Healthpeak Properties (DOC) 10-K risk factor changes: FY2016 vs FY2015

We depend on [removed: a limited number of tenants] [added: one tenant] and [removed: operators] [added: operator, Brookdale,] for a [removed: large] [added: significant] percentage of our revenues and net operating income.

We manage our facilities utilizing [removed: lease and] RIDEA [added: and triple-net lease (“lease arrangements”)] structures.

Services provided by our [removed: tenants or operators] [added: managers] in facilities managed under a RIDEA structure are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs.

The [removed: inability] [added: inability, unwillingness] or other failure of [removed: either HCRMC under its lease agreements, or] Brookdale under its lease agreements and RIDEA [removed: structures,] [added: structures] to meet [removed: their] [added: its] obligations to us could materially reduce our cash flow, net operating income and results of [removed: operations, which could in turn reduce the amount of dividends we pay to our stockholders, cause our stock price to decline] [added: operations] and have other materially adverse effects on our business, results of operations and financial condition.

[removed: In addition, any failure by HCRMC or] [added: Consequently, if] Brookdale [added: fails] to effectively conduct [removed: their operations] [added: its operations,] or to maintain and improve our [removed: properties could] [added: properties, it would] adversely affect [removed: their] [added: its] business reputation and [removed: their] [added: its] ability to attract and retain patients and residents in our properties, which [removed: could] [added: would] have a materially adverse effect on [added: its and] our business, results of operations and financial condition.

[removed: While HCRMC] [added: For a further discussion of the legislation] and [added: regulation that are applicable to us and our tenants, operators and borrowers, see “—Legislation and Regulation—The requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid, may adversely affect our tenants’, operators’ and borrowers’ ability to meet their financial and other contractual obligations to us.” While] Brookdale generally [removed: have] [added: has] also agreed to [removed: indemnify, defend and hold] [added: indemnify] us [removed: harmless from and against] [added: for] various claims, litigation and liabilities arising in connection with [removed: their respective businesses, they] [added: its business, it] may have insufficient assets, income, access to financing and/or insurance coverage to enable them to satisfy [removed: their] [added: its] indemnification obligations.

[removed: Adverse regulatory and] [added: Continuing adverse developments, including] operational [removed: developments] [added: challenges,] in [removed: HCRMC’s] [added: Brookdale’s] business and [added: affairs or] financial condition [added: would likely] have [removed: had, and could continue to have, an] [added: a materially] adverse effect on us.

[removed: Continued deterioration in HCRMC’s operating performance, business or financial condition, or adverse regulatory developments,] [added: This] could [removed: further reduce the revenues we earn under our master lease with HCRMC, further impair the value of our master lease with HCRMC, and] [added: ultimately] result in, among other adverse events, acceleration of [removed: HCRMC’s] [added: Brookdale’s] indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its [removed: counterparties,] [added: counterparties] or the commencement of insolvency proceedings by or against it under the U.S. Bankruptcy [removed: Code, any one or a combination of which could have a materially adverse effect on us.][added: Code.]

As of December 31, [removed: 2015,] [added: 2016,] Brookdale [added: leased or] managed [removed: 108] [added: 212] senior housing facilities that we own and [removed: 15 CCRCs] [added: 16 SHOP facilities] owned by our unconsolidated joint venture pursuant to long-term [added: lease and] management agreements.

Although we have various rights as the property owner under our management agreements, we rely on Brookdale’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our [added: related] senior living operations efficiently and effectively.

We also rely on Brookdale to set appropriate resident fees, [removed: to] [added: manage occupancy,] provide accurate [added: and complete] property-level financial results for [removed: our properties] [added: these senior housing communities] in a timely manner and [removed: to] otherwise operate [removed: our senior housing communities] [added: them] in compliance with the terms of our management agreements and all applicable laws and regulations.

In its capacity as a [removed: manager,] [added: manager in the RIDEA structures,] Brookdale does not lease our [removed: properties,] [added: properties] and, therefore, [removed: we are not directly exposed] [added: our exposure] to [removed: their] [added: its] credit risk [added: is] in [removed: the same] [added: a different] manner [removed: or to the same extent] as [added: compared to] a triple-net tenant.

Although [removed: our leases, financing] [added: we generally have] arrangements and other agreements [removed: with our tenants and operators generally provide] [added: that give] us the right under specified circumstances to terminate a lease, evict a tenant or operator, or demand immediate repayment of certain obligations to us, [removed: the bankruptcy and insolvency laws afford certain rights] [added: we may determine not] to [removed: a party that has filed for bankruptcy or reorganization] [added: do so if we believe] that [removed: may render certain] [added: enforcement] of [removed: these remedies unenforceable, or at the][added: our rights would be more detrimental to our business than seeking alternative approaches.]

A debtor has the right to assume, or to assume and assign to a third party, or to reject its [removed: unexpired] [added: executory] contracts [added: and unexpired leases] in a bankruptcy proceeding.

[removed: Also, if a debtor-manager seeks bankruptcy protection,] [added: Furthermore,] the automatic stay provisions of the U.S. Bankruptcy Code would preclude us from enforcing our remedies [removed: against the manager] unless [removed: relief is] [added: we] first [removed: obtained] [added: obtain relief] from the court having jurisdiction over the bankruptcy case.

In [removed: any of these events,] [added: addition,] we [removed: also may] [added: would likely] be required to fund certain expenses and obligations (e.g., real estate taxes, insurance, debt costs and maintenance expenses) to preserve the value of our properties, avoid the imposition of liens on our properties or transition our properties to a new tenant, operator or manager.

[removed: Furthermore, many of our facilities are leased to healthcare providers who provide long-term custodial care to the elderly; evicting such] [added: Evicting these] operators for failure to pay rent while the facility is occupied may involve specific procedural [added: or regulatory] requirements and may not be successful.

Additionally, the financial weakness or other inability of our tenants, operators or borrowers to make payments or comply with certain other lease obligations may affect our compliance with certain covenants contained in our debt securities, credit facilities and the mortgages on the properties leased or managed by such [added: borrowers,] tenants and operators, or otherwise adversely affect our results of operations.

Although we may be able to secure amendments under the applicable agreements in those circumstances, the bankruptcy of [removed: an applicable] [added: a borrower,] tenant or operator may [removed: potentially] result in less favorable borrowing terms than currently available, delays in the availability of funding or other materially adverse consequences.

Increased competition [removed: has] [added: and market and legislative changes have] resulted and may further result in lower net revenues for some of our tenants, operators and borrowers and may affect their ability to meet their financial and other contractual obligations to us.

This competition, which is due, in part, to [removed: over development] [added: over-development] in some segments in which we invest, has caused the occupancy rate of newly constructed buildings to slow and the monthly rate that many newly built and previously existing facilities were able to obtain for their services to decrease.

[removed: We cannot be certain that our] [added: Our] tenants, operators and borrowers [removed: will] [added: may] be [removed: able] [added: unable] to achieve occupancy and rate levels, and to manage their expenses, in a way that will enable them to meet all of their obligations to us.

[removed: They] [added: Our tenants, operators and borrowers] may encounter increased competition that could limit their ability to maintain or attract residents or expand their businesses or to manage their expenses, either of which could materially adversely affect their ability to meet their financial and other contractual obligations to us, potentially decreasing our [removed: revenues,] [added: revenues and] impairing our [removed: assets,] [added: assets] and/or increasing [removed: our] collection and dispute costs.

Economic and other conditions that negatively affect geographic areas [removed: to] [added: from] which a greater percentage of our [removed: revenue] [added: revenues] is [removed: attributed] [added: recognized] could materially adversely affect our business, results of operations and financial condition.

For the year ended December 31, [removed: 2015, 35%] [added: 2016, 26%] of our revenue was derived from properties located in [removed: California (22%) and Texas (13%).][added: California, which is also where substantially all of our life-science portfolio is located.]

As a result, we may be subject to increased exposure to adverse conditions affecting [removed: these regions,] [added: the state,] including downturns in the local economies or changes in local real estate conditions, increased competition or decreased demand, changes in state-specific legislation and local climate events and natural disasters (such as earthquakes, wildfires and hurricanes), which could [added: cause significant disruption in our businesses in the region, harm our ability to compete effectively, result in increased costs and divert more management attention, any or all of which could] adversely affect our business and results of operations.

[removed: We] [added: If we must replace any of our tenants or operators, we] may [added: have difficulty identifying replacements and we may] be required to incur substantial renovation costs to make certain of our healthcare properties suitable for other tenants and operators.

The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and at times [removed: tenant-specific.][added: tenant-specific and may be subject to regulatory requirements.]

[removed: If] [added: Therefore, if] a current tenant or operator is unable to pay rent and/or vacates a property, we may incur substantial expenditures to modify a property [added: and experience delays] before we are able to secure another tenant or operator or to accommodate multiple tenants or operators.

These expenditures or renovations [added: and delays] may materially adversely affect our business, results of operations and financial condition.

We face additional risks associated with property development [added: and redevelopment] that can render a project less profitable or not profitable at all and, under certain circumstances, prevent completion of development activities once undertaken.

At December 31, [removed: 2015,] [added: 2016,] our actual investment and estimated commitments under our development [removed: platform,] [added: and redevelopment platforms,] including land held for [removed: redevelopment,] [added: development,] represented approximately [removed: $721] [added: $673] million, or [removed: 3%] [added: 4%] of our total assets.

| | · | | occupancy rates and rents at a newly completed property may not meet expected levels and could be insufficient to [added: make the property profitable.] |

| | · | | our joint venture partners could have investment [added: and financing] goals that are not consistent with our [removed: investment] objectives, including the timing, terms and strategies for any [removed: investments;] [added: investments, and what levels of debt to incur or carry;] |

[removed: Successful integration of] the operations of these companies depends primarily on our ability to consolidate operations, systems, procedures, properties and personnel, and to eliminate redundancies and costs.

Potential difficulties associated with acquisitions include [added: our ability to effectively monitor and manage our expanded portfolio of properties,] the loss of key employees, the disruption of our ongoing business or that of the acquired entity, possible inconsistencies in standards, controls, procedures and policies, and the assumption of unexpected liabilities, including:

| | · | | unasserted claims of [removed: vendors] [added: vendors, residents, patients] or other persons dealing with the seller; |

| | · | | claims for indemnification by general partners, directors, officers and others indemnified by the seller; [removed: and] |

Similarly, we may underestimate future operating expenses or the costs necessary to bring properties up to standards established for their intended [removed: use.][added: use or for property improvements.]

From time to time we have made, and [removed: in the future] we may seek to make, one or more material acquisitions, which may involve the expenditure of significant funds.

Properties managed by Brookdale under RIDEA structures as of December 31, 2016, accounted for 18% of our gross segment assets.

In addition to our RIDEA structures with Brookdale, our leases with respect to Brookdale as a tenant accounted for 12% of our revenues for the year ended December 31, 2016.

Brookdale has experienced significant challenges in integrating its July 2014 acquisition of Emeritus Corp. and has been adversely affected by increased competition that has negatively impacted occupancy rates and, in certain cases, Brookdale has offered additional discounts and incentives to residents.

Brookdale, as well as our other operators, has also experienced labor expense pressure and increased labor turnover.

In its capacity as a triple-net tenant, we depend on Brookdale to pay all insurance, tax, utilities, maintenance and repair expenses in connection with the leased properties.

We depend on adequate maintenance and repair of the properties to remain competitive and attract and retain patients and residents.

Adverse developments in Brookdale’s business and related declining rent coverage ratios have increased its credit risk.

If these adverse developments result in prolonged inadequate property maintenance or improvements, or impair Brookdale’s access to capital necessary for maintenance or improvements, it could lead to a significant reduction in occupancy rates and market rents, which would likely have a materially adverse effect on us.

Brookdale’s operational challenges and potential adverse developments in its business, affairs and financial results could significantly divert management’s attention, increase employee turnover, and impair its ability to manage the properties or its operations efficiently and effectively.

In addition, Brookdale depends on private sources for its revenues and the ability of its patients and residents to pay its fees.

For example, costs associated with independent and assisted living services are not generally reimbursable under governmental reimbursement programs such as Medicare and Medicaid.

Accordingly, Brookdale depends on attracting seniors with appropriate levels of income and assets, which may be affected by many factors including prevailing economic and market trends, consumer confidence and demographics.

Brookdale also relies on reimbursements from governmental programs for a portion of its revenues.

Changes in reimbursement policies and other governmental regulation, such as potential changes to, or repeal of, the Patient Protection and Affordable Care Act, along with the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) that may result from the new presidential administration, may result in reductions in Brookdale’s revenues, operations and cash flows and affect its ability to meet its obligations to us.

We have very limited control over the success or failure of our tenants’ and operators’ businesses.

Any of our tenants or operators may experience a downturn in its business that materially weakens its financial condition.

As a result, they may fail to make payments when due.

A downturn in any of our tenants’ or operators’ businesses could ultimately lead to bankruptcy if it is unable to timely resolve the underlying causes, which may be largely outside of its control.

Bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization that may render certain of these remedies unenforceable, or, at the least, delay our ability to pursue such remedies and realize any recoveries in connection therewith.

