Item 8. Financial Statements and Supplementary Data

HCP, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	67
Consolidated Balance Sheets—December 31, 2018 and 2017	68
Consolidated Statements of Operations—for the years ended December 31, 2018, 2017 and 2016	69
Consolidated Statements of Comprehensive Income (Loss)—for the years ended December 31, 2018, 2017 and 2016	70
Consolidated Statements of Equity—for the years ended December 31, 2018, 2017 and 2016	71
Consolidated Statements of Cash Flows—for the years ended December 31, 2018, 2017 and 2016	72
Notes to Consolidated Financial Statements	73

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of HCP, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of HCP, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Changes in Accounting Principles

As discussed in Note 2, Summary of Significant Accounting Policies—Recent Accounting Pronouncements, to the financial statements, the Company has changed its method of derecognizing real estate from partial sales effective January 1, 2018 due to the adoption of Accounting Standards Update (“ASU”) No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets on a modified retrospective basis. Further, as discussed in Note 2, Summary of Significant Accounting Policies—Recent Accounting Pronouncements, to the financial statements, the Company changed its method of accounting for real estate acquisitions effective January 1, 2017 due to the adoption of ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business on a prospective basis.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

	/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February 14, 2019

We have served as the Company's auditor since 2010.

HCP, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31,
	2018				2017
ASSETS
Real estate:
Buildings and improvements	$	10,877,248			$	11,239,732
Development costs and construction in progress	537,643				447,976
Land	1,637,506				1,785,865
Accumulated depreciation and amortization	(2,842,947		)		(2,741,695		)
Net real estate	10,209,450				10,731,878
Net investment in direct financing leases	713,818				714,352
Loans receivable, net	62,998				313,326
Investments in and advances to unconsolidated joint ventures	540,088				800,840
Accounts receivable, net of allowance of $5,127 and $4,425, respectively	48,171				40,733
Cash and cash equivalents	110,790				55,306
Restricted cash	29,056				26,897
Intangible assets, net	305,079				410,082
Assets held for sale, net	108,086				417,014
Other assets, net	591,017				578,033
Total assets	$	12,718,553			$	14,088,461
LIABILITIES AND EQUITY
Bank line of credit	$	80,103			$	1,017,076
Term loan	—				228,288
Senior unsecured notes	5,258,550				6,396,451
Mortgage debt	138,470				144,486
Other debt	90,785				94,165
Intangible liabilities, net	54,663				52,579
Liabilities of assets held for sale, net	1,125				14,031
Accounts payable and accrued liabilities	391,583				401,738
Deferred revenue	190,683				144,709
Total liabilities	6,205,962				8,493,523
Commitments and contingencies
Common stock, $1.00 par value: 750,000,000 shares authorized; 477,496,499 and 469,435,678 shares issued and outstanding, respectively	477,496				469,436
Additional paid-in capital	8,398,847				8,226,113
Cumulative dividends in excess of earnings	(2,927,196		)		(3,370,520		)
Accumulated other comprehensive income (loss)	(4,708		)		(24,024		)
Total stockholders' equity	5,944,439				5,301,005
Joint venture partners	391,401				117,045
Non-managing member unitholders	176,751				176,888
Total noncontrolling interests	568,152				293,933
Total equity	6,512,591				5,594,938
Total liabilities and equity	$	12,718,553			$	14,088,461

See accompanying Notes to Consolidated Financial Statements.

HCP, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Year Ended December 31,
	2018				2017				2016
Revenues:
Rental and related revenues	$	1,237,236			$	1,213,649			$	1,294,071
Resident fees and services	544,773				524,275				686,835
Income from direct financing leases	54,274				54,217				59,580
Interest income	10,406				56,237				88,808
Total revenues	1,846,689				1,848,378				2,129,294
Costs and expenses:
Interest expense	266,343				307,716				464,403
Depreciation and amortization	549,499				534,726				568,108
Operating	705,038				666,251				738,399
General and administrative	96,702				88,772				103,611
Transaction costs	10,772				7,963				9,821
Impairments (recoveries), net	55,260				166,384				—
Total costs and expenses	1,683,614				1,771,812				1,884,342
Other income (expense):
Gain (loss) on sales of real estate, net	925,985				356,641				164,698
Loss on debt extinguishments	(44,162		)		(54,227		)		(46,020		)
Other income (expense), net	13,316				31,420				3,654
Total other income (expense), net	895,139				333,834				122,332
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures	1,058,214				410,400				367,284
Income tax benefit (expense)	17,854				1,333				(4,473		)
Equity income (loss) from unconsolidated joint ventures	(2,594		)		10,901				11,360
Income (loss) from continuing operations	1,073,474				422,634				374,171
Discontinued operations:
Income before transaction costs and income taxes	—				—				400,701
Transaction costs	—				—				(86,765		)
Income tax benefit (expense)	—				—				(48,181		)
Total discontinued operations	—				—				265,755
Net income (loss)	1,073,474				422,634				639,926
Noncontrolling interests' share in earnings	(12,381		)		(8,465		)		(12,179		)
Net income (loss) attributable to HCP, Inc.	1,061,093				414,169				627,747
Participating securities' share in earnings	(2,669		)		(1,156		)		(1,198		)
Net income (loss) applicable to common shares	$	1,058,424			$	413,013			$	626,549
Basic earnings per common share:
Continuing operations	$	2.25			$	0.88			$	0.77
Discontinued operations	—				—				0.57
Net income (loss) applicable to common shares	$	2.25			$	0.88			$	1.34
Diluted earnings per common share:
Continuing operations	$	2.24			$	0.88			$	0.77
Discontinued operations	—				—				0.57
Net income (loss) applicable to common shares	$	2.24			$	0.88			$	1.34
Weighted average shares outstanding:
Basic	470,551				468,759				467,195
Diluted	475,387				468,935				467,403

See accompanying Notes to Consolidated Financial Statements.

HCP, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Year Ended December 31,
	2018				2017				2016
Net income (loss)	$	1,073,474			$	422,634			$	639,926
Other comprehensive income (loss):
Net unrealized gains (losses) on derivatives	6,025				(11,107		)		3,233
Reclassification adjustment realized in net income (loss)	18,088				799				707
Change in Supplemental Executive Retirement Plan obligation and other	561				64				220
Foreign currency translation adjustment	(5,358		)		15,862				(3,332		)
Total other comprehensive income (loss)	19,316				5,618				828
Total comprehensive income (loss)	1,092,790				428,252				640,754
Total comprehensive income (loss) attributable to noncontrolling interests	(12,381		)		(8,465		)		(12,179		)
Total comprehensive income (loss) attributable to HCP, Inc.	$	1,080,409			$	419,787			$	628,575

See accompanying Notes to Consolidated Financial Statements.

HCP, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share data)

	Common Stock
	Shares			Amount				Additional Paid-In Capital				Cumulative Dividends In Excess Of Earnings				Accumulated Other Comprehensive Income (Loss)				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
January 1, 2016	465,488			$	465,488			$	11,647,039			$	(2,738,414	)		$	(30,470	)		$	9,343,643			$	402,674			$	9,746,317
Net income (loss)	—			—				—				627,747				—				627,747				12,179				639,926
Other comprehensive income (loss)	—			—				—				—				828				828				—				828
Issuance of common stock, net	2,552			2,552				61,625				—				—				64,177				—				64,177
Conversion of DownREIT units to common stock	145			145				5,948				—				—				6,093				(6,093		)		—
Repurchase of common stock	(237	)		(237		)		(8,448		)		—				—				(8,685		)		—				(8,685		)
Exercise of stock options	133			133				3,340				—				—				3,473				—				3,473
Amortization of deferred compensation	—			—				22,884				—				—				22,884				—				22,884
Common dividends ($2.095 per share)	—			—				—				(979,542		)		—				(979,542		)		—				(979,542		)
Distribution of QCP, Inc.	—			—				(3,532,763		)		—				—				(3,532,763		)		—				(3,532,763		)
Distributions to noncontrolling interests	—			—				(36		)		—				—				(36		)		(26,311		)		(26,347		)
Issuances of noncontrolling interests	—			—				—				—				—				—				11,834				11,834
Deconsolidation of noncontrolling interests	—			—				(36		)		475				—				439				67				506
Purchase of noncontrolling interests	—			—				(663		)		—				—				(663		)		(637		)		(1,300		)
December 31, 2016	468,081			$	468,081			$	8,198,890			$	(3,089,734	)		$	(29,642	)		$	5,547,595			$	393,713			$	5,941,308
Net income (loss)	—			—				—				414,169				—				414,169				8,465				422,634
Other comprehensive income (loss)	—			—				—				—				5,618				5,618				—				5,618
Issuance of common stock, net	1,402			1,402				25,951				—				—				27,353				—				27,353
Conversion of DownREIT units to common stock	78			78				2,411				—				—				2,489				(2,489		)		—
Repurchase of common stock	(157	)		(157		)		(4,628		)		—				—				(4,785		)		—				(4,785		)
Exercise of stock options	32			32				736				—				—				768				—				768
Amortization of deferred compensation	—			—				14,258				—				—				14,258				—				14,258
Common dividends ($1.480 per share)	—			—				—				(694,955		)		—				(694,955		)		—				(694,955		)
Distributions to noncontrolling interests	—			—				—				—				—				—				(26,129		)		(26,129		)
Issuances of noncontrolling interests	—			—				—				—				—				—				1,615				1,615
Deconsolidation of noncontrolling interests	—			—				—				—				—				—				(58,062		)		(58,062		)
Purchase of noncontrolling interests	—			—				(11,505		)		—				—				(11,505		)		(23,180		)		(34,685		)
December 31, 2017	469,436			$	469,436			$	8,226,113			$	(3,370,520	)		$	(24,024	)		$	5,301,005			$	293,933			$	5,594,938
Impact of adoption of ASU No. 2017-05(1)	—			—				—				79,144				—				79,144				—				79,144
January 1, 2018	469,436			$	469,436			$	8,226,113			$	(3,291,376	)		$	(24,024	)		$	5,380,149			$	293,933			$	5,674,082
Net income (loss)	—			—				—				1,061,093				—				1,061,093				12,381				1,073,474
Other comprehensive income (loss)	—			—				—				—				19,316				19,316				—				19,316
Issuance of common stock, net	8,078			8,078				207,101				—				—				215,179				—				215,179
Conversion of DownREIT units to common stock	3			3				133				—				—				136				(136		)		—
Repurchase of common stock	(141	)		(141		)		(3,291		)		—				—				(3,432		)		—				(3,432		)
Exercise of stock options	120			120				2,357				—				—				2,477				—				2,477
Amortization of deferred compensation	—			—				16,563				—				—				16,563				—				16,563
Common dividends ($1.480 per share)	—			—				—				(696,913		)		—				(696,913		)		—				(696,913		)
Distributions to noncontrolling interests	—			—				—				—				—				—				(18,415		)		(18,415		)
Issuances of noncontrolling interests	—			—				—				—				—				—				299,666				299,666
Purchase of noncontrolling interests	—			—				(50,129		)		—				—				(50,129		)		(19,277		)		(69,406		)
December 31, 2018	477,496			$	477,496			$	8,398,847			$	(2,927,196	)		$	(4,708	)		$	5,944,439			$	568,152			$	6,512,591

---

(1)	On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.

See accompanying Notes to Consolidated Financial Statements.

HCP, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2018				2017				2016
Cash flows from operating activities:
Net income (loss)	$	1,073,474			$	422,634			$	639,926
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of real estate, in-place lease and other intangibles
Continuing operations	549,499				534,726				568,108
Discontinued operations	—				—				4,890
Amortization of deferred compensation	16,563				14,258				22,884
Amortization of deferred financing costs	12,612				14,569				20,014
Straight-line rents	(23,138		)		(23,933		)		(18,003		)
Equity loss (income) from unconsolidated joint ventures	2,594				(10,901		)		(11,360		)
Distributions of earnings from unconsolidated joint ventures	22,467				44,142				26,492
Lease and management fee termination loss (income), net	—				54,641				—
Deferred income tax expense (benefit)	(18,525		)		(5,523		)		47,195
Impairments (recoveries), net	55,260				166,384				—
Loss on extinguishment of debt	44,162				54,227				46,020
Loss (gain) on sales of real estate, net	(925,985		)		(356,641		)		(164,698		)
Loss (gain) on consolidation, net	(9,154		)		—				—
Casualty-related loss (recoveries), net	—				12,053				—
Loss (gain) on sale of marketable securities	—				(50,895		)		—
Other non-cash items	2,569				(2,735		)		(2,369		)
Decrease (increase) in accounts receivable and other assets, net	5,686				(24,782		)		(6,992		)
Increase (decrease) in accounts payable and accrued liabilities	40,625				4,817				42,024
Net cash provided by (used in) operating activities	848,709				847,041				1,214,131
Cash flows from investing activities:
Acquisitions of other real estate	(426,080		)		(560,753		)		(467,162		)
Development and redevelopment of real estate	(503,643		)		(373,479		)		(421,322		)
Leasing costs, tenant improvements, and recurring capital expenditures	(106,193		)		(115,260		)		(91,442		)
Proceeds from sales of real estate, net	2,044,477				1,314,325				647,754
Contributions to unconsolidated joint ventures	(12,203		)		(46,334		)		(10,186		)
Distributions in excess of earnings from unconsolidated joint ventures	26,472				37,023				28,366
Proceeds from the RIDEA II transaction, net	335,709				462,242				—
Proceeds from the U.K. JV transaction, net	393,997				—				—
Proceeds from sales/principal repayments on debt investments and direct financing leases	148,024				558,769				231,990
Investments in loans receivable, direct financing leases and other	(71,281		)		(30,276		)		(273,693		)
Purchase of securities for debt defeasance	—				—				(73,278		)
Net cash provided by (used in) investing activities	1,829,279				1,246,257				(428,973		)
Cash flows from financing activities:
Borrowings under bank line of credit, net	1,823,000				1,244,189				1,108,417
Repayments under bank line of credit	(2,755,668		)		(1,150,596		)		(540,000		)
Proceeds related to QCP Spin-Off, net	—				—				1,685,172
Issuance and borrowings of debt, excluding bank line of credit	223,587				5,395				—
Repayments and repurchase of debt, excluding bank line of credit	(1,604,026		)		(1,468,446		)		(2,316,774		)
Payments for debt extinguishment and deferred financing costs	(41,552		)		(51,415		)		(54,856		)
Issuance of common stock and exercise of options	217,656				28,121				67,650
Repurchase of common stock	(3,432		)		(4,785		)		(8,685		)
Dividends paid on common stock	(696,913		)		(694,955		)		(979,542		)
Issuance of noncontrolling interests	299,666				1,615				11,834
Distributions to and purchase of noncontrolling interests	(82,854		)		(57,584		)		(27,481		)
Net cash provided by (used in) financing activities	(2,620,536		)		(2,148,461		)		(1,054,265		)
Effect of foreign exchanges on cash, cash equivalents and restricted cash	191				376				(1,019		)
Net increase (decrease) in cash, cash equivalents and restricted cash	57,643				(54,787		)		(270,126		)
Cash, cash equivalents and restricted cash, beginning of year	82,203				136,990				407,116
Cash, cash equivalents and restricted cash, end of year	$	139,846			$	82,203			$	136,990

See accompanying Notes to Consolidated Financial Statements.

HCP, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.	Business

Overview

HCP, Inc., an S&P 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) which, together with its consolidated entities (collectively, “HCP” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). The Company acquires, develops, leases, and manages and disposes of healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) senior housing triple-net, (ii) senior housing operating portfolio (“SHOP”), (iii) life science and (iv) medical office.

NOTE 2.	Summary of Significant Accounting Policies

Use of Estimates

Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of HCP, Inc., its wholly-owned subsidiaries, joint ventures and variable interest entities that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation.

The Company is required to continually evaluate its variable interest entity (“VIE”) relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.

The designation of an entity as a VIE should be reassessed upon certain events, including, but not limited to: (i) a change to the terms or in the ability of a party to exercise its participation of kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.

A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity.

For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.

Revenue Recognition

Lease Classification

At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. For leases entered into prior to January 1, 2019, a lease arrangement is classified as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee prior to or shortly after the end of the lease term, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or more of the underlying property’s economic life, or (iv) the present value of future minimum lease payments (excluding executory costs) is equal to 90% or more of the excess fair value (over retained tax credits) of the leased property. If one of the four criteria is met and the minimum lease payments are determined to be reasonably predictable and collectible, the lease arrangement is generally accounted for as a direct financing lease (“DFL”).

Concurrent with the Company's adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (“ASU 2016-02”) on January 1, 2019, the Company will begin classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term.

Rental and Related Revenues

The Company commences recognition of rental revenue for operating lease arrangements when the tenant has taken possession or controls the physical use of a leased asset. The tenant is not considered to have taken physical possession or have control of the leased asset until the Company-owned tenant improvements are substantially complete. If a lease arrangement provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Ownership of tenant improvements is determined based on various factors including, but not limited to, the following criteria:

•	lease stipulations of how and on what a tenant improvement allowance may be spent;

•	which party to the arrangement retains legal title to the tenant improvements upon lease expiration;

•	whether the tenant improvements are unique to the tenant or general purpose in nature;

•	if the tenant improvements are expected to have significant residual value at the end of the lease term;

•	the responsible party for construction cost overruns; and

•	which party constructs or directs the construction of the improvements.

Certain leases provide for additional rents that are contingent upon a percentage of the facility’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant or estimates of tenant results, exceed the base amount or other thresholds, and only after any contingency has been removed (when the related thresholds are achieved). This may result in the recognition of rental revenue in periods subsequent to when such payments are received.

Tenant recoveries subject to operating leases generally relate to the reimbursement of real estate taxes, insurance and repairs and maintenance expense. These expenses are recognized as revenue in the period they are incurred. The reimbursements of these expenses are recognized in rental and related revenues, as the Company is generally the primary obligor and, with respect to purchasing goods and services from third party suppliers, has discretion in selecting the supplier and bears the associated credit risk.

For operating leases with minimum scheduled rent increases, the Company recognizes income on a straight line basis over the lease term when collectibility is reasonably assured. Recognizing rental income on a straight line basis results in a difference in the timing of revenue amounts from what is contractually due from tenants. If the Company determines that collectibility of straight line rents is not reasonably assured, future revenue recognition is limited to amounts contractually owed and paid, and, when appropriate, an allowance for estimated losses is established.

Resident Fees and Services

Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.

Income from Direct Financing Leases

The Company utilizes the direct finance method of accounting to record DFL income. For a lease accounted for as a DFL, the net investment in the DFL represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured.

Interest Income

Loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and reduced by a valuation allowance for estimated credit losses, as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, loan fees paid and received, using the interest method. The interest method is applied on a loan-by-loan basis when collectibility of the future payments is reasonably assured. Premiums and discounts are recognized as yield adjustments over the term of the related loans.

Gain (loss) on sales of real estate, net

The Company recognizes a gain (loss) on sale of real estate when the criteria for an asset to be derecognized are met, which include when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is probable that the Company will receive substantially all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale.

Allowance for Doubtful Accounts

The Company evaluates the liquidity and creditworthiness of its tenants, operators and borrowers on a monthly and quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity and other factors. The Company’s tenants, borrowers and operators furnish property, portfolio and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate the lease or debt service coverages that it uses as a primary credit quality indicator. Lease and debt service coverage information is evaluated together with other property, portfolio and operator performance information, including revenue, expense, net operating income, occupancy, rental rate, reimbursement trends, capital expenditures and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a significant change in circumstance, its tenants’, operators’ and borrowers’ ability to service their obligations with the Company.

The Company maintains an allowance for doubtful accounts for straight-line rent receivables resulting from tenants’ inability to make contractual rent and tenant recovery payments or lease defaults. For straight-line rent receivables, the Company’s assessment is based on amounts estimated to be recoverable over the lease term.

In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable and DFLs (collectively, “Finance Receivables”), are reviewed and assigned an internal rating of Performing, Watch List or Workout. Finance Receivables that are deemed Performing meet all present contractual obligations, and collection and timing, of all amounts owed is reasonably assured. Watch List Finance Receivables are defined as Finance Receivables that do not meet the definition of Performing or Workout. Workout Finance Receivables are defined as Finance Receivables in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.

Finance Receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, the Company performs a credit analysis to support the tenant’s, operator’s, borrower’s and/or guarantor’s repayment capacity and the underlying collateral values. The Company uses the cash basis method of accounting for Finance Receivables placed on nonaccrual status unless one of the following conditions exist whereby it utilizes the cost recovery method of accounting: (i) if the Company determines that it is probable that it will only recover the recorded investment in the Finance Receivable, net of associated allowances or charge-offs (if any), or (ii) the Company cannot reasonably estimate the amount of an impaired Finance Receivable. For cash basis method of accounting the Company applies payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of

accounting any payment received is applied to reduce the recorded investment. Generally, the Company returns a Finance Receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured.

Allowances are established for Finance Receivables on an individual basis utilizing an estimate of probable losses, if they are determined to be impaired. Finance Receivables are impaired when it is deemed probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan or lease. An allowance is based upon the Company’s assessment of the lessee’s or borrower’s overall financial condition, economic resources, payment record, the prospects for support from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates consider all available evidence, including the expected future cash flows discounted at the Finance Receivable’s effective interest rate, fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. Should a Finance Receivable be deemed partially or wholly uncollectible, the uncollectible balance is charged off against the allowance in the period in which the uncollectible determination has been made.

Real Estate

The Company’s real estate acquisitions are generally classified as asset acquisitions for which the Company records identifiable assets acquired, liabilities assumed and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is generally recorded when the contingency is resolved.

The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant.

The Company records acquired “above and below market” leases at fair value using discount rates which reflect the risks associated with the leases acquired. The amount recorded is based on the present value of the difference between (i) the contractual amounts paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the extended term for any leases with bargain renewal options. Other intangible assets acquired include amounts for in-place lease values that are based on an evaluation of the specific characteristics of each property and the acquired tenant lease(s). Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related costs.

The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes, insurance and other costs directly related and essential to the development or construction of a real estate asset. The Company capitalizes construction and development costs while substantive activities are ongoing to prepare an asset for its intended use. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of Company-owned tenant improvements, but no later than one year from cessation of significant construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment of existing operating properties, the Company capitalizes the cost for the construction and improvement incurred in connection with the redevelopment.

Costs previously capitalized related to abandoned developments/redevelopments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred. The Company considers costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and, accordingly, such costs are reflected as investing activities in the Company’s consolidated statement of cash flows.

The Company computes depreciation on properties using the straight-line method over the assets’ estimated useful lives. Depreciation is discontinued when a property is identified as held for sale. Buildings and improvements are depreciated over useful lives ranging up to 60 years. Market lease intangibles are amortized primarily to revenue over the remaining noncancellable lease terms and bargain renewal periods, if any. In-place lease intangibles are amortized to expense over the remaining noncancellable lease term and bargain renewal periods, if any.

Concurrent with the Company's adoption of ASU 2016-02 on January 1, 2019, the Company elected to recognize expense associated with short-term leases (those with a noncancellable lease term of 12 months or less) under which the Company is the lessee on a straight-line basis and not recognize those leases on its consolidated balance sheets.

For leases other than short-term operating leases under which the Company is the lessee, such as ground leases and corporate office leases, the Company recognizes a right-of-use asset and related lease liability on its consolidated balance sheet at inception of the lease. The lease liability is calculated as the sum of: (i) the present value of minimum lease payments at lease commencement (discounted using the Company's secured incremental borrowing rate) and (ii) the present value of amounts probable of being paid under any residual value guarantees. The right-of-use asset is calculated as the lease liability, adjusted for the following: (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and (ii) any initial direct costs incurred by the Company.

Impairment of Long-Lived Assets and Goodwill

The Company assesses the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Further, the analysis considers the impact, if any, of master lease agreements on cash flows, which are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be recognized to the extent that the carrying value of the real estate assets exceeds their fair value. If an asset is classified as held for sale, it is reported at the lower of its carrying value or fair value less costs to sell and no longer depreciated.

When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value, including goodwill, exceeds the reporting unit’s fair value.

Assets Held for Sale and Discontinued Operations

The Company classifies a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn.

A discontinued operation represents: (i) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on the Company’s operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift include disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company.

Investments in Unconsolidated Joint Ventures

Investments in entities which the Company does not consolidate, but has the ability to exercise significant influence over the operating and financial policies of, are reported under the equity method of accounting. Under the equity method of accounting, the Company’s share of the investee’s earnings or losses is included in the Company’s consolidated results of operations.

The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint venture. To the extent that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture. The Company evaluates its equity method investments for impairment based upon a comparison of the fair value of the equity method investment to its carrying value. When the Company determines a decline in the fair value of an investment in an unconsolidated joint venture below its carrying value is other-than-temporary, an impairment is recorded. The Company recognizes gains on the sale of interests in joint ventures to the extent the economic substance of the transaction is a sale.

The Company’s fair values of its equity method investments are determined based on discounted cash flow models that include all estimated cash inflows and outflows over a specified holding period and, where applicable, any estimated debt premiums or discounts. Capitalization rates, discount rates and credit spreads utilized in these valuation models are based upon assumptions that the Company believes to be within a reasonable range of current market rates for the respective investments.

The Company did not record any impairments of its investments in unconsolidated joint ventures in the statements of operations for the years ended December 31, 2018, 2017 or 2016.

Share-Based Compensation

Compensation expense for share-based awards granted to employees with graded vesting schedules is generally recognized on a straight-line basis over the vesting period. Forfeitures of share-based awards are recognized as they occur.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of three months or less when purchased. Restricted cash primarily consists of amounts held by mortgage lenders to provide for (i) real estate tax expenditures, tenant improvements and capital expenditures, (ii) security deposits, and (iii) net proceeds from property sales that were executed as tax-deferred dispositions.

