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<div align="left" style="font-size: 10pt; margin-top: 10pt"><b>2. Summary of Significant Accounting Policies</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Basis of Presentation</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We have prepared the condensed consolidated financial statements included herein without
audit. These financial statements include all adjustments that are, in the opinion of management,
necessary for a fair presentation of the results of operations for the three and nine months ended
September 30, 2010 and 2009 pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). All such adjustments are of a normal recurring nature.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Certain items in prior period financial statements have been reclassified to conform to
current year presentation, including those required by the provisions of Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, <i>Property, Plant and
Equipment </i>(“ASC 360”), which require the operating results of any assets with their own
identifiable cash flows that are disposed of or held for sale and in which we have no continuing
interest to be removed from income from continuing operations and reported as discontinued
operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Certain information and note disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States (“GAAP”) have been
condensed or omitted pursuant to these rules and regulations. Although we believe that the
disclosures in the financial statements included herein are adequate to make the information
presented not misleading, these condensed consolidated financial statements should be read in
conjunction with our financial statements and the notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2009 filed with the SEC. The results of operations for
the three and nine months ended September 30, 2010 and 2009 are not necessarily indicative of the
results for a full year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We have evaluated events subsequent to September 30, 2010 for their impact on our condensed
consolidated financial statements (see Note 19).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Principles of Consolidation</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The condensed consolidated financial statements include our accounts, the accounts of our
wholly owned subsidiaries and the accounts of our joint ventures that are controlled through voting
rights or other means. We apply the provisions of ASC Topic 810, <i>Consolidation </i>(“ASC 810”), for
arrangements with variable interest entities (“VIEs”) and would consolidate those VIEs where we are
the primary beneficiary. All material intercompany accounts and transactions have been eliminated.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Our judgment with respect to our level of influence or control of an entity and whether we are
the primary beneficiary of a VIE involves the consideration of various factors including, but not
limited to, the form of our ownership interest, our representation on the entity’s governing body,
the size of our investment, estimates of future cash flows, our ability to participate in
policy-making decisions and the rights of the other investors to participate in the decision-making
process and to replace us as manager and/or liquidate the venture, if applicable. Our ability to
correctly assess our influence or control over an entity or determine the primary beneficiary of a
VIE affects the presentation of these entities in our consolidated financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We apply the provisions of ASC Topic 323, <i>Investments — Equity Method and Joint Ventures </i>(“ASC
323”), to investments in joint ventures. Investments in entities that we do not consolidate but for
which we have the ability to exercise significant influence over operating and financial policies
are reported under the equity method. Under the equity method of accounting, our share of the
entity’s earnings or losses is included in our operating results.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Use of Estimates</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that 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 revenues and expenses during the reporting periods. Actual results could differ
materially from those estimates.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Segment Reporting</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We report our consolidated financial statements in accordance with the provisions of ASC Topic
280, <i>Segment Reporting</i>. We operate in two segments based on our investment and leasing activities:
triple-net leases and multi-tenant leases (see Note 16).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Revenue Recognition</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We derive the majority of our revenue from leases related to our real estate investments and a
much smaller portion of our revenue from mortgage loans, other financing activities and other
miscellaneous income. Revenue is recognized when it is realized or is realizable and earned.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Rental income from operating leases is recognized in accordance with the provisions of ASC
Topic 840, <i>Leases, </i>and ASC Topic 605, <i>Revenue Recognition</i>. Our leases generally contain annual rent
escalators. Many of our leases contain non-contingent rent escalators for which we recognize income
on a straight-line basis over the lease term. Recognizing income on a straight-line basis requires
us to calculate the total non-contingent rent to be paid over the life of a lease and to recognize
the revenue evenly over that life. This method results in rental income in the early years of a
lease being higher than actual cash received, creating a straight-line rent receivable asset
included in the caption “Other assets” on our consolidated balance sheets. At some point during the
lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent
which results in the straight-line rent receivable asset decreasing to zero over the remainder of
the lease term. Certain leases contain rent escalators contingent on revenues or other factors,
including increases based on changes in the Consumer Price Index. Such revenue increases are
recognized as the related contingencies are met.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We assess the collectability of straight-line rent in accordance with the applicable
accounting standards and our reserve policy and defer recognition of straight-line rent if its
collectability is not reasonably assured. Our assessment of the collectability of straight-line
rent is based on several factors, including the financial strength of the tenant and any
guarantors, the historical operations and operating trends of the facility, the historical payment
pattern of the tenant and the type of facility, among others. If our evaluation of these factors
indicates we may not receive the rent payments due in the future, we defer recognition of the
straight-line rental income and, depending on the circumstances, we will provide a reserve against
the previously recognized straight-line rent receivable asset for a portion, up to its full value,
that we estimate may not be recoverable. If we change our assumptions or estimates regarding the
collectability of future rent payments required by a lease, we may adjust our reserve to increase
or reduce the rental revenue recognized, and/or to increase or reduce the reserve against the
existing straight-line rent receivable balance.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We recorded $3.0 million and $8.3 million of revenues in excess of cash received during the
three and nine months ended September 30, 2010, respectively, and $1.6 million and $4.8 million of
revenues in excess of cash received during the three and nine months ended September 30, 2009,
respectively. We had straight-line rent receivables, net of reserves, recorded under the caption
“Other assets” on our consolidated balance sheets of $36.2 million at September 30, 2010 and $27.5
million at December 31, 2009, net of reserves of $113.5 million and $108.3 million, respectively.