If a debtor were to reject its leases with us, obligations under such rejected leases would cease.

The claim against the rejecting debtor would be an unsecured claim, which would be limited by the statutory cap set forth in the U.S. Bankruptcy Code.

This statutory cap may be substantially less than the remaining rent actually owed under the lease.

In addition, a debtor may also assert in bankruptcy proceedings that leases should be re-characterized as financing agreements, which could result in our being deemed a lender instead of a landlord.

A lender’s rights and remedies, as compared to a landlord’s, generally are materially more unfavorable.

This would effectively limit or delay our ability to collect unpaid rent, and we may ultimately not receive any payment at all.

Additionally, we lease many of our facilities to healthcare providers who provide long-term custodial care to the elderly.

Even if eviction is possible, we may determine not to do so due to reputational or other risks.

Bankruptcy or insolvency proceedings may also result in increased costs to the operator and significant management distraction.

If we are unable to transition affected properties, they could experience prolonged operational disruption, leading to lower occupancy rates and further depressed revenues.

Publicity about the operator’s financial condition and insolvency proceeds may also negatively impact their and our reputations, decreasing customer demand and revenues.

Any or all of these risks could have a material adverse effect on our revenues, results of operations and cash flows.

These risks would be magnified where we lease multiple properties to a single operator under a master lease, as an operator failure or default under a master lease would expose us to these risks across multiple properties.

In addition, our operators’ revenues are determined by a number of factors, including licensed bed capacity, occupancy, the healthcare needs of residents, the rate of reimbursement, and or a decrease the income or assets of seniors in the regions in which we operate.

For example, due to generally increased vulnerability to illness, occupancy at our senior housing facilities could significantly decrease in the event of a severe flu season, an epidemic or any other widespread illness.

Additionally, new and evolving payor and provider programs in the United States, including but not limited to Medicare Advantage, Dual Eligible, Accountable Care Organizations, and Bundled Payments, have resulted in reduced reimbursement rates, average length of stay and average daily census, particularly for higher acuity patients.

Furthermore, the new presidential administration and new Congress has introduced uncertainty in the direction of the healthcare regulatory landscape and we cannot predict the impact of any regulatory or legislative changes on the industry or our ability to compete effectively therein.

See the risks described under “—Legislation and Regulation—The requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid, may adversely affect our tenants’, operators’ and borrowers’ ability to meet their financial and other contractual obligations to us.”

We depend on investments in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown in that specific sector than if we were investing in multiple industries.

We concentrate our investments in the healthcare property sector.

As a result, we are subject to risks inherent to investments in a single industry.

Under our lease arrangements, we generated 33% of our revenues from HCRMC (23%) and Brookdale (10%) during the year ended December 31, 2015.

HCRMC is an operator that primarily provides post-acute care, skilled nursing care and assisted living services, and relies heavily on government reimbursement programs such as Medicare and Medicaid.

In addition to our lease arrangement with Brookdale, under RIDEA structures, we generated 8% of our net operating

income from properties managed by Brookdale during the year ended December 31, 2015.

Furthermore, they each face an increasingly competitive labor market for skilled management personnel and nurses, which can cause operating costs to increase.

The real estate portfolio that we have master leased to HCRMC accounts for a significant portion of our assets and revenues.

HCRMC, a provider of a range of healthcare services, primarily in post-acute care, skilled nursing care and assisted living, is our largest tenant, representing 23% of our gross assets and revenues as of and for the year ended December 31, 2015.

In April 2011, we completed a $6 billion acquisition of substantially all the real estate assets of, and an equity interest in, HCRMC.

In the first quarter 2015, we recorded an impairment charge of $478 million related to the real estate portfolio master leased to HCRMC, based on the present value of the future lease payments under the amendment to the master lease with HCRMC that became effective April 1, 2015.

As a result of HCRMC’s fourth quarter 2015 performance deterioration and related decline in fixed charge coverage, we subsequently placed the real estate portfolio master leased to HCRMC on “Watch List” status effective at year-end 2015, and changed our accounting treatment to recognize rental income on a cash basis beginning January 1, 2016.

Furthermore, HCRMC’s preliminary 2016 forecast indicates only limited improvement in its fixed charge coverage and free cash flow after capital expenditures in 2016.

Accordingly, we assessed the value of this real estate portfolio, including obtaining an independent valuation appraisal of our post-acute/skilled nursing and senior housing facilities.

As a result, we reduced the carrying value of this real estate portfolio to $5.2 billion, approximating its estimated market value, which resulted in an impairment charge of $817 million recorded in the fourth quarter of 2015.

In the fourth quarter of 2014 and the third quarter of 2015, we recorded impairment charges of $36 million and $27 million, respectively, for our equity ownership interest in HCRMC.

These impairment charges resulted primarily from our review of their 2015 preliminary base financial forecast, operating results and other financial information provided by HCRMC, as well as market and industry data that, among other factors, showed a declining trend in admissions from hospitals and continuing trends in mix and length of stay driven by Medicare Advantage and other Managed Care plans.

As a result of HCRMC’s fourth quarter 2015 performance deterioration, we recorded an additional impairment charge of $19 million for our equity ownership in HCRMC, reducing its carrying value to zero.

On April 20, 2015, the DOJ unsealed a previously filed complaint in the United States District Court for the Eastern District of Virginia against HCRMC and certain of its affiliates in three consolidated cases following a civil investigation arising out of three lawsuits filed by former employees of HCRMC under the qui tam provisions of the federal False Claims Act.

The complaint alleges that HCRMC submitted claims to Medicare for therapy services that were not covered by the skilled nursing facility benefit, were not medically reasonable and necessary, and were not skilled in nature, and therefore not entitled to Medicare reimbursement.

HCRMC incurred legal and regulatory defense costs of $3 million and $9 million during the fourth quarter and full year 2015, respectively.

While the DOJ litigation is at an early stage and HCRMC has indicated that it believes the claims are unjust and it will vigorously defend against them, the ultimate outcome is uncertain and could, among other things, cause HCRMC to: (i) incur substantial additional time and costs to respond to and defend

HCRMC’s actions in the litigation with the DOJ and any other third-party payors; (ii) refund or adjust amounts previously paid for services under governmental programs and to change business operations going forward in a manner that negatively impacts future revenue; (iii) pay substantial fines and penalties and incur other administrative sanctions, including having to conduct future business operations pursuant to a corporate integrity agreement, which may be with the Office of Inspector General of the Department of Health and Human Services; (iv) lose the right to participate in the Medicare or Medicaid programs; and (v) suffer damage to HCRMC’s reputation.

In addition, any settlement in the DOJ litigation, with or without an admission of wrongdoing, may include a substantial monetary component that could have a material adverse effect on HCRMC’s liquidity and financial condition that makes it difficult or not possible for HCRMC to meet its obligations under its amended master lease with us.

See additional information regarding the aforementioned impairment charges, equity interest in HCRMC and master lease with HCRMC in: (i) Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—2015 Transaction Overview”; and (ii) Note 6 (Net Investment in Direct Financing Leases), Note 8 (Investments in and Advances to Unconsolidated Joint Ventures), Note 17 (Impairments) and Note 23 (Concentration of Credit Risk) to the Consolidated Financial Statements.

The properties managed by Brookdale account for a significant portion of our revenues and operating income.

Adverse developments in Brookdale’s business and affairs or financial condition could have a materially adverse effect on us.

For the year ended December 31, 2015, these properties represented 12% and 10% of our gross assets and revenues, respectively.

However, any adverse developments in Brookdale’s business and affairs or financial condition could impair its ability to manage our properties efficiently and effectively and could have a materially adverse effect on us.

Brookdale is also one of our triple-net tenants.

If Brookdale experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties or the commencement of insolvency proceedings by or against it under the U.S. Bankruptcy Code, any one or a combination of which indirectly could have a materially adverse effect on us.

least, delay our ability to pursue such remedies.

If a debtor were to reject its leases with us, our claim against the debtor for unpaid and future rents would be limited by the statutory cap set forth in the U.S. Bankruptcy Code, which may be substantially less than the remaining rent actually owed under the lease.

In addition, a debtor may assert in a bankruptcy proceeding that our lease should be re-characterized as a financing agreement, in which case our rights and remedies as a lender, compared to a landlord, generally would be more limited.

| | · | | construction and/or permanent financing may not be available on favorable terms or at all; |

| make the property profitable. |

| --- |

| | · | | court decisions; |

| | · | | administrative rulings; |

For

In recent years, governmental payors have frozen or reduced payments to healthcare providers due to budgetary pressures.

Furthermore, the Supreme Court’s decision upholding the constitutionality of the individual healthcare mandate while striking down the provisions linking federal funding of state Medicaid programs with a federally mandated expansion of those programs has contributed to the uncertainty regarding the impact that the law will have on healthcare delivery systems over the next decade.

| | · | | [removed: 2015] [added: 2016] Transaction Overview |

| | · | | Non-GAAP Financial [removed: Measures] [added: Measure] Reconciliations |

[removed: 2015] [added: 2016] Transaction Overview

[removed: | | · | | Extension of the] [added: The MOBs have an] initial lease term [removed: by five years, to an average] of [removed: 16] [added: 15] years. [removed: |]

[removed: Acquisition of Private Pay] Senior Housing [added: Operating] Portfolio

[added: Through February 13, 2017, we have leased 73% of] The [removed: first phase includes] [added: Cove Phase I, which consists of] two [removed: “class A”] [added: Class A] buildings totaling 247,000 square feet [removed: that are expected to be completed] [added: and was delivered] in the third quarter of 2016.

Financing [removed: and Capital Recycling] Activities

In June 2015, we established an at-the-market [removed: equity offering program (“ATM Program”),] [added: program,] in connection with the renewal of our Shelf Registration Statement.

[removed: In] [added: On] January [added: 12,] 2015, [removed: to economically hedge] [added: we entered into] a [removed: portion] [added: credit agreement with a syndicate] of [removed: our foreign currency risk from the HC-One Facility, we completed] [added: banks for] a £220 million [added: ($272 million at December 31, 2016)] four-year unsecured term loan [added: (the “2015 Term Loan”)] that accrues interest at [added: a rate of] GBP LIBOR plus [removed: 0.975%,] [added: 1.15%,] subject to adjustments based on our credit [removed: ratings.][added: ratings (the 2012 and 2015 Term Loans are collectively, the “Term Loans”).]

On [removed: January 28, 2016,] [added: February 2, 2017,] our Board of Directors declared a quarterly cash dividend of [removed: $0.575] [added: $0.37] per common share.

The dividend will be paid on [removed: February 23, 2016] [added: March 2, 2017] to stockholders of record as of the close of business on February [removed: 8, 2016.][added: 15, 2017.]

We evaluate our business and allocate resources among our [added: reportable] business segments: (i) senior [removed: housing,] [added: housing triple-net (SH NNN),] (ii) [removed: post-acute/skilled nursing,] [added: senior housing operating portfolio (SHOP),] (iii) life [removed: science,] [added: science and] (iv) medical [removed: office and (v) hospital.][added: office.]

Under the medical office segment, we [removed: invest,] [added: invest] through [added: the] acquisition and [removed: development, in single or multi-tenant] [added: development of] MOBs, which generally require a greater level of property management.

Net Operating Income [removed: (“NOI”)]

NOI and adjusted NOI are [removed: non-GAAP] [added: non-U.S. generally accepted accounting principles (“GAAP”)] supplemental financial measures used to evaluate the operating performance of real estate.

Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL [removed: accretion,] [added: non-cash interest,] amortization of market lease [removed: intangibles] [added: intangibles, non-refundable entrance fees] and lease termination [removed: fees.][added: fees (“non-cash adjustments”).]

Adjusted NOI is oftentimes referred to as “cash NOI.” We use NOI and adjusted NOI to make decisions about resource allocations, [added: to] assess and compare property level performance, and [added: to] evaluate our same property portfolio (“SPP”), as described below.

We believe that net income (loss) is the most directly comparable [removed: U.S. generally accepted accounting principles (“GAAP”)] [added: GAAP] measure to NOI.

[removed: NOI and adjusted NOI are non-GAAP supplemental financial measures; for] [added: For] a reconciliation of [removed: net income (loss) to] NOI and [removed: adjusted] [added: Adjusted] NOI [removed: and other relevant disclosure,] [added: to net income (loss) by segment,] refer to Note 14 to the Consolidated Financial Statements.

Same Property Portfolio [removed: (“SPP”)]

We identify our SPP as stabilized properties that remained in operations and were consistently reported as leased properties or RIDEA properties for the duration of the [removed: year\-over\-year] [added: year-over-year] comparison periods presented, excluding assets held for sale.

Newly acquired operating assets are generally considered stabilized at the earlier of [removed: lease up] [added: lease-up] (typically when the tenant(s) [removed: controls] [added: control(s)] the physical use of at least 80% of the space) or 12 months from the acquisition date.

[removed: Newly] completed developments and redevelopments are considered stabilized at the earlier of [removed: lease up] [added: lease-up] or 24 months from the date the [added: property is placed in service.]