Derivatives and Hedging

During its normal course of business, the Company uses certain types of derivative instruments for the purpose of managing interest rate and foreign currency risk. To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company’s related assertions.

The Company recognizes all derivative instruments, including embedded derivatives that are required to be bifurcated, as assets or liabilities in the consolidated balance sheets at fair value. Changes in fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in earnings. For derivative instruments designated in qualifying cash flow hedging relationships, changes in fair value related to the effective portion of the derivative instruments are recognized in accumulated other comprehensive income (loss), whereas changes in fair value of the ineffective portion are recognized in earnings.

Using certain of its British pound sterling (“GBP”) denominated debt, the Company applies net investment hedge accounting to hedge the foreign currency exposure from its net investment in GBP-functional unconsolidated subsidiaries. The variability of the GBP-denominated debt due to changes in the GBP to U.S. dollar (“USD”) exchange rate (“remeasurement value”) is recognized as part of the cumulative translation adjustment component of accumulated other comprehensive income (loss).

If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or liquidation of the hedged investment, the cumulative balance of the remeasurement value is reclassified to earnings.

Income Taxes

HCP, Inc. has elected REIT status and believes it has always operated so as to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, HCP, Inc. will generally not be subject to U.S. federal income tax, provided that it continues to qualify as a REIT and makes distributions to stockholders equal to or in excess of its taxable income. In addition, the Company has formed several consolidated subsidiaries that have elected REIT status. HCP, Inc. and its consolidated REIT subsidiaries are each subject to the REIT qualification requirements under the Code. If any REIT fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates and may be ineligible to qualify as a REIT for four subsequent tax years.

HCP, Inc. and its consolidated REIT subsidiaries are subject to state, local and foreign income taxes in some jurisdictions, and in certain circumstances each REIT may also be subject to federal excise taxes on undistributed income. In addition, certain activities that the Company undertakes may be conducted by entities which have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs are subject to federal, state and local income taxes. The Company recognizes tax penalties relating to unrecognized tax benefits as additional income tax expense. Interest relating to unrecognized tax benefits is recognized as interest expense.

Capital Raising Issuance Costs

Costs incurred in connection with the issuance of common shares are recorded as a reduction of additional paid-in capital. Debt issuance costs related to debt instruments excluding line of credit arrangements are deferred, recorded as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability utilizing the effective interest method. Debt issuance costs related to line of credit arrangements are deferred, included in other assets, and amortized to interest expense on a straight-line basis over the remaining term of the related line of credit arrangement.

Penalties incurred to extinguish debt and any remaining unamortized debt issuance costs, discounts and premiums are recognized as income or expense in the consolidated statements of operations at the time of extinguishment.

Segment Reporting

The Company’s reportable segments, based on how it evaluates its business and allocates resources, are as follows: (i) senior housing triple-net, (ii) SHOP, (iii) life science and (iv) medical office.

Noncontrolling Interests

Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption and other rights held by the noncontrolling interest holder. Net income (loss) attributable to a noncontrolling interest is included in net income (loss) on the consolidated statements of operations and, upon a gain or loss of control, the interest purchased or sold, and any interest retained, is recorded at fair value with any gain or loss recognized in earnings. The Company accounts for purchases or sales of equity interests that do not result in a change in control as equity transactions.

The Company consolidates non-managing member limited liability companies (“DownREITs”) because it exercises control, and the noncontrolling interests in these entities are carried at cost. The non-managing member limited liability company (“LLC”) units (“DownREIT units”) are exchangeable for an amount of cash approximating the then-current market value of shares of the Company’s common stock or, at the Company’s option, shares of the Company’s common stock (subject to certain adjustments, such as stock splits and reclassifications). Upon exchange of DownREIT units for the Company’s common stock, the carrying amount of the DownREIT units is reclassified to stockholders’ equity.

Foreign Currency Translation and Transactions

Assets and liabilities denominated in foreign currencies that are translated into U.S. dollars use exchange rates in effect at the end of the period, and revenues and expenses denominated in foreign currencies that are translated into U.S. dollars use average rates of exchange in effect during the related period. Gains or losses resulting from translation are included in accumulated other comprehensive income (loss), a component of stockholders’ equity on the consolidated balance sheets. Gains or losses resulting from foreign currency transactions are translated into U.S. dollars at the rates of exchange prevailing at the dates of the transactions. The effects of transaction gains or losses are included in other income (expense), net in the consolidated statements of operations.

Fair Value Measurement

The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:

•	Level 1—quoted prices for identical instruments in active markets;

•	Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•	Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to be measured at fair value. When available, the Company utilizes quoted market prices from an independent third party source to determine fair value and classifies such items in Level 1. In instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies the asset or liability in Level 2.

If quoted market prices or inputs are not available, fair value measurements are based upon valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads and/or market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow models. The Company also considers its counterparty’s and own credit risk for derivative instruments and other liabilities measured at fair value. The Company has elected the mid-market pricing expedient when determining fair value.

Earnings per Share

Basic earnings per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of shares of common stock outstanding during the period. The Company accounts for unvested share-based payment awards that contain non-forfeitable dividend rights or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per common share is calculated by including the effect of dilutive securities.

Recent Accounting Pronouncements

Adopted

Between May 2014 and February 2017, the Financial Accounting Standards Board (“FASB”) issued four ASUs changing the requirements for recognizing and reporting revenue (together, herein referred to as the “Revenue ASUs”): (i) ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), (ii) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), (iii) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), and (iv) ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2014-09 provides guidance for revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2016-12 provides practical expedients and improvements on the previously narrow scope of ASU 2014-09. ASU 2017-05 clarifies the scope of the FASB’s guidance on nonfinancial asset derecognition and aligns the accounting for partial sales of nonfinancial assets and in-substance nonfinancial assets with the guidance in ASU 2014-09. The Company adopted the Revenue ASUs effective January 1, 2018 and utilized a modified retrospective adoption approach, resulting in a cumulative-effect adjustment to equity of $79 million as of January 1, 2018. Under the Revenue ASUs, the Company also elected to utilize a practical expedient which allows the Company to only reassess contracts that were not completed as of the adoption date, rather than all historical contracts.

As the primary source of revenue for the Company is generated through leasing arrangements, for which timing and recognition of revenue will be the same whether accounted for under the Revenue ASUs or lease accounting guidance (see discussion below), the impact of the Revenue ASUs, upon and subsequent to adoption, is generally limited to the following:

•

Prior to the adoption of the Revenue ASUs, the Company recognized a gain on sale of real estate using the full accrual method when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient and other profit recognition criteria had been satisfied. The Company deferred all or a portion of a gain on sale of real estate if the requirements for gain recognition were not met at the time of sale. Subsequent to adopting the Revenue ASUs on January 1, 2018, the Company began recognizing a gain on sale of real estate upon transferring control of the asset to the purchaser, which is generally satisfied at the time of sale. In conjunction with its adoption of the Revenue ASUs, the Company reassessed its historical partial sale of real estate transactions to determine which transactions, if any, were not completed contracts (i.e., the transaction did not qualify for sale treatment under previous guidance). The Company concluded that it had one such material transaction, its partial sale of RIDEA II in the first quarter of 2017 (which was not a completed sale under historical guidance as of the Company's adoption date due to a minor obligation related to the interest sold). In accordance with the Revenue ASUs, the Company recorded its retained 40% equity investment at fair value as of the sale date. As a result, the Company recorded an adjustment to equity as of January 1, 2018 (under the modified retrospective transition approach) representing a step-up in the fair value of its equity investment in RIDEA II of $107 million (to a carrying value of $121 million as of January 1, 2018) and a $30 million impairment charge to decrease the carrying value to the sales price of the investment (see Note 5). The Company completed the sale of its equity investment in June 2018 and no longer holds an economic interest in RIDEA II.

•	The Company generally expects that the new guidance will result in certain transactions qualifying as sales of real estate at an earlier date than under historical accounting guidance.

•

The Company, along with its joint venture partners and independent SHOP operators, provide certain ancillary services to SHOP residents that are not contemplated in the lease with each resident (i.e., guest meals, concierge services, pharmacy services, etc.). These services are provided and paid for in addition to the standard services included in each resident lease (i.e., room and board, standard meals, etc.). The Company bills residents for ancillary services one month in arrears and recognizes revenue as the services are provided, as the Company has no continuing performance obligation related to those services. Included within resident fees and services for the years ended December 31, 2018, 2017 and 2016 is $40 million, $38 million and $51 million, respectively, of ancillary service revenue.

Additionally, during the year ended December 31, 2018, the Company adopted the following ASUs:

•

ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) and ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments - Overall (“ASU 2018-03”). The core principle of the amendments in ASU 2016-01 and ASU 2018-03 involves the measurement of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation) at fair value and the recognition of changes in fair value of those investments during each reporting period in net income (loss). As a result, ASU 2016-01 and ASU 2018-03 eliminate the cost method of accounting for equity securities that do not have readily determinable fair values. Pursuant to the new guidance, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The adoption of ASU 2016-01 and 2018-03 did not have a material impact to the Company's consolidated financial position, results of operations, cash flows, or disclosures.

•

ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The amendments in ASU 2016-16 require an entity to recognize the income tax consequences of intra-entity transfers of assets, other than inventory, at the time that the transfer occurs. Historical guidance does not require recognition of tax consequences until the asset is eventually sold to a third party. The adoption of ASU 2016-16 did not have a material impact to the Company's consolidated financial position, results of operations, cash flows, or disclosures.

On January 1, 2017 the Company adopted ASU No. 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”) which narrows the FASB’s definition of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset, or a group of assets, or a business. ASU 2017-01 states that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If this initial test is not met, a set cannot be considered a business unless it includes an acquired input and a substantive process that together significantly contribute to the ability to create outputs. In addition, ASU 2017-01 clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output. As a result of prospectively adopting ASU 2017-01, the majority of the Company’s real estate acquisitions subsequent to January 1, 2017 are classified as asset acquisitions for which the Company records identifiable assets acquired, liabilities assumed and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is recorded when the contingency is resolved.

Not Yet Adopted

Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 (codified under Accounting Standards Codification (“ASC”) 842) amends the current accounting for leases to: (i) require lessees to put most leases on their balance sheets (not required for short-term leases with lease terms of 12 months or less), but continue recognizing expenses on their income statements in a manner similar to requirements under prior accounting guidance, (ii) eliminate real estate specific lease provisions, and (iii) modify the classification criteria and accounting for sales-type leases for lessors. Additionally, ASU 2016-02 provides a practical expedient, which the Company elected, that allows an entity to not reassess the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs.

As a result of adopting ASU 2016-02 on January 1, 2019 using the modified retrospective transition approach, the Company will capitalize fewer costs related to the drafting and negotiation of its lease agreements. Additionally, the Company will recognize all of its significant operating leases for which it is the lessee, including corporate office leases, equipment leases, and ground leases, on its consolidated balance sheets through a lease liability and corresponding right-of-use asset. As such, the Company expects to recognize a lease liability between $130 million and $165 million and right-of-use asset between $145 million and $180 million (lease liability, net of the existing accrued straight-line rent liability balance and adjusted for unamortized above/below market ground lease intangibles) during the first quarter of 2019.

Under ASU 2016-02, a practical expedient was offered to lessees to make a policy election, which the Company elected, to not separate lease and nonlease components, but rather account for the combined components as a single lease component under ASC 842. In July 2018, the FASB issued ASU No. 2018-11, Leases - Targeted Improvements (“ASU 2018-11”), which provides lessors with a similar option to elect a practical expedient allowing them to not separate lease and nonlease components in a contract for the purpose of revenue recognition and disclosure. This practical expedient is limited to circumstances in which: (i) the timing and pattern of transfer are the same for the nonlease component and the related lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease or service based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASU 2016-02 and predominantly service-based would be accounted for under the Revenue ASUs). The Company elected this practical expedient as well and, as a result, beginning January 1, 2019, the

Company will recognize revenue from its senior housing triple-net, medical office, and life science segments under ASC 842 and revenue from its SHOP segment under the Revenue ASUs (codified under ASC 606).

In conjunction with reaching the conclusions above, the Company concluded it was appropriate (under ASC 205, Presentation of Financial Statements) to reclassify amounts previously classified as revenue from tenant recoveries (within the senior housing triple-net, life science, and medical office segments) and present them combined with rental and related revenues within the statements of operations. The Company implemented this change during the fourth quarter of 2018. Included within rental and related revenues for the years ended December 31, 2018, 2017 and 2016 is $157 million, $142 million and $134 million, respectively, of tenant recoveries.

In December 2018, the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors (“ASU 2018-20”), which requires that a lessor: (i) exclude certain lessor costs paid directly by a lessee to third parties on behalf of the lessor from a lessor's measurement of variable lease revenue and associated expense (i.e., no gross up of revenue and expense for these costs), and (ii) include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense (i.e., gross up revenue and expense for these costs). This is consistent with the Company’s current presentation and will not require a material change on January 1, 2019.

Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amendments in ASU 2016-13 eliminate the “probable” initial threshold for recognition of credit losses in current accounting guidance and, instead, reflect an entity’s current estimate of all expected credit losses over the life of the financial instrument. Previously, when credit losses were measured under current accounting guidance, an entity generally only considered past events and current conditions in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss. ASU 2016-13 is effective for fiscal years, and interim periods within, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within, beginning after December 15, 2018. A reporting entity is required to apply the amendments in ASU 2016-13 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Upon adoption of ASU 2016-13, the Company is required to reassess its financing receivables, including DFLs and loans receivable, and expects that application of ASU 2016-13 may result in the Company recognizing credit losses at an earlier date than would otherwise be recognized under current accounting guidance. The Company is evaluating the impact of the adoption of ASU 2016-13 on January 1, 2020 to its consolidated financial position and results of operations.

The following ASU has been issued, but not yet adopted, and the Company does not expect a material impact to its consolidated financial position, results of operations, cash flows, or disclosures upon adoption:

•

ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”). ASU 2017-12 is effective for fiscal years, including interim periods within, beginning after December 15, 2018 and early adoption is permitted. For cash flow and net investment hedges existing at the date of adoption, a reporting entity must apply the amendments in ASU 2017-12 using the modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. The presentation and disclosure amendments in ASU 2017-12 must be applied using a prospective approach.

NOTE 3.	Master Transactions and Cooperation Agreement with Brookdale

Master Transactions and Cooperation Agreement with Brookdale

In November 2017, the Company and Brookdale Senior Living Inc. (“Brookdale”) entered into a Master Transactions and Cooperation Agreement (the “MTCA”) to provide the Company with the ability to significantly reduce its concentration of assets leased to and/or managed by Brookdale (the “Brookdale Transactions”). In connection with the overall transaction pursuant to the MTCA, the Company and Brookdale, and certain of their respective subsidiaries, agreed to the following:

•

The Company, which owned 90% of the interests in its RIDEA I and RIDEA III joint ventures with Brookdale at the time the MTCA was executed, agreed to purchase Brookdale’s 10% noncontrolling interest in each joint venture for an aggregate purchase price of $95 million. At the time the MTCA was executed, these joint ventures collectively owned and operated 58 independent living, assisted living, memory care and/or skilled nursing facilities (the “RIDEA Facilities”). The Company completed its acquisitions of the RIDEA III noncontrolling interest for $32 million in December 2017 and the RIDEA I noncontrolling interest for $63 million in March 2018;

•	The Company received the right to sell, or transition to other operators, 32 of the 78 total assets under an Amended and Restated Master Lease and Security Agreement (the “Amended Master Lease”) with Brookdale and 36 of the RIDEA Facilities (and terminate related management agreements with an affiliate of Brookdale without penalty);

•	The Company provided an aggregate $5 million annual reduction in rent on three assets, effective January 1, 2018; and

•	Brookdale agreed to purchase two of the assets under the Amended Master Lease for $35 million, both of which were sold in April 2018, and four of the RIDEA Facilities for $240 million, one of which was sold in January 2018 for $32 million and the remaining three of which were sold in April 2018 for $208 million.

During the fourth quarter of 2018, the Company sold 19 assets (11 of the 32 senior housing triple-net assets noted above and eight RIDEA Facilities) to a third-party buyer for $377 million. Additionally, during the year ended December 31, 2018, the Company terminated the previous management agreements or leases with Brookdale on 37 assets contemplated under the MTCA and completed the transition of 20 SHOP assets and 17 senior housing triple-net assets to other managers.

Fair Value Measurement Techniques and Quantitative Information

During the fourth quarter of 2017, the Company performed a fair value assessment of each of the MTCA components that provided measurable economic benefit or detriment to the Company. Each fair value calculation is based on an income or market approach and relies on historical and forecasted EBITDAR (defined as earnings before interest, taxes, depreciation, amortization and rent) and revenue, as well as market data, including, but not limited to, a discount rate of 12%, a management fee rate of 5% of revenue, EBITDAR growth rates ranging from zero to 3%, and real estate capitalization rates ranging from 6% to 7%. All assumptions are supported by independent market data and considered to be Level 2 measurements within the fair value hierarchy.

As a result of the assessment, the Company recognized a $20 million net reduction of rental and related revenues related to the right to terminate leases for 32 triple-net assets and the write-off of unamortized lease intangible assets related to those same 32 triple-net assets during the year ended December 31, 2017. Additionally, the Company recognized $35 million of operating expenses related to the right to terminate management agreements for 36 SHOP assets during the year ended December 31, 2017.

NOTE 4.	Other Real Estate Property Investments

MSREI MOB JV

In August 2018, the Company and Morgan Stanley Real Estate Investment (“MSREI”) formed a joint venture (the “MSREI JV”) to own a portfolio of medical office buildings ("MOBs"), which the Company owns 51% of and consolidates. To form the joint venture, MSREI contributed cash of $298 million and HCP contributed nine wholly-owned MOBs (the “Contributed Assets”). The Contributed Assets are primarily located in Texas and Florida and were valued at approximately $320 million at the time of contribution. The MSREI JV used substantially all of the cash contributed by MSREI to acquire an additional portfolio of 16 MOBs in Greenville, South Carolina (the “Greenville Portfolio”) for $285 million. Concurrent with acquiring the additional MOBs, the MSREI JV entered into 10-year leases with an anchor tenant on each MOB in the Greenville Portfolio.

The Contributed Assets are accounted for at historical depreciated cost by the Company, as the assets continue to be consolidated. The Greenville Portfolio is accounted for as an asset acquisition, which requires the Company to record the individual components of the acquisition at each component’s relative fair value. As a result, the Company recorded net real estate of $276 million and net intangible assets of $20 million during the year ended December 31, 2018 related to the Greenville Portfolio. Additionally, the Company recognized a noncontrolling interest of $298 million related to the interest owned by MSREI. Refer to Note 19 for a discussion of the Company’s consolidation of the MSREI JV.

Life Science JV Interest Purchase

In November 2018, the Company acquired the outstanding equity interests in three life science joint ventures (which owned four buildings) for $92 million, bringing the Company’s equity ownership to 100% for all three joint ventures. As the Company began consolidating the assets upon acquisition, it derecognized the existing investment in the joint ventures, marked the real estate to fair value (using a relative fair value allocation), and recognized a gain on consolidation of $50 million within other income (expense), net.

Sierra Point Towers Acquisition

In November 2018, the Company entered into definitive agreements to acquire two life science buildings in South San Francisco, California adjacent to the Company’s The Shore at Sierra Point development, for $245 million. The Company made a $15 million nonrefundable deposit upon completing due diligence and expects to close the transaction in the first half of 2019.

Other Real Estate Acquisitions

During the year ended December 31, 2018, the Company acquired development rights on a land parcel in the Boston suburb of Lexington, Massachusetts for $21 million. The Company commenced a life science development on the land in 2018.

Additionally, in January and February 2019, the Company acquired a life science facility for $71 million and development rights at an adjacent undeveloped land parcel for consideration of up to $27 million. The existing facility and land parcel are located in Cambridge, Massachusetts.

2017 Real Estate Acquisitions

The following table summarizes real estate acquisitions for the year ended December 31, 2017 (in thousands):

		Consideration								Assets Acquired
Segment		Cash Paid				Net Liabilities Assumed				Real Estate				Net Intangibles
SHOP		$	44,258			$	797			$	37,940			$	7,115
Life science		315,255				3,524				305,760				13,019
Medical office		201,240				1,104				184,115				18,229
		$	560,753			$	5,425			$	527,815			$	38,363

Construction, Tenant and Other Capital Improvements

The following table summarizes the Company’s expenditures for construction, tenant and other capital improvements (in thousands):

		Year Ended December 31,
Segment		2018				2017				2016
Senior housing triple-net		$	11,311			$	32,343			$	49,109
SHOP		53,389				49,473				74,158
Life science		396,431				240,901				200,122
Medical office		144,694				148,926				128,308
Other		1,361				135				7,203
		$	607,186			$	471,778			$	458,900

NOTE 5.	Dispositions of Real Estate and Discontinued Operations

Dispositions of Real Estate

Held for Sale

At December 31, 2018, nine SHOP facilities and one undeveloped life science land parcel were classified as held for sale, with an aggregate carrying value of $108 million, primarily comprised of real estate assets of $101 million, net of accumulated depreciation of $30 million. At December 31, 2017, two senior housing triple-net facilities, four life science facilities and six SHOP facilities were classified as held for sale, with an aggregate carrying value of $417 million, primarily comprised of real estate assets of $393 million, net of accumulated depreciation of $93 million. Liabilities of assets held for sale is primarily comprised of intangible and other liabilities at both December 31, 2018 and 2017.

Shoreline Technology Center

In November 2018, the Company sold its Shoreline Technology Center life science campus located in Mountain View, California for $1.0 billion and recognized a gain on sale of $726 million.

Brookdale MTCA Disposition

As noted in Note 3, during the fourth quarter of 2018, the Company sold 19 assets (11 senior housing triple-net assets and eight SHOP assets) to a third-party for $377 million and recognized a gain on sale of $40 million. Refer to Note 3 for further detail on the Brookdale Transactions.

RIDEA II Sale Transaction

In January 2017, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated joint venture owned by HCP and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (“HCP/CPA PropCo” and “HCP/CPA OpCo,” together, the “HCP/CPA JV”). Also in January 2017, RIDEA II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by HCP. In return for both transaction elements, the Company received combined proceeds of $480 million from the HCP/CPA JV and $242 million in loans receivable and retained an approximately 40% ownership interest in RIDEA II. This transaction resulted in the Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. Refer to Note 2 for the impact of adopting the Revenue ASUs on January 1, 2018 to the Company’s partial sale of RIDEA II in the first quarter of 2017.

On November 1, 2017, the Company entered into a definitive agreement with an investor group led by CPA to sell its remaining 40% ownership interest in RIDEA II for $91 million and cause CPA to refinance the Company’s $242 million of loans receivable from RIDEA II. The Company completed the transaction in June 2018, resulting in proceeds of $332 million. The Company no longer holds an economic interest in RIDEA II.

U.K. Portfolio

In June 2018, the Company entered into a joint venture with an institutional investor (the “U.K. JV”) through which the Company sold a 51% interest in substantially all United Kingdom (“U.K.”) assets previously owned by the Company (the “U.K. Portfolio”) based on a total value of £382 million ($507 million). The Company retained a 49% noncontrolling interest in the U.K. JV and received gross proceeds of $402 million, including proceeds from the refinancing of the Company’s previously held intercompany loans. Upon closing the U.K. JV, the Company deconsolidated the U.K. Portfolio, recognized its retained noncontrolling interest investment at fair value ($105 million) and recognized a gain on sale of $11 million, net of $17 million of cumulative foreign currency translation reclassified from other comprehensive income (see Note 22 for the reclassification impact of the Company’s hedge of its net investment in the U.K.). The U.K. JV provides numerous mechanisms by which the joint venture partner can acquire the Company’s remaining interest in the U.K. JV. The fair value of the Company’s retained noncontrolling interest investment is based on Level 2 measurements within the fair value hierarchy.

Additionally, in August 2018, the Company sold its remaining £11 million U.K. development loan at par.

2018 Other Dispositions

During the quarter ended March 31, 2018, the Company sold two SHOP assets for $35 million, resulting in total gain on sales of $21 million (includes asset sales to Brookdale as discussed in Note 3 above).

During the quarter ended June 30, 2018, the Company sold eight SHOP assets for $268 million and two senior housing triple-net assets for $35 million, resulting in total gain on sales of $25 million (includes asset sales to Brookdale as discussed in Note 3 above).

During the quarter ended September 30, 2018, the Company sold four life science assets for $269 million, 11 SHOP assets for $76 million and two MOBs for $21 million, resulting in total gain on sales of $95 million.

During the quarter ended December 31, 2018, the Company sold two SHOP facilities for $15 million, two MOBs for $4 million, and one undeveloped land parcel for $3 million, resulting in no material gain or loss on sales.

2017 Dispositions

In January 2017, the Company sold four life science facilities in Salt Lake City, Utah for $76 million, resulting in a net gain on sale of $45 million.

In March 2017, the Company sold 64 senior housing triple-net assets, previously under triple-net leases with Brookdale, for $1.125 billion to affiliates of Blackstone Real Estate Partners VIII, L.P., resulting in a net gain on sale of $170 million.

Additionally, during the year ended December 31, 2017, the Company sold the following: (i) a life science land parcel for $27 million, (ii) one life science building for $5 million, (iii) four senior housing triple-net facilities for $27 million, (iv) five SHOP facilities for $43 million and (v) four MOBs for $15 million, and recorded a net gain on sale of $41 million.

2016 Dispositions

During the year ended December 31, 2016, the Company sold the following: (i) a portfolio of five post-acute/skilled nursing facilities and two senior housing triple-net facilities for $130 million, (ii) five life science facilities for $386 million, (iii) seven senior housing triple-net facilities for $88 million, (iv) three MOBs for $20 million and (v) three SHOP facilities for $41 million.

Discontinued Operations - Quality Care Properties, Inc.

Quality Care Properties, Inc.

