Item 2. Properties

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Item 2. Properties

We are organized to invest in income-producing healthcare-related facilities. In evaluating potential investments, we consider a multitude of factors, including:

	·		location, construction quality, age, condition and design of the property;

	·		geographic area, proximity to other healthcare facilities, type of property and demographic profile;

	·		whether the expected risk-adjusted return exceeds our cost of capital;

	·		whether the rent or operating income provides a competitive market return to our investors;

	·		duration, rental rates, tenant and operator quality and other attributes of in-place leases, including master lease structures;

	·		current and anticipated cash flow and its adequacy to meet our operational needs;

	·		availability of security such as letters of credit, security deposits and guarantees;

	·		potential for capital appreciation;

	·		expertise and reputation of the tenant or operator;

	·		occupancy and demand for similar healthcare facilities in the same or nearby communities;

	·		the mix of revenues generated at healthcare facilities between privately paid and government reimbursed;

	·		availability of qualified operators or property managers and whether we can manage the property;

	·		potential alternative uses of the facilities;

	·		the regulatory and reimbursement environment in which the properties operate;

	·		tax laws related to REITs;

	·		prospects for liquidity through financing or refinancing; and

	·		our access to and cost of capital.

Property and Direct Financing Lease Investments

The following table summarizes our property and direct financing lease (“DFL”) investments in our Owned Portfolio as of and for the year ended December 31, 2014 (square feet and dollars in thousands):


	Number of		Gross Asset		Rental		Operating
Facility Location	Facilities	Capacity	Value(1)		Revenues(2)		Expenses
Senior housing—real estate:		(Units)
California	28	4,228	$	547,091	$	103,419	$	2,655
Texas	28	5,984		434,297		54,001		4
Florida	26	4,083		396,797		45,615		6
Oregon	27	2,427		318,517		29,585		262
Virginia	9	1,404		249,829		22,254		—
Washington	20	1,433		235,860		19,273		—
Colorado	6	1,069		188,802		19,421		—
New Jersey	7	802		140,991		12,201		58
South Carolina	19	1,317		140,564		16,258		8
Georgia	16	1,103		139,999		12,189		11
Other (31 States and U.K.)	118	3,724		1,599,056		171,855		474
	304	27,574		4,391,803		506,071		3,478
Senior housing—RIDEA:
Other (23 States)	68	9,869		1,471,237		241,514		163,650
Senior housing—DFLs(3):
Maryland	13	1,086		254,500		20,350		—
New Jersey	8	678		190,660		14,011		112
Illinois	10	942		178,557		13,834		—
Florida	14	1,204		163,233		13,395		63
Pennsylvania	10	725		149,073		12,652		—
Ohio	11	945		143,150		10,758		21
Other (12 States)	27	2,335		417,962		30,494		83
	93	7,915		1,497,135		115,494		279
Total senior housing	465	45,358	$	7,360,175	$	863,079	$	167,407
Post-acute/skilled nursing—real estate:		(Beds)
Virginia	9	932	$	58,377	$	7,502	$	—
Indiana	8	920		55,572		9,083		—
Ohio	6	577		30,863		4,948		10
Nevada	2	298		17,474		3,290		1
Colorado	2	216		13,800		1,792		—
Other (6 States)	7	689		25,313		4,240		1,909
	34	3,632		201,399		30,855		1,920


