine Months Ended September 30, 2006
 
                                 
    Health Care REIT
 		    Windrose
 		    Pro Forma
 		    Consolidated
 		 
    Historical(O)     Adjusted(P)     Adjustments     Pro Forma  
    (In thousands, except per share amounts)  
 
Revenues:
                               
Rental income
  $ 220,002     $ 69,809     $ 1,169 (Q)   $ 290,980  
Interest income
    13,178                       13,178  
Development and project management fees
            1,436               1,436  
Transaction fees and other income
    3,049       237               3,286  
                                 
Total revenues
    236,229       71,482       1,169       308,880  
Expenses:
                               
Interest expense
    70,587       21,608       (225 )(R)     91,970  
Depreciation and amortization
    70,256       16,491       4,976 (S)     91,723  
Property operating expenses
            16,146               16,146  
Property taxes
            5,745               5,745  
Cost of sales and project costs
            1,200               1,200  
General and administrative expenses
    16,435       7,833       169 (T)     24,437  
Loan expense
    2,199       720       (537 )(U)     2,382  
Provision for loan losses
    750                       750  
                                 
Total expenses
    160,227       69,743       4,383       234,353  
                                 
Income (loss) before income taxes and minority interests
    76,002       1,739       (3,214 )     74,527  
Income tax (expense) benefit
    (82 )     25               (57 )
                                 
Income (loss) before minority interests
    75,920       1,764       (3,214 )     74,470  
Minority interests
            (350 )     27 (K)     (323 )
                                 
Income (loss) from continuing operations
    75,920       1,414       (3,187 )     74,147  
Preferred stock dividends
    15,998       2,943               18,941  
                                 
Income (loss) from continuing operations available to common stockholders
  $ 59,922     $ (1,529 )   $ (3,187 )   $ 55,206  
                                 
Weighted average number of common shares outstanding:
                               
Basic
    60,766       19,525       9,876 (V)     70,642  
Diluted
    61,102       19,525       10,187 (V)     71,289  
Income (loss) from continuing operations available to common stockholders per common share (W):
                               
Basic
  $ 0.99     $ (0.08 )           $ 0.78  
Diluted
  $ 0.98     $ (0.08 )           $ 0.77  
 
The accompanying notes are an integral part of these unaudited
pro forma condensed consolidated financial statements.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
 
(A) The historical consolidated balance sheet of Health Care REIT contained in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 is on file with the SEC and is incorporated by reference into this proxy statement/prospectus.
 
(B) The historical consolidated balance sheet of Windrose contained in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 is on file with the SEC and is incorporated by reference into this proxy statement/prospectus. The following reclassifications were made to the historical consolidated balance sheet of Windrose to conform certain Windrose amounts with Health Care REIT’s presentation:
 
  •  “Prepaid expenses,” “Receivables on construction and consulting contracts,” “Receivables from tenants, net of allowance,” “Revenues in excess of billings,” “Straight-line rent receivable, net of allowance,” and “Escrow deposits and other assets” have been reclassified to “Receivables and other assets.”
 
  •  “Billings in excess of revenues earned,” “Accounts payable and accrued expenses,” “Tenant security deposits and prepaid rents,” and “Other liabilities” have been reclassified to “Accrued expenses and other liabilities.”
 
(C) In the merger, each Windrose common shareholder will receive shares of Health Care REIT common stock as determined by an exchange ratio to be determined by dividing $18.06 by the volume-weighted average price per share of Health Care REIT common stock for the 10 trading days, selected by lot, from the 15 trading day period ending on and including the fifth trading day prior to the closing of the mergers. The exchange ratio is subject to a floor of 0.4509 and a ceiling of 0.4650 which correlates to Health Care REIT common stock prices per share of $40.05 and $38.84, respectively. For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on the number of Windrose common shares outstanding on September 30, 2006 after giving effect to the conversion of all of the Windrose OP units outstanding on September 30, 2006, an exchange ratio of 0.4579 and market price per share of Health Care REIT common stock of $39.44. The exchange ratio and market price per share represents the average of the high and low of the respective ranges.
 