On October 31, 2016, the Company completed the spin-off (the “Spin-Off”) of its subsidiary, Quality Care Properties, Inc. (“QCP”). The Spin-Off assets were primarily comprised of the HCR ManorCare, Inc. (“HCRMC”) DFL investments and an equity investment in HCRMC. As a result of the Spin-Off, the operations of QCP are classified as discontinued operations for the year ended December 31, 2016.

On October 17, 2016, subsidiaries of QCP issued $750 million in aggregate principal amount of senior secured notes due 2023 (the “QCP Notes”), the gross proceeds of which were deposited in escrow until they were released in connection with the consummation of the Spin-Off on October 31, 2016. The QCP Notes bear interest at a rate of 8.125% per annum, payable semiannually. From October 17, 2016 until the completion of the Spin-Off, QCP (a then wholly-owned subsidiary of HCP) incurred $2 million in interest expense. In addition, immediately prior to the effectiveness of the Spin-Off, subsidiaries of QCP received $1.0 billion of proceeds from their borrowings under a senior secured term loan, bearing interest at a rate at QCP’s option of either: (i) LIBOR plus 5.25%, subject to a 1% floor or (ii) a base rate specified in the first lien credit and guaranty agreement plus 4.25%, bringing the total gross proceeds raised by QCP and its subsidiaries under those financings to $1.75 billion. In connection with the consummation of the Spin-Off, QCP and its subsidiaries transferred $1.69 billion in cash and 94 million shares of QCP common stock to HCP and certain of its other subsidiaries, and HCP and its applicable subsidiaries transferred the assets comprising the QCP portfolio to QCP and its subsidiaries. HCP then distributed substantially all of the outstanding shares of QCP common stock to its stockholders, based on the distribution ratio of one share of QCP common stock for every five shares of HCP common stock held by HCP stockholders as of the October 24, 2016 record date for the distribution. The Company recorded the distribution of the assets and liabilities of QCP from its consolidated balance sheet on a historical cost basis as a dividend from stockholders’ equity of $3.5 billion, and zero gain or loss was recognized. The Company primarily used the $1.69 billion proceeds of the cash distribution it received from QCP upon consummation of the Spin-Off to pay down certain of the Company’s existing debt obligations.

The Company 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 the Company 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, the Company entered into a Transition Services Agreement ("TSA") with QCP. Per the terms of the TSA, the Company agreed to provide certain administrative and support services to QCP on a transitional basis for established fees. The TSA terminated on October 31, 2017.

From October 31, 2016 through June 2017, HCP was the sole lender to QCP of an unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) which had a total commitment of $100 million at inception. No amounts were drawn on the Unsecured Revolving Credit Facility and the total commitment was reduced to zero at June 30, 2017.

The results of discontinued operations through October 31, 2016, the Spin-Off date, are included in the consolidated results for the year ended December 31, 2016. Summarized financial information for discontinued operations for the year ended December 31, 2016 is as follows (in thousands):

Revenues:
Rental and related revenues	$	24,204
Income from direct financing leases	384,752
Total revenues	408,956
Costs and expenses:
Depreciation and amortization	(4,892		)
Operating	(3,367		)
General and administrative	(67		)
Transaction costs	(86,765		)
Other income (expense), net	71
Income (loss) before income taxes	313,936
Income tax benefit (expense)	(48,181		)
Total discontinued operations	$	265,755

During the fourth quarter of 2016, using proceeds from the Spin-Off, the Company repaid $500 million of 6.0% senior unsecured notes that were due to mature in January 2017, $600 million of 6.7% senior unsecured notes that were due to mature in January 2018 and $108 million of mortgage debt; incurring aggregate loss on debt extinguishments of $46 million.

HCR ManorCare, Inc.

Discontinued operations is primarily comprised of QCP’s HCRMC DFL investments and equity investment in HCRMC. During the year ended December 31, 2016, the Company recognized DFL income of $385 million and received cash payments of $385 million from the HCRMC DFL investments. During the year ended December 31, 2016, the Company sold 13 HCRMC facilities for $153 million.

The Company’s acquisition of the HCRMC DFL investments in 2011 was subject to federal and state built-in gain tax of up to $2 billion if all the assets were sold within 10 years. At the time of acquisition, the Company intended to hold the assets for at least 10 years, at which time the assets would no longer be subject to the built-in gain tax. In December 2015, the U.S. Federal Government passed legislation which permanently reduced the holding period, for federal tax purposes, to five years. The Company satisfied the five year holding period requirement in April 2016. This legislation was not extended to certain states, which maintain a 10 year requirement.

During the year ended December 31, 2016, the Company determined that it may sell assets during the next five years and, therefore, recorded a deferred tax liability of $47 million, representing its estimated exposure to state built-in gain tax.

NOTE 6.	Leases

Net Investment in Direct Financing Leases

The components of net investment in DFLs consisted of the following (dollars in thousands):

	December 31,
	2018				2017
Minimum lease payments receivable	$	1,013,976			$	1,062,452
Estimated residual value	507,484				504,457
Less unearned income	(807,642		)		(852,557		)
Net investment in direct financing leases	$	713,818			$	714,352
Properties subject to direct financing leases	29				29

Certain DFLs contain provisions that allow the tenants to elect to purchase the properties during or at the end of the lease terms for the aggregate initial investment amount plus adjustments, if any, as defined in the lease agreements. Certain leases also permit the Company to require the tenants to purchase the properties at the end of the lease terms.

The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):

Year		Amount
2019		$	114,970
2020		63,308
2021		63,687
2022		58,135
2023		58,570
Thereafter		655,306
		$	1,013,976

Direct Financing Lease Internal Ratings

The following table summarizes the Company’s internal ratings for net investment in DFLs at December 31, 2018 (dollars in thousands):

								Internal Ratings
Segment		Carrying Amount				Percentage of DFL Portfolio		Performing DFLs				Watch List DFLs				Workout DFLs
Senior housing triple-net		$	629,214			88		$	278,503			$	350,711			$	—
Other non-reportable segments		84,604				12		84,604				—				—
		$	713,818			100		$	363,107			$	350,711			$	—

Beginning September 30, 2013, the Company placed a 14 property senior housing DFL (the “DFL Portfolio”) on nonaccrual status and classified the DFL Portfolio on “Watch List” status. The Company determined that the collection of all rental payments was and continues to be no longer reasonably assured; therefore, rental revenue for the DFL Portfolio has been recognized on a cash basis. The Company re-assessed the DFL Portfolio for impairment on December 31, 2018 and determined that the DFL Portfolio was not impaired based on its belief that: (i) it was not probable that it will not collect all of the rental payments under the terms of the lease; and (ii) the fair value of the underlying collateral exceeded the DFL Portfolio’s carrying amount. The fair value of the DFL Portfolio was estimated based on an income approach and utilizes inputs which are considered to be a Level 3 measurement within the fair value hierarchy. Inputs to this valuation model include real estate capitalization rates, industry growth rates, and operating margins, some of which influence the Company’s expectation of future cash flows from the DFL Portfolio and, accordingly, the fair value of its investment. During the years ended December 31, 2018, 2017 and 2016, the Company recognized DFL income of $14 million, $13 million and $13 million, respectively, and received cash payments of $19 million, $18 million and $18 million, respectively, from the DFL Portfolio. The carrying value of the DFL Portfolio was $351 million and $356 million at December 31, 2018 and 2017, respectively.

Operating Leases

Future Minimum Rents

The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):

Year		Amount
2019		$	971,417
2020		928,102
2021		853,451
2022		751,972
2023		675,537
Thereafter		2,320,847
		$	6,501,326

Tenant Purchase Options

Certain leases, including DFLs contain purchase options whereby the tenant may elect to acquire the underlying real estate. Annualized base rent from leases subject to purchase options, summarized by the year the purchase options are exercisable, are as follows (dollars in thousands):

Year		Annualized Base Rent(1)				Number of Properties
2019		$	23,771			10
2020		14,545				4
2021		12,747				6
2022		13,315				3
Thereafter		50,577				34
		$	114,955			57

---

(1)	Represents the most recent month’s 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 non-cash interest and deferred revenues).

Operating Lease Expense

In certain situations, the Company leases land or equipment needed for the operation of its business. Such leases generally require fixed annual rent payments, may include escalation clauses and renewal options, and have terms that are up to 99 years, excluding extension options. The Company’s rental expense attributable to continuing operations was $10 million for each of the years ended December 31, 2018, 2017 and 2016.

Future minimum lease obligations under non-cancelable ground and other operating leases as of December 31, 2018 were as follows (in thousands):

Year		Amount
2019		$	5,597
2020		5,687
2021		5,776
2022		5,862
2023		5,983
Thereafter		466,130
		$	495,035

NOTE 7.	Loans Receivable

The following table summarizes the Company’s loans receivable (in thousands):

	December 31,
	2018												2017
	Real Estate Secured				Other Secured				Total				Real Estate Secured				Other Secured				Total
Mezzanine(1)	$	—			$	21,013			$	21,013			$	—			$	269,299			$	269,299
Other(2)	42,037				—				42,037				188,418				—				188,418
Unamortized discounts, fees and costs	—				(52		)		(52		)		—				(596		)		(596		)
Allowance for loan losses(1)	—				—				—				—				(143,795		)		(143,795		)
	$	42,037			$	20,961			$	62,998			$	188,418			$	124,908			$	313,326

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(1)	At December 31, 2017, primarily related to the Company’s mezzanine loan facility to Tandem Health Care discussed below.

(2)	At December 31, 2018, the Company had $73 million remaining of commitments to fund a $115 million senior living development project. At December 31, 2017, includes the U.K. Bridge Loan discussed below.

The following table summarizes the Company’s internal ratings for loans receivable at December 31, 2018 (dollars in thousands):

		Carrying Amount				Percentage of Loan Portfolio		Internal Ratings
Investment Type				Performing Loans				Watch List Loans				Workout Loans
Real estate secured		$	42,037			67		$	42,037			$	—			$	—
Other secured		20,961				33		20,961				—				—
		$	62,998			100		$	62,998			$	—			$	—

Real Estate Secured Loans

The following table summarizes the Company’s loan receivable secured by real estate at December 31, 2018 (dollars in thousands):

Final Maturity Date		Number of Loans		Payment Terms		Principal Amount(1)				Carrying Amount
2022		1		monthly interest-only payments, accrues interest at 6.5% and secured by a senior housing facility in Washington(2)		$	42,037			$	42,037

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(1)	Represents future contractual principal payments to be received on loans receivable secured by real estate.

(2)	Contains a participation feature that allows the Company to participate in up to 20% of the appreciation of the asset through the time the loan is refinanced or repaid.

During the year ended December 31, 2018, the Company recognized $5 million in interest income related to loans secured by real estate, including interest income related to the U.K. Bridge Loan discussed below.

Four Seasons Health Care

In March 2017, the Company sold its investment in Four Seasons Health Care’s (“Four Seasons”) senior secured term loan at par plus accrued interest for £29 million ($35 million).

Additionally, in March 2017, pursuant to a shift in the Company’s investment strategy, the Company sold its £138.5 million par value Four Seasons senior notes (the “Four Seasons Notes”) for £83 million ($101 million). The disposition of the Four Seasons Notes generated a £42 million ($51 million) gain on sale, recognized in other income (expense), net.

Other Secured Loans

HC-One Facility

On June 30, 2017, the Company received £283 million ($367 million) from the repayment of its HC-One mezzanine loan.

Tandem Health Care Loan

From July 2012 through May 2015, the Company funded, in aggregate, $257 million under a collateralized mezzanine loan facility (the “Mezzanine Loan”) to certain affiliates of Tandem Health Care (together with its affiliates, “Tandem”).

As part of its quarterly review process, the Company recorded an impairment charge and related allowance of $57 million during the three months ended June 30, 2017, reducing the carrying value to $200 million. The decline in fair value was driven by a variety of factors, including recent operating results of the underlying real estate assets, as well as market and industry data, that reflect a declining trend in admissions and a continuing shift away from higher-rate Medicare plans in the post-acute/skilled nursing sector. The calculation of the fair value was primarily based on an income approach and relies on forecasted EBITDAR and market data, including, but not limited to, sales price per unit/bed, rent coverage ratios, and real estate capitalization rates. All valuation inputs are considered to be Level 2 measurements within the fair value hierarchy.

Additionally, on July 31, 2017, subsequent to its second quarter 2017 quarterly review process and the aforementioned impairment, the Company entered into a binding agreement (the “Repurchase Agreement”) with the borrowers to provide an option to repay the Mezzanine Loan at a discounted value of $197 million (the “Repayment Value”) by October 25, 2017, which date was subsequently extended to December 31, 2017 (the “Agreement Maturity Date”). As a result of entering into the Repurchase Agreement, the Company recorded an additional impairment charge and related allowance of $3 million during the quarter ended September 30, 2017 to write down the carrying value of the Mezzanine Loan to the Repayment Value and assigned the loan an internal rating of Workout. As part of the Repurchase Agreement, Tandem posted, in aggregate, $8 million of non-refundable deposits (the “Deposits”), which the Company was entitled to retain (without any credit against the Mezzanine Loan) if Tandem failed to make interest payments on the $257 million par value of the Mezzanine Loan through the repayment date or the Agreement Maturity Date, as applicable, adjusted for any principal payments received.

On November 17, 2017, the Company declared an event of default under the Mezzanine Loan. Tandem also failed to make its December 2017, January 2018 and February 2018 interest payments to the Company. As a result of the aforementioned events that occurred during the fourth quarter of 2017 and first quarter of 2018 (during the Company's fourth quarter 2017 financial statement close process), the Company concluded that the Mezzanine Loan was impaired and recorded an impairment charge and related allowance of $84 million, reducing the carrying value of the loan to $105 million as of December 31, 2017. Aggregate impairments on the Mezzanine Loan for the year ended December 31, 2017 were $144 million.

The decline in expected recoverable value of the Mezzanine Loan was primarily driven by the Company’s conclusion that the collateral supporting the Mezzanine Loan may no longer be the sole source in recovering the Company’s investment. As a result, the Company utilized a discounted cash flow model to determine expected recoverability of the Mezzanine Loan. Additionally, a variety of factors further impacted the impairment analysis completed during the Company’s fourth quarter 2017 financial statement close process including operating results of the underlying real estate assets, as well as market and industry data, that reflect a declining trend in admissions and a continuing shift away from higher-rate Medicare plans in the post-acute/skilled nursing sector. The calculation relied on: (i) forecasted EBITDAR and market data, including, but not limited to, sales price per unit/bed, rent coverage ratios, and real estate capitalization rates and (ii) bids for a sale of the Mezzanine Loan received in February 2018, which incorporate market participant required rates of return and expected hold periods.

Beginning in the first quarter of 2017, the Company elected to recognize interest income on a cash basis. During the years ended December 31, 2018, 2017 and 2016, the Company recognized interest income of zero, $23 million, and $31 million, respectively, and received cash payments of $25 million and $30 million, respectively, from Tandem. The carrying value of the Mezzanine Loan was $105 million at December 31, 2017.

In March 2018, the Company sold the Mezzanine Loan to a third party for approximately $112 million, resulting in an impairment recovery, net of transaction costs and fees, of $3 million included in other income (expense), net. The Company holds no further economic interest in the operations of Tandem.

U.K. Bridge Loan

In 2016, the Company provided a £105 million ($131 million at closing) bridge loan (the “U.K. Bridge Loan”) to Maria Mallaband Care Group Ltd. ("MMCG") to fund the acquisition of a portfolio of seven care homes in the U.K. Under the U.K. Bridge Loan, the Company retained a three-year call option to acquire those seven care homes at a future date for £105 million, subject to certain conditions precedent being met. In March 2018, upon resolution of all conditions precedent, the Company began the process of exercising its call option to acquire the seven care homes and concluded that it should consolidate the real estate. As a result, the Company derecognized the outstanding loan receivable of £105 million and recognized a £29 million ($41 million) loss on consolidation. Refer to Note 19 for further discussion regarding impact of consolidating the seven care homes during the first quarter of 2018.

In June 2018, the Company completed the process of exercising the above-mentioned call option. The seven care homes acquired through the call option were included in the U.K. JV transaction (see Note 5).

NOTE 8.	Investments in and Advances to Unconsolidated Joint Ventures

The Company owns interests in the following entities that are accounted for under the equity method (dollars in thousands):

				Carrying Amount
				December 31,
Entity(1)		Ownership %		2018				2017
CCRC JV		49		$	365,764			$	400,241
RIDEA II(2)		40		—				259,651
U.K. JV(3)		49		101,735				—
Life Science JVs(4)		50 - 63		—				65,581
MBK JV		50		35,435				38,005
Development JVs(5)		50 - 90		25,493				23,365
Medical Office JVs(6)		20 - 67		10,160				12,488
K&Y JVs(7)		80		1,430				1,283
Advances to unconsolidated joint ventures, net				71				226
				$	540,088			$	800,840

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(1)	These entities are not consolidated because the Company does not control, through voting rights or other means, the joint venture.

(2)	In June 2018, the Company sold its equity method investment in RIDEA II (see Note 5).

(3)	See Note 5 for discussion of the formation of the U.K. JV and the Company’s equity method investment.

(4)	Includes the following unconsolidated partnerships (and the Company’s ownership percentage): (i) Torrey Pines Science Center, LP (50%); (ii) Britannia Biotech Gateway, LP (55%); and (iii) LASDK, LP (63%). In November 2018, the Company acquired the outstanding equity interests and began consolidating the entities (see Note 4).

(5)	Includes four unconsolidated development partnerships (and the Company’s ownership percentage): (i) Vintage Park Development JV (85%); (ii) Waldwick JV (85%); (iii) Otay Ranch JV (90%); and (iv) MBK Development JV (50%).

(6)	Includes three unconsolidated medical office partnerships (and the Company’s ownership percentage): (i) HCP Ventures IV, LLC (20%); (ii) HCP Ventures III, LLC (30%); and (iii) Suburban Properties, LLC (67%).

(7)	Includes three unconsolidated joint ventures.

The following tables summarize combined financial information for the Company’s unconsolidated joint ventures (in thousands):

		December 31,
		2018				2017
Real estate, net		$	2,128,147			$	2,104,090
Other assets, net		479,935				928,790
Total assets		$	2,608,082			$	3,032,880
Mortgage and other debt		$	827,622			$	900,911
Accounts payable and other		655,177				561,523
Other partners’ capital		515,791				655,311
HCP’s capital(1)		609,492				915,135
Total liabilities and partners’ capital		$	2,608,082			$	3,032,880

		Year Ended December 31,
		2018				2017				2016
Total revenues		$	642,724			$	810,216			$	424,134
Total operating expense		(492,784		)		(643,452		)		(344,553		)
Income (loss) from discontinued operations		—				—				8,810
Net income (loss)		(43,704		)		(42,408		)		43,015
HCP’s share in earnings		(2,594		)		10,901				11,360
Fees earned by HCP		125				133				299
Distributions received by HCP		48,939				81,165				54,858

At December 31, 2018 and 2017, the aggregate unamortized basis difference of the Company's investments in unconsolidated joint ventures of $69 million and $115 million, respectively, is primarily attributable to the difference between the amount for which the Company purchased its interest in the entity and the historical carrying value of the net assets of the entity. The difference is being amortized over the remaining useful life of the related assets and included in equity income (loss) from unconsolidated joint ventures.

NOTE 9.	Intangibles

The following table summarizes the Company’s intangible lease assets (in thousands):

		December 31,
Intangible lease assets		2018				2017
Gross intangible lease assets		$	556,114			$	795,305
Accumulated depreciation and amortization		(251,035		)		(385,223		)
Net intangible lease assets		$	305,079			$	410,082

The following table summarizes the Company’s intangible lease liabilities (in thousands):

		December 31,
Intangible lease liabilities		2018				2017
Gross intangible lease liabilities		$	94,444			$	126,212
Accumulated depreciation and amortization		(39,781		)		(73,633		)
Net intangible lease liabilities		$	54,663			$	52,579

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles (in thousands):

		Year Ended December 31,
		2018				2017				2016
Depreciation and amortization expense related to amortization of lease-up intangibles		$	67,350			$	76,732			$	84,487
Rental and related revenues related to amortization of net below market lease liabilities		5,253				2,030				3,877
Operating expense related to amortization of net below market ground lease intangibles		636				740				664

The following table summarizes the estimated annual amortization for each of the five succeeding fiscal years and thereafter (in thousands):

	Rental and Related Revenues(1)				Operating Expense(2)				Depreciation and Amortization(3)
2019	$	4,399			$	505			$	50,762
2020	3,670				621				39,433
2021	3,587				738				32,214
2022	4,331				738				26,438
2023	4,269				738				24,293
Thereafter	16,521				29,901				80,812
	$	36,777			$	33,241			$	253,952

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(1)	The amortization of net below market lease intangibles is recorded as an increase to rental and related income.

(2)	The amortization of net below market ground lease intangibles is recorded as an increase to operating expense.

(3)	The amortization of lease-up intangibles is recorded to depreciation and amortization expense.

NOTE 10.	Debt

Bank Line of Credit and Term Loans

The Company's $2.0 billion unsecured revolving line of credit facility (the “Facility”) matures on October 19, 2021 and contains two, six-month extension options. Borrowings under the Facility accrue interest at LIBOR plus a margin that depends upon the Company’s credit ratings. The Company pays a facility fee on the entire revolving commitment that depends on its credit ratings. Based on the Company’s credit ratings at December 31, 2018, the margin on the Facility was 0.875%, and the facility fee was 0.15%. The Facility also includes a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments. At December 31, 2018, the Company had $80 million, including £55 million ($70 million), outstanding under the Facility with a weighted average effective interest rate of 2.12%.

In March 2017, the Company repaid a £137 million unsecured term loan. On June 30, 2017, the Company repaid £51 million of its four-year unsecured term loan entered into in January 2015 (the "2015 Term Loan"). Concurrently, the Company terminated its three-year interest rate swap which fixed the interest of the 2015 Term Loan and therefore, beginning June 30, 2017, the 2015 Term Loan accrued interest at a rate of GBP LIBOR plus 1.15%, subject to adjustments based on the Company's credit ratings.

On July 3, 2018, the Company exercised its one-time right to repay the outstanding GBP balance and re-borrow in USD with all other key terms unchanged, which resulted in repayment of the £169 million balance and re-borrowing of $224 million. In November 2018, the Company repaid the $224 million unsecured term loan, bringing the total term loan balance to zero as of December 31, 2018.

The Facility contains certain financial restrictions and other customary requirements, including cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreements: (i) limit the ratio of Consolidated Total Indebtedness to Consolidated Total Asset Value to 60%, (ii) limit the ratio of Secured Debt to Consolidated Total Asset Value to 30%, (iii) limit the ratio of Unsecured Debt to Consolidated Unencumbered Asset Value to 60%; (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times; and (v) require a Minimum Consolidated Tangible Net Worth of $6.5 billion at December 31, 2018. At December 31, 2018, the Company believes it was in compliance with each of these restrictions and requirements of the Facility.

Senior Unsecured Notes

At December 31, 2018, the Company had senior unsecured notes outstanding with an aggregate principal balance of $5.3 billion. The senior unsecured notes contain certain covenants including limitations on debt, maintenance of unencumbered assets, cross-acceleration provisions and other customary terms. The Company believes it was in compliance with these covenants at December 31, 2018.

The following table summarizes the Company’s senior unsecured notes payoffs for the periods presented (dollars in thousands):

Period		Amount				Coupon Rate
Year ended December 31, 2018:
July 16, 2018(1)		$	700,000			5.375	%
November 8, 2018		$	450,000			3.750	%
Year ended December 31, 2017:
May 1, 2017		$	250,000			5.625	%
July 27, 2017(2)		$	500,000			5.375	%
Year ended December 31, 2016:
February 1, 2016		$	500,000			3.750	%
September 15, 2016		$	400,000			6.300	%
November 30, 2016(3)		$	500,000			6.000	%
November 30, 2016(3)		$	600,000			6.700	%

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(1)	The Company recorded a $44 million loss on debt extinguishment related to the repurchase of senior notes.

(2)	The Company recorded a $54 million loss on debt extinguishment related to the repurchase of senior notes.

(3)	The Company recorded a $46 million loss on debt extinguishment related to the repurchase of senior notes.

There were no senior unsecured notes issuances for the years ended December 31, 2018, 2017, and 2016.

Mortgage Debt

At December 31, 2018, the Company had $133 million in aggregate principal of mortgage debt outstanding, which is secured by 15 healthcare facilities with a carrying value of $278 million. In March 2017, the Company paid off $472 million of mortgage debt.

Mortgage debt generally requires monthly principal and interest payments, is collateralized by real estate assets and is generally non-recourse. Mortgage debt typically restricts transfer of the encumbered assets, prohibits additional liens, restricts prepayment, requires payment of real estate taxes, requires maintenance of the assets in good condition, requires maintenance of insurance on the assets and includes conditions to obtain lender consent to enter into or terminate material leases. Some of the mortgage debt is also cross-collateralized by multiple assets and may require tenants or operators to maintain compliance with the applicable leases or operating agreements of such real estate assets.

Debt Maturities

The following table summarizes the Company’s stated debt maturities and scheduled principal repayments at December 31, 2018 (dollars in thousands):

		Bank Line of Credit(1)				Senior Unsecured Notes(2)							Mortgage Debt(3)							Total(4)
Year			Amount				Interest Rate			Amount				Interest Rate
2019		$	—			$	—			—	%		$	3,561			—	%		$	3,561
2020		—				800,000				2.79	%		3,609				5.08	%		803,609
2021		80,103				—				—	%		10,957				5.26	%		91,060
2022		—				900,000				3.93	%		2,691				—	%		902,691
2023		—				800,000				4.39	%		2,811				—	%		802,811
Thereafter		—				2,800,000				4.34	%		109,705				4.10	%		2,909,705
		80,103				5,300,000							133,334							5,513,437
(Discounts), premium and debt costs, net		—				(41,450		)					5,136							(36,314		)
		$	80,103			$	5,258,550						$	138,470						$	5,477,123

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(1)	Includes £55 million translated into USD.