SPP NOI excludes [added: (i)] certain non-property specific operating expenses that are allocated to each operating segment on a consolidated [removed: basis.][added: basis and (ii) entrance fees and related activity such as deferred expenses, reserves and management fees related to entrance fees.]

FFO, as defined by the [removed: NAREIT,] [added: National Association of Real Estate Investment Trusts (“NAREIT”),] is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of [added: depreciable] property, [added: including any current and deferred taxes directly associated with sales of depreciable property,] impairments of, or related to, depreciable real estate, plus real estate and other depreciation and amortization, and [removed: after] adjustments [removed: for] [added: to compute our share of FFO and FFO as adjusted (see below) from] joint ventures.

In addition, we present FFO before the impact of [added: non-comparable items including, but not limited to,] severance-related charges, litigation [removed: settlement charges,] [added: provisions,] preferred stock redemption charges, impairments (recoveries) of non-depreciable assets, [added: prepayment costs (benefits) associated with early retirement or payment of debt,] foreign currency remeasurement losses (gains) and transaction-related items [removed: (defined below)] (“FFO as adjusted”).

Management believes that FFO as adjusted provides a meaningful supplemental measurement of our FFO [removed: run-rate.][added: run-rate and is frequently used by analysts, investors and other]

[removed: This measure] [added: FAD] is a [removed: modification of the NAREIT definition of FFO] [added: non-GAAP supplemental financial measure] and should not be [removed: used] [added: considered] as an alternative to net income (loss) [removed: (determined] [added: determined] in accordance with [removed: GAAP) or NAREIT FFO.][added: GAAP.]

[removed: FFO and FFO as adjusted are non-GAAP supplemental financial measures; for] [added: For] a reconciliation of net income (loss) to FFO and FFO as adjusted and other relevant disclosure, refer to “Non-GAAP Financial [removed: Measures] [added: Measure] Reconciliations” below.

FAD is defined as FFO as adjusted after excluding the impact of the following: (i) amortization of acquired market lease intangibles, [removed: net;] [added: net,] (ii) amortization of deferred compensation [removed: expense;] [added: expense,] (iii) amortization of deferred financing costs, [removed: net;] [added: net,] (iv) straight-line [removed: rents;] [added: rents,] (v) [removed: accretion] [added: non-cash interest] and depreciation related to DFLs and lease incentive amortization (reduction of straight-line [removed: rents);] [added: rents)] and (vi) deferred revenues, excluding amounts amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash payments made by tenants to reduce their contractual rents.

Also, FAD: (i) is computed after deducting recurring capital expenditures, including leasing costs and second generation tenant and capital [removed: improvements;] [added: improvements,] and (ii) includes lease restructure payments and adjustments to compute our share of FAD from our unconsolidated joint ventures and those related to CCRC non-refundable entrance fees.

[removed: FAD is a non-GAAP supplemental financial measure; for] [added: For] a reconciliation of net income (loss) to [removed: FAD, as defined,] [added: FAD] and other relevant disclosure, refer to “Non-GAAP Financial [removed: Measures] [added: Measure] Reconciliations” below.

Comparison of the Year Ended December 31, [removed: 2015] [added: 2016] to the Year Ended December 31, [removed: 2014] [added: 2015] and the Year Ended December 31, [removed: 2014] [added: 2015] to the Year Ended December 31, [removed: 2013][added: 2014]

[removed: 2015] [added: 2016] and [removed: 2014][added: 2015]

| | | Amount | | | Per [added: Diluted] Share | | | Amount | | | Per [added: Diluted] Share | | | Change | | |

| FFO [added: applicable to common shares] | | [removed: $] | (10,841) | | [removed: $] | (0.02) | | [removed: $] | 1,381,634 | | [removed: $] | 3.00 | | [removed: $] | (3.02) | |

| FFO as adjusted [added: applicable to common shares] | | | 1,470,167 | | | 3.16 | | | 1,398,691 | | | 3.04 | | | 0.12 | |

| FAD [added: applicable to common shares] | | | 1,261,849 | | | [removed: 2.72] | | | 1,178,822 | | | [removed: 2.57] | | | [removed: 0.15] | |

| Net (loss) income applicable to common shares | | [added: $] | (560,552) | | [added: $] | (1.21) | | [added: $] | 919,796 | | [added: $] | 2.00 | | [added: $] | (3.21) | |

| | (1) | | For the [removed: reconciliation,] [added: reconciliation of non-GAAP financial measures,] see “Non-GAAP Financial [removed: Measures] [added: Measure] Reconciliations” section below. |

Spin-Off of Real Estate Portfolio

On October 31, 2016, we completed our previously announced Spin-Off of QCP.

QCP’s assets include 338 properties, primarily comprised of the HCRMC DFL investments and an equity investment in HCRMC.

Following the completion of the Spin-Off on October 31, 2016, QCP is an independent, publicly-traded, self-managed and self-administrated REIT.

As a result of the Spin-Off, the operations of QCP are now classified as discontinued operations in all periods presented herein.

We entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) with QCP in connection with the Spin-Off.

The Separation and Distribution Agreement divides and allocates the assets and liabilities of HCP prior to the Spin-Off between QCP and HCP, governs the rights and obligations of the parties regarding the Spin-Off, and contains other key provisions relating to the separation of QCP’s business from HCP.

In connection with the Spin-Off, we entered into a Transition Services Agreement ("TSA") with QCP.

Per the terms of the TSA, we agreed to provide certain administrative and support services to QCP on a transitional basis for established fees, which are expected to approximate the actual cost incurred by us in providing the transition services to QCP for the relevant period.

The TSA will terminate on the expiration of the term of the last service provided under the agreement, which will be on or prior to October 30, 2017.

The TSA provides that QCP generally has the right to terminate a transition service upon thirty days' notice to us.

The TSA contains provisions under which we will, subject to certain limitations, be obligated to indemnify QCP for losses incurred by QCP resulting from our breach of the TSA.

In January 2016, we acquired a portfolio of five private pay senior housing communities with 364 units and a skilled nursing facility with 120 beds for $95 million.

All of the communities were developed within the past two years and are triple-net leased to four regional operators.

In July 2016, we acquired two Class A life science buildings totaling 136,000 square feet and a four-acre parcel of land in San Diego, California for $49 million.

In September 2016, we acquired a portfolio of seven private pay senior housing communities for $186 million, including the assumption of $74 million of debt, at a 4.0% interest rate, maturing in 2044.

Consisting of 526 assisted living and memory care units, the portfolio is managed by Senior Lifestyle Corporation in a 100% owned RIDEA structure.

In November 2016, we entered into agreements with Maria Mallaband Care Group (“Maria Mallaband”) to acquire a portfolio of predominantly private pay prime care homes located in London/South-East England for $131 million (£105 million).

In mid-2017, through the exercise of a call option, subject to certain contingencies, we intend to convert our bridge loan provided to Maria Mallaband in November into fee ownership and enter into a Master Lease with Maria Mallaband.

In December 2016, we acquired a portfolio of 10 MOBs, including nine on-campus MOBs, located throughout the U.S. in a sale-leaseback transaction with Community Health Systems for $163 million.

Developments

In response to Phase I leasing success and continued strong demand from life science users in South San Francisco, in February 2016, we commenced a $220 million development, The Cove Phase II, which adds two Class A buildings totaling 230,000 square feet and is expected to be delivered by the third quarter of 2017.

Through February 13, 2017, we have leased 100% of The Cove Phase II.

In response to The Cove Phase I and Phase II leasing success, in October 2016, we commenced the $211 million development of The Cove Phase III, which adds two Class A buildings representing up to 336,000 square feet.

In June 2016, we commenced a $62 million multi-building development project encompassing 301,000 square feet at our Ridgeview Business Park in Poway, California, which is 50% leased.

The project includes a $32 million build-to-suit project with an existing tenant for 152,000 square feet and is expected to be completed in 2018 as part of a larger leasing transaction.

Disposition Transactions

In January 2017, we sold four life science facilities in Salt Lake City, Utah for $76 million.

In May 2016, we entered into a master contribution agreement with Brookdale to contribute our ownership interest in RIDEA II to an unconsolidated JV owned by HCP and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (the “HCP/CPA JV”).

The members agreed to recapitalize RIDEA II with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by HCP.

In return, we received $480 million in cash proceeds from the HCP/CPA JV and $242 million in note receivables and retained an approximate 40% beneficial interest in RIDEA II (the note receivable and 40% beneficial interest are herein referred to as the “RIDEA II Investments”).

This transaction resulted in HCP deconsolidating the net assets of RIDEA II because it will no longer direct the activities that most significantly impact the venture.

The closing of these transactions occurred in January 2017.

In October 2016, we entered into definitive agreements to sell 64 SH NNN assets, currently under triple-net leases with Brookdale, for $1.125 billion to affiliates of Blackstone Real Estate Partners VIII, L.P. The closing of this transaction is expected to occur during 2017 and remains subject to regulatory and third party approvals and other customary closing conditions.

Additionally, in October 2016, we entered into definitive agreements for a multi-element transaction with

Brookdale to: (i) sell or transition 25 assets currently triple-net leased to Brookdale, for which Brookdale will receive a $10.5 million annual rent reduction upon lease termination, (ii) re-allocate annual rent of $9.6 million from those 25 assets to the remaining Brookdale triple-net lease portfolio (occurred on November 1, 2016) and (iii) transition eight triple-net leased assets into RIDEA structures (seven of which closed in December 2016 and one of which closed in January 2017).

The closing of the sale or transition of the 25 assets and corresponding rent reduction is expected to occur throughout 2017 and remain subject to regulatory and third party approvals and other customary closing conditions.

During the year ended December 31, 2016, we sold: (i) a portfolio of five post-acute/skilled nursing and two SH NNN facilities for $130 million, (ii) five life science facilities for $386 million, (iii) seven SH NNN facilities for $88 million, (iv) three MOBs for $20 million and (v) three SHOP facilities for $41 million and recognized total gain on sales of $165 million.

In January 2016, we entered into a definitive agreement for purchase options that were exercised on eight life science facilities in South San Francisco, California, to be sold in two tranches for $311 million (sold in November 2016 and discussed above) and $269 million, respectively.

The second tranche is expected to close in the third quarter of 2018.

HCR ManorCare, Inc.

HCRMC Fourth Quarter 2015

The post-acute/skilled nursing (“SNF”) industry and HCRMC continued to experience a challenging operating environment in 2015, due to the ongoing change in reimbursement models which reduces rates and lowers census, the result of shorter lengths of stay.

HCRMC’s normalized fixed charge coverage for the 12-month period ended December 31, 2015 was 1.07x.

For the fourth quarter 2015, HCRMC reported normalized EBITDAR of $110 million, which decreased $36 million on a year-over-year basis compared to the fourth quarter 2014, and decreased $17 million sequentially compared to the third quarter 2015.

The results were impacted by core operating performance weakness and unfavorable non-routine items discussed below.

The level of performance was below expectations and uncharacteristic for the fourth quarter, which has historically been strong due in large part to increased census and the annual Medicare rate increases on October 1.

HCRMC ended 2015 with $125 million of cash and cash equivalents and continues to be current on its obligations under the amended master lease (the “Amended Master Lease”).

Core Operating Performance.

Before the impact from non-routine items described below, HCRMC’s fourth quarter EBITDAR was below its forecast, primarily due to the continued change in payor mix from traditional Medicare to Managed Care plans, which reduced reimbursement rates and lowered census.

As a result, HCRMC reported a decline in its core SNF operating metrics (which excludes the 50 non-strategic disposition assets), with fourth quarter census decreasing 175 basis points from the prior year to 82.6%.

Non-Routine Items.

As discussed below, HCRMC is in the process of exiting 50 non-strategic assets, of which 21 sales were completed in the fourth quarter and an additional 11 closed in the first quarter 2016.

As such, disruption resulting from transitioning operations to new owners and closing costs led to additional underperformance from this pool of assets.

EBITDAR losses from the sale of non-strategic assets totaled $11 million in the fourth quarter 2015, and $22 million for full year 2015.

HCP continues to expect total proceeds of $350 million from the sales of the non-strategic assets, of which $280 million have closed to-date with the remaining $70 million expected to close in mid-2016.

In addition, HCRMC continues to defend against the DOJ civil complaint previously disclosed in April 2015.

HCRMC incurred legal and regulatory defense costs of $3 million during the fourth quarter 2015 and $9 million for the full year 2015.

The outcome of the DOJ civil complaint remains uncertain, and HCRMC expects to incur additional legal and regulatory defense costs in 2016.

As a result of HCRMC’s fourth quarter performance deterioration and the related decline in its FCC, we placed our real estate portfolio operated by HCRMC on “Watch List” status at year end 2015, and changed our accounting treatment to recognize rental income on a cash basis beginning January 2016.

As such, we will no longer recognize non-cash accretion income under the HCRMC DFLs (see Note 2 to the Consolidated Financial Statements).

The reduced growth outlook for the broader post-acute/SNF industry indicates challenges to the improvement in HCRMC’s financial performance over the next few years.

At year end 2015, the Company determined that it is probable that its HCRMC DFL investments are impaired and the amount of the loss can be reasonably estimated.