We evaluate the collectability of the straight-line rent receivable balances on an ongoing basis
and provide reserves against receivables we believe may not be fully recoverable. The ultimate
amount of straight-line rent we realize could vary from the amounts currently recorded.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Interest income from loans, including discounts and premiums, is recognized using the
effective interest method when collectability is reasonably assured. The effective interest method
is applied on a loan-by-loan basis, and discounts and premiums are recognized as yield adjustments
over the term of the related loans. We recognize interest income on impaired loans to the extent
our estimate of the fair value of the collateral is sufficient to support the balance of the loans,
other receivables and all related accrued interest. Once the total of the loans, other receivables
and all related accrued interest is equal to our estimate of the fair value of the collateral, we
recognize interest income on a cash basis. We provide reserves against impaired loans to the extent
our total investment exceeds our estimate of the fair value of the loan collateral.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We recognize sales of facilities upon closing. Payments received from purchasers prior to
closing are recorded as deposits. Gains on facilities sold are recognized using the full accrual
method upon closing when the requirements of gain recognition on sale of real estate under the
provisions of ASC 360 are met, including: the collectability of the sales price is reasonably
assured; we have received adequate initial investment from the buyer; we are not obligated to
perform significant activities after the sale to earn the gain; and other profit recognition
criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy
these requirements. We had $20.3 million and $19.3 million of deferred gains included in the
caption “Mortgage loans receivable, net” at September 30, 2010 and December 31, 2009, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Gains on facilities sold to unconsolidated joint ventures in which we maintain an ownership
interest are included in income from continuing operations, and the portion of the gain
representing our retained ownership interest in the joint venture is deferred and included in the
caption “Accounts payable and accrued liabilities” on our consolidated balance sheets. We had $15.3
million of such deferred gains at September 30, 2010 and December 31, 2009. All other gains are
included in discontinued operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Investments in Real Estate</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We record properties at cost and use the straight-line method of depreciation for buildings
and improvements over their estimated remaining useful lives of up to 40 years, generally 20 to 40
years depending on factors including building type, age, quality and location. We review and adjust
useful lives periodically. Depreciation expense from continuing operations was $32.1 million and
$88.3 million for the three and nine months ended September 30, 2010, respectively, and $27.2
million and $79.8 million for the three and nine months ended September 30, 2009, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We allocate purchase prices of properties in accordance with the provisions of ASC Topic 805,
<i>Business Combinations </i>(“ASC 805”), which require that the acquisition method of accounting be used
for all business combinations and for an acquirer to be identified for each business combination.