(2)	Interest rates on the notes range from 2.79% to 6.87% with a weighted average effective rate of 4.03% and a weighted average maturity of six years.

(3)	Interest rates on the mortgage debt range from 2.80% to 5.91% with a weighted average effective interest rate of 4.20% and a weighted average maturity of 19 years.

(4)	Excludes $91 million of other debt that have no scheduled maturities. Other debt represents (i) $58 million of non-interest bearing life care bonds and occupancy fee deposits at certain of the Company's senior housing facilities and (ii) $33 million of on-demand notes from the CCRC JV which bear interest at a rate of 3.6%.

NOTE 11.	Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a party to, or has a significant relationship to, legal proceedings, lawsuits and other claims. Except as described below, the Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company’s policy is to expense legal costs as they are incurred.

Class Action. On May 9, 2016, a purported stockholder of the Company filed a putative class action complaint, Boynton Beach Firefighters’ Pension Fund v. HCP, Inc., et al., Case No. 3:16-cv-01106-JJH, in the U.S. District Court for the Northern District of Ohio against the Company, certain of its officers, HCR ManorCare, Inc. (“HCRMC”), and certain of its officers, asserting violations of the federal securities laws. The suit asserts claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and alleges that the Company made certain false or misleading statements relating to the value of and risks concerning its investment in HCRMC by allegedly failing to disclose that HCRMC had engaged in billing fraud, as alleged by the U.S. Department of Justice (“DoJ”) in a suit against HCRMC arising from the False Claims Act that the DoJ voluntarily dismissed with prejudice. The plaintiff in the class action suit demands compensatory damages (in an unspecified amount), costs and expenses (including attorneys’ fees and expert fees), and equitable, injunctive, or other relief as the Court deems just and proper. On November 28, 2017, the Court appointed Societe Generale Securities GmbH (SGSS Germany) and the City of Birmingham Retirement and Relief Systems (Birmingham) as Co-Lead Plaintiffs in the class action. The motion to dismiss was fully briefed on May 21, 2018 and oral arguments were held on October 23, 2018. Subsequently, on December 6, 2018, HCRMC and its officers were voluntarily dismissed from the class action lawsuit without prejudice to such claims being refiled. The Company believes the suit to be without merit and intends to vigorously defend against it.

Derivative Actions. On June 16, 2016 and July 5, 2016, purported stockholders of the Company filed two derivative actions, respectively Subodh v. HCR ManorCare Inc., et al., Case No. 30-2016-00858497-CU-PT-CXC and Stearns v. HCR ManorCare, Inc., et al., Case No. 30-2016-00861646-CU-MC-CJC, in the Superior Court of California, County of Orange, against certain of the Company’s current and former directors and officers and HCRMC. The Company is named as a nominal defendant. As both derivative actions contained substantially the same allegations, they have been consolidated into a single action (the “California derivative action”). The consolidated action alleges that the defendants engaged in various acts of wrongdoing, including, among other things, breaching fiduciary duties by publicly making false or misleading statements of fact regarding HCRMC’s finances

and prospects, and failing to maintain adequate internal controls. On April 18, 2017, the Court approved the parties’ stipulation to stay the case pending disposition of the motion to dismiss the class action litigation.

On April 10, 2017, a purported stockholder of the Company filed a derivative action, Weldon v. Martin et al., Case No. 3:17-cv-755, in federal court in the Northern District of Ohio, Western Division, against certain of the Company’s current and former directors and officers and HCRMC. The Company is named as a nominal defendant. The Weldon complaint asserts similar claims to those asserted in the California derivative action. In addition, the complaint asserts a claim under Section 14(a) of the Exchange Act, alleging that the Company made false statements in its 2016 proxy statement by not disclosing that the Company’s performance issues in 2015 were the direct result of alleged billing fraud at HCRMC. On April 18, 2017, the Court re-assigned and transferred this action to the judge presiding over the related federal securities class action. On July 11, 2017, the Court approved a stipulation by the parties to stay the case pending disposition of the motion to dismiss the class action.

On July 21, 2017, a purported stockholder of the Company filed another derivative action, Kelley v. HCR ManorCare, Inc., et al., Case No. 8:17-cv-01259, in federal court in the Central District of California, against certain of the Company’s current and former directors and officers and HCRMC. The Company is named as a nominal defendant. The Kelley complaint asserts similar claims to those asserted in Weldon and in the California derivative action. Like Weldon, the Kelley complaint also additionally alleges that the Company made false statements in its 2016 proxy statement, and asserts a claim for a violation of Section 14(a) of the Exchange Act. On November 28, 2017, the federal court in the Central District of California granted Defendants’ motion to transfer the action to the Northern District of Ohio (i.e., the court where the class action and other federal derivative action are pending). The Court in the Northern District of Ohio is currently considering whether to consolidate the Weldon and Kelley actions, appointment of lead plaintiffs and counsel, and whether the stay in Weldon should continue as to either or both actions.

The Company’s Board of Directors received letters dated August 17, 2016, April 19, 2017, and April 20, 2017 from private law firms acting on behalf of clients who are purported stockholders of the Company, each asserting allegations similar to those made in the California derivative action matters discussed above. Each letter demands that the Board of Directors take action to assert the Company’s rights. The Board of Directors completed its evaluation and rejected the demand letters in December of 2017.

The Company believes that the plaintiffs lack standing or the lawsuits and demands are without merit, but cannot predict the outcome of these proceedings or reasonably estimate any potential loss at this time. Accordingly, no loss contingency has been recorded for these matters as of December 31, 2018, as the likelihood of loss is not considered probable or estimable.

DownREIT LLCs

In connection with the formation of certain DownREIT LLCs, members may contribute appreciated real estate to a DownREIT LLC in exchange for DownREIT units. These contributions are generally tax-deferred, so that the pre-contribution gain related to the property is not taxed to the member. However, if a contributed property is later sold by the DownREIT LLC, the unamortized pre-contribution gain that exists at the date of sale is specifically allocated and taxed to the contributing members. In many of the DownREITs, the Company has entered into indemnification agreements with those members who contributed appreciated property into the DownREIT LLC. Under these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT LLC in a taxable transaction within a specified number of years, the Company will reimburse the affected members for the federal and state income taxes associated with the pre-contribution gain that is specially allocated to the affected member under the Code (“make-whole payments”). These make-whole payments include a tax gross-up provision. These indemnification agreements have expiration terms that range through 2033 on a total of 35 properties.

Commitments

The following table summarizes the Company’s material commitments, excluding debt service obligations (see Note 10) and operating leases (see Note 6), at December 31, 2018 (in thousands):

	Total				2019				2020-2021				2022-2023				More than Five Years
Construction loan commitments(1)	$	72,654			$	68,365			$	4,289			$	—			$	—
Development commitments(2)	299,702				273,625				26,077				—				—
Total	$	372,356			$	341,990			$	30,366			$	—			$	—

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(1)	Represents commitments to finance development projects.

(2)	Represents construction and other commitments for developments in progress.

Credit Enhancement Guarantee

At December 31, 2018, certain of the Company’s senior housing facilities serve as collateral for $74 million of debt (maturing May 1, 2025) that is owed by a previous owner of the facilities. This indebtedness is guaranteed by the previous owner who has an investment grade credit rating. These senior housing facilities, which are classified as DFLs, had a carrying value of $351 million as of December 31, 2018.

Environmental Costs

Various environmental laws govern certain aspects of the ongoing management and operation of our facilities, including those related to presence of asbestos-containing materials. The presence of, or the failure to manage and/or remediate, such materials may adversely affect the occupancy and performance of the Company's facilities. The Company monitors its properties for the presence of such hazardous or toxic substances and is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, financial condition or results of operations. The Company carries environmental insurance and believes that the policy terms, conditions, limitations and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice.

General Uninsured Losses

The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, workers' compensation, flood, windstorm, earthquake, environmental, cyber and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits and deductibles considering the relative risk of loss, the cost of such coverage and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable. In addition, the Company has a large number of properties that are exposed to earthquake, flood and windstorm occurrences for which the related insurances carry high deductibles and have limits.

NOTE 12.	Equity

Dividends

On January 31, 2019, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.37 per share. The common stock cash dividend will be paid on February 28, 2019 to stockholders of record as of the close of business on February 19, 2019.

During the years ended December 31, 2018, 2017 and 2016, the Company declared and paid common stock cash dividends of $1.480, $1.480 and $2.095 per share, respectively.

At-The-Market Equity Offering Program

In June 2015, the Company established an at-the-market equity offering program (“ATM Program”). In May 2018, the Company renewed its ATM Program. Under this program, the Company may sell shares of its common stock from time to time having an aggregate gross sales price of up to $750 million through a consortium of banks acting as sales agents or directly to the banks acting as principals. During the year ended December 31, 2018, the Company issued 5.4 million shares of common stock at a weighted average net price of $28.27 for net proceeds of $154 million. At December 31, 2018, $594 million of our common stock remained available for sale under the ATM Program. There was no activity during the years ended December 31, 2017 and 2016.

Forward Equity Offering

In December 2018, the Company entered into a forward equity sales agreement to sell up to an aggregate of 15.25 million shares of its common stock (including shares issued through the exercise of underwriters’ options) at an initial net price of $28.60 per share, after underwriting discounts and commissions. The agreement has a one year term and expires on December 13, 2019. The forward sale price that the Company expects to receive upon settlement of the agreement will be subject to adjustments for: (i) the forward purchasers’ stock borrowing costs and (ii) certain fixed price reductions during the term of the agreement. At December 31, 2018, no shares have been issued under the forward equity sales agreement.

In December 2018, contemporaneous with the forward equity offering discussed above, the Company completed an offering of two million shares of common stock at a net price of $28.60 per share, resulting in net proceeds of $57 million.

The following table summarizes the Company’s other common stock activities (shares in thousands):

	Year Ended December 31,
	2018			2017			2016
Dividend Reinvestment and Stock Purchase Plan	237			983			2,021
Conversion of DownREIT units	3			78			145
Exercise of stock options	120			32			133
Vesting of restricted stock units	401			419			529
Repurchase of common stock	141			157			237

Accumulated Other Comprehensive Loss

The following table summarizes the Company’s accumulated other comprehensive loss (in thousands):

	December 31,
	2018				2017
Cumulative foreign currency translation adjustment(1)	$	(1,683	)		$	(6,955	)
Unrealized gains (losses) on derivatives, net	(467		)		(13,950		)
Supplemental Executive Retirement plan minimum liability and other	(2,558		)		(3,119		)
Total accumulated other comprehensive income (loss)	$	(4,708	)		$	(24,024	)

---

(1)	See Notes 5 and 19 for a discussion of the U.K. JV transaction.

Noncontrolling Interests

At December 31, 2018, there were four million DownREIT units (seven million shares of HCP common stock are issuable upon conversion) outstanding in five DownREIT LLCs, all of which the Company is the managing member of. At December 31, 2018, the carrying and market values of the four million DownREIT units were $177 million and $185 million, respectively.

See Notes 3, 4 and 5 for transactions involving noncontrolling interests.

NOTE 13.	Segment Disclosures

The Company evaluates its business and allocates resources based on its reportable business segments: (i) senior housing triple-net, (ii) SHOP, (iii) life science and (iv) medical office. The Company has non-reportable segments that are comprised primarily of the Company’s debt investments, hospital properties, unconsolidated joint ventures, and U.K. investments. The accounting policies of the segments are the same as those described under Summary of Significant Accounting Policies (see Note 2).

During the years ended December 31, 2018, 2017 and 2016, 22, 25 and 17 senior housing triple-net facilities, respectively, were transferred to the Company’s SHOP segment. When an asset is transferred from one segment to another, the results associated with that asset are included in the original segment until the date of transfer. Results generated after the transfer date are included in the new segment.

The Company evaluates performance based upon: (i) property net operating income from continuing operations (“NOI”) and (ii) Adjusted NOI. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, and income from direct financing leases), less property level operating expenses (which exclude transition costs); NOI excludes all other financial statement amounts included in net income (loss). Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, lease termination fees, actuarial reserves for insurance claims that have been incurred but not reported and the impact of deferred community fee income and expense. NOI and Adjusted NOI exclude the Company's share of income (loss) generated by unconsolidated joint ventures, which is recognized in equity income (loss) from unconsolidated joint ventures in the consolidated statements of operations.

Non-segment assets consist of assets in the Company's other non-reportable segments (see above) and corporate non-segment assets. Corporate non-segment assets consist primarily of corporate assets, including cash and cash equivalents, restricted cash, accounts receivable, net, marketable equity securities and, if any, real estate held for sale. See Note 20 for other information regarding concentrations of credit risk.

The following tables summarize information for the reportable segments (in thousands):

For the year ended December 31, 2018:

Segments		Senior Housing Triple-Net				SHOP				Life Science				Medical Office				Other Non-reportable				Corporate Non-segment				Total
Real estate revenues(1)		$	276,091			$	547,976			$	395,064			$	509,019			$	108,133			$	—			$	1,836,283
Operating expenses		(3,618		)		(414,312		)		(91,742		)		(189,859		)		(5,507		)		—				(705,038		)
NOI		272,473				133,664				303,322				319,160				102,626				—				1,131,245
Adjustments to NOI(2)		2,127				2,875				(9,589		)		(2,899		)		(4,418		)		—				(11,904		)
Adjusted NOI		274,600				136,539				293,733				316,261				98,208				—				1,119,341
Addback adjustments		(2,127		)		(2,875		)		9,589				2,899				4,418				—				11,904
Interest income		—				—				—				—				10,406				—				10,406
Interest expense		(2,404		)		(2,725		)		(316		)		(474		)		(1,469		)		(258,955		)		(266,343		)
Depreciation and amortization		(79,605		)		(104,405		)		(140,480		)		(193,710		)		(31,299		)		—				(549,499		)
General and administrative		—				—				—				—				—				(96,702		)		(96,702		)
Transaction costs		—				—				—				—				—				(10,772		)		(10,772		)
Recoveries (impairments), net		—				(44,343		)		(7,639		)		—				(3,278		)		—				(55,260		)
Gain (loss) on sales of real estate, net		641				93,977				806,184				4,428				20,755				—				925,985
Loss on debt extinguishment		—				—				—				—				—				(44,162		)		(44,162		)
Other income (expense), net		—				—				—				—				9,605				3,711				13,316
Income tax benefit (expense)		—				—				—				—				—				17,854				17,854
Equity income (loss) from unconsolidated joint ventures		—				—				—				—				(2,594		)		—				(2,594		)
Net income (loss)		$	191,105			$	76,168			$	961,071			$	129,404			$	104,752			$	(389,026	)		$	1,073,474

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net and termination fees.

For the year ended December 31, 2017:

Segments		Senior Housing Triple-Net				SHOP				Life Science				Medical Office				Other Non-reportable				Corporate Non-segment				Total
Real estate revenues(1)		$	313,547			$	525,473			$	358,816			$	477,459			$	116,846			$	—			$	1,792,141
Operating expenses		(3,819		)		(396,491		)		(78,001		)		(183,197		)		(4,743		)		—				(666,251		)
NOI		309,728				128,982				280,815				294,262				112,103				—				1,125,890
Adjustments to NOI(2)		17,098				33,227				(4,517		)		(2,952		)		(4,446		)		—				38,410
Adjusted NOI		326,826				162,209				276,298				291,310				107,657				—				1,164,300
Addback adjustments		(17,098		)		(33,227		)		4,517				2,952				4,446				—				(38,410		)
Interest income		—				—				—				—				56,237				—				56,237
Interest expense		(2,518		)		(7,920		)		(373		)		(506		)		(4,230		)		(292,169		)		(307,716		)
Depreciation and amortization		(103,820		)		(103,162		)		(128,864		)		(169,795		)		(29,085		)		—				(534,726		)
General and administrative		—				—				—				—				—				(88,772		)		(88,772		)
Transaction costs		—				—				—				—				—				(7,963		)		(7,963		)
Recoveries (impairments), net		(22,590		)		—				—				—				(143,794		)		—				(166,384		)
Gain (loss) on sales of real estate, net		280,349				17,485				45,916				9,095				3,796				—				356,641
Loss on debt extinguishment		—				—				—				—				—				(54,227		)		(54,227		)
Other income (expense), net		—				—				—				—				50,895				(19,475		)		31,420
Income tax benefit (expense)		—				—				—				—				—				1,333				1,333
Equity income (loss) from unconsolidated joint ventures		—				—				—				—				10,901				—				10,901
Net income (loss)		$	461,149			$	35,385			$	197,494			$	133,056			$	56,823			$	(461,273	)		$	422,634

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net and termination fees.

For the year ended December 31, 2016:

Segments		Senior Housing Triple-Net				SHOP				Life Science				Medical Office				Other Non-reportable				Corporate Non-segment				Total
Real estate revenues(1)		$	423,118			$	686,822			$	358,537			$	446,280			$	125,729			$	—			$	2,040,486
Operating expenses		(6,710		)		(480,870		)		(72,478		)		(173,687		)		(4,654		)		—				(738,399		)
NOI		416,408				205,952				286,059				272,593				121,075				—				1,302,087
Adjustments to NOI(2)		(7,566		)		(2,686		)		(2,954		)		(3,536		)		(3,022		)		—				(19,764		)
Adjusted NOI		408,842				203,266				283,105				269,057				118,053				—				1,282,323
Addback adjustments		7,566				2,686				2,954				3,536				3,022				—				19,764
Interest income		—				—				—				—				88,808				—				88,808
Interest expense		(9,499		)		(29,745		)		(2,357		)		(5,895		)		(9,153		)		(407,754		)		(464,403		)
Depreciation and amortization		(136,146		)		(108,806		)		(130,829		)		(161,790		)		(30,537		)		—				(568,108		)
General and administrative		—				—				—				—				—				(103,611		)		(103,611		)
Transaction costs		—				—				—				—				—				(9,821		)		(9,821		)
Gain (loss) on sales of real estate, net		48,744				675				49,042				8,333				57,904				—				164,698
Loss on debt extinguishment		—				—				—				—				—				(46,020		)		(46,020		)
Other income (expense), net		—				—				—				—				—				3,654				3,654
Income tax benefit (expense)		—				—				—				—				—				(4,473		)		(4,473		)
Equity income (loss) from unconsolidated joint ventures		—				—				—				—				11,360				—				11,360
Discontinued operations		—				—				—				—				—				265,755				265,755
Net income (loss)		$	319,507			$	68,076			$	201,915			$	113,241			$	239,457			$	(302,270	)		$	639,926

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(1)	Represents rental and related revenues, resident fees and services, and income from DFLs.

(2)	Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, net and termination fees.

The following table summarizes the Company’s revenues by segment (in thousands):

		Year Ended
		December 31,
Segments		2018				2017				2016
Senior housing triple-net		$	276,091			$	313,547			$	423,118
SHOP		547,976				525,473				686,822
Life science		395,064				358,816				358,537
Medical office		509,019				477,459				446,280
Other non-reportable segments		118,539				173,083				214,537
Total revenues		$	1,846,689			$	1,848,378			$	2,129,294

The following table summarizes the Company’s total assets by segment (in thousands):

		December 31,
Segments		2018				2017				2016
Senior housing triple-net		$	2,965,679			$	3,515,400			$	3,871,720
SHOP		2,173,795				2,392,130				3,135,115
Life science		4,303,471				4,154,372				3,961,623
Medical office		4,354,441				3,989,168				3,724,483
Reportable segment assets		13,797,386				14,051,070				14,692,941
Accumulated depreciation and amortization		(2,915,592		)		(2,919,278		)		(2,900,060		)
Net reportable segment assets		10,881,794				11,131,792				11,792,881
Other non-reportable segment assets		1,015,854				1,904,433				2,255,712
Assets held for sale, net		108,086				417,014				927,866
Other non-segment assets		712,819				635,222				782,806
Total assets		$	12,718,553			$	14,088,461			$	15,759,265

The Company completed the required annual goodwill impairment test during the fourth quarter of 2018, 2017 and 2016, and no impairment was recognized. At December 31, 2018 and 2017, goodwill of $47 million was allocated to segment assets as follows: (i) senior housing triple-net—$21 million, (ii) SHOP—$9 million, (iii) medical office—$11 million and (iv) other—$6 million.

NOTE 14.	Compensation Plans

Stock Based Compensation

On May 11, 2006, the Company’s stockholders approved the 2006 Performance Incentive Plan, which was amended and restated in 2009 (“the 2006 Plan”). On May 1, 2014, the Company’s stockholders approved the 2014 Performance Incentive Plan (“the 2014 Plan”) (collectively, “the Plans”). Following the adoption of the 2014 Plan, no new awards will be issued under the 2006 Plan. The Plans provide for the granting of stock-based compensation, including stock options, restricted stock and restricted stock units to officers, employees and directors in connection with their employment with or services provided to the Company. The maximum number of shares reserved for awards under the 2014 Plan is 33 million shares, and, as of December 31, 2018, 29 million of the reserved shares under the 2014 Plan are available for future awards, of which 19 million shares may be issued as restricted stock or restricted stock units.

Total share-based compensation expense recognized during the years ended December 31, 2018, 2017 and 2016 was $15 million, $14 million, and $23 million, respectively. The year ended December 31, 2018 includes a $2 million charge recognized in general and administrative expenses primarily resulting from the departure of our Executive Chairman that was comprised of the accelerated vesting of restricted stock units. The year ended December 31, 2017 includes a $1 million charge recognized in general and administrative expenses related to the accelerated vesting of restricted stock units primarily resulting from the departure of the Company's former Chief Accounting Officer. The year ended December 31, 2016 includes a $7 million charge recognized in general and administrative expenses related to the accelerated vesting of restricted stock units primarily resulting from the departure of the Company’s former chief executive officer (“CEO”). As of December 31, 2018, there was $26 million of future expense related to unvested share-based compensation arrangements granted under the Company’s incentive plans, which is expected to be recognized over a weighted average period of two years associated with future employee service.

Conversion of Equity Awards at the Spin-Off Date

The Plans were established with anti-dilution provisions, such that in the event of an equity restructuring of the Company (including spin-off transactions), equity awards would preserve their value post-transaction. In order to achieve an equitable modification of the existing awards following the Spin-Off, the Company converted pre-spin awards to their post-spin value, resulting in grants to remaining employees denominated solely in the Company’s common stock. The conversion impacted 133 participants, resulting in additional awards being granted. The fair value of these additional awards was immaterial.

Stock Options

There have been no grants of stock options since 2014. Stock options outstanding and exercisable were 0.8 million at December 31, 2018 and 1.1 million at December 31, 2017. Proceeds received from stock options exercised under the Plans for the years ended December 31, 2018, 2017 and 2016 were $2 million, $1 million and $4 million, respectively. Compensation expense related to stock options was immaterial for all periods presented.

Restricted Stock Awards

Under the Plans, restricted stock awards, including restricted stock units and performance stock units are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. Restrictions on certain awards generally lapse, as provided in the Plans or in the applicable award agreement, upon retirement, a change in control or other specified events. The fair market value of restricted stock awards, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted stock units, which vest based solely upon passage of time generally vest over a period of three to six years. The fair value of restricted stock units is determined based on the closing market price of the Company's shares on the grant date. Performance stock units, which are restricted stock awards that vest dependent upon attainment of various levels of performance that equal or exceed targeted levels, generally vest in their entirety at the end of a three year performance period. The number of shares that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of the performance criteria. The fair value of performance stock units is determined based on the Monte Carlo valuation model. The compensation expense recognized for all restricted stock awards is net of actual forfeitures.

Upon vesting of restricted stock awards, the participant is required to pay the related tax withholding obligation. Participants can generally elect to have the Company reduce the number of common stock shares delivered to pay the employee tax withholding obligation. The value of the shares withheld is dependent on the closing market price of the Company’s common stock on the trading date prior to the relevant transaction occurring. During the years ended December 31, 2018, 2017 and 2016, the Company withheld 141,000, 157,000 and 237,000 shares, respectively, to offset tax withholding obligations with respect to the vesting of the restricted stock and performance restricted stock unit awards.

Holders of restricted stock awards, including restricted stock units and performance stock units, are generally entitled to receive dividends equal to the amount that would be paid on an equivalent number of shares of common stock.

The following table summarizes restricted stock award activity, including performance stock units, for the year ended December 31, 2018 (units in thousands):

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Unvested at January 1, 2018	1,139			$	33.41
Granted	1,097			22.95
Vested	(401	)		32.42
Forfeited	(137	)		30.34
Unvested at December 31, 2018	1,698			27.13

At December 31, 2018, the weighted average remaining vesting period of restricted stock and performance based units was two years. The total fair value (at vesting) of restricted stock and performance based units which vested for the years ended December 31, 2018, 2017 and 2016 was $10 million, $15 million and $24 million, respectively.

NOTE 15.	Impairments

Real Estate

During 2018, in conjunction with classifying the assets as held for sale, the Company determined that 17 underperforming SHOP assets and an undeveloped life science land parcel were impaired. Additionally, the Company determined that three additional underperforming SHOP assets that were candidates for potential future sale were impaired under the held-for-use impairment model. Accordingly, the Company recognized total impairment charges of $52 million during 2018 to write-down the carrying value of the assets to their respective fair values (less an estimate of costs to sell for assets classified as held for sale). The fair value of the assets was based on contracted or forecasted sales prices and expected future cash flows, which are considered to be Level 2 measurements within the fair value hierarchy.

During 2017, the Company determined that 11 underperforming senior housing triple-net assets that were candidates for potential future sale were impaired under the held-for-use impairment model. Accordingly, the Company wrote-down the carrying amount of these 11 assets to their fair value, which resulted in an aggregate impairment charge of $23 million. The fair value of the assets was based on forecasted sales prices which are considered to be Level 2 measurements within the fair value hierarchy.