In the fourth quarter 2015, the Company recorded an allowance (impairment charge) for DFL losses of $817 million, reducing the carrying amount of its HCRMC DFL investments from $6.0 billion to $5.2 billion (see Notes 6 and 17 to the Consolidated Financial Statements).

We also recorded a fourth quarter 2015 impairment charge of $19 million related to our equity investment in HCRMC OpCo (see Note 8 to the Consolidated Financial Statements).

HCP has engaged advisors and continues to work closely with HCRMC to jointly explore all opportunities that reduce our concentration, improve the credit quality and coverage of our Amended Master Lease, and ensure HCRMC can continue to deliver high quality care and services.

HCRMC Third Quarter 2015

In October 2015, we concluded that our equity investment in HCRMC was other-than-temporarily impaired as of September 30, 2015, and we recorded an impairment charge of $27 million during the third quarter of 2015.

The impairment charge reduced the carrying amount of our equity investment in HCRMC to $21 million.

Our impairment determination primarily resulted from our review of HCRMC operating results and market and industry data which, among other factors, showed a declining trend in admissions from hospitals and continuing trends in mix and length of stay driven by Medicare Advantage and other Manage Care plans.

HCRMC First Quarter 2015

During the quarter ended March 31, 2015, HCP and HCRMC agreed to market for sale the real estate and operations associated with 50 non-strategic facilities that were under the Master Lease and Security Agreement (the “Master Lease”) for an estimated total gross sales price of approximately $350 million.

HCRMC receives annual rent reduction under the Master Lease based on 7.75% of the net sales proceeds received by HCP.

During the year ended December 31, 2015, we completed sales of 22 non-strategic HCRMC facilities for $219 million.

Through February 8, 2016, 33 of the facility sales have closed, and the remaining facility sales are expected to close mid-2016.

Additionally, HCP and HCRMC agreed to amend the Master Lease (the “HCRMC Lease Amendment”).

Commencing April 1, 2015, HCP provided an annual net rent reduction of $68 million, which equates to initial lease year rent of $473 million, compared to $541 million that would have commenced April 1, 2015 prior to the HCRMC Lease

Amendment.

The contractual rent will increase by 3.0% annually during the initial term.

In exchange, HCP received the following consideration:

Assuming a one percentage point change in the underlying interest rate curve and foreign currency exchange rates, the estimated change in fair value of each of the underlying derivative instruments would not exceed [removed: $6] [added: $3] million.

At December 31, [removed: 2015,] [added: 2016,] we are exposed to market risks related to fluctuations in interest rates primarily on variable rate [removed: debt, which has been predominately hedged through interest rate swap contracts.][added: debt.]

Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not [removed: significantly affect] [added: materially impact] the fair value of those instruments.

Assuming a one percentage point [removed: increase] [added: change] in the interest rate related to [removed: the] [added: our] variable-rate debt and variable-rate investments, and assuming no other changes in the outstanding balance as of December 31, [removed: 2015,] [added: 2016,] our annual interest expense [added: and interest income] would [removed: increase] [added: change] by approximately [removed: $3] [added: $15 million and $1] million, [removed: or less than $0.01 per common share on a diluted basis.][added: respectively.]

At December 31, [removed: 2015,] [added: 2016,] our exposure to foreign currencies primarily relates to U.K. investments in leased real estate, senior notes and related GBP denominated cash flows.

Based solely on our operating results for the [removed: three months] [added: year] ended December 31, [removed: 2015,] [added: 2016,] including the impact of existing hedging arrangements, if the value of the GBP relative to the U.S. dollar were to increase or decrease by 10% compared to the average exchange rate during the [removed: quarter] [added: year] ended December 31, [removed: 2015,] [added: 2016,] our cash flows would have decreased or increased, as applicable, by less than $1 million.

At December 31, [removed: 2015,] [added: 2016,] both the fair value and carrying value of marketable debt securities were [removed: $103] [added: $69] million.

As of December 31, 2016, $317 million of our variable-rate debt was hedged by interest rate swap transactions.

The interest rate swaps are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable-rate debt to fixed interest rates.

Assuming a one percentage point change in interest rates would change the fair value of our fixed rate debt and investments by approximately $56 million and $8 million, respectively, and would not materially impact earnings or cash flows.

See Note 24 to the Consolidated Financial Statements for additional analysis details.

The principal amount and the average interest rates for our loans receivable and debt categorized by maturity dates is presented in the table below.

The fair value for our senior unsecured notes payable is based on prevailing market prices.

The fair value estimates for loans receivable and mortgage debt payable are based on discounting future cash flows utilizing current rates for loans and debt of the same type and remaining maturity.

The table below summarizes the principal amounts and fair values of our financial instruments exposed to interest rate risk (dollars in thousands):

| | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Maturity | | | | | | | | | | | | | | | | | | | | | | | |

| | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | | | Total | | | Fair Value | | |

| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Loans receivable (USD) | | $ | 15,244 | | $ | 37,038 | | $ | 276,789 | | $ | — | | $ | — | | $ | — | | $ | 329,071 | | $ | 330,380 | |

| Weighted average interest rate | | | 8.50 | % | | 8.50 | % | | 11.23 | % | | — | % | | — | % | | — | % | | 10.79 | % | | | |

| Loans receivable (GBP)(1) | | $ | — | | $ | 42,253 | | $ | — | | $ | 397,419 | | $ | — | | $ | — | | $ | 439,672 | | $ | 439,672 | |

| Weighted average interest rate | | | — | % | | 6.00 | % | | — | % | | 7.56 | % | | — | % | | — | % | | 7.41 | % | | | |

| Debt securities held to maturity (USD) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 17,776 | | $ | 17,776 | | $ | 17,776 | |

| Weighted average interest rate | | | — | % | | — | % | | — | % | | — | % | | — | % | | 4.43 | % | | 4.43 | % | | | |

| Debt securities held to maturity (GBP)(2) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 85,182 | | $ | 85,182 | | $ | 85,182 | |

| Weighted average interest rate | | | — | % | | — | % | | — | % | | — | % | | — | % | | 12.25 | % | | 12.25 | % | | | |

| Liabilities(3): | | | | | | | | | | | | | | | | | | | | | | | | | |

| Variable rate debt: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Line of credit (GBP)(4) | | $ | — | | $ | — | | $ | 397,432 | | $ | — | | $ | — | | $ | — | | $ | 397,432 | | $ | 397,432 | |

| Weighted average interest rate | | | — | % | | — | % | | 1.72 | % | | — | % | | — | % | | — | % | | 1.72 | % | | | |

| Term loans (GBP)(5) | | $ | 202,034 | | $ | — | | $ | — | | $ | 324,434 | | $ | — | | $ | — | | $ | 526,468 | | $ | 526,468 | |

| Weighted average interest rate | | | 1.71 | % | | — | % | | — | % | | 1.48 | % | | — | % | | — | % | | 1.57 | % | | | |

| Mortgage debt payable (USD) | | $ | 25,102 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 45,610 | | $ | 70,712 | | $ | 74,433 | |

| Weighted average interest rate | | | 1.69 | % | | — | % | | — | % | | — | % | | — | % | | 0.03 | % | | 0.62 | % | | | |

| Fixed rate debt: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Senior unsecured notes payable (USD)(6) | | $ | 900,000 | | $ | 750,000 | | $ | 600,000 | | $ | 450,000 | | $ | 800,000 | | $ | 5,700,000 | | $ | 9,200,000 | | $ | 9,390,668 | |

| Weighted average interest rate | | | 4.88 | % | | 5.88 | % | | 6.70 | % | | 3.75 | % | | 2.63 | % | | 4.36 | % | | 4.50 | % | | | |

| Mortgage debt payable (USD) | | $ | 238,711 | | $ | 593,569 | | $ | 4,870 | | $ | — | | $ | 931 | | $ | 24,117 | | $ | 862,198 | | $ | 890,735 | |

| Weighted average interest rate | | | 6.50 | % | | 5.69 | % | | 5.90 | % | | — | % | | 5.75 | % | | 5.87 | % | | 5.92 | % | | | |

| Interest rate derivatives assets | | | | | | | | | | | | | | | | | | | | | | | | | |

| (liabilities): | | | | | | | | | | | | | | | | | | | | | | | | | |

| Variable rate mortgage debt: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Variable to fixed (USD) | | $ | (761) | | $ | — | | $ | — | | $ | — | | $ | (5,430) | | $ | — | | $ | (6,191) | | $ | (6,191) | |

| Weighted average pay rate | | | 5.95 | % | | — | % | | — | % | | — | % | | 3.82 | % | | — | % | | 4.08 | % | | | |

| Weighted average receive rate | | | 2.03 | % | | — | % | | — | % | | — | % | | 1.65 | % | | — | % | | 1.70 | % | | | |

| Variable rate Term Loans: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Variable to fixed (GBP) | | $ | (60) | | $ | 196 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 136 | | $ | 136 | |

| Weighted average pay rate | | | 1.81 | % | | 1.79 | % | | — | % | | — | % | | — | % | | — | % | | 1.78 | % | | | |

[removed: HCP, an S&P 500 company, invests primarily in real estate serving the healthcare industry in the U.S.] We are a Maryland corporation organized in 1985 and qualify as a self-administered real estate investment trust (“REIT”).

We are headquartered in Irvine, California, with offices in [removed: Nashville, Los Angeles, San Francisco] [added: Nashville] and [removed: London.][added: San Francisco.]

Our diverse portfolio is comprised of investments in the following [added: reportable] healthcare segments: (i) senior [removed: housing,] [added: housing triple-net (“SH NNN”),] (ii) [removed: post-acute/skilled nursing,] [added: senior housing operating portfolio (“SHOP”),] (iii) life [removed: science,] [added: science and] (iv) medical [removed: office and (v) hospital.][added: office.]

For a description of our significant activities during [removed: 2015,] [added: 2016,] see Item 7 in this report.

The core elements of our strategy are: (i) to acquire, develop, lease, own and manage a diversified portfolio of quality healthcare properties across multiple [added: geographic locations and] business segments [added: including senior housing, medical office,] and [removed: geographic locations (including Europe);] [added: life science, among others;] (ii) to align ourselves with leading healthcare companies, operators and service [removed: providers, which] [added: providers which,] over the [removed: long-term] [added: long-term,] should result in higher relative rental rates, net operating cash flows and appreciation of property values; (iii) to [removed: allocate capital targeting a balanced portfolio between longer-term escalating triple-net leases with high-quality tenants, and operating businesses with shorter-term leases in our medical office and life science segments; (iv) to] maintain adequate liquidity with long-term fixed rate debt financing with staggered maturities, which supports the longer-term nature of our investments, while reducing our exposure to interest rate volatility and refinancing risk at any point in the interest rate or credit cycles; and [removed: (v)] [added: (iv)] to continue to manage our balance sheet with a targeted financial leverage of 40% relative to our assets.

[removed: Further, we] [added: We] believe [removed: many of] our [removed: existing properties hold] [added: real estate portfolio holds] the potential for increased future cash flows as [removed: they are well maintained] [added: it is well-maintained] and in desirable locations within markets where [removed: the creation of] new supply is [added: generally] limited by the lack of available sites and the difficulty of obtaining the necessary licensing, other approvals and/or financing.

| | · | | Build and maintain long-term leasing and management relationships with quality tenants and operators. In choosing locations for our properties, we focus [removed: our attention] on their physical environment, adjacency to established businesses (e.g., hospital systems) and educational centers, proximity to sources of business growth and other local demographic factors. |

| | · | | Replace tenants and operators at the best available market terms and lowest possible transaction costs. We believe that we are well-positioned to attract new tenants and operators and achieve attractive rental rates and operating cash flow as a result of the location, design and maintenance of our properties, together with our reputation for high-quality building services and responsiveness to tenants, and our ability to offer space alternatives within our [removed: portfolios.] [added: portfolio.] |

In allocating [removed: capital to our multiple segments,] [added: capital,] we target opportunities with the most attractive risk/reward profile for our portfolio as a whole.

[added: We may take additional measures to] mitigate risk, including diversifying our investments (by sector, geography, tenant or operator), structuring transactions as master leases, requiring tenant or operator insurance and indemnifications, and obtaining credit enhancements in the form of guarantees, letters of credit or security deposits.

| | · | | our relationships with nationally recognized financial institutions that provide capital to the healthcare and real estate industries; [added: and] |

| | · | | our control of sites (including assets under contract with radius [removed: restrictions); and] [added: restrictions).] |

Our REIT qualification requires us to distribute at least 90% of our REIT taxable income (excluding net capital gains); therefore, we don’t retain [added: a significant amount of] capital.

Our debt obligations are primarily long-term fixed rate with staggered [removed: maturities, which reduces the impact of rising interest rates on our operations.][added: maturities.]

[removed: Income from our investments is dependent on the ability] of [removed: our tenants and operators to compete with other companies on] a [removed: number of different levels, including: the quality of care provided, reputation, success of product or drug development, the physical appearance of a] facility, price and range of services offered, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location, the size and demographics of the population in surrounding areas, and the financial condition of our tenants and operators.