ASC 805 also establishes principles and requirements for how the acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree. Certain transaction costs that have historically been
capitalized as acquisition costs are expensed for business combinations completed on or after
January 1, 2009, which may have a significant impact on our future results of operations and
financial position based on historical acquisition costs and activity levels. During the three and
nine months ended September 30, 2010, we incurred $35,000 and $3.1 million, respectively, of
acquisition costs that are included on our consolidated income statements.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The allocation of the cost between land, building and, if applicable, equipment and intangible
assets and liabilities, and the determination of the useful life of a property are based on
management’s estimates, which are based in part on independent appraisals or other consultants’
reports. For our triple-net leased facilities, the allocation is made as if the property was
vacant, and a significant portion of the cost of each property is allocated to buildings. This
amount generally approximates 90% of the total property value. Historically, we have generally
acquired properties and simultaneously entered into a new market rate lease for the entire property
with one tenant. For our multi-tenant medical office buildings, the percentage allocated to
buildings may be substantially lower as allocations are made to assets such as lease-up intangible
assets, above market tenant and ground lease intangible assets and in-place lease intangible assets
(collectively, “Intangible assets”) included on our consolidated balance sheets and/or below market
tenant and ground lease intangible liabilities included in the caption “Accounts payable and
accrued liabilities” on our consolidated balance sheets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We calculate depreciation and amortization on equipment and lease costs using the
straight-line method based on estimated useful lives of up to five years or the lease term,
whichever is appropriate. We amortize intangible assets and liabilities over the remaining lease
terms of the respective leases to real estate amortization expense or medical office building
operating rent, as appropriate. We review and adjust useful lives periodically.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Asset Impairment</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We review our long-lived assets individually on a quarterly basis to determine if there are
indicators of impairment in accordance with the provisions of ASC 360. Indicators may include,
among others, a tenant’s inability to make rent payments, operating losses or negative operating
trends at the facility level, notification by a tenant that it will not renew its lease, or a
decision to dispose of an asset or adverse changes in the fair value of any of our properties. For
operating assets, if indicators of impairment exist, we compare the undiscounted cash flows from
the expected use of the property to its net book value to determine if impairment exists. The
evaluation of the undiscounted cash flows from the related lease agreement and expected use of the
property is highly subjective and is based in part on various factors and assumptions, including,
but not limited to, historical operating results, available market information and known trends and
market/economic conditions that may affect the property, as well as estimates of future operating
income, occupancy, rental rates, leasing demand and competition. If the sum of the future estimated
undiscounted cash flows is higher than the current net book value, we conclude no impairment
exists. If the sum of the future estimated undiscounted cash flows is lower than its current net
book value, we recognize an impairment loss for the difference between the net book value of the
asset and its estimated fair value. To the extent we decide to sell an asset, we recognize an
impairment loss if the current net book value of the asset exceeds its fair value less selling
costs.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We evaluate our equity method investments for impairment whenever events or changes in
circumstances indicate that the carrying value of our investment in an unconsolidated joint venture
may exceed the fair value. If it is determined that a decline in the fair value of our investment
in an unconsolidated joint venture is other-than-temporary, and if such reduced fair value is below
its carrying value, an impairment is recorded. The determination of the fair value of investments
in unconsolidated joint ventures involves significant judgment. Our estimates consider all
available evidence including, as appropriate, the present value of the expected future cash flows
discounted at market rates, general economic conditions and trends and other relevant factors.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The above analyses require us to determine whether there are indicators of impairment for
individual assets or investments in unconsolidated joint ventures, to estimate the most likely
stream of cash flows from operating assets and to determine the fair value of assets that are
impaired or held for sale. If our assumptions, projections or estimates regarding an asset change
in the future, we may have to record an impairment charge to reduce or further reduce the net book
value of such individual asset or investment in unconsolidated joint venture.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">No impairment charges were recorded during the three and nine months ended September 30, 2010
or 2009.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Collectability of Receivables</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We evaluate the collectability of our rent, mortgage and other loans and other receivables on
a regular basis based on factors including, among others, payment history, the financial strength
of the borrower and any guarantors, the value of the underlying collateral, the operations and