Casualty-Related

As a result of Hurricane Harvey and Hurricane Irma during the year ended December 31, 2017, the Company recorded an estimated $13 million of casualty-related losses, net of a small insurance recovery. The losses are comprised of $8 million of property damage and $5 million of other associated costs, including storm preparation, clean up, relocation and other costs. Of the total $13 million casualty losses incurred, $12 million was recorded in other income (expense), net, and $1 million was recorded in equity income (loss) from unconsolidated joint ventures as it relates to casualty losses for properties owned by certain of our unconsolidated joint ventures. In addition, the Company recorded a $1 million deferred tax benefit associated with the casualty-related losses.

Other

See Note 7 for information on the impairment charge related to the mezzanine loan facility to Tandem and the impairment recovery related to Four Season Notes.

NOTE 16. Income Taxes

The Company has elected to be taxed as a REIT under the applicable provisions of the Code for every year beginning with the year ended December 31, 1985. The Company has also elected for certain of its subsidiaries to be treated as TRSs (the “TRS entities”) which are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this Note 16. Certain REIT entities are also subject to state, local and foreign income taxes.

Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:

	Year Ended December 31,
	2018				2017				2016
Ordinary dividends(1)	$	0.9578			$	1.4800			$	1.5561
Capital gains	0.5222				—				—
Nondividend distributions	—				—				6.7089
	$	1.4800			$	1.4800			$	8.2650		(2)

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(1)	The 2018 amount includes $0.0164 of qualified dividend income for purposes of Code Section 1(h)(11), and $0.9414 of qualified business income for purposes of Code Section 199A.

(2)	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 (see Note 5).

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 as $6.17, or $30.85 for each share of QCP common stock.

The TRS entities subject to tax reported losses before income taxes from continuing operations of $59 million, $58 million and $9 million for the years ended December 31, 2018, 2017 and 2016, respectively. The REIT’s losses from continuing operations before income taxes from the U.K. were $11 million, $4 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The total income tax expense (benefit) from continuing operations consists of the following components (in thousands):

	Year Ended December 31,
	2018				2017				2016
Current
Federal	$	(568	)		$	949			$	8,525
State	4,003				1,504				8,307
Foreign	84				1,737				1,332
Total current	$	3,519			$	4,190			$	18,164
Deferred
Federal	$	(11,905	)		$	2,730			$	(10,241	)
State	(4,589		)		(5,889		)		(1,401		)
Foreign	(4,879		)		(2,364		)		(2,049		)
Total deferred	$	(21,373	)		$	(5,523	)		$	(13,691	)
Total income tax expense (benefit)	$	(17,854	)		$	(1,333	)		$	4,473

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. As a result of the reduced U.S. federal corporate tax rate, the Company recorded a tax expense of $17 million, due to a remeasurement of deferred tax assets and liabilities, which is included in total deferred tax expense (benefit) in the table above.

The Company’s income tax expense from discontinued operations was $48 million for the year ended December 31, 2016 (see Note 5). There was no income tax expense from discontinued operations for the years ended December 31, 2018 and 2017.

The following table reconciles income tax expense (benefit) from continuing operations at statutory rates to actual income tax expense recorded (in thousands):

	Year Ended December 31,
	2018				2017				2016
Tax benefit at U.S. federal statutory income tax rate on income or loss subject to tax	$	(17,857	)		$	(21,085	)		$	(4,581	)
State income tax expense, net of federal tax	(1,313		)		(1,222		)		6,081
Gross receipts and margin taxes	1,580				1,716				1,847
Foreign rate differential	301				632				647
Effect of permanent differences	(34		)		6				(280		)
Return to provision adjustments	(278		)		1,597				287
Remeasurement of deferred tax assets and liabilities	—				17,080				—
Increase (decrease) in valuation allowance	(253		)		(57		)		472
Total income tax expense (benefit)	$	(17,854	)		$	(1,333	)		$	4,473

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of the Company’s deferred tax assets and liabilities from continuing operations (in thousands):

	December 31,
	2018				2017				2016
Property, primarily differences in depreciation and amortization, the basis of land, and the treatment of interest and certain costs	$	31,034			$	31,691			$	28,940
Net operating loss carryforward	20,559				10,720				8,784
Expense accruals and other	2,424				229				(847		)
Valuation allowance	(295		)		(548		)		(606		)
Net deferred tax assets	$	53,722			$	42,092			$	36,271

Deferred tax assets and liabilities are included in other assets, net and accounts payable and accrued liabilities, respectively.

At December 31, 2018 the Company had a net operating loss (“NOL”) carryforward of $80 million related to the TRS entities. These amounts can be used to offset future taxable income, if any. If unused, $44 million will begin to expire in 2033. The remainder, totaling $36 million, may be carried forward indefinitely.

The Company records a valuation allowance against deferred tax assets in certain jurisdictions when it cannot sustain a conclusion that it is more likely than not that it can realize the deferred tax assets during the periods in which these temporary differences become deductible. The deferred tax asset valuation allowance is adequate to reduce the total deferred tax assets to an amount that the Company estimates will “more-likely-than-not” be realized.

The Company files numerous U.S. federal, state and local income and franchise tax returns. With a few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by taxing authorities for years prior to 2015.

For the years ended December 31, 2018, 2017, and 2016 the tax basis of the Company’s net assets was less than the reported amounts by $1.4 billion, $1.7 billion, and $2.0 billion, respectively. The difference between the reported amounts and the tax basis was primarily related to the Slough Estates USA, Inc. (“SEUSA”) acquisition, which occurred in 2007. SEUSA was a corporation subject to federal and state income taxes. As a result of this acquisition, the Company succeeded to the tax attributes of SEUSA, including the tax basis in the acquired company’s assets and liabilities.

NOTE 17.	Earnings Per Common Share

Basic income (loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units and unvested restricted stock units. Only those instruments having a dilutive impact on our basic income (loss) per share are included in diluted income (loss) per share during the periods presented.

Restricted stock and certain performance restricted stock units are considered participating securities, because dividend payments are not forfeited even if the underlying award does not vest, and require use of the two-class method when computing basic and diluted earnings per share.

In December 2018, the Company entered into forward equity sales agreement to sell up to an aggregate of 15.25 million shares of its common stock (see Note 12) by no later than December 13, 2019. The Company expects to settle this agreement with shares of common stock prior to expiration.

The Company considered the potential dilution resulting from the forward equity sales agreement to the calculation of earnings per share. At inception, the agreement does not have an effect on the computation of basic EPS as no shares are delivered until settlement. However, the Company uses the treasury stock method to determine the dilution resulting from the forward equity sales agreement during the period of time prior to settlement. As the issuance price under the forward equity sales agreement was greater than the average market price at December 31, 2018, the agreement was anti-dilutive.

The following table illustrates the computation of basic and diluted earnings per share (in thousands, except per share data):

	Year Ended December 31,
	2018				2017				2016
Numerator
Net income (loss) from continuing operations	$	1,073,474			$	422,634			$	374,171
Noncontrolling interests' share in earnings	(12,381		)		(8,465		)		(12,179		)
Net income (loss) attributable to HCP, Inc.	1,061,093				414,169				361,992
Less: Participating securities' share in earnings	(2,669		)		(1,156		)		(1,198		)
Income (loss) from continuing operations applicable to common shares	1,058,424				413,013				360,794
Discontinued operations	—				—				265,755
Net income (loss) applicable to common shares	$	1,058,424			$	413,013			$	626,549
Numerator - Dilutive
Net income (loss) applicable to common shares	$	1,058,424			$	413,013			$	626,549
Add: distributions on dilutive convertible units and other	6,919				—				—
Dilutive net income (loss) available to common shares	$	1,065,343			$	413,013			$	626,549
Denominator
Basic weighted average shares outstanding	470,551				468,759				467,195
Dilutive potential common shares - equity awards	168				176				208
Dilutive potential common shares - DownREIT conversions	4,668				—				—
Diluted weighted average common shares	475,387				468,935				467,403
Basic earnings per common share
Continuing operations	$	2.25			$	0.88			$	0.77
Discontinued operations	—				—				0.57
Net income (loss) applicable to common shares	$	2.25			$	0.88			$	1.34
Diluted earnings per common share
Continuing operations	$	2.24			$	0.88			$	0.77
Discontinued operations	—				—				0.57
Net income (loss) applicable to common shares	$	2.24			$	0.88			$	1.34

For all periods presented in the above table, approximately 1 million equity awards (restricted stock units and stock options) and all shares of common stock issuable pursuant to the settlement of forward equity sales agreement (see discussion above) were not included because they are anti-dilutive. For the years ended December 31, 2018, 2017 and 2016, 2 million, 7 million and 7 million shares, respectively, issuable upon conversion of DownREIT units were not included because they are anti-dilutive.

NOTE 18.	Supplemental Cash Flow Information

The following table summarizes supplemental cash flow information (in thousands):

	Year Ended December 31,
	2018				2017				2016
Supplemental cash flow information:
Interest paid, net of capitalized interest	$	275,690			$	309,111			$	489,453
Income taxes paid	4,480				10,045				13,727
Capitalized interest	21,056				16,937				11,108
Supplemental schedule of non-cash investing and financing activities:
Accrued construction costs	88,826				67,425				49,999
Non-cash impact of QCP Spin-Off, net	—				—				3,539,584
Securities transferred for debt defeasance	—				—				73,278
Retained equity method investment from U.K. JV transaction	104,922				—				—
Derecognition of U.K. Bridge Loan receivable	147,474				—				—
Consolidation of net assets related to U.K. Bridge Loan	106,457				—				—
Vesting of restricted stock units and conversion of non-managing member units into common stock	537				2,908				6,622
Net noncash impact from the consolidation of previously unconsolidated joint ventures (see Note 4)	68,293				—				—
Deconsolidation of noncontrolling interest in connection with RIDEA II transaction	—				58,061				—
Mortgages and other liabilities assumed with real estate acquisitions	8,457				5,425				82,985

See discussions related to: (i) the Brookdale Transactions in Note 3, (ii) the Spin-Off, RIDEA II transaction and U.K. JV transaction in Note 5, (iii) the U.K. Bridge Loan in Notes 7 and 19, and (iv) the acquisition of the outstanding equity interests in three life science joint ventures in Note 4.

The following table summarizes cash, cash equivalents and restricted cash (in thousands):

		December 31,
		2018				2017
Cash and cash equivalents		$	110,790			$	55,306
Restricted cash		29,056				26,897
Cash, cash equivalents and restricted cash		$	139,846			$	82,203

NOTE 19.	Variable Interest Entities

Unconsolidated Variable Interest Entities

At December 31, 2018, the Company had investments in: (i) 48 properties leased to VIE tenants; (ii) four unconsolidated VIE joint ventures; (iii) marketable debt securities of one VIE; and (iv) one loan to a VIE borrower. The Company has determined that it is not the primary beneficiary of and therefore does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact their economic performance. Except for the Company’s equity interest in the unconsolidated joint ventures (CCRC OpCo, Vintage Park Development JV, Waldwick JV and the LLC investment discussed below), it has no formal involvement in these VIEs beyond its investments.

The Company leases 48 properties to a total of seven tenants that have also been identified as VIEs (“VIE tenants”). These VIE tenants are “thinly capitalized” entities that rely on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under their leases.

The Company holds a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operates senior housing properties in a RIDEA structure and has been identified as a VIE. The equity members of CCRC OpCo “lack power” because they share certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consist of the CCRCs that it owns and leases, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consist of operating lease obligations to CCRC PropCo, debt service payments and capital expenditures for the properties, and accounts payable and expense accruals associated with the cost of its CCRCs’ operations. Assets generated by the CCRC operations (primarily rents from CCRC residents) of CCRC OpCo may only be used to settle its contractual obligations (primarily from debt service payments, capital expenditures, and rental costs and operating expenses incurred to manage such facilities).

The Company holds an 85% ownership interest in a joint venture (Vintage Park Development JV), which has been identified as a VIE as power is shared with a member that does not have a substantive equity investment at risk. The assets of the joint venture primarily consist of a leased property (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of debt-service payments. Any assets generated by the joint venture may only be used to settle its respective contractual obligations (primarily debt service payments).

The Company holds an 85% ownership interest in a development joint venture (Waldwick JV), which has been identified as a VIE as power is shared with a member that does not have a substantive equity investment at risk. The assets of the joint venture primarily consist of an in-progress senior housing facility development project that it owns and cash and cash equivalents; its obligations primarily consist of accounts payable and expense accruals associated with the cost of its development obligations. Any assets generated by the joint venture may only be used to settle its respective contractual obligations (primarily development expenses and debt service payments).

The Company holds a limited partner ownership interest in an unconsolidated LLC that has been identified as a VIE. The Company’s involvement in the entity is limited to its equity investment as a limited partner, and it does not have any substantive participating rights or kick-out rights over the general partner. The assets and liabilities of the entity primarily consist of those associated with its senior housing real estate and development activities. Any assets generated by the entity may only be used to settle its contractual obligations (primarily development expenses and debt service payments).

The Company holds commercial mortgage-backed securities (“CMBS”) issued by Federal Home Loan Mortgage Corporation (commonly referred to as Freddie MAC) through a special purpose entity that has been identified as a VIE because it is “thinly capitalized.” The CMBS issued by the VIE are backed by mortgage debt obligations on real estate assets.

The Company provided seller financing of $10 million related to its sale of seven senior housing triple-net facilities. The financing was provided in the form of a secured five-year mezzanine loan to a “thinly capitalized” borrower created to acquire the facilities.

The classification of the related assets and liabilities and their maximum loss exposure as a result of the Company’s involvement with these VIEs at December 31, 2018 are presented below (in thousands):

VIE Type		Asset/Liability Type		Maximum Loss Exposure and Carrying Amount(1)
VIE tenants - DFLs(2)		Net investment in DFLs		$	600,230
VIE tenants - operating leases(2)		Lease intangibles, net and straight-line rent receivables		7,396
CCRC OpCo		Investments in unconsolidated joint ventures		176,236
Unconsolidated development joint ventures		Investments in unconsolidated joint ventures		15,176
Loan - seller financing		Loans Receivable, net		10,000
CMBS and LLC investment		Marketable debt and cost method investment		34,263

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(1)	The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).

(2)	The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default.

As of December 31, 2018, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement or otherwise, to its unconsolidated VIEs, including circumstances in which it could be exposed to further losses (e.g., cash shortfalls). See Notes 4, 6, 7 and 8 for additional descriptions of the nature, purpose and operating activities of the Company’s unconsolidated VIEs and interests therein.

Consolidated Variable Interest Entities

HCP, Inc.'s consolidated total assets and total liabilities at December 31, 2018 and December 31, 2017 include certain assets of 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, 2018 and December 31, 2017 include VIE assets as follows (in thousands):

		December 31,
		2018				2017
Assets
Building and improvements		$	1,949,582			$	2,436,414
Developments in process		39,584				32,285
Land		151,746				227,162
Accumulated depreciation		(398,143		)		(542,091		)
Net real estate		1,742,769				2,153,770
Investments in and advances to unconsolidated joint ventures		1,550				2,231
Accounts receivable, net		7,904				10,242
Cash and cash equivalents		23,772				15,861
Restricted cash		3,399				2,619
Intangible assets, net		111,333				125,475
Other assets, net		43,149				33,749
Total assets		$	1,933,876			$	2,343,947
Liabilities
Mortgage debt		$	44,598			$	45,016
Intangible liabilities, net		19,128				10,672
Accounts payable and accrued expenses		66,736				269,280
Deferred revenue		24,215				14,432
Total liabilities		$	154,677			$	339,400

HCP Ventures V, LLC. The Company holds a 51% ownership interest in and is the managing member of a joint venture entity formed in October 2015 that owns and leases MOBs (“HCP Ventures V”). Upon adoption of ASU No. 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”), the Company classified HCP Ventures V as a VIE due to the non-managing member lacking substantive participation rights in the management of HCP Ventures V or kick-out rights over the managing member. The Company consolidates HCP Ventures V as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of HCP Ventures V primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by HCP Ventures V may only be used to settle its contractual obligations (primarily from capital expenditures).

Vintage Park JV. The Company holds a 90% ownership interest in and is the managing member of a joint venture entity formed in January 2015 (“Vintage Park JV”) that owns an 85% interest in an unconsolidated development VIE. Upon adoption of ASU 2015-02, the Company classified Vintage Park JV as a VIE due to the non-managing member lacking substantive participation rights in the management of the Vintage Park JV or kick-out rights over the managing member. The Company consolidates Vintage Park JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of Vintage Park JV primarily consist of an investment in the Vintage Park Development JV and cash and cash equivalents; its obligations primarily consist of funding the ongoing development of the Vintage Park Development JV. Assets generated by the Vintage Park JV may only be used to settle its contractual obligations (primarily from the funding of the Vintage Park Development JV).

Watertown JV. The Company holds a 95% ownership interest in and is the managing member of joint venture entities formed in November 2017 that own and operate a senior housing property in a RIDEA structure (“Watertown JV”). Watertown PropCo is a VIE as the Company and the non-managing member share in control of the entity, but substantially all of the entity's activities are performed on behalf of the Company. Watertown OpCo is a VIE as the non-managing member, through its equity interest, lacks substantive participation rights in the management of Watertown OpCo or kick-out rights over the managing member. The Company consolidates Watertown PropCo and Watertown OpCo as the primary beneficiary because it has the ability to control the activities

that most significantly impact these VIEs’ economic performance. The assets of Watertown PropCo primarily consist of a leased property (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of notes payable to a non-VIE consolidated subsidiary of the Company. The assets of Watertown OpCo primarily consist of leasehold interests in a senior housing facility (operating lease), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to Watertown PropCo and operating expenses of its senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior housing operations (primarily from senior housing resident rents) of the Watertown structure may only be used to settle its contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facilities and debt costs).

Hayden JV. The Company holds a 99% ownership interest in a joint venture entity formed in December 2017 that owns and leases a life science complex (“Hayden JV”). The Hayden JV is a VIE as the members share in control of the entity, but substantially all of the entity's activities are performed on behalf of the Company. The Company consolidates the Hayden JV as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Hayden JV primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by Hayden JV may only be used to settle its contractual obligations (primarily from capital expenditures).

MSREI JV. The Company holds a 51% ownership interest in, and is the managing member of, a joint venture entity formed in August 2018 that owns and leases MOBs (the “MSREI JV” - see Note 4). The MSREI JV is a VIE due to the non-managing member lacking substantive participation rights in the management of the joint venture or kick-out rights over the managing member. The Company consolidates the MSREI JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of the MSREI JV primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by the MSREI JV may only be used to settle its contractual obligations (primarily from capital expenditures).

Consolidated Lessees. The Company leases six senior housing properties to lessee entities under cash flow leases through which the Company receives monthly rent equal to the residual cash flows of the properties. The lessee entities are classified as VIEs as they are "thinly capitalized" entities. The Company consolidates the lessee entities as it has the ability to control the activities that most significantly impact the economic performance of the lessee entities. The lessee entities' assets primarily consist of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to the Company and operating expenses of the senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior housing operations (primarily from senior housing resident rents) may only be used to settle its contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facilities and debt costs).

DownREITs. The Company holds a controlling ownership interest in and is the managing member of five DownREITs. The Company classifies the DownREITs as VIEs due to the non-managing members lacking substantive participation rights in the management of the DownREITs or kick-out rights over the managing member. The Company consolidates the DownREITs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the DownREITs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the DownREITs (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).

Other Consolidated Real Estate Partnerships. The Company holds a controlling ownership interest in and is the general partner (or managing member) of multiple partnerships that own and lease real estate assets (the “Partnerships”). The Company classifies the Partnerships as VIEs due to the limited partners (non-managing members) lacking substantive participation rights in the management of the Partnerships or kick-out rights over the general partner (managing member). The Company consolidates the Partnerships as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Partnerships primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Partnerships (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).

Other consolidated VIEs. The Company made a loan to an entity that entered into a tax credit structure (“Tax Credit Subsidiary”) and a loan to an entity that made an investment in a development joint venture (“Development JV”) both of which are considered VIEs. The Company consolidates the Tax Credit Subsidiary and Development JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIEs’ economic performance. The assets and liabilities of the Tax Credit Subsidiary and Development JV substantially consist of a development in progress, notes receivable, prepaid expenses,

notes payable, and accounts payable and accrued liabilities generated from their operating activities. Any assets generated by the operating activities of the Tax Credit Subsidiary and Development JV may only be used to settle their contractual obligations.

U.K. Bridge Loan. In 2016, the Company provided a £105 million ($131 million at closing) bridge loan to MMCG to fund the acquisition of a portfolio of seven care homes in the U.K. MMCG created a special purpose entity to acquire the portfolio and funded it entirely using the Company’s bridge loan. As such, the special purpose entity had historically been identified as a VIE because it was “thinly capitalized.” The Company retained a three-year call option to acquire all the shares of the special purpose entity, which it could only exercise upon the occurrence of certain events. During the quarter ended March 31, 2018, the Company concluded that the conditions required to exercise the call option had been met and initiated the call option process to acquire the special purpose entity. In conjunction with initiating the process to legally exercise its call option and the satisfaction of required contingencies, the Company concluded that it was the primary beneficiary of the special purpose entity and therefore, should consolidate the entity. As such, during the quarter ended March 31, 2018, the Company derecognized the previously outstanding loan receivable, recognized the special purpose entity’s assets and liabilities at their respective fair values, and recognized a £29 million ($41 million) loss on consolidation, net of a tax benefit of £2 million ($3 million), to account for the difference between the carrying value of the loan receivable and the fair value of net assets and liabilities assumed. The loss on consolidation is recognized within other income (expense), net and the tax benefit is recognized within income tax benefit (expense). The fair value of net assets and liabilities consolidated during the first quarter of 2018 consisted of £81 million ($114 million) of net real estate, £4 million ($5 million) of intangible assets, and £9 million ($13 million) of net deferred tax liabilities.

In June 2018, the Company completed the exercise of the above-mentioned call option and formally acquired full ownership of the special purpose entity. As such, the Company reconsidered whether the special purpose entity was a VIE and concluded that it was no longer “thinly capitalized” as the previously outstanding bridge loan converted to equity at risk and, therefore, was no longer a VIE. The real estate assets held by the special purpose entity were contributed to the U.K. JV formed by the Company in June 2018 (see Note 5).

NOTE 20.	Concentration of Credit Risk

Concentrations of credit risk arise when one or more tenants, operators or obligors related to the Company’s investments are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of credit risks.

The following tables provide information regarding the Company’s concentrations with respect to Brookdale as a tenant as of and for the periods presented:

		Percentage of Total Assets
		Total Company				Senior Housing Triple-Net
		December 31,				December 31,
Tenant		2018		2017		2018		2017
Brookdale(1)		6		10		27		39

		Percentage of Revenues
		Total Company						Senior Housing Triple-Net
		Year Ended December 31,						Year Ended December 31,
Tenant		2018		2017		2016		2018		2017		2016
Brookdale(1)		6		8		12		38		47		59

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(1)

Excludes senior housing facilities operated by Brookdale in the Company’s SHOP segment as discussed below. Percentages of segment and total company revenues include partial-year revenue earned from senior housing triple-net facilities that were sold during 2018. Accordingly, the percentages of segment and total company revenues are expected to decrease in 2019. The years ended December 31, 2017 and 2016 include revenues from 64 senior housing triple-net facilities that were sold in March 2017.

As of December 31, 2018 and 2017, Brookdale managed or operated, in the Company’s SHOP segment, approximately 7% and 13%, respectively, of the Company’s real estate investments based on total assets. Because an operator manages the Company’s facilities in exchange for the receipt of a management fee, the Company is not directly exposed to the credit risk of its operators in the same manner or to the same extent as its triple-net tenants. As of December 31, 2018, Brookdale provided comprehensive facility management and accounting services with respect to 35 of the Company’s SHOP facilities and 16 SHOP facilities owned by its unconsolidated joint ventures, for which the Company or joint venture pay annual management fees pursuant to long-term management agreements. Most of the management agreements have terms ranging from 10 to 15 years, with three to four 5-year renewals. The base management fees are 4.5% to 5.0% of gross revenues (as defined) generated by the RIDEA facilities. In addition, there are incentive management fees payable to Brookdale if operating results of the RIDEA properties exceed pre-established EBITDAR (as defined) thresholds.

Brookdale is subject to the registration and reporting requirements of the U.S. Securities and Exchange Commission (“SEC”) and is required to file with the SEC annual reports containing audited financial information and quarterly reports containing unaudited financial information. The information related to Brookdale contained or referred to in this report has been derived from SEC filings made by Brookdale or other publicly available information, or was provided to the Company by Brookdale, and the Company has not verified this information through an independent investigation or otherwise. The Company has no reason to believe that this information is inaccurate in any material respect, but the Company cannot assure the reader of its accuracy. The Company is providing this data for informational purposes only, and encourages the reader to obtain Brookdale’s publicly available filings, which can be found on the SEC’s website at www.sec.gov.

See Note 3 for further information on the reduction of concentration related to Brookdale.

To mitigate the credit risk of leasing properties to certain senior housing operators, leases with operators are often combined into portfolios that contain cross-default terms, so that if a tenant of any of the properties in a portfolio defaults on its obligations under its lease, the Company may pursue its remedies under the lease with respect to any of the properties in the portfolio. Certain portfolios also contain terms whereby the net operating profits of the properties are combined for the purpose of securing the funding of rental payments due under each lease.

The following table provides information regarding the Company’s concentrations with respect to certain states; the information provided is presented for the gross assets and revenues that are associated with certain real estate assets as percentages of total Company’s total assets and revenues:

		Percentage of Total Company Assets				Percentage of Total Company Revenues
		December 31,				Year Ended December 31,
State		2018		2017		2018		2017		2016
California		34		31		26		26		26
Texas		16		14		18		17		17

NOTE 21.	Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis at December 31, 2018 in the consolidated balance sheets are immaterial.