[removed: Healthcare] Segments

Our senior housing facilities are managed utilizing triple-net leases and RIDEA [removed: structures] [added: structures, which are permitted by the Housing] and [added: Economic Recovery Act of 2008 (commonly referred to as “RIDEA”), and] include independent living facilities (“ILFs”), assisted living facilities (“ALFs”), memory care facilities (“MCFs”), care homes, and continuing care retirement communities (“CCRCs”), which cater to different segments of the elderly population based upon their personal needs.

We have entered into long-term agreements with operators, including Brookdale Senior Living, Inc. (“Brookdale”) to [added: operate and] manage properties that are operated under a RIDEA structure.

Brookdale provides comprehensive facility management and accounting services with respect to [added: a majority of] our senior housing RIDEA properties, for which we pay annual management fees pursuant to the aforementioned agreements.

Most of the management agreements have terms ranging from 10 to 15 years, with [added: three to four] 5-year renewals.

| | · | | Independent Living Facilities. ILFs are designed to meet the needs of seniors who choose to live in an environment surrounded socially by their peers with services such as housekeeping, meals and activities. Additionally, the programs and services may include transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community excursions, meals in a dining room setting and other activities sought by residents. These residents generally do not need assistance with activities of daily living (“ADL”). However, in some of our facilities, residents have the option to contract for these services. [removed: At December 31, 2015, we had interests in 80 ILFs.] |

| | · | | Assisted Living Facilities. ALFs are licensed care facilities that provide personal care services, support and housing for those who need help with ADL, such as bathing, eating, dressing and medication management, yet require limited medical care. These facilities are often in apartment-like buildings with private residences ranging from single rooms to large apartments. Certain ALFs may have a dedicated portion of a facility that offers higher levels of personal assistance for residents requiring memory care as a result of Alzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations. [removed: At December 31, 2015, we had interests in 308 ALFs.] |

| | · | | Memory Care Facilities. MCFs address the unique challenges of our residents with Alzheimer’s disease or other forms of dementia. Residents may live in semi-private apartments or private rooms and have structured activities delivered by staff members trained specifically on how to care for residents with memory impairment. These facilities offer programs that provide comfort and care in a secure environment. [removed: At December 31, 2015, we had interests in 73 MCFs.] |

| | · | | Continuing Care Retirement Communities. CCRCs offer several levels of assistance, including independent living, assisted living and nursing home care. CCRCs are different from other housing and care options for seniors because they usually provide written agreements or long-term contracts between residents and the communities (frequently lasting the term of the [removed: resident's] [added: resident’s] lifetime), which offer a continuum of housing, services and healthcare on one campus or site. CCRCs are appealing as they allow residents to “age in place.” CCRCs typically require the individual to be in relatively good health and independent upon entry. [removed: At December 31, 2015, we had interests in 27 CCRCs.] |

The following table provides information about our [removed: senior housing tenant/operator] [added: SH NNN tenant] concentration for the year ended December 31, [removed: 2015:][added: 2016:]

| [removed: Tenants/Operators] [added: Tenant] | | Segment Revenues | | Total Revenues | |

| Brookdale(1) | | [removed: 23] [added: 59] | % | [removed: 10] [added: 12] | % |

[removed: Post\-acute/skilled nursing services] [added: Services] provided by our tenants and operators in [removed: these facilities] [added: hospitals] are paid for by private sources, third-party payors (e.g., insurance and [removed: Managed Care Organizations or “MCOs”)] [added: HMOs)] or through [removed: the] Medicare [removed: (including Managed Care)] and Medicaid programs.

All of our [added: care homes in the U.K., hospitals and] SNFs are triple-net leased.

The following table provides information about our [removed: post-acute/skilled nursing tenant/operator] [added: life science tenant] concentration for the year ended December 31, [removed: 2015:][added: 2016:]

Our properties are located in [removed: well\-established] [added: well-established] geographical markets known for scientific research and drug discovery, including San Francisco and San Diego, California, [removed: Salt Lake City, Utah,] [added: and] Durham, North [removed: Carolina and Boston, Massachusetts.][added: Carolina.]

At December 31, [removed: 2015, 98%] [added: 2016, 97%] of our life science properties were [removed: triple\-net] [added: triple-net] leased (based on leased square feet).

The following table provides information about our [removed: life science] [added: medical office] tenant concentration for the year ended December 31, [removed: 2015:][added: 2016:]

| Genentech, Inc.(1) | | [removed: 17] [added: 14] | % | 2 | % |

| | (1) | | Pursuant to a purchase and sale agreement in January 2016, the tenant exercised its purchase options under its [removed: lease.] [added: lease on eight facilities, of which four sold in November 2016, and four are expected to close in the third quarter of 2018.] Accordingly, the percentage of segment revenues will decrease below 10% upon [removed: the] completion of [removed: the] [added: these] sales. |

[removed: MOBs] [added: Medical office buildings (“MOBs”)] typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital ancillary service space and outpatient services such as diagnostic centers, rehabilitation clinics and day-surgery operating rooms.

Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices), with approximately [removed: 83%] [added: 82%] of our MOBs, based on square feet, located on hospital campuses and 95% are affiliated with hospital systems.

At December 31, [removed: 2015,] [added: 2016,] approximately [removed: 50%] [added: 53%] of our medical office buildings were triple-net leased (based on leased square [removed: feet).][added: feet) with the remaining leased under gross or modified gross leases.]

| | (1) | | Percentage of total revenues from HCA includes revenues earned from both our medical office and [removed: hospital] [added: other non-reportable] segments. |

Our hospital property types include acute care, [removed: long\-term] [added: long-term] acute care, specialty and rehabilitation hospitals.

HCP, an S&P 500 company, invests primarily in real estate serving the healthcare industry in the United States (“U.S.”).

On October 31, 2016, we completed the spin-off (the “Spin-Off”) of Quality Care Properties, Inc. (“QCP”) (NYSE:QCP).

The Spin-Off included 338 properties, primarily comprised of the HCR ManorCare, Inc. (“HCRMC”) direct financing lease (“DFL”) investments and an equity investment in HCRMC.

QCP is an independent, publicly-traded, self-managed and self-administrated REIT.

See Notes 1 and 5 to the Consolidated Financial Statements for further information on the Spin-Off.

We maintain a disciplined balance sheet by actively managing our debt to equity levels and maintaining multiple sources of liquidity.

The following table summarizes our revenues by segment (in thousands):

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Year Ended December 31, | | | | | | | | | | | | | |

| Segment | | 2016 | | | % | | 2015 | | | % | | 2014 | | | % |

| SH NNN | | $ | 423,118 | | 20 | | $ | 428,269 | | 22 | | $ | 538,113 | | 33 |

| SHOP | | | 686,822 | | 32 | | | 518,264 | | 27 | | | 243,612 | | 15 |

| Life science | | | 358,537 | | 17 | | | 342,984 | | 18 | | | 314,114 | | 19 |

| Medical office | | | 446,280 | | 21 | | | 415,351 | | 21 | | | 368,055 | | 22 |

| Other non-reportable segments | | | 214,537 | | 10 | | | 235,621 | | 12 | | | 172,939 | | 11 |

| Total revenues | | $ | 2,129,294 | | 100 | | $ | 1,940,489 | | 100 | | $ | 1,636,833 | | 100 |

Senior housing (SH NNN and SHOP).

| | (1) | | Excludes SHOP facilities operated by Brookdale in our SHOP segment, as discussed below. Includes revenues from 64 SH NNN facilities that were classified as held for sale at December 31, 2016. |

As of December 31, 2016, Brookdale managed or operated, in our SHOP segment, approximately 18% of our real estate investments based on gross assets.

Because an operator manages our facilities in exchange for the receipt of a management fee, we are not directly exposed to the credit risk of the operators in the same manner or to the same extent as our triple-net tenants.

However, adverse developments in their business and affairs or financial condition could impair their ability to efficiently and effectively manage our facilities.

| Tenant | | Segment Revenues | | Total Revenues | |

| Hospital Corporation of America ("HCA")(1) | | 17 | % | 4 | % |

Other non-reportable segments.

At December 31, 2016, we had interests in and managed 15 hospitals, 61 care homes in the United Kingdom (“U.K.”), five post-acute/skilled nursing facilities (“SNFs”), 4 of which were owned by our unconsolidated joint ventures, and $877 million of debt investments.

Care homes offer personal care services, such as lodging, meal services, housekeeping and laundry services, medication management and assistance with ADL.

Care homes are registered to provide different levels of services, ranging from personal care to nursing care.

Some homes can be further registered for a specific care need, such as dementia or terminal illness.

Income from our investments depends on our tenants’ and operators’ ability to compete with other companies on multiple levels, including: the quality of care provided, reputation, success of product or drug development, the physical appearance

Under various federal, state and local environmental laws, ordinances and regulations, an

We also maintain directors and officers liability insurance which provides protection for claims against our directors and officers arising from their responsibilities as directors and officers.

Such insurance also extends to us in certain situations.

Portfolio Summary

At December 31, 2015, we have $23.5 billion of investments in our Owned Portfolio, Unconsolidated Joint Ventures and Developments and Redevelopments.

Owned Portfolio.

At December 31, 2015, our real estate and debt investments in our owned portfolio consisted of the following (square feet and dollars in thousands):

| | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | Number of | | | | | Investment(3) | | | | | | Total | | | Adjusted | | | Interest | | |

| Segment | | Properties(1) | | Capacity(2) | | | Real Estate(1) | | | Debt | | | Investment | | | (Cash) NOI(4) | | | Income | | |

| Senior housing | | 506 | | 50,608 | Units | | $ | 9,200,828 | | $ | 90,805 | | $ | 9,291,633 | | $ | 653,811 | | $ | 28,718 | |

| Post-acute/ skilled nursing | | 311 | | 38,163 | Beds | | | 4,389,570 | | | 780,896 | | | 5,170,466 | | | 454,371 | | | 83,466 | |

| Life science | | 118 | | 7,550 | Sq. ft. | | | 3,795,165 | | | — | | | 3,795,165 | | | 262,639 | | | — | |

| Medical office | | 227 | | 17,055 | Sq. ft. | | | 3,474,543 | | | — | | | 3,474,543 | | | 250,650 | | | — | |

| Hospital | | 16 | | 2,227 | Beds | | | 594,085 | | | — | | | 594,085 | | | 85,451 | | | — | |

| Total | | 1,178 | | | | | $ | 21,454,191 | | $ | 871,701 | | $ | 22,325,892 | | $ | 1,706,922 | | $ | 112,184 | |

| | (1) | | Represents 1,070 properties under lease with an investment value of $18.8 billion and 108 senior housing operating properties under RIDEA structures which are permitted by the Housing and Economic Recovery Act of 2008 (commonly referred to as “RIDEA”) (see “Healthcare Segments—Senior housing” section below) with an investment value of $2.7 billion. |

| --- | --- | --- | --- |

| | (2) | | Senior housing facilities are measured in available units (e.g., studio, one or two bedroom units). Post-acute/skilled nursing facilities and hospitals are measured in available bed count. Life science and medical office buildings are measured in square feet (“sq. ft.”). |

| | (3) | | Property investment represents: (i) the carrying amount of real estate and intangibles, after adding back accumulated depreciation and amortization, and (ii) the carrying amount of direct financing leases. Debt investment represents the carrying amount of loans receivable and marketable debt securities. |

| | (4) | | Adjusted (Cash) Net Operating Income from continuing operations (“NOI”) is a non-GAAP supplemental financial measure used to evaluate the operating performance of real estate properties. For a reconciliation of net income to adjusted (cash) NOI, refer to Note 14 to the Consolidated Financial Statements. |

Unconsolidated Joint Ventures.

At December 31, 2015, we had interests in unconsolidated joint ventures representing 27 properties with an aggregate investment of $1.7 billion, of which our pro rata share was $848 million, primarily in our senior housing, life science and medical office segments.

Developments and Redevelopments.

At December 31, 2015, we had an aggregate investment of $282 million in assets under development and redevelopment, including our unconsolidated joint venture developments, which are primarily in our life science, medical office and senior housing segments.

We believe that our longer-term escalating triple-net leases with larger tenants and operators having scale enhance the quality, stability and growth of our rental income.

We may take additional measures to

| | · | | our ability to act quickly on due diligence and financing due to the strength of our experienced management team and balance sheet liquidity; |

| | · | | in addition, we regularly conduct portfolio reviews that help identify assets ranked in the bottom tier(s). We look for opportunities to monetize such non-core assets to improve the overall quality of our portfolio. |

We maintain a disciplined balance sheet by actively managing our debt to equity levels and maintaining multiple sources of liquidity, such as our revolving line of credit facility, access to capital markets and secured debt lenders, relationships with current and prospective institutional joint venture partners, and our ability to divest of assets.

Private, federal and state payment programs, and government reimbursement, as well as the effect of laws and regulations, may also have a significant influence on the profitability of our tenants and operators.

Senior housing.

At December 31, 2015, we had interests in 528 senior housing facilities, including 22 properties owned by our unconsolidated joint ventures.