operating trends of the underlying collateral, if any, the asset type and current economic
conditions. If our evaluation of these factors indicates we may not recover the full value of the
receivable, we provide a reserve against the portion of the receivable that we estimate may not be
recovered. This analysis requires us to determine whether there are factors indicating a receivable
may not be fully collectible and to estimate the amount of the receivable that may not be
collected. We had reserves included in the caption “Receivables, net” on our consolidated balance
sheets of $12.7 million at September 30, 2010 and December 31, 2009.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Cash and Cash Equivalents</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Cash and cash equivalents include short-term investments with original maturities of three
months or less when purchased.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Capital Raising Costs</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Deferred financing costs are included in the caption “Other assets” on our consolidated
balance sheets and are amortized as a component of interest expense over the terms of the related
borrowings using a method that approximates a level yield. Deferred financing cost amortization is
included in the caption “Interest expense” on our consolidated income statements. Costs incurred in
connection with the issuance of common stock are recorded as a reduction of capital in excess of
par value.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Derivatives</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">In the normal course of business, we are exposed to financial market risks, including interest
rate risk on our interest-bearing liabilities. We endeavor to limit these risks by following
established risk management policies, procedures and strategies, including, on occasion, the use of
derivative instruments. We do not use derivative instruments for trading or speculative purposes.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Derivative instruments are recorded on our consolidated balance sheets as assets or
liabilities based on each instrument’s fair value. Changes in the fair value of derivative
instruments are recognized currently in earnings, unless the derivative instrument meets the
criteria for hedge accounting contained in ASC Topic 815, <i>Derivatives and Hedging </i>(“ASC 815”). If
the derivative instruments meet the criteria for a cash flow hedge, the gains and losses recognized
upon changes in the fair value of the derivative instrument are recorded in other comprehensive
income. Gains and losses on a cash flow hedge are reclassified into earnings when the forecasted
transaction affects earnings. A contract that is designated as a hedge of an anticipated
transaction which is no longer likely to occur is immediately recognized in earnings.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">For investments in entities reported under the equity method of accounting, we record our pro
rata share of the entity’s derivative instruments’ fair value, other comprehensive income or loss
and gains and losses determined in accordance with ASC 323 and ASC 815 as applicable.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Redeemable Limited Partnership Unitholders</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">NHP/PMB L.P. (“NHP/PMB”) is a limited partnership that we formed in February 2008 to acquire
properties from entities affiliated with Pacific Medical Buildings LLC (see Note 5). We consolidate
NHP/PMB consistent with the provisions of ASC 810, as our wholly owned subsidiary is the general
partner and exercises control. As of September 30, 2010 and December 31, 2009, third party
investors owned 2,190,581 and 1,629,752 Class A limited partnership units in NHP/PMB (“OP Units”),
respectively, which represented 32.2% and 52.4% of the total units outstanding at September 30,
2010 and December 31, 2009, respectively. As of September 30, 2010 and December 31, 2009, 4,605,460
and 1,482,713 Class B limited partnership units in NHP/PMB were outstanding, respectively, all of
which were held by our subsidiaries. During the nine months ended September 30, 2010, 575,326 and
1,788 OP Units were issued by NHP/PMB in connection with acquisitions and under terms of an
agreement with Pacific Medical Buildings and certain of its affiliates, respectively (see Note 5).
After a one year holding period, the OP Units are exchangeable for cash or, at our option, shares
of our common stock equal to the “REIT Shares Amount” per OP Unit. As of September 30, 2010, the
REIT Shares Amount was 1.000. We have entered into a registration rights agreement with the holders
of the OP Units which, subject to the terms and conditions set forth therein, obligates us to
register the shares of common stock that we may issue in exchange for such OP Units. As
registration rights are outside of our control, the redeemable OP unitholder interests are
classified outside of permanent equity on our consolidated balance sheets. During the nine months
ended September 30, 2010, 16,285 OP Units were converted into 16,285 shares of our common stock. We
applied the provisions of ASC Topic 480, <i>Distinguishing Liabilities from Equity</i>, to reflect the
redeemable OP unitholder interests at the greater of cost or fair value. As of September 30, 2010,
the fair value of the OP Units exceeded the cost basis by $11.4 million, and the adjustment was
recorded through capital in excess of par value. The value of the OP Units held by redeemable OP
unitholder interests was $84.7 million and $57.3 million at September 30, 2010 and December 31,
2009, respectively.
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<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Noncontrolling Interests</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We have four consolidated joint ventures in which we have equity interests, ranging from 71%
to 95%, in nine multi-tenant medical office buildings and one development project (see Note 5).