In addition, at the effective time of the mergers, to the extent that Windrose preferred shares have not been converted into Windrose common shares, each holder of Windrose 7.5% Series A Cumulative Convertible Preferred Shares will receive an equivalent number of shares of Health Care REIT 7.5% Series G Cumulative Convertible Preferred Stock. For purposes of the unaudited pro forma condensed consolidated balance sheet presentation, the total purchase price is based on the number of Windrose preferred shares outstanding on September 30, 2006 and a price per share of Health Care REIT preferred stock of $25.00.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
The calculation of the merger consideration and total purchase price is as follows (in thousands, except prices per share and exchange ratio):
 
         
Calculation of Windrose purchase price:
       
Issuance of Health Care REIT common stock:
       
Windrose outstanding common shares as of September 30, 2006
    21,123  
Conversion of Windrose OP units into Windrose common shares
    339  
         
Total estimated outstanding Windrose common shares
    21,462  
Estimated exchange ratio
    0.4579  
         
Issuance of shares of Health Care REIT common stock
    9,827  
Estimated Health Care REIT common stock market price per share
  $ 39.44  
         
Value of Health Care REIT common stock issuance
  $ 387,577  
Issuance of Health Care REIT preferred stock:
       
Issuance of shares of Health Care REIT preferred stock
    2,100  
Health Care REIT preferred stock price per share
  $ 25.00  
         
Value of Health Care REIT preferred stock issuance
  $ 52,500  
         
Total merger consideration
  $ 440,077  
Windrose secured debt outstanding as of September 30, 2006 at book value
    468,036  
Adjustment to record Windrose secured debt at fair value (see Notes G, H and I)
    10,823  
All other Windrose liabilities as of September 30, 2006 at book value
    22,981  
Adjustment to record all other Windrose liabilities at fair value (see Note J)
    3,967  
Windrose minority interest as of September 30, 2006 at book value
    5,799  
Adjustment to record Windrose minority interest at fair value (see Note K)
    (3,619 )
Estimated fees and other expenses related to the mergers
    30,000  
         
Total purchase price
  $ 978,064  
         
 
The estimated fees and other expenses related to the mergers are as follows (in thousands):
 
         
Advisory fees
  $ 13,311  
Change in control payments
    12,163  
Debt assumption fees and costs
    1,558  
Legal, accounting and other fees and costs
    2,968  
         
Total
  $ 30,000  
         
 
(D) Windrose’s real estate assets have been adjusted to their estimated fair market values as of September 30, 2006. Windrose’s historical accumulated depreciation and amortization balances have been eliminated when real estate assets are recorded at their fair market value. A final determination of the fair values of Windrose’s assets and liabilities, which cannot be made prior to the completion of the mergers, will be based on the actual net tangible and intangible assets of Windrose that exist as of the date of completion of the mergers. Consequently, amounts preliminarily allocated to assets and liabilities could change significantly from those used in the unaudited pro forma condensed consolidated financial statements.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

(E) Adjustments to Windrose’s historical deferred loan expenses, as follows (in thousands):
 
         
Deferral of costs associated with secured debt assumed in the mergers
  $ 1,558  
Elimination of historical deferred loan expenses, net of accumulated amortization
    (3,102 )
         
    $ (1,544 )
         
 
(F) Adjustments to Windrose’s historical receivables and other assets, as follows (in thousands):
 
         
Recognition of non-compete contract intangibles
  $ 900  
Elimination of historical straight-line rent balance, net of allowance
    (8,427 )
Elimination of historical deferred leasing commissions, net of accumulated amortization
    (794 )
         
    $ (8,321 )
         
 
(G) Borrowings under Health Care REIT’s unsecured lines of credit arrangements will be used to fund certain costs of the mergers to be paid in cash aggregating $28,050,000 and to payoff $60,800,000 of Windrose variable-rate secured debt outstanding at September 30, 2006.
 
(H) Adjustments to Windrose’s historical secured debt, as follows (in thousands):
 
         
Elimination of historical fair market value adjustment
  $ 2,063  
Recognition of current fair market value adjustment
    6,247  
Payoff variable-rate secured debt (see Note G)
    (60,800 )
         
    $ (52,490 )
         
 
Secured debt, net of the variable-rate secured debt payoffs, will be assumed by Health Care REIT in the mergers. Windrose’s secured debt that will be assumed will be recorded at its estimated fair market value based on Health Care REIT management’s estimates of the interest rates that would be available to Health Care REIT for the issuance of secured debt with similar terms and maturities. Health Care REIT’s management considers the interest rates on the assumed debt to be above market for secured debt that would be incurred by Health Care REIT with similar terms and maturities.
 
