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, including new competitive supply;

	·		whether the expected risk-adjusted return exceeds the incremental 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 and coverage;

	·		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, 2015 (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	27	2,633	$	546,272	$	54,646	$	2,663
Texas	28	3,513		438,060		47,205		1
Florida	23	2,582		374,000		28,590		8
Oregon	25	2,042		306,098		26,427		329
Virginia	9	1,154		252,318		19,555		—
Washington	17	1,200		211,010		16,778		—
Colorado	6	908		192,532		17,704		—
Other (33 States)	134	11,680		1,907,453		173,232		1,112
	269	25,712		4,227,743		384,137		4,113
Senior housing—real estate (U.K.):
Other (U.K.)	40	1,855		213,324		17,557		—
Senior housing—RIDEA:
Other (25 States)	108	15,403		2,467,708		525,453		370,204
Senior housing—DFLs(3):
Other (17 States)	89	7,638		1,788,765		117,408		300

Total senior housing	506	50,608	$	8,697,540	$	1,044,555	$	374,617
Post-acute/skilled nursing—real estate:		(Beds)
Indiana	8	947	$	59,171	$	9,095	$	—
Virginia	9	932		58,377		7,425		—
Ohio	6	577		30,826		4,949		16
Nevada	2	298		17,474		3,329		—
Colorado	2	216		13,800		1,792		—
Other (6 States)	7	693		25,310		4,324		1,735
	34	3,663		204,958		30,914		1,751
Post-acute/skilled nursing—real estate (U.K.):
Other (U.K.)	21	1,341		145,490		11,122		—


	Number of		Gross Asset		Rental		Operating
Facility Location	Facilities	Capacity	Value(1)		Revenues(2)		Expenses
Post-acute/skilled nursing—DFLs(3):		(Beds)
Other (25 States)	256	33,159		3,992,353		493,075		251

Total post-acute/skilled nursing	311	38,163	$	4,342,801	$	535,111	$	2,002
Life science:		(Sq. Ft.)
California	105	6,637	$	3,305,305	$	312,396	$	64,501
Other (3 States)	13	913		232,565		30,588		5,716
Total life science	118	7,550	$	3,537,870	$	342,984	$	70,217
Medical office:		(Sq. Ft.)
Texas	59	5,509	$	886,418	$	114,693	$	49,986
Pennsylvania	2	1,141		253,487		27,852		9,866
California	16	830		237,747		25,054		7,223
Colorado	16	1,083		202,891		30,892		12,303
Other (24 States and Mexico)	134	8,492		1,454,549		220,734		84,172
Total medical office	227	17,055	$	3,035,092	$	419,225	$	163,550
Hospital—real estate:		(Beds)
Texas	4	912	$	231,552	$	31,882	$	3,857
California	2	111		143,500		19,370		28
Other (6 States)	7	448		88,742		13,776		81
	13	1,471	$	463,794	$	65,028	$	3,966
Hospital—DFLs(3):
Other (3 States)	3	756		123,891		23,352		23
Total hospital	16	2,227	$	587,685	$	88,380	$	3,989
Total properties	1,178		$	20,200,988	$	2,430,255	$	614,375

	(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):


	2015			2014			2013			2012			2011
Senior housing(1):
Average annual rent per unit(2)(3)	$	13,796		$	13,596		$	13,174		$	13,140		$	14,431
Average capacity (available units)		47,702			45,684			45,400			36,694			30,167
Average capacity (available units) - RIDEA		12,704			6,408			4,620			4,626			1,545
Average resident occupancy percentage - RIDEA		88	%		87	%		88	%		86	%		86	%
Post-acute/skilled nursing(1):
Average annual rent per bed(2)(3)	$	11,767		$	12,646		$	12,218		$	11,802		$	12,669
Average capacity (available beds)		38,779			38,441			38,464			38,459			26,167
Life science:
Average occupancy percentage		97	%		93	%		92	%		90	%		90	%
Average annual rent per square foot(2)	$	46		$	46		$	44		$	45		$	44
Average occupied square feet		7,179			6,637			6,480			6,250			6,076
Medical office:
Average occupancy percentage		91	%		91	%		91	%		91	%		91	%
Average annual rent per square foot(2)	$	28		$	28		$	27		$	27		$	27
Average occupied square feet		14,762			13,178			12,767			12,147			11,721
Hospital(1):
Average annual rent per bed(2)	$	40,212		$	39,149		$	38,437		$	37,679		$	36,974
Average capacity (available beds)		2,224			2,221			2,175			2,087			2,084

	(1)		Senior housing includes average units 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 and June 2015. 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).