The table below summarizes the carrying amounts and fair values of the Company’s financial instruments (in thousands):

	December 31,
	2018(3)								2017(3)
	Carrying Value				Fair Value				Carrying Value				Fair Value
Loans receivable, net(2)	$	62,998			$	62,998			$	313,326			$	313,242
Marketable debt securities(2)	19,202				19,202				18,690				18,690
Bank line of credit(2)	80,103				80,103				1,017,076				1,017,076
Term loan(2)	—				—				228,288				228,288
Senior unsecured notes(1)	5,258,550				5,302,485				6,396,451				6,737,825
Mortgage debt(2)	138,470				136,161				144,486				125,984
Other debt(2)	90,785				90,785				94,165				94,165
Interest-rate swap liabilities(2)	1,310				1,310				2,483				2,483
Cross currency swap liability(2)	—				—				10,968				10,968

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(1)	Level 1: Fair value calculated based on quoted prices in active markets.

(2)

Level 2: Fair value based on (i) for marketable debt securities, quoted prices for similar or identical instruments in active or inactive markets, respectively, or (ii) or for loans receivable, net, mortgage debt, and swaps, calculated utilizing standardized pricing models in which significant inputs or value drivers are observable in active markets. For bank line of credit, term loans and other debt, the carrying values are a reasonable estimate of fair value because the borrowings are primarily based on market interest rates and the Company’s credit rating.

(3)	During the years ended December 31, 2018 and 2017, there were no transfers of financial assets or liabilities within the fair value hierarchy.

NOTE 22.	Derivative Financial Instruments

The following table summarizes the Company’s outstanding interest-rate contracts as of December 31, 2018 (dollars in thousands):

Date Entered		Maturity Date		Hedge Designation		Notional				Pay Rate		Receive Rate		Fair Value(1)
Interest rate:
July 2005(2)		July 2020		Cash Flow		$	43,000			3.820%		BMA Swap Index		$	(1,310	)

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(1)	Derivative liabilities are recorded in accounts payable and accrued liabilities on the consolidated balance sheets.

(2)	Represents three interest-rate swap contracts, which hedge fluctuations in interest payments on variable-rate secured debt due to overall changes in hedged cash flows.

The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in interest rates related to the potential impact these changes could have on future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes. Assuming a one percentage point shift in the underlying interest rate curve, the estimated change in fair value of each of the underlying derivative instruments would not exceed $1 million.

On June 29, 2018, concurrent with closing the U.K. JV transaction, the Company terminated a cross currency swap contract, which was designated as a hedge of the Company’s net investment in the U.K. As such, upon deconsolidation of the U.K. Portfolio, the Company reclassified the $6 million loss in other comprehensive income related to the cross currency swap through gain (loss) on sales of real estate, net.

As of December 31, 2018, £55 million of the Company’s GBP-denominated borrowings under the Facility are designated as a hedge of a portion of the Company’s net investments in GBP-functional currency unconsolidated subsidiaries to mitigate its exposure to fluctuations in the GBP to USD exchange rate. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to USD exchange rate of the instrument is recorded as part of the cumulative

translation adjustment component of accumulated other comprehensive income (loss). Accordingly, the remeasurement value of the designated £55 million GBP-denominated borrowings due primarily to fluctuations in the GBP to USD exchange rate are reported in accumulated other comprehensive income (loss) as the hedging relationship is considered to be effective. The balance in accumulated other comprehensive income (loss) (loss of $2 million at December 31, 2018) will be reclassified to earnings when the Company sells its remaining U.K. investments.

NOTE 23.	Selected Quarterly Financial Data (Unaudited)

The following table summarizes selected quarterly information for the years ended December 31, 2018 and 2017 (in thousands, except per share amounts):

	Three Months Ended 2018
	March 31				June 30				September 30				December 31
Total revenues	$	479,197			$	469,551			$	456,022			$	441,919
Income (loss) before income taxes and equity income from investments in unconsolidated joint ventures	37,331				88,375				98,908				833,600
Net income (loss)	43,237				92,928				102,926				834,383
Net income (loss) applicable to HCP, Inc.	40,232				89,942				99,371				831,548
Dividends paid per common share	0.37				0.37				0.37				0.37
Basic earnings per common share	0.08				0.19				0.21				1.75
Diluted earnings per common share	0.08				0.19				0.21				1.73

	Three Months Ended 2017
	March 31				June 30				September 30				December 31
Total revenues	$	492,168			$	458,928			$	454,023			$	443,259
Income (loss) before income taxes and equity income from investments in unconsolidated joint ventures	454,746				18,874				(12,263		)		(50,957		)
Net (loss) income	464,177				22,101				(5,720		)		(57,924		)
Net (loss) income applicable to HCP, Inc.	461,145				19,383				(7,657		)		(58,702		)
Dividends paid per common share	0.37				0.37				0.37				0.37
Basic earnings per common share	0.98				0.04				(0.02		)		(0.13		)
Diluted earnings per common share	0.97				0.04				(0.02		)		(0.13		)

The above selected quarterly financial data includes the following significant transactions:

2018

•	During the quarter ended December 31, 2018, the Company sold its Shoreline Technology Center life science campus for $1.0 billion and recognized a gain on sale of $726 million.

•	During the quarter ended December 31, 2018, the Company acquired the outstanding equity interests in three life science joint ventures for $92 million and recognized a gain on consolidation of $50 million.

•	During the quarter ended December 31, 2018, the Company sold 19 senior housing assets (11 senior housing triple-net assets and eight SHOP assets) for $377 million and recognized gain on sales of $40 million.

•	During the quarter ended December 31, 2018, the Company recognized impairment charges of $33 million related to four underperforming SHOP assets.

•	During the quarter ended September 30, 2018, the Company repurchased $700 million of its 5.375% senior notes due 2021 and recorded a $44 million loss on debt extinguishment.

•	During the quarter ended March 31, 2018, The Company recognized a £29 million ($41 million) loss on consolidation related to the U.K. Bridge Loan (see Notes 7 and 19).

2017

•	During the quarter ended December 31, 2017, the Company recognized a $20 million net reduction of rental and related revenues and $35 million of operating expense related to the Brookdale Transactions.

•	During the quarter ended December 31, 2017, the Company recorded an impairment charge of $84 million related to the Tandem Mezzanine Loan.

•	During the quarter ended December 31, 2017, the Company recognized a tax expense of $17 million due to a remeasurement of deferred tax assets and liabilities.

•	During the quarter ended September 30, 2017, the Company repurchased $500 million of its 5.375% senior notes due 2021 and recorded a $54 million loss on debt extinguishment.

•	During the quarter ended June 30, 2017, the Company recorded an impairment charge of $57 million related to the Tandem Mezzanine Loan.

•	During the quarter ended March 31, 2017, the Company deconsolidated the net assets of RIDEA II and recognized a net gain on sale of $99 million.

•	During the quarter ended March 31, 2017, the Company sold 64 senior housing triple-net assets, resulting in a net gain on sale of $170 million.

•	During the quarter ended March 31, 2017, the Company sold its Four Seasons Notes, which generated a £42 million ($51 million) gain on sale.

Schedule II: Valuation and Qualifying Accounts

Allowance Accounts(1)						Additions								Deductions
Year Ended December 31,		Balance at Beginning of Year				Amounts Charged Against Operations, net				Acquired Properties				Uncollectible Accounts Written-off				Dispositions				Balance at End of Year
2018		$	169,374			$	4,105			$	—			$	(1,887	)		$	(143,795	)		$	27,797
2017		29,518				144,135				—				(2,732		)		(1,547		)		169,374
2016		36,180				1,177				—				(2,843		)		(4,996		)		29,518

---

(1)	Includes allowance for doubtful accounts, straight-line rent reserves, and allowances for loan and direct financing lease losses (see Note 6 to the Consolidated Financial Statements).

Schedule III: Real Estate and Accumulated Depreciation

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
Senior housing triple-net
1107		Huntsville		AL		$	—			$	307			$	5,813			$	—			$	307			$	5,453			$	5,760			$	(1,670	)		2006
0786		Douglas		AZ		—				110				703				—				110				703				813				(385		)		2005
0518		Tucson		AZ		—				2,350				24,037				—				2,350				24,037				26,387				(12,219		)		2002
1238		Beverly Hills		CA		—				9,872				32,590				9,257				9,872				38,972				48,844				(11,638		)		2006
0883		Carmichael		CA		—				4,270				13,846				—				4,270				13,236				17,506				(3,998		)		2006
2204		Chino Hills		CA		—				3,720				41,183				—				3,720				41,183				44,903				(6,307		)		2014
0851		Citrus Heights		CA		—				1,180				8,367				—				1,180				8,037				9,217				(3,370		)		2006
0790		Concord		CA		25,000				6,010				39,601				—				6,010				38,301				44,311				(12,835		)		2005
0787		Dana Point		CA		—				1,960				15,946				—				1,960				15,466				17,426				(5,187		)		2005
0798		Escondido		CA		14,340				5,090				24,253				—				5,090				23,353				28,443				(7,833		)		2005
0791		Fremont		CA		—				2,360				11,672				—				2,360				11,192				13,552				(3,754		)		2005
0788		Granada Hills		CA		—				2,200				18,257				—				2,200				17,637				19,837				(5,916		)		2005
0227		Lodi		CA		—				732				5,453				—				732				5,453				6,185				(3,164		)		1997
0226		Murietta		CA		—				435				5,729				—				435				5,729				6,164				(3,257		)		1997
1165		Northridge		CA		—				6,718				26,309				2,820				6,752				27,890				34,642				(9,012		)		2006
0789		Pleasant Hill		CA		6,270				2,480				21,333				—				2,480				20,633				23,113				(6,921		)		2005
2205		Roseville		CA		—				3,844				33,527				—				3,844				33,527				37,371				(5,038		)		2014
0793		South San Francisco		CA		—				3,000				16,586				—				3,000				16,056				19,056				(5,380		)		2005
0792		Ventura		CA		—				2,030				17,379				—				2,030				16,749				18,779				(5,618		)		2005
0512		Denver		CO		—				2,810				36,021				1,885				2,810				37,686				40,496				(18,826		)		2002
1000		Greenwood Village		CO		—				3,367				43,610				2,894				3,367				45,708				49,075				(13,295		)		2006
0861		Apopka		FL		—				920				4,816				994				920				5,710				6,630				(2,073		)		2006
0852		Boca Raton		FL		—				4,730				17,532				5,471				4,730				22,391				27,121				(8,375		)		2006
2467		Ft Myers		FL		—				2,782				21,827				—				2,782				21,827				24,609				(2,400		)		2016
1095		Gainesville		FL		—				1,221				12,226				83				1,221				12,084				13,305				(3,675		)		2006
0490		Jacksonville		FL		—				3,250				25,936				6,170				3,250				32,106				35,356				(13,791		)		2002
1096		Jacksonville		FL		—				1,587				15,616				65				1,587				15,363				16,950				(4,685		)		2006
1017		Palm Harbor		FL		—				1,462				16,774				696				1,462				17,084				18,546				(5,277		)		2006
0802		St. Augustine		FL		—				830				11,627				1,471				830				12,698				13,528				(4,887		)		2005
1097		Tallahassee		FL		—				1,331				19,039				123				1,331				18,818				20,149				(5,725		)		2006
1605		Vero Beach		FL		—				700				16,234				—				700				15,484				16,184				(3,539		)		2010
1257		Vero Beach		FL		—				2,035				34,993				201				2,035				33,634				35,669				(10,298		)		2006
2165		Hartwell		GA		—				368				6,337				320				368				6,657				7,025				(1,235		)		2012
2066		Lawrenceville		GA		—				581				2,669				576				581				3,245				3,826				(860		)		2012
1241		Lilburn		GA		—				907				17,340				370				907				17,125				18,032				(5,296		)		2006
2086		Newnan		GA		—				1,227				4,202				533				1,227				4,735				5,962				(1,183		)		2012
1005		Oak Park		IL		—				3,476				35,259				1,862				3,476				36,575				40,051				(10,507		)		2006
1162		Orland Park		IL		—				2,623				23,154				1,732				2,623				24,111				26,734				(7,514		)		2006
1237		Wilmette		IL		—				1,100				9,373				791				1,100				9,940				11,040				(3,091		)		2006
2115		Murray		KY		—				288				7,400				319				288				7,719				8,007				(1,574		)		2012
1249		Frederick		MD		—				609				9,158				1,217				609				9,811				10,420				(2,948		)		2006
0546		Cape Elizabeth		ME		—				630				3,524				93				630				3,617				4,247				(1,428		)		2003
0545		Saco		ME		—				80				2,363				155				80				2,518				2,598				(991		)		2003
1258		Auburn Hills		MI		—				2,281				10,692				—				2,281				10,692				12,973				(3,274		)		2006
1248		Farmington Hills		MI		—				1,013				12,119				968				1,013				12,435				13,448				(3,928		)		2006
1259		Sterling Heights		MI		—				1,593				11,500				—				1,593				11,181				12,774				(3,424		)		2006
1235		Des Peres		MO		—				4,361				20,664				1,333				4,361				21,379				25,740				(6,385		)		2006
1236		Richmond Heights		MO		—				1,744				24,232				413				1,744				23,961				25,705				(7,364		)		2006
0853		St. Louis		MO		—				2,500				20,343				—				2,500				19,853				22,353				(8,327		)		2006
0878		Charlotte		NC		—				710				9,559				—				710				9,159				9,869				(2,767		)		2006
2465		Charlotte		NC		—				1,373				10,774				—				1,373				10,774				12,147				(1,185		)		2016
2468		Franklin		NC		—				1,082				8,489				—				1,082				8,489				9,571				(933		)		2016
2466		Raeford		NC		—				1,304				10,230				—				1,304				10,230				11,534				(1,125		)		2016
1254		Raleigh		NC		—				1,191				11,532				1,198				1,191				12,182				13,373				(3,572		)		2006
1239		Cresskill		NJ		—				4,684				53,927				618				4,684				53,503				58,187				(16,460		)		2006
0734		Hillsborough		NJ		—				1,042				10,042				796				1,042				10,372				11,414				(3,485		)		2005
1242		Madison		NJ		—				3,157				19,909				252				3,157				19,523				22,680				(5,969		)		2006
1231		Saddle River		NJ		—				1,784				15,625				754				1,784				15,710				17,494				(4,848		)		2006
0796		Las Vegas		NV		—				1,960				5,816				—				1,960				5,426				7,386				(1,820		)		2005
1252		Brooklyn		NY		—				8,117				23,627				1,198				8,117				23,669				31,786				(7,319		)		2006
1256		Brooklyn		NY		—				5,215				39,052				1,290				5,215				39,312				44,527				(12,230		)		2006
1253		Youngstown		OH		—				695				10,444				760				695				10,824				11,519				(3,478		)		2006
2131		Keizer		OR		2,262				551				6,454				—				551				6,454				7,005				(1,136		)		2013
2152		McMinnville		OR		—				3,203				24,909				5,839				3,203				29,253				32,456				(6,757		)		2012
2089		Newberg		OR		—				1,889				16,855				874				1,889				17,729				19,618				(3,025		)		2012
2133		Portland		OR		—				1,615				12,030				189				1,615				12,219				13,834				(1,926		)		2012
2050		Redmond		OR		—				1,229				21,921				844				1,229				22,765				23,994				(3,594		)		2012
2084		Roseburg		OR		—				1,042				12,090				145				1,042				12,235				13,277				(2,305		)		2012
2134		Scappoose		OR		—				353				1,258				17				353				1,275				1,628				(317		)		2012
2153		Scappoose		OR		—				971				7,116				162				971				7,278				8,249				(1,584		)		2012
2088		Tualatin		OR		—				—				6,326				396				—				6,722				6,722				(1,687		)		2012
2180		Windfield Village		OR		2,456				580				9,817				—				580				9,817				10,397				(1,723		)		2013
1163		Haverford		PA		—				16,461				108,816				14,337				16,461				118,289				134,750				(37,303		)		2006
2063		Selinsgrove		PA		—				529				9,111				255				529				9,366				9,895				(1,971		)		2012
1973		South Kingstown		RI		—				1,390				12,551				630				1,390				12,918				14,308				(3,660		)		2011
1975		Tiverton		RI		—				3,240				25,735				651				3,240				25,939				29,179				(7,152		)		2011
1104		Aiken		SC		—				357				14,832				151				363				14,395				14,758				(4,447		)		2006
1109		Columbia		SC		—				408				7,527				131				412				7,411				7,823				(2,311		)		2006
0306		Georgetown		SC		—				239				3,008				—				239				3,008				3,247				(1,303		)		1998
0879		Greenville		SC		—				1,090				12,558				—				1,090				12,058				13,148				(3,642		)		2006

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
0305		Lancaster		SC		—				84				2,982				—				84				2,982				3,066				(1,208		)		1998
0880		Myrtle Beach		SC		—				900				10,913				—				900				10,513				11,413				(3,176		)		2006
0312		Rock Hill		SC		—				203				2,671				—				203				2,671				2,874				(1,136		)		1998
1113		Rock Hill		SC		—				695				4,119				322				795				4,074				4,869				(1,440		)		2006
0313		Sumter		SC		—				196				2,623				—				196				2,623				2,819				(1,136		)		1998
2073		Kingsport		TN		—				1,113				8,625				335				1,113				8,960				10,073				(1,732		)		2012
1003		Nashville		TN		—				812				16,983				2,524				812				18,759				19,571				(5,180		)		2006
0843		Abilene		TX		—				300				2,830				—				300				2,710				3,010				(853		)		2006
2107		Amarillo		TX		—				1,315				26,838				894				1,315				27,732				29,047				(4,649		)		2012
0511		Austin		TX		—				2,960				41,645				—				2,960				41,645				44,605				(21,169		)		2002
2075		Bedford		TX		—				1,204				26,845				1,704				1,204				28,549				29,753				(5,120		)		2012
0844		Burleson		TX		—				1,050				5,242				—				1,050				4,902				5,952				(1,542		)		2006
0848		Cedar Hill		TX		—				1,070				11,554				—				1,070				11,104				12,174				(3,493		)		2006
1325		Cedar Hill		TX		—				440				7,494				—				440				6,974				7,414				(2,048		)		2007
1106		Houston		TX		—				1,008				15,333				183				1,020				14,955				15,975				(4,601		)		2006
0845		North Richland Hills		TX		—				520				5,117				—				520				4,807				5,327				(1,512		)		2006
0846		North Richland Hills		TX		—				870				9,259				—				870				8,819				9,689				(3,171		)		2006
2162		Portland		TX		—				1,233				14,001				3,027				1,233				17,028				18,261				(3,484		)		2012
2116		Sherman		TX		—				209				3,492				187				209				3,679				3,888				(787		)		2012
0847		Waxahachie		TX		—				390				3,879				—				390				3,659				4,049				(1,151		)		2006
2470		Abingdon		VA		—				1,584				12,431				—				1,584				12,431				14,015				(1,367		)		2016
1244		Arlington		VA		—				3,833				7,076				940				3,833				7,573				11,406				(2,456		)		2006
1245		Arlington		VA		—				7,278				37,407				3,543				7,278				39,779				47,057				(12,340		)		2006
0881		Chesapeake		VA		—				1,090				12,444				—				1,090				11,944				13,034				(3,608		)		2006
1247		Falls Church		VA		—				2,228				8,887				969				2,228				9,522				11,750				(3,051		)		2006
1164		Fort Belvoir		VA		—				11,594				99,528				12,927				11,594				109,472				121,066				(35,474		)		2006
1250		Leesburg		VA		—				607				3,236				275				607				3,296				3,903				(3,415		)		2006
1246		Sterling		VA		—				2,360				22,932				1,279				2,360				23,297				25,657				(7,241		)		2006
0225		Woodbridge		VA		—				950				6,983				1,652				950				8,460				9,410				(3,916		)		1997
2095		College Place		WA		—				758				8,051				720				758				8,771				9,529				(1,814		)		2012
1240		Edmonds		WA		—				1,418				16,502				155				1,418				16,138				17,556				(4,953		)		2006
0797		Kirkland		WA		—				1,000				13,403				—				1,000				13,043				14,043				(4,375		)		2005
1251		Mercer Island		WA		—				4,209				8,123				640				4,209				8,253				12,462				(2,575		)		2006
2096		Poulsbo		WA		—				1,801				18,068				231				1,801				18,299				20,100				(3,288		)		2012
2102		Richland		WA		—				249				5,067				138				249				5,205				5,454				(926		)		2012
0794		Shoreline		WA		—				1,590				10,671				—				1,590				10,261				11,851				(3,442		)		2005
0795		Shoreline		WA		—				4,030				26,421				—				4,030				25,651				29,681				(8,542		)		2005
2061		Vancouver		WA		—				513				4,556				263				513				4,819				5,332				(1,092		)		2012
2062		Vancouver		WA		—				1,498				9,997				211				1,498				10,207				11,705				(1,787		)		2012
						$	50,328			$	243,697			$	1,955,332			$	107,418			$	243,853			$	2,011,624			$	2,255,477			$	(604,961	)

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
Senior housing operating portfolio
1974		Sun City		AZ		$	—			$	2,640			$	33,223			$	3,260			$	2,640			$	35,953			$	38,593			$	(10,613	)		2011
1965		Fresno		CA		—				1,730				31,918				2,583				1,730				34,071				35,801				(9,839		)		2011
2593		Irvine		CA		—				8,220				14,104				3,191				8,220				16,755				24,975				(3,846		)		2006
2792		Santa Rosa		CA		—				3,582				21,113				2,314				3,627				22,087				25,714				(6,971		)		2006
1966		Sun City		CA		—				2,650				22,709				4,471				2,650				26,725				29,375				(8,704		)		2011
2505		Arvada		CO		—				1,788				29,896				1,744				1,788				31,640				33,428				(3,885		)		2015
2506		Boulder		CO		—				2,424				36,746				2,064				2,424				38,810				41,234				(3,546		)		2015
2515		Denver		CO		—				2,311				18,645				2,204				2,311				20,849				23,160				(3,673		)		2015
2508		Lakewood		CO		—				4,384				60,795				2,244				4,384				63,039				67,423				(7,050		)		2015
2509		Lakewood		CO		—				2,296				37,236				1,815				2,296				39,051				41,347				(3,664		)		2015
2782		Glastonbury		CT		—				1,658				16,046				653				1,658				16,699				18,357				(3,148		)		2012
2783		Torrington		CT		—				166				11,001				4,637				166				15,228				15,394				(4,941		)		2005
2603		Boca Raton		FL		—				2,415				17,923				2,062				2,415				18,960				21,375				(5,124		)		2006
1963		Boynton Beach		FL		—				2,550				31,521				4,971				2,550				35,827				38,377				(11,022		)		2011
1964		Boynton Beach		FL		—				570				5,649				2,550				570				8,006				8,576				(3,052		)		2011
2602		Boynton Beach		FL		—				1,270				4,773				4,124				1,270				7,123				8,393				(1,589		)		2003
2520		Clearwater		FL		—				2,250				2,627				2,284				2,250				4,331				6,581				(1,353		)		2015
2604		Coconut Creek		FL		—				2,461				16,006				3,026				2,461				17,598				20,059				(4,568		)		2006
2601		Delray Beach		FL		—				850				6,637				3,139				850				8,863				9,713				(2,587		)		2002
2517		Ft Lauderdale		FL		—				2,867				43,126				4,806				2,867				47,776				50,643				(6,847		)		2015
2592		Lantana		FL		—				3,520				26,452				1,317				3,520				26,969				30,489				(10,731		)		2006
2522		Lutz		FL		—				902				15,169				2,494				902				17,663				18,565				(1,759		)		2015
2523		Orange City		FL		—				912				9,724				1,320				912				11,044				11,956				(1,599		)		2015
2775		Port Orange		FL		—				2,340				9,898				1,498				2,340				10,875				13,215				(3,737		)		2005
2524		Port St Lucie		FL		—				893				10,333				1,319				893				11,652				12,545				(1,802		)		2015
1971		Sarasota		FL		—				3,050				29,516				7,938				3,050				37,025				40,075				(11,489		)		2011
2861		Springtree		FL		—				1,066				15,874				1,451				1,066				8,429				9,495				(3,258		)		2013
2526		Tamarac		FL		—				970				16,037				1,577				970				17,614				18,584				(1,943		)		2015
2527		Vero Beach		FL		—				1,048				17,392				1,762				1,048				19,154				20,202				(2,124		)		2015
2858		Canton		GA		—				401				17,888				473				401				6,609				7,010				(2,881		)		2012
2859		Bufford		GA		—				562				3,604				500				562				4,104				4,666				(994		)		2015
2860		Bufford		GA		—				536				3,142				343				536				3,485				4,021				(803		)		2012
2200		Deer Park		IL		—				4,172				2,417				44,603				4,229				44,546				48,775				(3,584		)		2014
1961		Olympia Fields		IL		—				4,120				29,400				4,420				4,120				33,294				37,414				(9,914		)		2011
1952		Vernon Hills		IL		—				4,900				45,854				7,677				4,900				52,835				57,735				(16,017		)		2011
2595		Indianapolis		IN		—				1,197				7,718				1,092				1,197				8,578				9,775				(2,448		)		2006
2596		W Lafayette		IN		—				813				10,876				1,432				813				8,011				8,824				(3,433		)		2006