(I) Adjustment to the Windrose liability to a subsidiary trust issuing preferred securities to its estimated fair market value based on Health Care REIT management’s estimate of the interest rate that would be available to Health Care REIT for the issuance of debt with similar terms and maturity as the preferred securities issued by Windrose’s subsidiary trust. The liability to Windrose’s subsidiary trust issuing the preferred securities will be assumed by Health Care REIT in the mergers. Health Care REIT’s management considers the interest rate on the assumed liability to be above market.
 
(J) Adjustments to Windrose’s historical accrued expenses and other liabilities, as follows (in thousands):
 
         
Recognition of liabilities associated with the acquired in-place leases that have below-market rental rates
  $ 5,790  
Recognition of non-compete contract liability
    900  
Elimination of historical intangible liabilities, net of accumulated amortization
    (2,723 )
         
    $ 3,967  
         
 
(K) Adjustments reflect the elimination of the historical amounts applicable to the minority interest in Windrose OP. Windrose OP units will be exchanged for Health Care REIT common stock in connection with the operating partnership merger. The remaining amounts represent minority interests applicable to other joint ventures.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
(L) Adjustments represent the elimination of historical Windrose balances and the issuance of shares of Health Care REIT common and preferred stock in the mergers. The shares of Health Care REIT common and preferred stock issued in the mergers are valued as follows (in thousands, except per share data):
 
                 
    Common     Preferred  
 
Number of shares issued
    9,827       2,100  
Assumed price of shares of Health Care REIT stock
  $ 39.44     $ 25.00  
                 
Value of shares issued
  $ 387,577     $ 52,500  
                 
 
The shares of Health Care REIT common stock issued are recorded as follows (in thousands):
 
         
Par value, $1.00 par value per share
  $ 9,827  
Capital in excess of par value
    377,750  
         
Value of shares issued
  $ 387,577  
         
 
(M) Adjustments represent the issuance of Health Care REIT common stock related to certain costs associated with the mergers. The shares of Health Care REIT common stock issued are valued as follows (in thousands, except per share data):
 
         
Number of shares issued
    49  
Assumed price of shares of Health Care REIT common stock
  $ 39.44  
         
Value of shares issued
  $ 1,950  
         
 
The shares of Health Care REIT common stock issued are recorded as follows (in thousands):
 
         
Par value, $1.00 par value per share
  $ 49  
Capital in excess of par value
    1,901  
         
Value of shares issued
  $ 1,950  
         
 
(N) Adjustments represent the accounting treatment of certain non-recurring costs of the mergers aggregating approximately $6,023,000. Approximately $5,673,000 of these costs represent retention bonuses and related excise taxes for certain Windrose officers and approximately $350,000 of these costs represent estimated equity issuance costs.
 
(O) The historical consolidated statements of income of Health Care REIT are contained in its Current Report on Form 8-K filed October 20, 2006, which updates certain financial information included in its Annual Report on Form 10-K for the year ended December 31, 2005, and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 on file with the SEC and are incorporated by reference into this proxy statement/prospectus. Income tax expenses have been reclassified from “General and administrative expenses” to a separate line item.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
(P) The following table represents the Windrose adjusted unaudited pro forma consolidated statement of income for the year ended December 31, 2005 to include the pre-acquisition historical results of operations for Windrose acquisitions during 2005 and the six months ended June 30, 2006 (Windrose has had no significant acquisitions since June 30, 2006) (in thousands):
 
                                         
    Windrose
 		    2005 Acquisitions
 		    2006 Acquisitions
 		    Pro Forma
 		    Windrose
 		 
    Historical(1)     Historical(2)     Historical(3)     Adjustments     Adjusted  
 
Revenues:
                                       
Rental income
  $ 47,720     $ 28,892     $ 2,959     $ 549 (4)   $ 80,120  
Development and project management fees
    2,134                               2,134  
Transaction fees and other income
    268       4                       272  
                                         
Total revenues
    50,122       28,896       2,959       549       82,526  
Expenses:
                                       
Interest expense
    12,205       9,600               4,753 (5)     26,558  
Depreciation and amortization
    11,362       8,959               (349 )(6)     19,972  
Property operating expenses
    10,077       8,659       2,052               20,788  
Property taxes
    4,345       2,367       123               6,835  
Cost of sales and project costs
    1,327                               1,327  
General and administrative expenses
    5,137                               5,137  
Loan expense
    672                       192 (7)     864  
                                         