As of December 31, 2015, 127 properties were under RIDEA structures, 19 of which were owned by our unconsolidated joint ventures.

| | · | | Care Homes (United Kingdom). Care homes offer personal care services, such as lodging, meal services, housekeeping and laundry services, medication management and assistance with ADL. Care homes are registered to provide different levels of services, ranging from personal care to nursing care. Some homes can be further registered for a specific care need, such as dementia or terminal illness. At December 31, 2015, we had interests in 40 care homes. |

Our senior housing segment accounted for approximately 42%, 39% and 36% of total revenues for the years ended December 31, 2015, 2014 and 2013, respectively.

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | | Percentage of | | Percentage of | |

| HCRMC(2) | | 7 | % | 23 | % |

| | (1) | | Percentages do not include senior housing facilities that Brookdale manages (is not a tenant) under a RIDEA structure. |

| | (2) | | Percentage of total revenues includes revenues earned from both senior housing and post-acute/skilled nursing facilities leased to HCRMC. |

We believe that our existing legal proceedings will not have a material adverse impact on our [removed: financial position] [added: business] or [removed: our] [added: financial position,] results of [removed: operations.][added: operations or cash flows.]

We are involved from time-to-time in legal proceedings that arise in the ordinary course of our business, including, but not limited to, commercial disputes, environmental matters, and litigation in connection with transactions including acquisitions and divestitures.

Form [removed: 10\-K][added: 10-K]

| For the fiscal year ended December 31, [removed: 2015] [added: 2016] | |

| Commission file number [removed: 1\-08895] [added: 1-08895] | |

| Maryland | [removed: 33\-0091377] [added: 33-0091377] |

Indicate by check mark if the registrant is a [removed: well\-known] [added: well-known] seasoned issuer, as defined in Rule 405 of the Securities Act.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation [removed: S\-T] [added: S-T] (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation [removed: S\-K] [added: S-K] (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form [removed: 10\-K] [added: 10-K] or any amendment to this Form [removed: 10\-K.][added: 10-K.]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a [removed: non\-accelerated] [added: non-accelerated] filer, or a smaller reporting company.

See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule [removed: 12b\-2] [added: 12b-2] of the Exchange Act.

| Large accelerated filer ☒ | Accelerated filer ☐ | [removed: Non\-accelerated] [added: Non-accelerated] filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☐ |

Indicate by check mark whether the registrant is a shell company (as defined by Rule [removed: 12b\-2] [added: 12b-2] of the Act.) Yes ☐ No ☒

State the aggregate market value of the voting and [removed: non\-voting] [added: non-voting] common equity held by [removed: non\-affiliates] [added: non-affiliates] computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: [removed: $14.6] [added: $15.1] billion.

As of January [removed: 29, 2016] [added: 31, 2017] there were [removed: 465,531,737] [added: 468,178,740] shares of common stock outstanding.

Portions of the definitive Proxy Statement for the registrant’s [removed: 2016] [added: 2017] Annual Meeting of Stockholders have been incorporated by reference into Part III of this Report.

For the Fiscal Year Ended December 31, [removed: 2015][added: 2016]

| [Item 1A.](#ITEM1A_792744) | | [Risk Factors](#ITEM1A_792744) | | [removed: 12] [added: 11] | |

| [Item 1B.](#ITEM1B_132290) | | [Unresolved Staff Comments](#ITEM1B_132290) | | [removed: 27] [added: 29] | |

| [Item 2.](#ITEM2_682593) | | [Properties](#ITEM2_682593) | | [removed: 27] [added: 29] | |

| [Item 3.](#ITEM3_779073) | | [Legal Proceedings](#ITEM3_779073) | | [removed: 32] [added: 34] | |

| [Item 4.](#ITEM4_202814) | | [Mine Safety Disclosures](#ITEM4_202814) | | [removed: 32] [added: 34] | |

| [Part II](#PARTII_488583) | | | | [removed: 33] [added: 35] | |

| [Item 5.](#ITEM5_857992) | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM5_857992) | | [removed: 33] [added: 35] | |

| [Item 6.](#ITEM6_23903) | | [Selected Financial Data](#ITEM6_23903) | | [removed: 36] [added: 38] | |

| [Item 7.](#ITEM7ManagementsDiscussionandAnalysisofF) | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#ITEM7ManagementsDiscussionandAnalysisofF) | | [removed: 37] [added: 39] | |

| [Item 7A.](#ITEM7A_600815) | | [Quantitative and Qualitative Disclosures About Market Risk](#ITEM7A_600815) | | [removed: 64] [added: 67] | |

| [Item 8.](#ITEM8_541973) | | [Financial Statements and Supplementary Data](#FinancialStatementsandSupplementaryData_) | | [removed: 67] [added: 69] | |

| [Item 9.](#ITEM9_130672) | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ChangesinandDisagreementswithAccountants) | | [removed: 122] [added: 125] | |

| [Item 9A.](#ITEM9A_681601) | | [Controls and Procedures](#ControlsandProcedures_304119) | | [removed: 122] [added: 125] | |

| [Item 9B.](#ITEM9B_934865) | | [Other Information](#OtherInformation_36722) | | [removed: 124] [added: 127] | |

| [Part III](#PARTIII_11421) | | | | [removed: 124] [added: 127] | |

| [Item 10.](#ITEM10_921268) | | [Directors, Executive Officers and Corporate Governance](#DirectorsExecutiveOfficersandCorporate_6) | | [removed: 124] [added: 127] | |

| [Item 11.](#ITEM11_646707) | | [Executive Compensation](#ExecutiveCompensation_661558) | | [removed: 124] [added: 127] | |

| [Item 12.](#ITEM12_228623) | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#SecurityOwnershipofCertainBeneficialOwne) | | [removed: 124] [added: 127] | |

| [Item 13.](#ITEM13_215760) | | [Certain Relationships and Related Transactions, and Director Independence](#CertainRelationshipsandRelatedTransactio) | | [removed: 124] [added: 127] | |

| [Item 14.](#ITEM14_848619) | | [Principal Accounting Fees and Services](#PrincipalAccountantFeesand_484013) | | [removed: 124] [added: 127] | |

| [Part IV](#PARTIV_377987) | | | | [removed: 125] [added: 128] | |

| [Item 15.](#ITEM15_736853) | | [Exhibits, Financial Statement Schedules](#ExhibitsandFinancialStatement_927177) | | [removed: 125] [added: 128] | |

While forward-looking statements reflect our good faith belief and [removed: reasonable] assumptions [added: we believe to be reasonable] based upon current information, we can give no assurance that our expectations or forecasts will be attained.

| | · | | our reliance on a concentration of a small number of tenants and operators for a significant [removed: portion] [added: percentage] of our [removed: revenues;] [added: revenues, with our concentration in Brookdale increasing as a result of the consummation of the spin-off of Quality Care Properties, Inc. on October 31, 2016;] |

| | · | | the financial [removed: weakness] [added: condition] of our [added: existing and future] tenants, operators and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings, which results in uncertainties regarding our ability to continue to realize the full benefit of such tenants’ and operators’ leases and borrowers’ loans; |

10-K 1 hcp-20161231x10k.htm 10-K

| | · | | our concentration in the healthcare property sector, particularly in life sciences, medical office buildings and hospitals, which makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries; |

| | · | | operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA lease structures; |

| --- | --- | --- | --- |

10-K 1 hcp-20151231x10k.htm 10-K

| | · | | HCR ManorCare, Inc.’s (“HCRMC”) ability to meet its contractual obligations under the HCRMC lease amendment and risks related to the impact of the United States (“U.S.”) Department of Justice (“DOJ”) lawsuit against HCRMC, including the possibility of larger than expected litigation costs, adverse results and related developments; |

The following table summarizes our [added: consolidated] property and [removed: direct financing lease (“DFL”)] [added: DFL] investments [removed: in our Owned Portfolio] as of and for the year ended December 31, [removed: 2015] [added: 2016] (square feet and dollars in thousands):

| [removed: Senior housing—real] [added: SH NNN—real] estate: | | | | (Units) | | | | | | | | | | |

| California | | 2 | | 111 | | | 143,500 | | | [removed: 19,370] [added: 19,360] | | | [removed: 28] [added: (15)] | |

| | (1) | | Represents gross real estate and the carrying value of [removed: DFLs.] [added: DFLs, excluding development properties and assets held for sale.] 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 [removed: direct financing leases.] [added: DFLs.] |

The following table summarizes occupancy and average annual rent trends for our [removed: owned portfolio] [added: consolidated property and DFL investments] for the years ended December 31, (square feet in thousands):

| | | [added: 2016 | | |] 2015 | | | 2014 | | | 2013 | | | 2012 | | | [removed: 2011 | | |]

| Average capacity (available units) [removed: - RIDEA] | | | [added: 16,028 | | |] 12,704 | | | 6,408 | | | 4,620 | | | 4,626 | | [removed: | 1,545 | |]

| Average [removed: resident] occupancy percentage [removed: - RIDEA] | | | [removed: 88] [added: 98] | % | | [removed: 87] [added: 97] | % | | [removed: 88] [added: 93] | % | | [removed: 86] [added: 92] | % | | [removed: 86] [added: 90] | % |

| Average annual rent per square [removed: foot(2)] [added: foot(1)] | | $ | [removed: 46] [added: 48] | | $ | 46 | | $ | [removed: 44] [added: 46] | | $ | [removed: 45] [added: 44] | | $ | [removed: 44] [added: 45] | |

| Average occupied square feet | | | [added: 7,332 | | |] 7,179 | | | 6,637 | | | 6,480 | | | 6,250 | | [removed: | 6,076 | |]

| Average annual rent per square [removed: foot(2)] [added: foot(1)] | | $ | 28 | | $ | 28 | | $ | [removed: 27] [added: 28] | | $ | 27 | | $ | 27 | |

| Average occupied square feet | | | [removed: 14,762] [added: 15,697] | | | [removed: 13,178] [added: 14,677] | | | [removed: 12,767] [added: 13,136] | | | [removed: 12,147] [added: 12,767] | | | [removed: 11,721] [added: 12,147] | |

| | [removed: (2)] [added: (1)] | | 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 [removed: 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 [removed: interest accretion).] [added: non-cash interest).] |

The following table sets forth the properties [removed: owned by us] in our [removed: life science, medical office and senior housing segments] [added: consolidated property portfolio] at December 31, [removed: 2015] [added: 2016] that were under development or redevelopment [removed: (dollars and square feet in] [added: (in] thousands):

| | | | | [removed: Estimated] | | [removed: Estimated] | | | | [removed: |] Estimated | | |

| | | | | [removed: Completion |] [added: Placed] | [removed: Rentable] | | Investment | | | Total [added: at] | | |

| Name of Project | | Location | | [removed: Date(1) |] [added: in Service] | [removed: Sq. Ft./Units] | | to [removed: Date] [added: Date(1)] | | | [removed: Investment] [added: Completion] | | |

| Life science: | | | | | | | | | | | | | [removed: |]

| The Cove at Oyster Point - Phase [removed: I] [added: II] | | South San Francisco, CA | | [removed: 3Q 2016] | [removed: | 247] [added: —] | | [removed: $] | [removed: 92,926] [added: 112,152] | | [removed: $] | [removed: 184,314] [added: 220,486] | |

| Medical office: | | | | | | | | | | | | | [removed: |]

At December 31, [removed: 2015,] [added: 2016,] we also had [removed: $321] [added: $252] million of land held for future development primarily in our life science segment.