	(3)		We changed our accounting treatment to recognize income on a cash basis beginning January 1, 2016 on our HCRMC DFL investments (see Note 6 to the Consolidated Financial Statements).

Development Properties

The following table sets forth the properties owned by us in our life science, medical office and senior housing segments at December 31, 2015 that were 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:
The Cove at Oyster Point - Phase I	South San Francisco, CA	3Q 2016	247	$	92,926	$	184,314
Medical office:
Memorial Hermann - Pearland II	Pearland, TX	1Q 2016	98		13,869		18,800
Sky Ridge	Lone Tree, CO	1Q 2016	118		23,315		29,400
Memorial Hermann - Cypress	Cypress, TX	2Q 2016	165		20,330		35,630
Folsom	Sacramento, CA	2Q 2016	92		59,863		61,850
Bayfront(2)	St. Petersburg, FL	2Q 2016	117		13,633		22,070
Senior housing:
Deer Park	Deer Park, IL	1Q 2016	180		41,219		47,690
				$	265,155	$	399,754

	(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 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, 2015, we also had $321 million of land held for future development primarily in our life science segment.

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 or purchase options, unless otherwise noted below (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		2016(1)		2017		2018		2019		2020		2021		2022		2023		2024		2025		Thereafter
Senior housing(2):
Properties		398		8		6		25		5		26		8		2		8		26		2		282
Base rent(3)	$	512,951	$	13,338	$	9,248	$	50,829	$	9,161	$	41,216	$	10,928	$	2,157	$	24,129	$	31,540	$	5,613	$	314,792
% of segment base rent		100		3		2		10		2		8		2		—		5		6		1		61
Post-acute/skilled nursing:
Properties		311		—		—		1		21		6		1		4		—		—		—		278
Base rent(3)	$	435,760	$	—	$	—	$	1,197	$	19,056	$	7,338	$	351	$	3,274	$	—	$	—	$	—	$	404,544
% of segment base rent		100		—		—		—		4		2		—		1		—		—		—		93
Life science(4):
Square feet		7,411		844		883		1,268		561		482		729		584		786		471		560		243
Base rent(3)	$	283,613	$	34,935	$	32,633	$	60,350	$	17,629	$	14,915	$	39,059	$	17,948	$	36,141	$	7,759	$	15,062	$	7,182
% of segment base rent		100		12		12		21		6		5		14		6		13		3		5		3
Medical office:
Square feet		15,680		2,329		2,306		2,188		1,740		2,040		828		845		454		483		1,817		650
Base rent(3)	$	354,494	$	54,977	$	55,035	$	50,255	$	40,910	$	48,047	$	20,198	$	19,881	$	10,115	$	12,731	$	27,984	$	14,361
% of segment base rent		100		15		15		14		11		14		6		6		3		4		8		4
Hospital:
Properties		16		—		3		—		5		1		1		2		—		1		2		1
Base rent(3)	$	75,714	$	—	$	12,800	$	—	$	7,346	$	7,759	$	1,482	$	11,491	$	—	$	13,570	$	17,138	$	4,128
% of segment base rent		100		—		17		—		10		10		2		15		—		18		23		5
Total:
Base rent(3)	$	1,662,532	$	103,250	$	109,716	$	162,631	$	94,102	$	119,275	$	72,018	$	54,751	$	70,385	$	65,600	$	65,797	$	745,007
% of total base rent		100		6		7		10		6		7		4		3		4		4		4		45

	(1)		Includes month-to-month leases.

	(2)		Excludes 108 RIDEA facilities, leased to consolidated subsidiaries, with annualized NOI of $193 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).

	(4)		Includes 457,000 sq. ft. and 337,000 sq. ft. and annualized revenues of $24 million and $19 million expiring in 2016 and 2018, respectively, related to the exercise of tenant purchase options in January 2016.

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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