Total expenses
    45,125       29,585       2,175       4,596       81,481  
                                         
Income (loss) before income taxes and minority interests
    4,997       (689 )     784       (4,047 )     1,045  
Income tax (expense) benefit
    (49 )                     0       (49 )
                                         
Income (loss) before minority interests
    4,948       (689 )     784       (4,047 )     996  
Minority interests
    (170 )                     (92 )(8)     (262 )
                                         
Income (loss) from continuing operations
    4,778       (689 )     784       (4,139 )     734  
Preferred stock dividends
    1,995                               1,995  
                                         
Income (loss) from continuing operations available to common stockholders
  $ 2,783     $ (689 )   $ 784     $ (4,139 )   $ (1,261 )
                                         
 
 
(1) The historical consolidated statement of income of Windrose is contained in its Annual Report on Form 10-K for the year ended December 31, 2005 on file with the SEC and is incorporated by reference into this proxy statement/prospectus. The following reclassifications were made to the historical consolidated statement of income of Windrose to conform certain Windrose amounts with Health Care REIT’s presentation:
 
  •  Amortization of deferred loan expenses has been reclassified from “Interest expense” to “Loan expense.”
 
  •  “Interest income” and “Gain on interest rate swap” have been reclassified to “Transaction fees and other income.”
 
  •  “Other expense” has been reclassified to “General and administrative expenses.”
 
(2) Reflects historical combined operating results of all properties acquired by Windrose during 2005 for the period January 1, 2005 through the date of acquisition by Windrose.


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Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
(3) Reflects historical combined operating results of all properties acquired by Windrose during the six months ended June 30, 2006 for the period January 1, 2005 through December 31, 2005. Windrose has had no significant acquisitions since June 30, 2006.
 
(4) Reflects the adjustments to recognize straight-line rent adjustments and amortization of above/below market lease intangibles from the assumed Windrose acquisition date of January 1, 2005.
 
(5) Reflects the adjustments to recognize incremental increases in interest expense associated with debt assumed and/or incurred in connection with Windrose acquisitions and to recognize interest expense resulting from the amortization of the premiums/discounts recognized at the Windrose acquisition dates to adjust any assumed debt to fair market value.
 
(6) Reflects adjustments to conform depreciation methodologies and to recognize incremental changes in real estate depreciation expense and amortization expense related to the recording of Windrose’s intangible assets associated with acquired leases at their fair market values at the assumed Windrose acquisition date of January 1, 2005.
 
(7) Reflects adjustments to recognize loan expense resulting from the amortization of deferred loan expenses associated with the debt assumption costs of the Windrose acquisitions.
 
(8) Reflects the additional minority interest resulting from the change in operating income based on the weighted-average minority ownership percentage of Windrose OP.
 
The following table represents the Windrose adjusted unaudited pro forma consolidated statement of income for the nine months ended September 30, 2006 to include the pre-acquisition historical results of operations for Windrose acquisitions during the six months ended June 30, 2006 (Windrose has had no significant acquisitions since June 30, 2006) (in thousands):
 
                                 
    Windrose
 		    2006 Acquisitions
 		    Pro Forma
 		    Windrose
 		 
    Historical(1)     Historical(2)     Adjustments     Adjusted  
 
Revenues:
                               
Rental income
  $ 68,376     $ 1,332     $ 101 (3)   $ 69,809  
Development and project management fees
    1,436                       1,436  
Transaction fees and other income
    237                       237  
                                 
Total revenues
    70,049       1,332       101       71,482  
Expenses:
                               
Interest expense
    20,744               864 (4)     21,608  
Depreciation and amortization
    16,057       355       79 (5)     16,491  
Property operating expenses
    15,255       891               16,146  
Property taxes
    5,694       51               5,745  
Cost of sales and project costs
    1,200                       1,200  
General and administrative expenses
    7,833                       7,833  
Loan expense
    707               13 (6)     720  
                                 
Total expenses
    67,490       1,297       956       69,743  
                                 
Income before income taxes and minority interests
    2,559       35       (855 )     1,739  
Income tax (expense) benefit
    25                       25  
                                 
Income before minority interests
    2,584       35       (855 )     1,764  
Minority interests
    (365 )             15 (7)     (350 )
                                 