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
2778		Louisville		KY		—				1,499				26,252				734				1,513				26,138				27,651				(7,869		)		2006
2787		Plymouth		MA		—				2,434				9,027				1,033				2,438				9,260				11,698				(2,855		)		2006
2746		Watertown		MA		—				8,828				29,317				203				8,828				29,520				38,348				(923		)		2017
2583		Ellicott City		MD		18,985				3,607				31,720				1,626				3,607				33,346				36,953				(2,413		)		2016
2584		Hanover		MD		8,839				4,513				25,625				1,208				4,513				26,833				31,346				(1,907		)		2016
2585		Laurel		MD		5,733				3,895				13,331				1,279				3,895				14,610				18,505				(1,381		)		2016
2541		Olney		MD		—				1,580				33,802				228				1,580				34,030				35,610				(3,309		)		2015
2586		Parkville		MD		20,485				3,854				29,061				1,209				3,854				30,270				34,124				(2,558		)		2016
2587		Waldorf		MD		8,289				392				20,514				868				392				21,382				21,774				(1,507		)		2016
2788		Westminster		MD		—				768				5,251				1,963				768				6,902				7,670				(2,908		)		1998
2776		Mooresville		NC		—				2,538				37,617				2,114				2,538				39,731				42,269				(6,653		)		2012
2780		Cherry Hill		NJ		—				2,420				11,042				2,545				2,420				13,037				15,457				(4,374		)		2010
2781		Manahawkin		NJ		—				921				9,927				891				921				10,352				11,273				(3,544		)		2005
2779		Voorhees Township		NJ		—				900				7,629				934				900				8,224				9,124				(3,542		)		1998
2589		Albuquerque		NM		—				767				9,324				539				767				9,364				10,131				(4,322		)		1996
2516		Centerville		OH		—				1,065				10,901				1,658				1,065				12,559				13,624				(2,337		)		2015
2512		Cincinnati		OH		—				1,180				6,157				2,702				1,180				8,859				10,039				(2,137		)		2015
2597		Fairborn		OH		—				298				10,704				3,983				298				14,456				14,754				(4,140		)		2006
2789		Portland		OR		—				—				16,087				486				—				16,573				16,573				(2,512		)		2012
1962		Warwick		RI		—				1,050				17,389				5,807				1,050				22,841				23,891				(6,867		)		2011
2401		Germantown		TN		—				3,640				64,588				528				3,640				65,116				68,756				(7,538		)		2015
2784		Arlington		TX		—				2,494				12,192				576				2,540				12,012				14,552				(3,622		)		2006
2608		Arlington		TX		—				2,002				19,110				239				2,002				18,968				20,970				(5,553		)		2006
2531		Austin		TX		—				607				15,972				573				607				16,545				17,152				(1,624		)		2015
2786		Friendswood		TX		—				400				7,354				723				400				7,756				8,156				(2,776		)		2002
2529		Grand Prairie		TX		—				865				10,650				1,395				865				12,045				12,910				(1,728		)		2015
1955		Houston		TX		—				9,820				50,079				11,978				9,820				60,746				70,566				(19,773		)		2011
1957		Houston		TX		—				8,170				37,285				6,545				8,170				42,999				51,169				(13,451		)		2011
2785		Houston		TX		—				835				7,195				671				835				7,866				8,701				(3,557		)		1997
2402		Houston		TX		—				1,740				32,057				153				1,740				32,210				33,950				(3,840		)		2015
2606		Houston		TX		—				2,470				21,710				4,132				2,470				24,992				27,462				(11,297		)		2002
2530		N Richland Hills		TX		—				1,190				17,756				1,493				1,190				19,249				20,439				(2,434		)		2015
2532		San Antonio		TX		—				613				5,874				1,027				613				6,901				7,514				(1,367		)		2015
2607		San Antonio		TX		—				730				3,961				421				730				4,067				4,797				(1,500		)		2002
2533		San Marcos		TX		—				765				18,175				996				765				19,171				19,936				(1,980		)		2015
1954		Sugar Land		TX		—				3,420				36,846				6,275				3,420				42,422				45,842				(13,190		)		2011
2510		Temple		TX		—				2,354				52,859				1,384				2,354				54,243				56,597				(5,438		)		2015
2400		Victoria		TX		—				1,032				7,743				2,406				1,032				9,253				10,285				(1,347		)		2015
2605		Victoria		TX		—				175				4,290				5,589				175				8,424				8,599				(2,878		)		1995
1953		Webster		TX		—				4,780				30,854				8,547				4,780				35,409				40,189				(9,958		)		2011
2582		Fredericksburg		VA		—				2,370				19,725				157				2,370				19,882				22,252				(1,260		)		2016
2581		Leesburg		VA		12,039				1,340				17,605				1,054				1,340				18,659				19,999				(1,304		)		2016
2514		Richmond		VA		—				2,981				54,203				2,437				2,981				56,640				59,621				(5,253		)		2015
2777		Sterling		VA		—				1,046				15,788				599				1,046				16,378				17,424				(2,690		)		2012
2790		Bellevue		WA		—				3,734				16,171				775				3,737				16,224				19,961				(5,014		)		2006
2791		Kenmore		WA		—				3,284				16,641				694				3,284				17,335				20,619				(2,954		)		2012
2745		Madison		WI		—				834				10,050				449				834				10,499				11,333				(2,116		)		2012
						$	74,370			$	186,684			$	1,700,398			$	233,184			$	186,853			$	1,875,576			$	2,062,429			$	(388,038	)

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
Life science
1483		Brisbane		CA		$	—			$	8,498			$	500			$	5,740			$	8,498			$	6,240			$	14,738			$	—			2007
1484		Brisbane		CA		—				11,331				689				8,775				11,331				9,464				20,795				—				2007
1485		Brisbane		CA		—				11,331				600				7,648				11,331				8,248				19,579				—				2007
1486		Brisbane		CA		—				11,331				—				75,700				11,331				75,700				87,031				—				2007
1487		Brisbane		CA		—				8,498				—				6,940				8,498				6,940				15,438				—				2007
1401		Hayward		CA		—				900				7,100				1,746				900				7,992				8,892				(2,077		)		2007
1402		Hayward		CA		—				1,500				6,400				3,682				1,719				9,863				11,582				(4,881		)		2007
1403		Hayward		CA		—				1,900				7,100				4,722				1,900				11,568				13,468				(3,734		)		2007
1404		Hayward		CA		—				2,200				17,200				1,402				2,200				18,602				20,802				(4,987		)		2007
1405		Hayward		CA		—				1,000				3,200				7,478				1,000				10,678				11,678				(7,239		)		2007
1549		Hayward		CA		—				1,006				4,259				3,463				1,055				6,409				7,464				(3,005		)		2007
1550		Hayward		CA		—				677				2,761				5,583				710				2,836				3,546				(1,695		)		2007
1551		Hayward		CA		—				661				1,995				4,632				693				5,489				6,182				(3,885		)		2007
1552		Hayward		CA		—				1,187				7,139				1,346				1,222				8,094				9,316				(3,874		)		2007
1553		Hayward		CA		—				1,189				9,465				7,361				1,225				16,265				17,490				(6,377		)		2007
1554		Hayward		CA		—				1,246				5,179				3,332				1,283				7,599				8,882				(3,070		)		2007
1555		Hayward		CA		—				1,521				13,546				6,401				1,566				19,888				21,454				(8,316		)		2007
1556		Hayward		CA		—				1,212				5,120				3,661				1,249				5,828				7,077				(2,324		)		2007
1424		La Jolla		CA		—				9,600				25,283				9,309				9,719				32,286				42,005				(10,326		)		2007
1425		La Jolla		CA		—				6,200				19,883				431				6,276				20,228				26,504				(5,764		)		2007
1426		La Jolla		CA		—				7,200				12,412				12,379				7,287				21,690				28,977				(6,393		)		2007
1427		La Jolla		CA		—				8,700				16,983				6,273				8,767				21,894				30,661				(8,488		)		2007
1949		La Jolla		CA		—				2,686				11,045				769				2,686				11,474				14,160				(3,106		)		2011
2229		La Jolla		CA		—				8,753				32,528				7,427				8,777				39,791				48,568				(5,363		)		2014
1470		Poway		CA		—				5,826				12,200				6,048				5,826				12,542				18,368				(3,515		)		2007
1471		Poway		CA		—				5,978				14,200				4,253				5,978				14,200				20,178				(4,053		)		2007
1472		Poway		CA		—				8,654				—				11,906				8,654				11,906				20,560				(1,692		)		2007
1473		Poway		CA		—				11,024				2,405				26,213				11,024				28,618				39,642				—				2007
1474		Poway		CA		—				5,051				—				8,345				5,051				8,345				13,396				—				2007
1475		Poway		CA		—				5,655				—				9,051				5,655				9,051				14,706				—				2007
1478		Poway		CA		—				6,700				14,400				6,145				6,700				14,400				21,100				(4,110		)		2007
1499		Redwood City		CA		—				3,400				5,500				2,631				3,407				7,231				10,638				(2,881		)		2007
1500		Redwood City		CA		—				2,500				4,100				1,220				2,506				4,563				7,069				(1,657		)		2007
1501		Redwood City		CA		—				3,600				4,600				860				3,607				5,024				8,631				(1,892		)		2007
1502		Redwood City		CA		—				3,100				5,100				954				3,107				5,801				8,908				(2,157		)		2007
1503		Redwood City		CA		—				4,800				17,300				3,794				4,818				21,076				25,894				(6,984		)		2007
1504		Redwood City		CA		—				5,400				15,500				10,450				5,418				25,932				31,350				(4,889		)		2007
1505		Redwood City		CA		—				3,000				3,500				826				3,006				4,115				7,121				(1,842		)		2007
1506		Redwood City		CA		—				6,000				14,300				14,556				6,018				28,230				34,248				(6,207		)		2007
1507		Redwood City		CA		—				1,900				12,800				13,559				1,912				26,347				28,259				(8,935		)		2007
1508		Redwood City		CA		—				2,700				11,300				12,120				2,712				23,408				26,120				(7,055		)		2007
1509		Redwood City		CA		—				2,700				10,900				10,476				2,712				20,841				23,553				(8,950		)		2007
1510		Redwood City		CA		—				2,200				12,000				5,515				2,212				13,621				15,833				(3,912		)		2007
1511		Redwood City		CA		—				2,600				9,300				2,031				2,612				10,764				13,376				(2,992		)		2007
1512		Redwood City		CA		—				3,300				18,000				12,425				3,300				30,425				33,725				(9,824		)		2007
1513		Redwood City		CA		—				3,300				17,900				14,794				3,326				32,668				35,994				(11,920		)		2007
0678		San Diego		CA		—				2,603				11,051				3,143				2,603				14,194				16,797				(4,995		)		2002
0679		San Diego		CA		—				5,269				23,566				21,860				5,669				41,726				47,395				(13,463		)		2002
0837		San Diego		CA		—				4,630				2,028				8,982				4,630				7,850				12,480				(4,139		)		2006
0838		San Diego		CA		—				2,040				903				5,111				2,040				6,014				8,054				(2,710		)		2006
0839		San Diego		CA		—				3,940				3,184				5,733				4,047				5,591				9,638				(2,245		)		2006
0840		San Diego		CA		—				5,690				4,579				789				5,830				4,802				10,632				(1,747		)		2006
1418		San Diego		CA		—				11,700				31,243				6,408				11,700				37,651				49,351				(14,414		)		2007
1420		San Diego		CA		—				6,524				—				5,327				6,524				5,327				11,851				—				2007
1421		San Diego		CA		—				7,000				33,779				1,209				7,000				34,988				41,988				(10,073		)		2007
1422		San Diego		CA		—				7,179				3,687				4,681				7,336				8,211				15,547				(2,911		)		2007
1423		San Diego		CA		—				8,400				33,144				466				8,400				33,610				42,010				(9,467		)		2007
1514		San Diego		CA		—				5,200				—				—				5,200				—				5,200				—				2007
1558		San Diego		CA		—				7,740				22,654				3,461				7,888				24,736				32,624				(7,051		)		2007
1947		San Diego		CA		—				2,581				10,534				4,164				2,581				14,698				17,279				(3,905		)		2011
1948		San Diego		CA		—				5,879				25,305				2,619				5,879				26,741				32,620				(7,767		)		2011
2197		San Diego		CA		—				7,621				3,913				8,150				7,626				10,767				18,393				(2,868		)		2007
2476		San Diego		CA		—				7,661				9,918				5,388				7,661				15,306				22,967				(194		)		2016
2477		San Diego		CA		—				9,207				14,613				6,543				9,207				21,156				30,363				(1,779		)		2016
2478		San Diego		CA		—				6,000				—				517				6,000				517				6,517				—				2016
2617		San Diego		CA		—				2,734				5,195				8,494				2,734				13,689				16,423				—				2017
2618		San Diego		CA		—				4,100				12,395				69				4,100				12,464				16,564				(860		)		2017
2622		San Diego		CA		—				—				—				5,899				—				5,899				5,899				—				2004
2872		San Diego		CA		—				10,120				38,351				1,265				10,120				39,616				49,736				(121		)		2018
2873		San Diego		CA		—				6,052				14,122				—				6,052				14,122				20,174				(52		)		2018
1407		South San Francisco		CA		—				7,182				12,140				9,752				7,186				13,134				20,320				(4,173		)		2007
1408		South San Francisco		CA		—				9,000				17,800				1,460				9,000				18,237				27,237				(5,160		)		2007
1409		South San Francisco		CA		—				18,000				38,043				5,248				18,000				43,291				61,291				(12,226		)		2007
1410		South San Francisco		CA		—				4,900				18,100				6,506				4,900				24,606				29,506				(5,067		)		2007
1411		South San Francisco		CA		—				8,000				27,700				2,812				8,000				30,512				38,512				(7,701		)		2007
1412		South San Francisco		CA		—				10,100				22,521				2,222				10,100				24,504				34,604				(6,981		)		2007
1413		South San Francisco		CA		—				8,000				28,299				7,826				8,000				36,125				44,125				(8,450		)		2007
1414		South San Francisco		CA		—				3,700				20,800				2,248				3,700				22,845				26,545				(6,881		)		2007
1430		South San Francisco		CA		—				10,700				23,621				9,224				10,700				31,485				42,185				(6,318		)		2007
1431		South San Francisco		CA		—				7,000				15,500				5,096				7,000				20,596				27,596				(4,608		)		2007
1435		South San Francisco		CA		—				13,800				42,500				37,058				13,800				79,558				93,358				(22,319		)		2008
1436		South San Francisco		CA		—				14,500				45,300				36,935				14,500				82,235				96,735				(22,804		)		2008
1437		South San Francisco		CA		—				9,400				24,800				50,276				9,400				73,506				82,906				(18,430		)		2008

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
1439		South San Francisco		CA		—				11,900				68,848				95				11,900				68,943				80,843				(19,674		)		2007
1440		South San Francisco		CA		—				10,000				57,954				448				10,000				58,402				68,402				(16,543		)		2007
1441		South San Francisco		CA		—				9,300				43,549				8				9,300				43,557				52,857				(12,432		)		2007
1442		South San Francisco		CA		—				11,000				47,289				91				11,000				47,380				58,380				(13,561		)		2007
1443		South San Francisco		CA		—				13,200				60,932				2,642				13,200				63,574				76,774				(17,643		)		2007
1444		South San Francisco		CA		—				10,500				33,776				360				10,500				34,136				44,636				(9,874		)		2007
1445		South San Francisco		CA		—				10,600				34,083				9				10,600				34,092				44,692				(9,730		)		2007
1458		South San Francisco		CA		—				10,900				20,900				8,704				10,909				24,372				35,281				(8,268		)		2007
1459		South San Francisco		CA		—				3,600				100				276				3,600				376				3,976				(94		)		2007
1460		South San Francisco		CA		—				2,300				100				145				2,300				245				2,545				(100		)		2007
1461		South San Francisco		CA		—				3,900				200				267				3,900				467				4,367				(200		)		2007
1462		South San Francisco		CA		—				7,117				600				4,939				7,117				5,191				12,308				(2,438		)		2007
1463		South San Francisco		CA		—				10,381				2,300				20,647				10,381				20,599				30,980				(4,210		)		2007
1464		South San Francisco		CA		—				7,403				700				11,638				7,403				7,987				15,390				(1,670		)		2007
1468		South San Francisco		CA		—				10,100				24,013				4,774				10,100				26,642				36,742				(8,863		)		2007
1480		South San Francisco		CA		—				32,210				3,110				11,653				32,210				14,763				46,973				—				2007
1559		South San Francisco		CA		—				5,666				5,773				12,970				5,695				18,645				24,340				(12,153		)		2007
1560		South San Francisco		CA		—				1,204				1,293				2,627				1,210				3,799				5,009				(1,421		)		2007
1983		South San Francisco		CA		—				8,648				—				95,927				8,648				95,927				104,575				(10,795		)		2016
1984		South San Francisco		CA		—				7,845				—				84,580				7,844				84,581				92,425				(6,250		)		2017
1985		South San Francisco		CA		—				6,708				—				120,735				6,708				120,735				127,443				(7,119		)		2017
1986		South San Francisco		CA		—				6,708				—				106,278				6,708				106,278				112,986				(4,392		)		2018
1987		South San Francisco		CA		—				8,544				—				143,536				8,544				143,536				152,080				—				2011
1988		South San Francisco		CA		—				10,120				—				11,437				10,120				11,437				21,557				—				2011
1989		South San Francisco		CA		—				9,169				—				22,380				9,169				22,380				31,549				—				2011
2553		South San Francisco		CA		—				2,897				8,691				2,824				2,897				11,515				14,412				(1,297		)		2015
2554		South San Francisco		CA		—				995				2,754				1,930				995				4,684				5,679				(276		)		2015
2555		South San Francisco		CA		—				2,202				10,776				578				2,202				11,354				13,556				(1,048		)		2015
2556		South San Francisco		CA		—				2,962				15,108				210				2,962				15,318				18,280				(1,356		)		2015
2557		South San Francisco		CA		—				2,453				13,063				3,616				2,453				16,679				19,132				(1,418		)		2015
2558		South San Francisco		CA		—				1,163				5,925				58				1,163				5,983				7,146				(531		)		2015
2614		South San Francisco		CA		—				5,079				8,584				1,330				5,083				9,261				14,344				(3,110		)		2007
2615		South San Francisco		CA		—				7,984				13,495				3,243				7,988				16,719				24,707				(6,514		)		2007
2616		South San Francisco		CA		—				8,355				14,121				1,876				8,358				14,565				22,923				(4,722		)		2007
2624		South San Francisco		CA		—				25,502				42,910				5,081				25,502				47,945				73,447				(2,064		)		2017
2870		South San Francisco		CA		—				23,297				41,797				5,324				23,297				47,121				70,418				—				2018
2871		South San Francisco		CA		—				20,293				41,262				12,476				20,293				53,738				74,031				(125		)		2018
9999		Denton		TX		—				100				—				—				100				—				100				—				2016
2630		Lexington		MA		—				16,411				49,681				415				16,411				50,096				66,507				(2,502		)		2017
2631		Lexington		MA		—				7,759				142,081				14,269				7,759				156,350				164,109				(4,724		)		2017
2632		Lexington		MA		—				—				21,390				21,055				—				42,445				42,445				—				2018
2011		Durham		NC		5,399				448				6,152				21,524				448				27,639				28,087				(6,291		)		2011
2030		Durham		NC		—				1,920				5,661				34,187				1,920				39,848				41,768				(8,964		)		2012
0464		Salt Lake City		UT		—				630				6,921				2,562				630				9,483				10,113				(3,571		)		2001
0465		Salt Lake City		UT		—				125				6,368				68				125				6,436				6,561				(2,527		)		2001
0466		Salt Lake City		UT		—				—				14,614				7				—				14,621				14,621				(5,200		)		2001
0507		Salt Lake City		UT		—				280				4,345				231				280				4,350				4,630				(1,593		)		2002
0799		Salt Lake City		UT		—				—				14,600				90				—				14,690				14,690				(4,343		)		2005
1593		Salt Lake City		UT		—				—				23,998				—				—				23,998				23,998				(6,121		)		2010
						$	5,399			$	833,745			$	1,976,797			$	1,461,433			$	835,829			$	3,347,365			$	4,183,194			$	(647,977	)

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
Medical office
0638		Anchorage		AK		$	—			$	1,456			$	10,650			$	12,360			$	1,456			$	22,957			$	24,413			$	(7,603	)		2006
2572		Springdale		AR		—				—				27,714				—				—				27,714				27,714				(1,833		)		2016
0520		Chandler		AZ		—				3,669				13,503				6,460				3,749				18,696				22,445				(5,558		)		2002
2040		Mesa		AZ		—				—				17,314				1,303				—				18,431				18,431				(2,990		)		2012
0468		Oro Valley		AZ		—				1,050				6,774				983				1,084				7,148				8,232				(3,093		)		2001
0356		Phoenix		AZ		—				780				3,199				2,795				865				4,987				5,852				(2,228		)		1999
0470		Phoenix		AZ		—				280				877				166				280				1,008				1,288				(386		)		2001
1066		Scottsdale		AZ		—				5,115				14,064				4,215				4,839				17,150				21,989				(5,695		)		2006
2021		Scottsdale		AZ		—				—				12,312				2,153				—				14,238				14,238				(4,586		)		2012
2022		Scottsdale		AZ		—				—				9,179				1,684				—				10,713				10,713				(3,598		)		2012
2023		Scottsdale		AZ		—				—				6,398				1,597				—				7,860				7,860				(2,380		)		2012
2024		Scottsdale		AZ		—				—				9,522				905				—				10,427				10,427				(2,930		)		2012
2025		Scottsdale		AZ		—				—				4,102				1,805				—				5,756				5,756				(1,999		)		2012
2026		Scottsdale		AZ		—				—				3,655				2,112				—				5,692				5,692				(1,389		)		2012
2027		Scottsdale		AZ		—				—				7,168				2,179				—				9,230				9,230				(2,627		)		2012
2028		Scottsdale		AZ		—				—				6,659				3,658				—				10,317				10,317				(2,384		)		2012
0453		Tucson		AZ		—				215				6,318				1,464				326				7,113				7,439				(3,710		)		2000
0556		Tucson		AZ		—				215				3,940				1,613				267				5,073				5,340				(1,783		)		2003
1041		Brentwood		CA		—				—				30,864				3,135				309				32,911				33,220				(10,485		)		2006
1200		Encino		CA		—				6,151				10,438				4,890				6,646				13,427				20,073				(5,175		)		2006
0436		Murietta		CA		—				400				9,266				4,755				638				12,319				12,957				(6,168		)		1999
0239		Poway		CA		—				2,700				10,839				4,239				2,887				12,603				15,490				(6,904		)		1997
2654		Riverside		CA		—				2,758				9,908				214				2,758				10,122				12,880				(443		)		2017
0318		Sacramento		CA		—				2,860				37,566				27,503				2,911				65,005				67,916				(14,223		)		1998
2404		Sacramento		CA		—				1,268				5,109				594				1,299				5,672				6,971				(926		)		2015
0234		San Diego		CA		—				2,848				5,879				1,450				3,009				4,981				7,990				(3,361		)		1997
0235		San Diego		CA		—				2,863				8,913				2,913				3,068				8,154				11,222				(5,437		)		1997
0236		San Diego		CA		—				4,619				19,370				4,023				4,711				16,004				20,715				(9,933		)		1997
0421		San Diego		CA		—				2,910				19,984				16,349				2,964				34,960				37,924				(10,037		)		1999
0564		San Jose		CA		—				1,935				1,728				2,756				1,935				3,283				5,218				(1,476		)		2003
0565		San Jose		CA		—				1,460				7,672				958				1,460				8,149				9,609				(3,215		)		2003
0659		Los Gatos		CA		—				1,718				3,124				662				1,758				3,632				5,390				(1,487		)		2000
0439		Valencia		CA		—				2,300				6,967				4,054				2,404				8,855				11,259				(4,035		)		1999
1211		Valencia		CA		—				1,344				7,507				797				1,383				7,965				9,348				(2,552		)		2006
0440		West Hills		CA		—				2,100				11,595				4,472				2,259				12,284				14,543				(6,231		)		1999
0728		Aurora		CO		—				—				8,764				3,082				—				9,273				9,273				(3,701		)		2005
1196		Aurora		CO		—				210				12,362				7,310				210				18,828				19,038				(4,677		)		2006
1197		Aurora		CO		—				200				8,414				5,729				285				13,482				13,767				(3,935		)		2006
0882		Colorado Springs		CO		—				—				12,933				11,273				—				19,512				19,512				(5,300		)		2006
1199		Denver		CO		—				493				7,897				1,865				622				9,367				9,989				(3,916		)		2006
0808		Englewood		CO		—				—				8,616				9,472				11				16,904				16,915				(7,304		)		2005
0809		Englewood		CO		—				—				8,449				4,510				—				11,508				11,508				(4,680		)		2005
0810		Englewood		CO		—				—				8,040				13,144				—				18,828				18,828				(5,465		)		2005
0811		Englewood		CO		—				—				8,472				5,951				—				12,747				12,747				(4,403		)		2005
2658		Highlands Ranch		CO		—				1,637				10,063				—				1,637				10,063				11,700				(387		)		2017
0812		Littleton		CO		—				—				4,562				2,561				257				5,816				6,073				(2,497		)		2005
0813		Littleton		CO		—				—				4,926				2,326				106				6,456				6,562				(2,375		)		2005
0570		Lone Tree		CO		—				—				—				20,148				—				19,410				19,410				(7,306		)		2003
0666		Lone Tree		CO		—				—				23,274				3,384				—				25,328				25,328				(8,783		)		2000
2233		Lone Tree		CO		—				—				6,734				30,176				—				37,573				37,573				(4,704		)		2014
1076		Parker		CO		—				—				13,388				1,112				8				14,240				14,248				(4,728		)		2006
0510		Thornton		CO		—				236				10,206				4,332				454				13,741				14,195				(5,710		)		2002
0434		Atlantis		FL		—				—				2,027				462				5				2,269				2,274				(1,152		)		1999
0435		Atlantis		FL		—				—				2,000				1,190				—				2,578				2,578				(1,210		)		1999
0602		Atlantis		FL		—				455				2,231				1,006				455				2,879				3,334				(1,079		)		2000
0604		Englewood		FL		—				170				1,134				495				226				1,346				1,572				(561		)		2000
0609		Kissimmee		FL		—				788				174				649				788				721				1,509				(290		)		2000
0610		Kissimmee		FL		—				481				347				790				494				901				1,395				(484		)		2000
0671		Kissimmee		FL		—				—				7,574				2,637				—				8,483				8,483				(3,016		)		2000
0603		Lake Worth		FL		—				1,507				2,894				1,807				1,507				4,562				6,069				(2,211		)		2000
0612		Margate		FL		—				1,553				6,898				1,811				1,553				8,364				9,917				(3,025		)		2000
0613		Miami		FL		—				4,392				11,841				5,072				4,392				14,740				19,132				(5,581		)		2000
2202		Miami		FL		—				—				13,123				4,918				—				17,903				17,903				(3,791		)		2014
2203		Miami		FL		—				—				8,877				3,245				—				12,111				12,111				(2,243		)		2014
1067		Milton		FL		—				—				8,566				356				—				8,903				8,903				(2,781		)		2006
2577		Naples		FL		—				—				29,186				97				—				29,283				29,283				(1,805		)		2016
2578		Naples		FL		—				—				18,819				433				—				19,252				19,252				(989		)		2016
0563		Orlando		FL		—				2,144				5,136				14,659				11,769				8,479				20,248				(4,606		)		2003
0833		Pace		FL		—				—				10,309				3,528				26				11,517				11,543				(3,302		)		2006
0834		Pensacola		FL		—				—				11,166				478				—				11,644				11,644				(3,612		)		2006
0614		Plantation		FL		—				969				3,241				1,754				1,017				4,246				5,263				(1,638		)		2000
0673		Plantation		FL		—				1,091				7,176				2,002				1,091				8,724				9,815				(2,970		)		2002
2579		Punta Gorda		FL		—				—				9,379				—				—				9,379				9,379				(559		)		2016
2833		St. Petersburg		FL		—				—				13,754				10,904				—				22,810				22,810				(6,704		)		2006
2836		Tampa		FL		—				1,967				6,602				7,747				2,425				11,056				13,481				(4,844		)		2006
1058		Blue Ridge		GA		—				—				3,231				260				—				3,473				3,473				(1,030		)		2006
2576		Statesboro		GA		—				—				10,234				120				—				10,354				10,354				(823		)		2016
1065		Marion		IL		—				99				11,538				2,075				100				13,184				13,284				(3,883		)		2006
1057		Newburgh		IN		—				—				14,019				5,383				—				19,394				19,394				(5,950		)		2006
2039		Kansas City		KS		—				440				2,173				17				448				2,182				2,630				(438		)		2012
2043		Overland Park		KS		—				—				7,668				947				—				8,615				8,615				(1,603		)		2012
0483		Wichita		KS		—				530				3,341				713				530				3,617				4,147				(1,323		)		2001
1064		Lexington		KY		—				—				12,726				1,381				—				13,863				13,863				(4,851		)		2006