The following table shows tenant lease expirations, including those related to DFLs, for the next 10 years and thereafter at our [removed: leased] [added: consolidated] properties, assuming that none of the tenants exercise any of their renewal or purchase options, unless otherwise noted below (dollars and square feet in [removed: thousands).][added: thousands), and excludes properties in our SHOP segment and assets held for sale.]

| Segment | | Total | | | [removed: 2016(1) | | | 2017] [added: 2017(1)] | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | [added: 2026 | | |] Thereafter | | |

| % of segment base rent | | | 100 | | | [removed: 3] [added: 4] | | | [removed: 2] [added: 8] | | | [removed: 10] [added: 3] | | | [removed: 2] [added: 12] | | | [removed: 8] [added: 3] | | | [removed: 2] [added: —] | | | [removed: —] [added: 14] | | | [removed: 5] [added: 4] | | | [removed: 6] [added: 3] | | | [removed: 1] [added: 2] | | | [removed: 61] [added: 47] | |

| % of segment base rent | | | 100 | | | [removed: —] [added: 11] | | | [removed: —] [added: 22] | | | [removed: —] [added: 7] | | | [removed: 4] [added: 6] | | | [removed: 2] [added: 16] | | | [removed: —] [added: 7] | | | [removed: 1] [added: 15] | | | [removed: —] [added: 1] | | | [removed: —] [added: 6] | | | [removed: —] [added: 2] | | | [removed: 93] [added: 7] | |

| Life [removed: science(4):] [added: science(3):] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| % of segment base rent | | | 100 | | | [removed: 12] [added: 19] | | | [removed: 12] [added: 14] | | | [removed: 21] [added: 13] | | | [removed: 6] [added: 14] | | | [removed: 5] [added: 9] | | | [removed: 14] [added: 6] | | | [removed: 6] [added: 4] | | | [removed: 13] [added: 4] | | | [removed: 3] [added: 8] | | | 5 | | | [removed: 3] [added: 4] | |

| % of segment base rent | | | 100 | | | [removed: 15] [added: 7] | | | [removed: 15] [added: —] | | | [removed: 14] [added: 7] | | | [removed: 11] [added: 7] | | | [removed: 14] [added: 1] | | | [removed: 6] [added: 12] | | | [removed: 6] [added: —] | | | [removed: 3] [added: 14] | | | [removed: 4] [added: 20] | | | [removed: 8] [added: —] | | | [removed: 4] [added: 32] | |

| Properties | | | [removed: 16 | | | —] [added: 77] | | | [removed: 3] [added: 1] | | | — | | | 5 | | | 1 | | | 1 | | | [removed: 2] [added: 4] | | | — | | | [added: 2 | | |] 1 | | | [removed: 2] [added: —] | | | [removed: 1] [added: 62] | |

| % of [removed: segment] [added: total] base rent | | | 100 | | | [removed: —] [added: 11] | | | [removed: 17] [added: 13] | | | [removed: —] [added: 8] | | | [removed: 10] [added: 11] | | | [removed: 10] [added: 8] | | | [removed: 2] [added: 5] | | | [removed: 15] [added: 9] | | | [removed: —] [added: 4] | | | [removed: 18] [added: 7] | | | [removed: 23] [added: 3] | | | [removed: 5] [added: 21] | |

| | [removed: (3)] [added: (2)] | | 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 [added: non-cash] interest [removed: accretion] and deferred revenues). |

| | [removed: (4)] [added: (3)] | | Includes [removed: 457,000 sq. ft. and] 337,000 sq. ft. and annualized [removed: revenues] [added: rents] of [removed: $24 million and $19] [added: $20] million expiring in [removed: 2016 and 2018, respectively,] [added: 2018] related to the exercise of tenant purchase options in January 2016. |

[removed: We specifically incorporate by reference into this section the information set forth in] [added: See] Schedule III: Real Estate and Accumulated Depreciation, included in this [removed: report.][added: report, which information is incorporated by reference in this Item 2.]

| California | | 22 | | 2,022 | | $ | 453,094 | | $ | 51,312 | | $ | (5,494) | |

| Texas | | 16 | | 1,761 | | | 216,536 | | | 46,071 | | | (5) | |

| Florida | | 14 | | 1,776 | | | 275,825 | | | 38,041 | | | — | |

| Oregon | | 16 | | 1,357 | | | 188,626 | | | 26,858 | | | (317) | |

| Virginia | | 10 | | 1,228 | | | 270,132 | | | 21,705 | | | — | |

| Washington | | 17 | | 1,199 | | | 212,047 | | | 17,178 | | | — | |

| Colorado | | 2 | | 414 | | | 89,791 | | | 18,043 | | | — | |

| Other (28 States) | | 86 | | 7,776 | | | 1,361,661 | | | 167,855 | | | (948) | |

| | | 183 | | 17,533 | | | 3,067,712 | | | 387,063 | | | (6,764) | |

| Other (12 States) | | 27 | | 3,123 | | | 628,698 | | | 36,055 | | | 54 | |

| Total SH NNN | | 210 | | 20,656 | | $ | 3,696,410 | | $ | 423,118 | | $ | (6,710) | |

| SHOP: | | | | (Units) | | | | | | | | | | |

| Texas | | 27 | | 4,385 | | $ | 623,258 | | $ | 137,818 | | $ | (91,514) | |

| Florida | | 23 | | 3,241 | | | 498,329 | | | 128,805 | | | (85,267) | |

| Colorado | | 7 | | 1,123 | | | 342,301 | | | 54,052 | | | (33,174) | |

| Illinois | | 8 | | 1,434 | | | 275,079 | | | 53,472 | | | (42,337) | |

| California | | 11 | | 1,632 | | | 264,306 | | | 93,579 | | | (72,231) | |

| Other (21 States) | | 53 | | 5,483 | | | 949,248 | | | 219,096 | | | (156,347) | |

| Total SHOP | | 129 | | 17,298 | | $ | 2,952,521 | | $ | 686,822 | | $ | (480,870) | |

| California | | 108 | | 6,432 | | $ | 3,176,224 | | $ | 331,525 | | $ | (67,940) | |

| Other (2 States) | | 8 | | 512 | | | 143,255 | | | 27,012 | | | (4,538) | |

| Total life science | | 116 | | 6,944 | | $ | 3,319,479 | | $ | 358,537 | | $ | (72,478) | |

| Texas | | 60 | | 5,606 | | $ | 917,195 | | $ | 123,677 | | $ | (51,484) | |

| California | | 17 | | 993 | | | 308,853 | | | 30,958 | | | (16,305) | |

| Pennsylvania | | 4 | | 1,282 | | | 285,232 | | | 33,166 | | | (12,714) | |

| Florida | | 24 | | 1,328 | | | 235,819 | | | 26,203 | | | (11,944) | |

| Other (26 States) | | 133 | | 8,901 | | | 1,601,306 | | | 232,276 | | | (81,240) | |

| Total medical office | | 238 | | 18,110 | | $ | 3,348,405 | | $ | 446,280 | | $ | (173,687) | |

| Other(4): | | | | (Beds) | | | | | | | | | | |

| Texas | | 4 | | 1,035 | | $ | 231,512 | | $ | 34,138 | | $ | (4,592) | |

| Other (9 States) | | 10 | | 1,105 | | | 206,798 | | | 39,421 | | | (47) | |

| | | 16 | | 2,251 | | $ | 581,810 | | $ | 92,919 | | $ | (4,654) | |

| Other—U.K.: | | | | (Units) | | | | | | | | | | |

| Other (U.K.) | | 61 | | 3,198 | | | 307,949 | | | 32,810 | | | \- | |

| Total other non-reportable segments | | 77 | | | | $ | 889,759 | | $ | 125,729 | | $ | (4,654) | |

| Total properties | | 770 | | | | $ | 14,206,574 | | $ | 2,040,486 | | $ | (738,399) | |

| | (4) | | Represents hospitals and skilled nursing facilities, and includes leased properties that are classified as DFLs. |

| SH NNN(1): | | | | | | | | | | | | | | | | |

| Average annual rent per unit(1) | | $ | 14,604 | | $ | 14,544 | | $ | 13,907 | | $ | 13,361 | | $ | 13,593 | |

| Average capacity (available units) | | | 28,455 | | | 28,777 | | | 33,917 | | | 35,932 | | | 27,235 | |

| --- | --- | --- | --- |

| | | | | | | | | | | | | | | |

| 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 | |

| 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 | | | — | |

| 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 | |

| 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 | |

| 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) | | | | | | | | | | |

| [removed: 2015] [added: 2015(1)] | | | | | | | | | | |

| Fourth Quarter | | [removed: $] | 39.83 | | [removed: $] | 32.71 | | [removed: $] | 0.565 | |

At January [removed: 29, 2016,] [added: 31, 2017,] we had [removed: approximately 10,085] [added: 9,894] stockholders of record, and there were [removed: approximately 305,054] [added: 218,367] beneficial holders of our common stock.

| | | [removed: 2015] [added: 2012] | | | [added: 2013 | | |] 2014 | | | [removed: 2013] [added: 2015] | | | [added: 2016 | | |]

| Ordinary dividends | | $ | [removed: 2.1184] [added: 1.5561] | | $ | [removed: 1.9992] [added: 2.1184] | | $ | [removed: 1.8127] [added: 1.9992] | |

| Capital gain dividends | | | [removed: 0.0316] [added: —] | | | [removed: 0.0890] [added: 0.0316] | | | [removed: 0.1516] [added: 0.0890] | |

| Nondividend distributions | | | [removed: 0.1100] [added: 6.7089] | | | [removed: 0.0918] [added: 0.1100] | | | [removed: 0.1357] [added: 0.0918] | |

| | | $ | [removed: 2.2600] [added: 8.2650] | [added: (1)] | $ | [removed: 2.1800] [added: 2.2600] | | $ | [removed: 2.1000] [added: 2.1800] | |

On [removed: January 28, 2016,] [added: February 2, 2017,] we announced that our Board of Directors declared a quarterly common stock cash dividend of [removed: $0.575] [added: $0.37] per share.

The common stock dividend will be paid on [removed: February 23, 2016] [added: March 2, 2017] to stockholders of record as of the close of business on February [removed: 8, 2016.][added: 15, 2017.]

The table below sets forth the information with respect to purchases of our common stock made by or on our behalf during [added: the quarter ended December 31, 2016.]

The graph below compares the cumulative total return of HCP, the S&P 500 Index and the Equity REIT Index of NAREIT, from January 1, [removed: 2011] [added: 2012] to December 31, [removed: 2015.][added: 2016.]

Total cumulative return is based on a $100 investment in HCP common stock and in each of the indices on January 1, [removed: 2011] [added: 2012] and assumes quarterly reinvestment of dividends before consideration of income taxes.

(JANUARY 1, [removed: 2011] [added: 2012] = $100)

[removed: ][added: ]

| 2016(1) | | | | | | | | | | |

| Fourth Quarter | | $ | 38.09 | | $ | 27.61 | | $ | 0.370 | |

| Third Quarter | | | 40.43 | | | 34.56 | | | 0.575 | |

| Second Quarter | | | 36.90 | | | 31.91 | | | 0.575 | |

| First Quarter | | | 39.25 | | | 25.11 | | | 0.575 | |

| | (1) | | Price as originally traded. Does not give effect to the stock dividend of $6.17 per common share related to the Spin-Off (discussed below). |

| | | 2016 | | | 2015 | | | 2014 | | |

| | (1) | | Consists of $2.095 per common share of quarterly cash dividends and $6.17 per common share of stock dividends related to the Spin-Off (discussed below). |

| --- | --- | --- | --- |

HCP common stockholders on October 24, 2016, the record date for the Spin-Off (the “Record Date”), received upon the Spin-Off on October 31, 2016 one share of QCP common stock for every five shares of HCP common stock they held (the “Distributed Shares”) and cash in lieu of fractional shares of QCP.

For U.S. federal income tax purposes, HCP reported the fair market value of the QCP common stock distributed per each share of HCP common stock outstanding on the Record Date was $6.17, or $30.85 for each share of QCP common stock.

Accordingly, every HCP common stockholder who received a Distributed Share has a tax cost basis of $30.85 per Distributed Share.

| October 1-31, 2016 | | 30 | | $ | 35.91 | | — | | — | |

| November 1-30, 2016 | | — | | | — | | — | | — | |

| December 1-31, 2016 | | 590 | | | 30.30 | | — | | — | |

| Total | | 620 | | | 30.57 | | — | | — | |

| --- | --- | --- | --- |

JANUARY 1, 2012–DECEMBER 31, 2016

| FTSE NAREIT Equity REIT Index | | $ | 119.70 | | $ | 123.12 | | $ | 157.63 | | $ | 162.08 | | $ | 176.07 | |

| S&P 500 | | | 115.98 | | | 153.51 | | | 174.47 | | | 176.88 | | | 197.98 | |

| HCP, Inc. | | | 114.21 | | | 96.33 | | | 122.96 | | | 113.24 | | | 103.02 | |

| 2014 | | | | | | | | | | |

| Fourth Quarter | | | 46.07 | | | 39.66 | | | 0.545 | |

| Third Quarter | | | 43.86 | | | 39.34 | | | 0.545 | |

| Second Quarter | | | 42.82 | | | 38.49 | | | 0.545 | |

| First Quarter | | | 39.59 | | | 35.95 | | | 0.545 | |

the quarter ended December 31, 2015.