	Number of		Gross Asset		Rental		Operating
Facility Location	Facilities	Capacity	Value(1)		Revenues(2)		Expenses
Post-acute/skilled nursing—DFLs(3):		(Units)
Pennsylvania	43	6,919		1,262,692		119,850		—
Illinois	26	3,177		731,899		67,072		—
Ohio	44	5,005		667,976		62,467		111
Michigan	27	3,183		603,331		54,475		—
Florida	27	3,486		570,885		53,052		10
Other (24 States)	100	12,907		1,822,525		167,551		46
	267	34,677		5,659,308		524,467		167
Total post-acute/skilled nursing	301	38,309	$	5,860,707	$	555,322	$	2,087
Life science:		(Sq. Ft.)
California	98	6,408	$	3,195,318	$	288,563	$	58,296
Utah	10	669		114,480		15,926		2,149
Other (2 States)	3	244		114,750		9,625		2,635
Total life science	111	7,321	$	3,424,548	$	314,114	$	63,080
Medical office:		(Sq. Ft.)
Texas	49	4,382	$	719,694	$	103,330	$	47,045
California	15	871		226,094		25,166		13,336
Colorado	16	1,083		198,991		29,507		11,766
Utah	27	1,288		195,098		26,559		7,520
Kentucky	12	1,121		191,424		19,731		5,937
Washington	6	651		164,819		30,162		10,961
Other (22 States and Mexico)	90	5,826		1,002,839		136,501		51,634
Total medical office	215	15,222	$	2,698,959	$	370,956	$	148,199
Hospital—real estate:		(Beds)
Texas	4	906	$	231,516	$	30,387	$	3,706
California	2	111		143,500		19,346		11
Louisiana	2	79		31,616		2,866		128
Other (5 States)	5	369		57,125		10,817		—
	13	1,465	$	463,757	$	63,416	$	3,845
Hospital—DFLs(3):
Other (3 States)	3	756		123,891		23,092		(15)
Total hospital	16	2,221	$	587,648	$	86,508	$	3,830
Total properties	1,108		$	19,932,037	$	2,189,979	$	384,603

	(1)		Represents gross real estate and the carrying value of DFLs. Gross real estate represents the carrying amount of real estate after adding back accumulated depreciation and amortization.

	(2)		Represent the combined amount of rental and related revenues, tenant recoveries, resident fees and services and income from direct financing leases.

	(3)		Represents leased properties that are classified as DFLs.

Occupancy and Annual Rent Trends

The following table summarizes occupancy and average annual rent trends for our owned portfolio for the years ended December 31, (square feet in thousands):


	2014			2013			2012			2011			2010
Senior housing(1):
Average annual rent per unit(2)	$	13,596		$	13,174		$	13,140		$	14,431		$	12,675
Average capacity (available units)		45,684			45,400			36,694			30,167			24,356
Post-acute/skilled nursing(1):
Average annual rent per bed(2)	$	12,646		$	12,218		$	11,802		$	12,669		$	7,118
Average capacity (available beds)		38,441			38,464			38,459			26,167			3,675
Life science:
Average occupancy percentage		93	%		92	%		90	%		90	%		89	%
Average annual rent per square foot(2)	$	46		$	44		$	45		$	44		$	44
Average occupied square feet		6,637			6,480			6,250			6,076			5,740
Medical office:
Average occupancy percentage		91	%		91	%		91	%		91	%		91	%
Average annual rent per square foot(2)	$	28		$	27		$	27		$	27		$	26
Average occupied square feet		13,178			12,767			12,147			11,721			11,437
Hospital(1):
Average annual rent per bed(2)	$	39,149		$	38,437		$	37,679		$	36,974		$	36,273
Average capacity (available beds)		2,221			2,175			2,087			2,084			2,064

	(1)		Senior housing includes average units of 6,408, 4,620, 4,626 and 1,545 for the years ended December 31, 2014, 2013, 2012 and 2011, respectively, that are in a RIDEA structure in which resident occupancy impacts our annual revenue, which structure was initially adopted in 2011 and expanded in August 2014. The average resident occupancy for these units was 87%, 88%, 86% and 86% for the years ended December 31, 2014, 2013, 2012 and 2011, respectively. All other senior housing, post-acute/skilled nursing and hospital facilities are triple-net leased to operator occupied facilities, which makes these facilities 100% leased from our perspective.

	(2)		Average annual rent is presented as a ratio of revenues comprised of rental and related revenues, tenant recoveries and income from DFLs divided by the average capacity or average occupied square feet of the facilities and annualized for mergers and acquisitions for the year in which they occurred. Average annual rent for properties operated under a RIDEA structure is calculated based on NOI divided by the average capacity of the facilities. Average annual rent for leased properties (including DFLs) excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles and DFL interest accretion).