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
0735		Louisville		KY		—				936				8,426				8,002				1,232				13,584				14,816				(10,052		)		2005
0737		Louisville		KY		—				835				27,627				7,344				878				33,344				34,222				(12,665		)		2005
0738		Louisville		KY		—				780				8,582				6,189				851				12,514				13,365				(8,055		)		2005
0739		Louisville		KY		—				826				13,814				1,992				832				14,277				15,109				(5,127		)		2005
2834		Louisville		KY		—				2,983				13,171				5,188				2,991				17,068				20,059				(7,916		)		2005
1944		Louisville		KY		—				788				2,414				—				788				2,414				3,202				(773		)		2010
1945		Louisville		KY		—				3,255				28,644				1,393				3,291				29,700				32,991				(8,126		)		2010
1946		Louisville		KY		—				430				6,125				197				430				6,322				6,752				(1,682		)		2010
2237		Louisville		KY		—				1,519				15,386				3,741				1,618				19,022				20,640				(3,185		)		2014
2238		Louisville		KY		—				1,334				12,172				1,786				1,511				13,701				15,212				(2,590		)		2014
2239		Louisville		KY		—				1,644				10,832				5,748				2,041				16,183				18,224				(2,886		)		2014
1324		Haverhill		MA		—				800				8,537				2,327				869				9,128				9,997				(2,763		)		2007
1213		Ellicott City		MD		—				1,115				3,206				3,001				1,222				5,203				6,425				(2,362		)		2006
0361		GlenBurnie		MD		—				670				5,085				—				670				5,085				5,755				(2,857		)		1999
1052		Towson		MD		—				—				14,233				3,754				—				12,684				12,684				(3,816		)		2006
2650		Biddeford		ME		—				1,949				12,244				—				1,949				12,244				14,193				(458		)		2017
0240		Minneapolis		MN		—				117				13,213				4,070				117				16,704				16,821				(9,159		)		1997
0300		Minneapolis		MN		—				160				10,131				4,659				160				13,604				13,764				(7,418		)		1997
2032		Independence		MO		—				—				48,025				2,304				—				50,329				50,329				(7,787		)		2012
1078		Flowood		MS		—				—				8,413				1,233				—				8,979				8,979				(2,619		)		2006
1059		Jackson		MS		—				—				8,868				167				—				9,027				9,027				(2,759		)		2006
1060		Jackson		MS		—				—				7,187				2,217				—				9,161				9,161				(3,329		)		2006
1068		Omaha		NE		—				—				16,243				1,499				17				17,367				17,384				(5,560		)		2006
2651		Charlotte		NC		—				2,001				11,217				37				2,001				11,254				13,255				(419		)		2017
2655		Wilmington		NC		—				1,341				17,376				—				1,341				17,376				18,717				(704		)		2017
2656		Wilmington		NC		—				2,071				11,592				—				2,071				11,592				13,663				(429		)		2017
2657		Shallotte		NC		—				918				3,609				—				918				3,609				4,527				(184		)		2017
2647		Concord		NH		—				1,961				23,516				85				1,961				23,601				25,562				(925		)		2017
2648		Concord		NH		—				815				8,902				136				815				9,038				9,853				(371		)		2017
2649		Epsom		NH		—				919				5,868				18				919				5,886				6,805				(320		)		2017
0729		Albuquerque		NM		—				—				5,380				757				—				5,746				5,746				(1,880		)		2005
0348		Elko		NV		—				55				2,637				22				55				2,659				2,714				(1,509		)		1999
0571		Las Vegas		NV		—				—				—				19,618				—				18,200				18,200				(6,870		)		2003
0660		Las Vegas		NV		—				1,121				4,363				6,756				1,328				8,395				9,723				(3,362		)		2000
0661		Las Vegas		NV		—				2,305				4,829				6,057				2,447				9,458				11,905				(4,481		)		2000
0662		Las Vegas		NV		—				3,480				12,305				6,385				3,480				15,850				19,330				(5,842		)		2000
0663		Las Vegas		NV		—				1,717				3,597				11,588				1,724				13,468				15,192				(3,086		)		2000
0664		Las Vegas		NV		—				1,172				—				633				1,805				—				1,805				(116		)		2000
0691		Las Vegas		NV		—				3,244				18,339				7,961				3,338				24,718				28,056				(10,680		)		2004
2037		Mesquite		NV		—				—				5,559				491				34				5,905				5,939				(974		)		2012
1285		Cleveland		OH		—				823				2,726				1,259				853				3,031				3,884				(1,225		)		2006
0400		Harrison		OH		—				—				4,561				300				—				4,861				4,861				(2,738		)		1999
1054		Durant		OK		—				619				9,256				1,925				659				11,100				11,759				(3,440		)		2006
0817		Owasso		OK		—				—				6,582				1,543				—				5,614				5,614				(1,670		)		2005
0404		Roseburg		OR		—				—				5,707				700				—				6,407				6,407				(3,555		)		1999
2570		Limerick		PA		—				925				20,072				51				925				20,123				21,048				(1,561		)		2016
2234		Philadelphia		PA		—				24,264				99,904				36,386				24,288				136,146				160,434				(12,528		)		2014
2403		Philadelphia		PA		—				26,063				97,646				14,725				26,110				112,324				138,434				(16,206		)		2015
2571		Wilkes-Barre		PA		—				—				9,138				—				—				9,138				9,138				(729		)		2016
2573		Florence		SC		—				—				12,090				91				—				12,181				12,181				(769		)		2016
2574		Florence		SC		—				—				12,190				88				—				12,278				12,278				(774		)		2016
2575		Florence		SC		—				—				11,243				56				—				11,299				11,299				(875		)		2016
2841		Greenville		SC		—				627				38,391				—				627				38,391				39,018				(746		)		2018
2842		Greenville		SC		—				809				41,260				—				809				41,260				42,069				(824		)		2018
2843		Greenville		SC		—				610				22,251				—				610				22,251				22,861				(451		)		2018
2844		Greenville		SC		—				799				18,914				—				799				18,914				19,713				(403		)		2018
2845		Greenville		SC		—				944				40,841				—				944				40,841				41,785				(744		)		2018
2846		Greenville		SC		—				921				38,416				—				921				38,416				39,337				(715		)		2018
2847		Greenville		SC		—				621				26,358				—				621				26,358				26,979				(649		)		2018
2848		Greenville		SC		—				318				5,816				—				318				5,816				6,134				(116		)		2018
2849		Greenville		SC		—				310				5,675				—				310				5,675				5,985				(126		)		2018
2850		Greenville		SC		—				201				6,590				—				201				6,590				6,791				(143		)		2018
2853		Greenville		SC		—				503				6,522				—				503				6,522				7,025				(225		)		2018
2854		Greenville		SC		—				804				13,719				—				804				13,719				14,523				(352		)		2018
2855		Greenville		SC		—				377				496				—				377				496				873				(53		)		2018
2856		Greenville		SC		—				246				416				—				246				416				662				(50		)		2018
2857		Greenville		SC		—				186				210				—				186				210				396				(27		)		2018
2851		Travelers Rest		SC		—				498				1,015				—				498				1,015				1,513				(66		)		2018
2862		Myrtle Beach		SC		—				—				—				2,852				—				2,882				2,882				—				2018
0624		Hendersonville		TN		—				256				1,530				2,541				256				3,372				3,628				(1,169		)		2000
0559		Hermitage		TN		—				830				5,036				12,083				851				15,024				15,875				(3,735		)		2003
0561		Hermitage		TN		—				596				9,698				6,642				596				14,544				15,140				(6,241		)		2003
0562		Hermitage		TN		—				317				6,528				3,199				317				8,860				9,177				(4,403		)		2003
0154		Knoxville		TN		—				700				4,559				5,016				700				9,119				9,819				(4,890		)		1994
0625		Nashville		TN		—				955				14,289				4,470				955				16,768				17,723				(5,977		)		2000
0626		Nashville		TN		—				2,050				5,211				4,631				2,055				8,738				10,793				(3,646		)		2000
0627		Nashville		TN		—				1,007				181				752				1,060				813				1,873				(495		)		2000
0628		Nashville		TN		—				2,980				7,164				3,993				2,980				11,202				14,182				(5,152		)		2000
0630		Nashville		TN		—				515				848				437				528				1,085				1,613				(383		)		2000
0631		Nashville		TN		—				266				1,305				1,644				266				2,461				2,727				(1,033		)		2000
0632		Nashville		TN		—				827				7,642				4,532				827				10,111				10,938				(3,855		)		2000
0633		Nashville		TN		—				5,425				12,577				6,397				5,425				18,049				23,474				(8,895		)		2000
0634		Nashville		TN		—				3,818				15,185				11,118				3,818				24,285				28,103				(10,002		)		2000
0636		Nashville		TN		—				583				450				360				583				717				1,300				(233		)		2000

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
2611		Allen		TX		—				1,330				5,960				426				1,330				6,386				7,716				(439		)		2016
2612		Allen		TX		—				1,310				4,165				596				1,310				4,761				6,071				(378		)		2016
0573		Arlington		TX		—				769				12,355				4,678				769				15,695				16,464				(6,049		)		2003
2621		Cedar Park		TX		—				1,617				11,640				—				1,617				11,640				13,257				(427		)		2017
0576		Conroe		TX		—				324				4,842				3,068				324				6,491				6,815				(2,253		)		2000
0577		Conroe		TX		—				397				7,966				2,469				397				9,764				10,161				(3,966		)		2000
0578		Conroe		TX		—				388				7,975				4,540				388				10,986				11,374				(3,941		)		2006
0579		Conroe		TX		—				188				3,618				1,343				188				4,805				4,993				(1,943		)		2000
0581		Corpus Christi		TX		—				717				8,181				5,953				717				11,728				12,445				(4,542		)		2000
0600		Corpus Christi		TX		—				328				3,210				4,468				328				5,801				6,129				(2,168		)		2000
0601		Corpus Christi		TX		—				313				1,771				2,047				325				3,098				3,423				(1,197		)		2000
2839		Cypress		TX		—				—				—				34,265				11				34,254				34,265				(3,795		)		2015
0582		Dallas		TX		—				1,664				6,785				4,588				1,746				9,642				11,388				(3,775		)		2000
1314		Dallas		TX		—				15,230				162,971				42,680				23,992				193,414				217,406				(60,706		)		2006
0583		Fort Worth		TX		—				898				4,866				3,626				898				7,643				8,541				(2,557		)		2000
0805		Fort Worth		TX		—				—				2,481				1,315				2				3,329				3,331				(1,755		)		2005
0806		Fort Worth		TX		—				—				6,070				1,155				5				6,928				6,933				(2,221		)		2005
2231		Fort Worth		TX		—				902				—				44				946				—				946				(17		)		2014
2619		Fort Worth		TX		—				1,180				13,432				6				1,180				13,438				14,618				(458		)		2017
2620		Fort Worth		TX		—				1,961				14,155				138				1,961				14,293				16,254				(503		)		2017
1061		Granbury		TX		—				—				6,863				1,125				—				7,848				7,848				(2,309		)		2006
0430		Houston		TX		—				1,927				33,140				17,718				2,200				48,704				50,904				(21,111		)		1999
0446		Houston		TX		—				2,200				19,585				21,378				2,936				33,668				36,604				(19,818		)		1999
0589		Houston		TX		—				1,676				12,602				6,758				1,706				16,361				18,067				(6,139		)		2000
0670		Houston		TX		—				257				2,884				1,606				318				3,689				4,007				(1,406		)		2000
0702		Houston		TX		—				—				7,414				2,906				7				9,239				9,246				(3,219		)		2004
1044		Houston		TX		—				—				4,838				3,498				—				6,634				6,634				(2,112		)		2006
2542		Houston		TX		—				304				17,764				—				304				17,764				18,068				(1,909		)		2015
2543		Houston		TX		—				116				6,555				—				116				6,555				6,671				(832		)		2015
2544		Houston		TX		—				312				12,094				—				312				12,094				12,406				(1,548		)		2015
2545		Houston		TX		—				316				13,931				—				316				13,931				14,247				(1,357		)		2015
2546		Houston		TX		—				408				18,332				—				408				18,332				18,740				(2,804		)		2015
2547		Houston		TX		—				470				18,197				—				470				18,197				18,667				(2,358		)		2015
2548		Houston		TX		—				313				7,036				—				313				7,036				7,349				(1,167		)		2015
2549		Houston		TX		—				530				22,711				—				530				22,711				23,241				(1,952		)		2015
0590		Irving		TX		—				828				6,160				3,153				828				8,743				9,571				(3,658		)		2000
0700		Irving		TX		—				—				8,550				3,980				8				11,513				11,521				(5,226		)		2006
1202		Irving		TX		—				1,604				16,107				1,203				1,633				16,971				18,604				(6,550		)		2006
1207		Irving		TX		—				1,955				12,793				2,219				1,986				14,902				16,888				(5,058		)		2006
2840		Kingwood		TX		—				3,035				28,373				958				3,035				29,331				32,366				(2,223		)		2016
1062		Lancaster		TX		—				172				2,692				1,134				185				3,520				3,705				(1,500		)		2006
2195		Lancaster		TX		—				—				1,138				700				131				1,707				1,838				(492		)		2006
0591		Lewisville		TX		—				561				8,043				2,347				561				9,796				10,357				(3,681		)		2000
0144		Longview		TX		—				102				7,998				824				102				8,379				8,481				(4,469		)		1992
0143		Lufkin		TX		—				338				2,383				321				338				2,664				3,002				(1,313		)		1992
0568		Mckinney		TX		—				541				6,217				3,396				541				8,659				9,200				(3,061		)		2003
0569		Mckinney		TX		—				—				636				8,655				—				8,406				8,406				(2,960		)		2003
1079		Nassau Bay		TX		—				—				8,942				1,748				—				10,271				10,271				(3,488		)		2006
0596		N Richland Hills		TX		—				812				8,883				3,395				812				11,648				12,460				(4,394		)		2000
2048		North Richland Hills		TX		—				1,385				10,213				2,135				1,400				12,048				13,448				(3,080		)		2012
2835		Pearland		TX		—				—				4,014				4,693				—				7,276				7,276				(2,217		)		2006
2838		Pearland		TX		—				—				—				17,622				—				17,622				17,622				(1,521		)		2014
0447		Plano		TX		—				1,700				7,810				6,454				1,792				13,388				15,180				(7,113		)		1999
0597		Plano		TX		—				1,210				9,588				4,924				1,224				13,357				14,581				(5,188		)		2000
0672		Plano		TX		—				1,389				12,768				3,332				1,389				14,616				16,005				(5,119		)		2002
1284		Plano		TX		—				2,049				18,793				2,445				2,101				18,657				20,758				(8,188		)		2006
1286		Plano		TX		—				3,300				—				—				3,300				—				3,300				—				2006
2653		Rockwall		TX		—				788				9,020				—				788				9,020				9,808				(315		)		2017
0815		San Antonio		TX		—				—				9,193				2,917				87				11,083				11,170				(3,984		)		2006
0816		San Antonio		TX		3,115				—				8,699				3,218				175				10,930				11,105				(4,170		)		2006
1591		San Antonio		TX		—				—				7,309				730				43				7,957				8,000				(2,434		)		2010
2837		San Antonio		TX		—				—				26,191				1,847				—				27,775				27,775				(7,742		)		2011
2852		Shenandoah		TX		—				—				—				28,557				—				28,557				28,557				(1,396		)		2016
0598		Sugarland		TX		—				1,078				5,158				3,397				1,170				7,350				8,520				(2,808		)		2000
0599		Texas City		TX		—				—				9,519				582				—				9,944				9,944				(3,138		)		2000
0152		Victoria		TX		—				125				8,977				394				125				9,371				9,496				(5,112		)		1994
2550		The Woodlands		TX		—				115				5,141				—				115				5,141				5,256				(565		)		2015
2551		The Woodlands		TX		—				296				18,282				—				296				18,282				18,578				(1,729		)		2015
2552		The Woodlands		TX		—				374				25,125				—				374				25,125				25,499				(2,118		)		2015
1592		Bountiful		UT		—				999				7,426				913				1,019				8,265				9,284				(2,304		)		2010
0169		Bountiful		UT		—				276				5,237				1,665				396				6,327				6,723				(3,208		)		1995
0346		Castle Dale		UT		—				50				1,818				163				50				1,918				1,968				(1,036		)		1998
0347		Centerville		UT		—				300				1,288				234				300				1,352				1,652				(753		)		1999
2035		Draper		UT		4,928				—				10,803				516				—				11,212				11,212				(1,764		)		2012
0469		Kaysville		UT		—				530				4,493				226				530				4,719				5,249				(1,920		)		2001
0456		Layton		UT		—				371				7,073				1,303				389				8,009				8,398				(3,978		)		2001
2042		Layton		UT		—				—				10,975				537				27				11,485				11,512				(1,837		)		2012
0359		Ogden		UT		—				180				1,695				240				180				1,730				1,910				(977		)		1999
0357		Orem		UT		—				337				8,744				2,834				306				9,026				9,332				(4,675		)		1999
0353		Salt Lake City		UT		—				190				779				196				234				869				1,103				(499		)		1999
0354		Salt Lake City		UT		—				220				10,732				2,955				220				12,819				13,039				(6,815		)		1999
0355		Salt Lake City		UT		—				180				14,792				2,826				180				16,844				17,024				(9,358		)		1999
0467		Salt Lake City		UT		—				3,000				7,541				2,592				3,145				9,629				12,774				(4,188		)		2001
0566		Salt Lake City		UT		—				509				4,044				2,733				509				6,248				6,757				(2,651		)		2003

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
2041		Salt Lake City		UT		—				—				12,326				635				—				12,940				12,940				(2,024		)		2012
2033		Sandy		UT		—				867				3,513				1,694				1,153				4,794				5,947				(1,395		)		2012
0482		Stansbury		UT		—				450				3,201				1,204				529				3,966				4,495				(1,392		)		2001
0351		Washington Terrace		UT		—				—				4,573				2,511				17				6,176				6,193				(3,722		)		1999
0352		Washington Terrace		UT		—				—				2,692				1,364				15				3,348				3,363				(1,819		)		1999
2034		West Jordan		UT		—				—				12,021				323				—				12,344				12,344				(1,960		)		2012
2036		West Jordan		UT		330				—				1,383				1,544				—				2,798				2,798				(709		)		2012
0495		West Valley City		UT		—				410				8,266				1,002				410				9,268				9,678				(4,897		)		2002
0349		West Valley City		UT		—				1,070				17,463				142				1,036				17,595				18,631				(10,002		)		1999
1208		Fairfax		VA		—				8,396				16,710				13,723				8,828				28,900				37,728				(9,984		)		2006
2230		Fredericksburg		VA		—				1,101				8,570				—				1,101				8,570				9,671				(1,081		)		2014
0572		Reston		VA		—				—				11,902				967				—				12,027				12,027				(4,890		)		2003
0448		Renton		WA		—				—				18,724				4,560				—				22,145				22,145				(11,288		)		1999
0781		Seattle		WA		—				—				52,703				16,748				—				65,633				65,633				(26,312		)		2004
0782		Seattle		WA		—				—				24,382				13,599				126				35,209				35,335				(15,444		)		2004
0783		Seattle		WA		—				—				5,625				1,635				183				6,929				7,112				(6,432		)		2004
0785		Seattle		WA		—				—				7,293				6,215				—				12,112				12,112				(5,983		)		2004
1385		Seattle		WA		—				—				45,027				8,973				—				53,757				53,757				(17,481		)		2007
2038		Evanston		WY		—				—				4,601				1,009				—				5,542				5,542				(799		)		2012
						$	8,373			$	279,768			$	3,025,955			$	977,128			$	308,003			$	3,783,938			$	4,091,941			$	(1,037,768	)

						Encumbrances at December 31, 2018				Initial Cost to Company								Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried As of December 31, 2018												Accumulated Depreciation(2)				Year Acquired/ Constructed
		City		State			Land				Buildings and Improvements					Land				Buildings and Improvements				Total(1)
Other non-reportable segments
Other-Hospitals
0126		Sherwood		AR		$	—			$	709			$	9,604			$	—			$	709			$	9,599			$	10,308			$	(5,914	)		1989
0113		Glendale		AZ		—				1,565				7,050				20				1,565				7,067				8,632				(4,290		)		1988
1038		Fresno		CA		—				3,652				29,113				21,935				3,652				51,048				54,700				(17,545		)		2006
0423		Irvine		CA		—				18,000				70,800				—				18,000				70,800				88,800				(38,777		)		1999
0127		Colorado Springs		CO		—				690				8,338				—				690				8,346				9,036				(5,072		)		1989
0887		Atlanta		GA		—				4,300				13,690				—				4,300				11,890				16,190				(7,035		)		2007
0112		Overland Park		KS		—				2,316				10,681				24				2,316				10,693				13,009				(6,837		)		1988
1383		Baton Rouge		LA		—				690				8,545				87				690				8,496				9,186				(4,656		)		2007
0886		Dallas		TX		—				1,820				8,508				26				1,820				7,454				9,274				(2,205		)		2007
1319		Dallas		TX		—				18,840				155,659				2,950				18,840				158,606				177,446				(53,011		)		2007
1384		Plano		TX		—				6,290				22,686				5,707				6,290				28,203				34,493				(15,193		)		2007
2198		Webster		TX		—				2,220				9,602				—				2,220				9,282				11,502				(1,949		)		2013
Other-Post-acute/skilled nursing
2469		Rural Retreat		VA		—				1,876				14,720				—				1,876				14,904				16,780				(1,719		)		2013
						$	—			$	62,968			$	368,996			$	30,749			$	62,968			$	396,388			$	459,356			$	(164,203	)
Total						$	138,470			$	1,606,862			$	9,027,478			$	2,809,912			$	1,637,506			$	11,414,891			$	13,052,397			$	(2,842,947	)

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(1)	At December 31, 2018, the tax basis of the Company’s net real estate assets is less than the reported amounts by $1.0 billion (unaudited).

(2)	Buildings and improvements are depreciated over useful lives ranging up to 60 years.

A summary of activity for real estate and accumulated depreciation follows (in thousands):

	Year ended December 31,
	2018				2017				2016
Real estate:
Balances at beginning of year	$	13,473,573			$	13,974,760			$	14,330,257
Acquisition of real estate and development and improvements	1,093,903				995,443				987,135
Sales and/or transfers to assets held for sale and discontinued operations	(1,052,145		)		(589,391		)		(1,227,614		)
Deconsolidation of real estate	(325,580		)		(825,074		)		(10,306		)
Impairments	(49,729		)		(37,274		)		—
Other(1)	(87,625		)		(44,891		)		(104,712		)
Balances at end of year	$	13,052,397			$	13,473,573			$	13,974,760
Accumulated depreciation:
Balances at beginning of year	$	2,741,695			$	2,648,930			$	2,476,015
Depreciation expense	461,664				436,085				465,945
Sales and/or transfers to assets held for sale and discontinued operations	(239,231		)		(115,195		)		(239,112		)
Deconsolidation of real estate	(43,525		)		(152,572		)		(5,868		)
Other(1)	(77,656		)		(75,553		)		(48,050		)
Balances at end of year	$	2,842,947			$	2,741,695			$	2,648,930

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(1)	Represents real estate and accumulated depreciation related to fully depreciated assets, foreign exchange translation, or changes in lease classification.