| October 1-31, 2015 | | 12,861 | | $ | 37.38 | | — | | — | |

| November 1-30, 2015 | | 108 | | | 37.20 | | — | | — | |

| December 1-31, 2015 | | 6,759 | | | 36.46 | | — | | — | |

| Total | | 19,728 | | | 37.06 | | — | | — | |

JANUARY 1, 2011–DECEMBER 31, 2015

| | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | |

| FTSE NAREIT Equity REIT Index | | $ | 108.28 | | $ | 129.62 | | $ | 133.32 | | $ | 170.68 | | $ | 175.51 | |

| S&P 500 | | | 102.08 | | | 118.39 | | | 156.70 | | | 178.10 | | | 180.56 | |

| HCP, Inc. | | | 118.42 | | | 135.24 | | | 114.07 | | | 145.60 | | | 134.09 | |

Set forth below is our selected financial data as of and for each of the years in the five-year period ended December 31, [removed: 2015] (dollars in thousands, except per share data):

| | | [added: 2016 | | |] 2015 | | | 2014 | | | 2013 | | | 2012 | | | [removed: 2011 | | |]

| Net [removed: (loss)] income [added: (loss)] applicable to common shares | | | [added: 626,549 | | |] (560,552) | | | 919,796 | | | 969,103 | | | 812,289 | | [removed: | 515,302 | |]

| Basic earnings per common share | | | [removed: (1.21)] | | | [removed: 1.94] | | | [removed: 1.97] | | | [removed: 1.80] | | | [removed: 1.25] | |

| Diluted earnings per common share | | | [removed: (1.21)] | | | [removed: 1.94] | | | [removed: 1.97] | | | [removed: 1.80] | | | [removed: 1.25] | |

| Total assets | | | [added: 15,759,265 | | |] 21,449,849 | | | 21,331,436 | | | 20,040,310 | | | 19,879,697 | | [removed: | 17,382,029 | |]

| Debt obligations(1) | | | [added: 9,189,495 | | |] 11,069,003 | | | 9,721,269 | | | 8,626,067 | | | 8,659,691 | | [removed: | 7,704,691 | |]

| Total equity | | | [added: 5,941,308 | | |] 9,746,317 | | | 10,997,099 | | | 10,931,134 | | | 10,753,777 | | [removed: | 9,220,622 | |]

| Dividends paid | | | [added: 979,542 | | |] 1,046,638 | | | 1,001,559 | | | 956,685 | | | 865,306 | | [removed: | 787,689 | |]

| Funds from operations [removed: (“FFO”)(2)] [added: (“FFO”)(3)] | | | [added: 1,119,153 | | |] (10,841) | | | 1,381,634 | | | 1,349,264 | | | 1,166,508 | | [removed: | 877,907 | |]

| Diluted FFO per common [removed: share(2)] [added: share(3)] | | | [added: 2.39 | | |] (0.02) | | | 3.00 | | | 2.95 | | | 2.72 | | [removed: | 2.19 | |]

| FFO as [removed: adjusted(2)] [added: adjusted(3)] | | | [added: 1,282,390 | | |] 1,470,167 | | | 1,398,691 | | | 1,382,699 | | | 1,195,799 | | [removed: | 1,052,692 | |]

| Diluted FFO as adjusted per common [removed: share(2)] [added: share(3)] | | | [added: 2.74 | | |] 3.16 | | | 3.04 | | | 3.02 | | | 2.79 | | [removed: | 2.71 | |]

| Funds available for distribution [removed: (“FAD”)(2)] [added: (“FAD”)(3)] | | | [added: 1,215,696 | | |] 1,261,849 | | | 1,178,822 | | | 1,158,082 | | | 954,645 | | [removed: | 838,440 | |]

| | [removed: (2)] [added: (3)] | | For a more detailed discussion and reconciliation of [removed: Funds From Operations (“FFO”),] [added: FFO,] FFO as adjusted and [removed: Funds Available for Distribution (“FAD”),] [added: FAD,] see “Non-GAAP Financial [removed: Measures] [added: Measure] Reconciliations” in Item 7. |

| Total revenues | | $ | 2,129,294 | | $ | 1,940,489 | | $ | 1,636,833 | | $ | 1,488,786 | | $ | 1,281,861 | |

| Income from continuing operations | | | 374,171 | | | 152,668 | | | 271,315 | | | 253,526 | | | 156,213 | |

| Continuing operations | | | 0.77 | | | 0.30 | | | 0.56 | | | 0.52 | | | 0.29 | |

| Discontinued operations | | | 0.57 | | | (1.51) | | | 1.45 | | | 1.61 | | | 1.61 | |

| Net income (loss) attributable to common stockholders | | | 1.34 | | | (1.21) | | | 2.01 | | | 2.13 | | | 1.90 | |

| Continuing operations | | | 0.77 | | | 0.30 | | | 0.56 | | | 0.52 | | | 0.29 | |

| Discontinued operations | | | 0.57 | | | (1.51) | | | 1.44 | | | 1.61 | | | 1.61 | |

| Net income (loss) attributable to common stockholders | | | 1.34 | | | (1.21) | | | 2.00 | | | 2.13 | | | 1.90 | |

| Dividends paid per common share(2) | | | 2.095 | | | 2.260 | | | 2.180 | | | 2.100 | | | 2.000 | |

| | (1) | | Includes bank line of credit, bridge and term loans, senior unsecured notes, mortgage and other secured debt, and other debt. |

| | (2) | | Represents cash dividends. Additionally, in October 2016 we issued $6.17 of stock dividends related to the Spin-Off. |

| --- | --- | --- | --- |

| Total revenues | | $ | 2,544,312 | | $ | 2,266,279 | | $ | 2,099,878 | | $ | 1,879,970 | | $ | 1,694,418 | |

| (Loss) income from continuing operations | | | (546,418) | | | 906,845 | | | 910,633 | | | 801,190 | | | 536,130 | |

| (Loss) income from continuing operations applicable to common shares: | | | | | | | | | | | | | | | | |

| Net (loss) income applicable to common shares: | | | | | | | | | | | | | | | | |

| Basic earnings per common share | | | (1.21) | | | 2.01 | | | 2.13 | | | 1.90 | | | 1.29 | |

| Diluted earnings per common share | | | (1.21) | | | 2.00 | | | 2.13 | | | 1.90 | | | 1.29 | |

| Dividends paid per common share | | | 2.26 | | | 2.18 | | | 2.10 | | | 2.00 | | | 1.92 | |

| Diluted FAD per common share(2) | | | 2.72 | | | 2.57 | | | 2.54 | | | 2.23 | | | 2.16 | |

| | (1) | | Includes bank line of credit, bridge and term loans, senior unsecured notes, mortgage and other secured debt, and other debt. Reflects the early adoption of Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) and ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting) (“ASU 2015-15”). ASU 2015-03 and ASU 2015-15 simplify the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (consistent with debt discounts). |

| [Report of Independent Registered Public Accounting Firm](#REPORTOFINDEPENDENTREGISTEREDPUBLICACCOU) | | [removed: 68] [added: 70] | |

| [removed: [Financial Statements:](#HCPInc_502698)] [added: [](#HCPInc_502698)] | | | |

| [Consolidated Balance Sheets—December 31, [removed: 2015] [added: 2016] and [removed: 2014](#CONSOLIDATEDBALANCESHEETS_586730)] [added: 2015](#CONSOLIDATEDBALANCESHEETS_586730)] | | [removed: 69] [added: 71] | |

| [Consolidated Statements of Operations—for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#CONSOLIDATEDSTATEMENTSOFINCOME_544994)] [added: 2014](#CONSOLIDATEDSTATEMENTSOFINCOME_544994)] | | [removed: 70] [added: 72] | |

| [Consolidated Statements of Comprehensive [removed: (Loss) Income—for] [added: Income (Loss)—for] the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINC)] [added: 2014](#CONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINC)] | | [removed: 71] [added: 73] | |

| [Consolidated Statements of Equity—for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#CONSOLIDATEDSTATEMENTSOFEQUITY_507824)] [added: 2014](#CONSOLIDATEDSTATEMENTSOFEQUITY_507824)] | | [removed: 72] [added: 74] | |

| [Consolidated Statements of Cash Flows—for the years ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013](#CONSOLIDATEDSTATEMENTSOFCASHFLOWS_897210)] [added: 2014](#CONSOLIDATEDSTATEMENTSOFCASHFLOWS_897210)] | | [removed: 73] [added: 75] | |

| [Notes to Consolidated Financial Statements](#NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS_1) | | [removed: 74] [added: 76] | |

We have audited the accompanying consolidated balance sheets of HCP, Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] and the related consolidated statements of operations, comprehensive [removed: (loss) income,] [added: income (loss),] equity, and cash flows for each of the three years in the period ended December 31, [removed: 2015.][added: 2016.]

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of HCP, Inc. and subsidiaries as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2015,] [added: 2016,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 9, 2016] [added: 13, 2017] expressed an unqualified opinion on the Company’s internal control over financial reporting.

[added: |] February [removed: 9,] [added: 1,] 2016 [added: | | $ | 500,000 | | | 3.750 | % |]

| | | [removed: December] [added: October] 31, | | | [removed: |] [added: December 31,] | |

| | | [added: 2016 | | |] 2015 | | | 2014 | | |

| Accumulated depreciation and amortization | | | [removed: (2,605,036) |] [added: (71,845)] | | [removed: (2,250,757)] | [added: (65,319)] |

| Loans receivable, net | | | [removed: 768,743] [added: 807,954] | | | [removed: 906,961] [added: 768,743] | |

| Investments in and advances to unconsolidated joint ventures | | | [removed: 605,244] [added: 571,491] | | | [removed: 605,448] [added: 605,244] | |

| Accounts receivable, net of allowance of [removed: $3,261] [added: $4,459] and [removed: $3,785,] [added: $3,261,] respectively | | | [removed: 48,929] [added: 45,116] | | | [removed: 36,339] [added: 48,929] | |

| Cash and cash [removed: equivalents] [added: equivalents, end of year] | | [added: $] | [added: 94,730 | | $ |] 346,500 | | [added: $] | 183,810 | |

| Restricted cash | | | [removed: 60,616 |] [added: —] | | [removed: 48,976] | [added: 14,526] |

| Total assets(1) | | $ | [removed: 21,449,849] [added: 15,759,265] | | $ | [removed: 21,331,436] [added: 21,449,849] | |

| Bank line of credit | | $ | [removed: 397,432] [added: 899,718] | | $ | [removed: 838,516] [added: 397,432] | |

| Term loans | | | [removed: 524,807] [added: 440,062] | | | [removed: 212,986] [added: 524,807] | |

| Senior unsecured notes | | | [removed: 9,120,107] [added: 7,133,538] | | | [removed: 7,589,960] [added: 9,120,107] | |

| Mortgage debt | | | [removed: 932,212] [added: 623,792] | | | [removed: 982,785] [added: 932,212] | |

| Other debt | | | [removed: 94,445] [added: 92,385] | | | [removed: 97,022] [added: 94,445] | |

| Intangible liabilities, net | | | [removed: 75,273] [added: 58,145] | | | [removed: 84,723] [added: 56,147] | |

| Accounts payable and accrued liabilities | | [removed: | 436,239] [added: $] | [added: 46,925] | | [removed: 432,934] [added: $] | [added: 5,453] |

| Total liabilities(1) | | | [removed: 11,703,532] [added: 9,817,957] | | | [removed: 10,334,337] [added: 11,703,532] | |

| Common stock, $1.00 par value: 750,000,000 shares authorized; [removed: 465,488,492] [added: 468,081,489] and [removed: 459,746,267] [added: 465,488,492] shares issued and outstanding, respectively | | | [removed: 465,488] [added: 468,081] | | | [removed: 459,746] [added: 465,488] | |

| Additional paid-in capital | | | [removed: 11,647,039] [added: 8,198,890] | | | [removed: 11,431,987] [added: 11,647,039] | |

| Cumulative dividends in excess of earnings | | | [removed: (2,738,414)] [added: (3,089,734)] | | | [removed: (1,132,541)] [added: (2,738,414)] | |

| Accumulated other comprehensive loss | | | [removed: (30,470)] [added: (29,642)] | | | [removed: (23,895)] [added: (30,470)] | |

| Total stockholders’ equity | | | [removed: 9,343,643] [added: 5,547,595] | | | [removed: 10,735,297] [added: 9,343,643] | |

| Joint venture partners | | | [removed: 217,066] [added: 214,377] | | | [removed: 73,214] [added: 217,066] | |

| Non-managing member unitholders | | | [removed: 185,608] [added: 179,336] | | | [removed: 188,588] [added: 185,608] | |

| Total noncontrolling interests | | | [removed: 402,674] [added: 393,713] | | | [removed: 261,802] [added: 402,674] | |

| Total equity | | | [removed: 9,746,317] [added: 5,941,308] | | | [removed: 10,997,099] [added: 9,746,317] | |

| Total liabilities and equity | | $ | [removed: 21,449,849] [added: 15,759,265] | | $ | [removed: 21,331,436] [added: 21,449,849] | |

| | (1) | | The Company’s consolidated total assets and total liabilities at December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] include certain assets of variable interest entities (“VIEs”) that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to HCP, Inc. Total assets at December 31, [removed: 2015] [added: 2016] include VIE assets as follows: buildings and improvements [removed: $791] [added: $3.5 billion; developments in process $32] million; land [removed: $125] [added: $327] million; accumulated depreciation and amortization [removed: $135] [added: $676] million; accounts [removed: receivable $16] [added: receivable, net $20] million; cash [removed: $35] [added: $36] million; restricted cash [removed: $18] [added: $23] million; [added: intangible assets, net $169 million;] and other [removed: assets $20] [added: assets, net $70] million. Total assets at December 31, [removed: 2014] [added: 2015] include VIE assets as follows: buildings and improvements [removed: $677] [added: $791] million; land [removed: $113] [added: $125] million; accumulated depreciation and amortization [removed: $111] [added: $135] million; accounts [removed: receivable $5] [added: receivable, net $16] million; cash [removed: $42] [added: $35] million; [added: restricted cash $18 million;] and other [removed: assets] [added: assets, net] of [removed: $23] [added: $20] million. Total liabilities at December 31, [removed: 2015] [added: 2016] include [added: mortgage debt of $521 million; intangible liabilities, net of $9 million;] accounts payable and accrued liabilities of [removed: $60] [added: $121] million and deferred revenue of [removed: $14] [added: $23] million from VIEs. Total liabilities at December 31, [removed: 2014] [added: 2015] include accounts payable and accrued liabilities of [removed: $34] [added: $60] million and deferred revenue of [removed: $12] [added: $14] million of from VIEs. See Note 21 to the Consolidated Financial Statements for additional details. |