Development Properties

The following table sets forth the properties owned by us in our medical office and senior housing segments at December 31, 2014 that are currently under development or redevelopment (dollars and square feet in thousands):


		Estimated	Estimated			Estimated
		Completion	Rentable	Investment		Total
Name of Project	Location	Date(1)	Sq. Ft./Units	to Date		Investment
Life science:
Pacific Corporate Park	San Diego, CA	2Q 2016	57	$	12,707	$	19,868
Medical office:
Memorial Hermann	Pearland, TX	1Q 2016	98		5,491		18,800
Sky Ridge	Lone Tree, CO	1Q 2016	118		5,453		29,400
Bayfront(2)	St. Petersburg, FL	4Q 2015	120		13,572		19,236
Folsom	Sacramento, CA	4Q 2015	92		38,553		59,350
Senior housing:
Deer Park	Deer Park, IL	4Q 2015	180		17,249		47,690
				$	93,025	$	194,344

	(1)		For development projects, management’s estimate of the date the core and shell structure improvements are expected to be completed. For redevelopment projects, management’s estimate of the time in which major construction activity in relation to the scope of the project is expected 29

to be substantially completed. There are no assurances that any of these projects will be completed on schedule or within estimated amounts.

	(2)		Represents a portion of the facility.

At December 31, 2014, we also had $390 million of land held for future development primarily in our life science segment. In February 2015, we began construction on the first phase of The Cove at Oyster Point, a life science development in South San Francisco with an investment of $26 million that was reported in land held for development at December 31, 2014.

Tenant Lease Expirations

The following table shows tenant lease expirations, including those related to DFLs, for the next 10 years and thereafter at our leased properties, assuming that none of the tenants exercise any of their renewal options (dollars and square feet in thousands). See “Tenant Purchase Options” section of Note 12 to the Consolidated Financial Statements for additional information on leases subject to purchase options.


	Expiration Year
Segment	Total		2015(1)		2016		2017		2018		2019		2020		2021		2022		2023		2024		Thereafter
Senior housing(2):
Properties		397		1		14		8		25		5		24		9		2		8		26		275
Base rent(3)	$	495,555	$	220	$	17,139	$	10,759	$	48,887	$	8,893	$	39,965	$	12,147	$	2,129	$	23,553	$	30,111	$	301,752
% of segment base rent		100		—		3		2		10		2		8		2		—		5		6		62
Post-acute/skilled nursing:
Properties		301		—		1		—		2		21		6		—		4		—		—		267
Base rent(3)	$	489,547	$	—	$	340	$	—	$	1,168	$	18,633	$	6,934	$	—	$	3,274	$	—	$	—	$	459,198
% of segment base rent		100		—		—		—		—		4		1		—		1		—		—		94
Life science:
Square feet		6,971		280		375		911		835		509		1,056		643		455		769		471		667
Base rent(3)	$	261,376	$	9,076	$	10,165	$	31,876	$	35,758	$	15,519	$	48,264	$	34,638	$	15,919	$	34,173	$	7,553	$	18,435
% of segment base rent		100		4		4		12		14		6		18		13		6		13		3		7
Medical office:
Square feet		13,814		2,242		1,681		2,190		1,831		1,621		1,304		707		628		413		417		780
Base rent(3)	$	316,302	$	52,546	$	37,273	$	51,006	$	40,421	$	37,281	$	28,892	$	16,658	$	14,507	$	7,374	$	10,952	$	19,392
% of segment base rent		100		17		12		16		13		12		9		5		5		2		3		6
Hospital:
Properties		16		—		—		3		—		5		1		1		2		—		1		3
Base rent(3)	$	74,903	$	—	$	—	$	12,667	$	—	$	7,332	$	7,700	$	1,282	$	11,523	$	—	$	13,304	$	21,095
% of segment base rent		100		—		—		17		—		10		10		2		15		—		18		28
Total:
Base rent(3)	$	1,637,683	$	61,842	$	64,917	$	106,308	$	126,234	$	87,658	$	131,755	$	64,725	$	47,352	$	65,100	$	61,920	$	819,872
% of total base rent		100		4		4		6		8		5		8		4		3		4		4		50

	(1)		Includes month-to-month leases.

	(2)		Excludes 68 RIDEA facilities, leased to consolidated subsidiaries, with annualized NOI of $117 million.

	(3)		The most recent month’s (or subsequent month’s if acquired in the most recent month) base rent including additional rent floors and cash income from DFLs annualized for 12 months. Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL interest accretion and deferred revenues).

We specifically incorporate by reference into this section the information set forth in Schedule III: Real Estate and Accumulated Depreciation, included in this report.

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