Income from continuing operations
    2,219       35       (840 )     1,414  
Preferred stock dividends
    2,943                       2,943  
                                 
Income from continuing operations available to common stockholders
  $ (724 )   $ 35     $ (840 )   $ (1,529 )
                                 
 
 
(1) The historical consolidated statement of income of Windrose is contained in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 on file with the SEC and is incorporated by reference into this proxy statement/prospectus. The


F-11

Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

following reclassifications were made to the historical consolidated statement of income of Windrose to conform certain Windrose amounts with Health Care REIT’s presentation:

 
  •  Amortization of deferred loan expenses has been reclassified from “Interest expense” to “Loan expense.”
 
  •  “Interest income” and “Gain on interest rate swap” have been reclassified to “Transaction fees and other income.”
 
  •  “Other expense” has been reclassified to “General and administrative expenses.”
 
(2) Reflects historical combined operating results of all properties acquired by Windrose during the six months ended June 30, 2006 for the period January 1, 2006 through the date of acquisition by Windrose. Windrose has had no significant acquisitions since June 30, 2006.
 
(3) Reflects the adjustments to recognize straight-line rent adjustments and amortization of above/below market lease intangibles from the assumed Windrose acquisition date of January 1, 2005.
 
(4) Reflects the adjustments to recognize incremental increases in interest expense associated with debt assumed and/or incurred in connection with Windrose acquisitions and to recognize interest expense resulting from the amortization of the premiums/discounts recognized at the Windrose acquisition dates to adjust any assumed debt to fair market value.
 
(5) Reflects adjustments to conform depreciation methodologies and to recognize incremental changes in real estate depreciation expense and amortization expense related to the recording of Windrose’s intangible assets associated with acquired leases at their fair market values at the assumed Windrose acquisition date of January 1, 2005.
 
(6) Reflects adjustments to recognize loan expense resulting from the amortization of deferred loan expenses associated with the debt assumption costs of the Windrose acquisitions.
 
(7) Reflects the additional minority interest resulting from the change in operating income based on the weighted-average minority ownership percentage of Windrose OP.
 
(Q) Adjustments to rental income are as follows (in thousands):
 
                 
    Year Ended
 		    Nine Months Ended
 		 
    December 31,
 		    September 30,
 		 
    2005     2006  
 
Recognize the total minimum lease payments provided under the acquired leases on a straight-line basis over the remaining term from the assumed merger date of January 1, 2005
  $ 4,650     $ 3,986  
Recognize the amortization of above/below market lease intangibles
    (501 )     (376 )
Eliminate Windrose’s adjusted historical straight-line rent adjustment
    (3,911 )     (3,432 )
Eliminate Windrose’s adjusted historical amortization of above/below market lease intangibles
    1,803       991  
                 
    $ 2,041     $ 1,169  
                 
 
(R) Adjustments to interest expense are as follows (in thousands):
 
                 
    Year Ended
 		    Nine Months Ended
 		 
    December 31,
 		    September 30,
 		 
    2005     2006  
 
Incremental increase in interest expense associated with draws on unsecured lines of credit to fund merger related costs
  $ 1,964     $ 1,473  
Adjust interest expense resulting from the amortization of the liability recognized at the merger date to adjust the assumed Windrose secured debt to fair market value
    (1,371 )     (1,028 )
Eliminate Windrose’s adjusted historical amortization of fair market value adjustments
    920       (670 )
                 
    $ 1,513     $ (225 )
                 


F-12

Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
The pro forma increase in interest expense associated with draws on unsecured lines of credit to fund merger related costs is calculated using market rates Health Care REIT management believes would have been available to Health Care REIT for the unsecured lines of credit as of September 30, 2006. The assumed interest rate associated with draws on unsecured lines of credit was 7.0%.
 