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">NHP/PMB has equity interests, ranging from 50% to 69%, in three joint ventures which each own
one multi-tenant medical office building (see Note 5). The joint ventures are consolidated by
NHP/PMB, and we consolidate NHP/PMB in our consolidated financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We also have three partnerships in which we have equity interests, ranging from 51% to 81%, in
one assisted and independent living facility, one skilled nursing facility and one specialty
hospital (see Note 3). We consolidate the partnerships in our consolidated financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Stock-Based Compensation</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We account for stock-based compensation in accordance with the provisions of ASC Topic 718,
<i>Compensation-Stock Compensation, </i>which require stock-based compensation awards to be valued at the
fair value on the date of grant and amortized as an expense over the vesting period and require any
dividend equivalents earned to be treated as dividends for financial reporting purposes. Net income
reflects stock-based compensation expense of $1.7 million and $5.2 million for the three and nine
months ended September 30, 2010, respectively, and $1.8 million and $5.2 million for the three and
nine months ended September 30, 2009, respectively.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Income Taxes</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We intend to continue to qualify as a REIT under Sections 856 through 860 of the Code, and
accordingly, no provision has been made for federal income taxes. However, we are subject to
certain state and local taxes on our income and/or property, and these amounts are included in the
expense caption “General and administrative” on our consolidated income statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">As part of the process of preparing our consolidated financial statements, significant
management judgment is required to estimate our compliance with REIT requirements. Our
determinations are based on interpretation of tax laws, and our conclusions may have an impact on
the income tax expense recognized. Adjustments to income tax expense may be required as a result of
i) audits conducted by federal and state tax authorities; ii) our ability to qualify as a REIT;
iii) the potential for built-in-gain recognized related to prior-tax-free acquisitions of C
corporations; and iv) changes in tax laws. Adjustments required in any given period are included in
income, other than adjustments to income tax liabilities acquired in business combinations, which
would be adjusted through goodwill.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Earnings per Share (EPS)</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Basic EPS is computed by dividing income from continuing operations available to common
stockholders by the weighted average common shares outstanding. Income from continuing operations
available to common stockholders is calculated by deducting amounts attributable to noncontrolling
interests, amounts attributable to participating securities and dividends declared on preferred
stock from income from continuing operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We apply the provisions of ASC Topic 260, <i>Earnings per Share</i>, which require that the two-class
method of computing basic earnings per share be applied when there are unvested share-based payment
awards that contain rights to nonforfeitable dividends outstanding during a reporting period. These
participating securities share in undistributed earnings with common stockholders for purposes of
calculating basic earnings per share.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Diluted EPS includes the effect of any potential shares outstanding, which for us is comprised
of dilutive stock options, other share-settled compensation plans and, if the effect is dilutive,
our 7.75% Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”), which was
redeemed on January 18, 2010 (see Note 10) and/or OP Units. The dilutive effect of stock options
and other share-settled compensation plans that do not contain rights to nonforfeitable dividends
is calculated using the treasury stock method with an offset from expected proceeds upon exercise
of the stock options and unrecognized compensation expense.
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Fair Value</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">We apply the provisions of ASC Topic 820, <i>Fair Value Measurements and Disclosures </i>(“ASC 820”)
to our financial assets and liabilities measured at fair value on a recurring basis and to our
nonfinancial assets and liabilities that are not required or permitted to be measured at fair value
on a recurring basis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">ASC 820 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. ASC 820 also specifies
a three-level hierarchy of valuation techniques based upon whether the inputs reflect assumptions
other market participants would use based upon market data obtained from independent sources
(observable inputs) or reflect our own assumptions of market participant valuation (unobservable
inputs) and requires the use of observable inputs if such data is available without undue cost and
effort. The hierarchy is as follows:
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="8%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 1 — quoted prices for identical instruments in active markets.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="8%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 2 — observable inputs other than Level 1 inputs, including quoted prices
for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active and other
derived valuations with significant inputs or value drivers that are observable or can be
corroborated by observable inputs in active markets.</td>
</tr>
</table>
</div>
<div style="margin-top: 10pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="8%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Level 3 — unobservable inputs or derived valuations with significant inputs or
value drivers that are unobservable.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 8%">Fair value measurements at September 30, 2010 are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 1</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 2</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Financial assets
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,848</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,848</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Financial liabilities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,848</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,848</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest rate swaps
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,977</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,977</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Redeemable OP unitholder interests
</div></td>
<td> </td>
<td> </td>