(S) Adjustments to depreciation and amortization are as follows (in thousands):
 
                 
    Year Ended
 		    Nine Months Ended
 		 
    December 31,
 		    September 30,
 		 
    2005     2006  
 
Incremental increase in real estate depreciation expense as a result of the recording of Windrose’s real estate at its estimated fair market value at the assumed merger date of January 1, 2005
  $ 5,492     $ 3,060  
Incremental increase in amortization expense as a result of the recording of Windrose’s intangible assets associated with acquired leases at their estimated fair market values at the assumed merger date of January 1, 2005
    3,158       1,916  
                 
    $ 8,650     $ 4,976  
                 
 
The following useful lives were used to compute the adjustments to depreciation and amortization:
 
  •  Land improvements = 15 years
 
  •  Buildings and building improvements = 40 years
 
  •  Tenant improvements = 5 years
 
  •  Acquired lease intangibles = 5 years
 
(T) General and administrative expenses are adjusted to include the amortization of non-compete contract intangibles. Individuals covered under the non-compete agreements have two-year consulting contracts. The non-compete provisions of the consulting agreements extend for two years beyond the applicable termination dates. Thus, a four-year period was used to compute amortization expense.
 
Management of Health Care REIT expects that the mergers will create general and administrative cost savings, including costs associated with corporate administrative functions. There can be no assurance that Health Care REIT will be successful in achieving these anticipated cost savings. No estimate of these expected future cost savings has been included in the unaudited pro forma financial statements. Such adjustments cannot be factually supported within the SEC regulations governing the preparation of pro forma financial statements until such time as the operations of the companies have been fully integrated.
 
(U) Adjustments to loan expense are as follows (in thousands):
 
                 
    Year Ended
 		    Nine Months Ended
 		 
    December 31,
 		    September 30,
 		 
    2005     2006  
 
Recognize loan expense resulting from the amortization of the deferred loan expenses associated with the debt assumption costs in the merger
  $ 244     $ 183  
Elimination of Windrose’s adjusted historical loan expenses
    (864 )     (720 )
                 
    $ (620 )   $ (537 )
                 
 
An estimated remaining term of 6.4 years was assumed to compute the amortization of deferred loan expenses associated with the secured debt assumption costs in the mergers.


F-13

Table of Contents

 
Health Care REIT, Inc.
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements — (Continued)

 
(V) The pro forma basic weighted-average common shares outstanding are the historical basic weighted-average common shares outstanding of Health Care REIT for the periods presented, adjusted for the assumed issuance of 9,876,000 shares of Health Care REIT common stock on a weighted-average basis for the year ended December 31, 2005 and the nine months ended September 30, 2006. The pro forma diluted weighted-average common shares outstanding include the potentially dilutive impact of 311,000 options on a weighted-average basis for the year ended December 31, 2005 and the nine months ended September 30, 2006.
 
(W) The calculations of basic and diluted income (loss) from continuing operations available to common stockholders per common share are as follows (in thousands, except per share data):
 
                         
    Year Ended December 31, 2005  
    Health Care REIT
 		    Windrose
 		    Health Care REIT
 		 
    Historical     Adjusted     Pro Forma  
 
Income from continuing operations
  $ 77,021     $ 734     $ 70,179  
Less: preferred stock dividends
    (21,594 )     (1,995 )     (23,589 )
                         
Income (loss) from continuing operations available to common stockholders
  $ 55,427     $ (1,261 )   $ 46,590  
Weighted-average common shares used to calculate basic earnings per share
    54,110       13,620       63,986  
Incremental weighted-average effect of potentially dilutive instruments
    389       0       700  
                         
Weighted-average common shares used to calculate diluted earnings per share
    54,499       13,620       64,686  
Income (loss) from continuing operations available to common stockholders per common share:
                       
Basic
  $ 1.02     $ (0.09 )   $ 0.73  
Diluted
  $ 1.02     $ (0.09 )   $ 0.72  
 
                         
    Nine Months Ended September 30, 2006  
    Health Care REIT
 		    Windrose
 		    Health Care REIT
 		 
    Historical     Adjusted     Pro Forma  
 
Income from continuing operations
  $ 75,920     $ 1,414     $ 74,147  
Less: preferred stock dividends
    (15,998 )     (2,943 )     (18,941 )
                         
Income (loss) from continuing operations available to common stockholders
  $ 59,922     $ (1,529 )   $ 55,206  
Weighted-average common shares used to calculate basic earnings per share
    60,766       19,525       70,642  
Incremental weighted-average effect of potentially dilutive instruments
    336       0       647  
                         
Weighted-average common shares used to calculate diluted earnings per share
    61,102       19,525       71,289  
Income (loss) from continuing operations available to common stockholders per common share:
                       
Basic
  $ 0.99     $ (0.08 )   $ 0.78  
Diluted
  $ 0.98     $ (0.08 )   $ 0.77  


F-14