<td align="right">84,688</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">84,688</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">78,711</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">78,711</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Amounts related to our deferred compensation plan are invested in various financial assets,
and the fair value of the corresponding assets and liabilities is based on market quotes. Interest
rate swaps are valued using standard derivative pricing models that consider forward yield curves
and discount rates. OP Units are exchangeable for cash or, at our option, shares of our common
stock equal to the REIT Shares Amount. As such, the fair value of OP Units outstanding at September
30, 2010 is based on the closing price of our common stock on September 30, 2010, which was $38.67
per share.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The provisions of ASC Topic 825, <i>Financial Instruments</i>, provide companies with an option to
report selected financial assets and liabilities at fair value and establish presentation and
disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. We have not elected to apply
the fair value option to any specific financial assets or liabilities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The carrying amount of cash and cash equivalents approximates fair value because of the short
maturities of these instruments. The fair value of mortgage and other loans receivable are based
upon the estimates of management and on rates currently prevailing for comparable loans. The fair
value of long-term debt is estimated based on discounting future cash flows utilizing current rates
offered to us for debt of a similar type and remaining maturity.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The table below details the book value and fair value for mortgage and other loans receivable
and the components of long-term debt at September 30, 2010. These fair value estimates are not
necessarily indicative of the amounts that would be realized upon disposition of these financial
instruments.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Book Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(In thousands)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Mortgage loans receivable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">259,219</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">263,193</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Other loans receivable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">76,216</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">69,337</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Unsecured senior credit facility
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Senior notes
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">991,633</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,096,019</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff; padding-top: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px">Notes and bonds payable
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">454,779</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">472,354</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><i>Impact of New Accounting Standards Updates</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">In June 2009, the FASB updated ASC 810 to require ongoing analyses to determine whether an
entity’s variable interest gives it a controlling financial interest in a variable interest entity
(“VIE”), making it the primary beneficiary, based on whether the entity (i) has the power to direct
activities of the VIE that most significantly impact its economic performance, including whether it
has an implicit financial responsibility to ensure the VIE operates as designed, and (ii) has the
obligation to absorb losses or the right to receive benefits of the VIE that could potentially be
significant to the VIE. Enhanced disclosures regarding an entity’s involvement with VIEs are also
required under the provisions of ASC 810. These requirements became effective January 1, 2010. The
adoption of these requirements did not have a material impact on our results of operations or
financial position.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, <i>Improving
Disclosures About Fair Value Measurements </i>(“ASU 2010-06”). ASU 2010-06 adds new requirements for
disclosures of significant transfers into and out of Levels 1, 2 and 3 of the fair value hierarchy,
the reasons for the transfers and the
policy for determining when transfers are recognized. ASU 2010-06 also adds new requirements
for disclosures about purchases, sales, issuances and settlements on a gross rather than net basis
relating to the reconciliation of the beginning and ending balances of Level 3 recurring fair value
measurements. It also clarifies the level of disaggregation to require disclosures by “class”
rather than by “major category of assets and liabilities” and clarifies that a description of
inputs and valuation techniques used to measure fair value is required for both recurring and
nonrecurring fair value measurements classified as Level 2 or 3. ASU 2010-06 became effective
January 1, 2010 except for the requirements to provide the Level 3 activity of purchases, sales,
issuances and settlements on a gross basis which are effective January 1, 2011. The adoption of ASU
2010-06 has not and is not expected to have a material impact on our results of operations or
financial position.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">In February 2010, the FASB issued ASU 2010-09, <i>Amendments to Certain Recognition and
Disclosure Requirements </i>(“ASU 2010-09”). ASU 2010-09 amends ASC Topic 855, <i>Subsequent Events</i>, to
require SEC registrants and conduit bond obligors to evaluate subsequent events through the date
that the financial statements are issued, however, SEC registrants are exempt from disclosing the
date through which subsequent events have been evaluated. All other entities are required to
evaluate subsequent events through the date that the financial statements are available to be
issued and must disclose the date through which subsequent events have been evaluated. ASU 2010-09
was effective upon issuance for all entities except conduit debt obligors. The adoption of ASU
2010-09 did not have an impact on our results of operations or financial position.
</div>
<div align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">In July 2010, the FASB issued ASU 2010-20, <i>Disclosures About the Credit Quality of Financing
Receivables and the Allowance for Credit Losses </i>(“ASU 2010-20”). ASU 2010-20 amends ASC Topic 310,
<i>Receivables</i>, to require additional disclosures regarding credit quality and the allowance for
credit losses related to financing receivables, including credit quality indicators and past due
and modification information. Disclosures must be disaggregated by segment and class. The
disclosures as of the end of a reporting period are effective December 31, 2010, and the
disclosures about activity that occurs during a reporting period are effective January 1, 2011.
</div>
<!-- Folio -->
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
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-Number 22
-Paragraph 8
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