UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-10989

Ventas, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		61-1055020 (I.R.S. Employer Identification No.)

60606
(Zip Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class of Common Stock:		Outstanding at November 1, 2010:
Common Stock, $0.25 par value		157,096,269

 

 

VENTAS, INC.
FORM 10-Q

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009			3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009			4
Consolidated Statements of Equity for the Nine Months Ended September 30, 2010 and the Year Ended December 31, 2009			5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			56
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			57
Item 6. Exhibits			60
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VENTAS, INC.

		September 30,				December 31,
		2010				2009
		(Unaudited)				(Audited)
Assets
Real estate investments:
Land		$	557,880			$	557,276
Buildings and improvements			5,982,708				5,722,837
Construction in progress			5,955				12,508
Acquired lease intangibles			143,356				106,800
			6,689,899				6,399,421
Accumulated depreciation and amortization			(1,416,546	)			(1,270,314	)
Net real estate property			5,273,353				5,129,107
Loans receivable, net			164,829				131,887
Investments in unconsolidated entities			16,044				—
Net real estate investments			5,454,226				5,260,994
Cash and cash equivalents			33,790				107,397
Escrow deposits and restricted cash			41,985				39,832
Deferred financing costs, net			22,739				29,252
Other			248,077				178,770
Total assets		$	5,800,817			$	5,616,245
Liabilities and equity
Liabilities:
Senior notes payable and other debt		$	2,895,547			$	2,670,101
Accrued interest			33,748				17,974
Accounts payable and other liabilities			202,985				190,445
Deferred income taxes			252,351				253,665
Total liabilities			3,384,631				3,132,185
Commitments and contingencies
Equity:
Ventas stockholders’ equity:
Preferred stock, $1.00 par value; 10,000 shares authorized, unissued			—				—
Common stock, $0.25 par value; 300,000 shares authorized; 157,095 and 156,627 shares issued at September 30, 2010 and December 31, 2009, respectively			39,346				39,160
Capital in excess of par value			2,587,367				2,573,039
Accumulated other comprehensive income			23,816				19,669
Retained earnings (deficit)			(249,047	)			(165,710	)
Treasury stock, 0 and 15 shares at September 30, 2010 and December 31, 2009, respectively			—				(647	)
Total Ventas stockholders’ equity			2,401,482				2,465,511
Noncontrolling interest			14,704				18,549
Total equity			2,416,186				2,484,060
Total liabilities and equity		$	5,800,817			$	5,616,245

See accompanying notes.

VENTAS, INC.

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
Revenues:
Rental income:
Triple-net leased		$	117,906			$	115,752			$	351,625			$	344,757
Medical office buildings			22,817				9,057				47,246				25,748
			140,723				124,809				398,871				370,505
Resident fees and services			113,182				106,515				331,535				312,853
Medical office building services revenue			6,711				—				6,711				—
Income from loans and investments			4,014				3,214				11,336				9,828
Interest and other income			35				99				420				493
Total revenues			264,665				234,637				748,873				693,679
Expenses:
Interest			45,519				43,291				133,449				132,742
Depreciation and amortization			52,104				49,984				154,458				147,801
Property-level operating expenses:
Senior living			74,066				73,131				219,802				215,127
Medical office buildings			7,941				3,207				16,267				9,243
			82,007				76,338				236,069				224,370
Medical office building services costs			4,633				—				4,633				—
General, administrative and professional fees (including non-cash stock-based compensation expense of $4,039 and $3,078 for the three months ended 2010 and 2009, respectively, and $10,128 and $9,215 for the nine months ended 2010 and 2009, respectively)			15,278				9,657				35,819				30,610
Foreign currency (gain) loss			(419	)			32				(404	)			31
Loss on extinguishment of debt			—				—				6,549				6,080
Merger-related expenses and deal costs			5,142				5,894				11,668				11,450
Total expenses			204,264				185,196				582,241				553,084
Income before loss from unconsolidated entities, income taxes, discontinued operations and noncontrolling interest			60,401				49,441				166,632				140,595
Loss from unconsolidated entities			(392	)			—				(392	)			—
Income tax (expense) benefit			(1,657	)			410				(2,352	)			1,352
Income from continuing operations			58,352				49,851				163,888				141,947
Discontinued operations			542				579				7,139				72,635
Net income			58,894				50,430				171,027				214,582
Net income attributable to noncontrolling interest (net of tax of $613 and $387 for the three months ended 2010 and 2009, respectively, and $1,591 and $1,318 for the nine months ended 2010 and 2009, respectively)			996				625				2,443				2,168
Net income attributable to common stockholders		$	57,898			$	49,805			$	168,584			$	212,414
Earnings per common share:
Basic:
Income from continuing operations attributable to common stockholders		$	0.37			$	0.32			$	1.03			$	0.92
Discontinued operations			0.00				0.00				0.05				0.48
Net income attributable to common stockholders		$	0.37			$	0.32			$	1.08			$	1.40
Diluted:
Income from continuing operations attributable to common stockholders		$	0.37			$	0.32			$	1.02			$	0.92
Discontinued operations			0.00				0.00				0.05				0.48
Net income attributable to common stockholders		$	0.37			$	0.32			$	1.07			$	1.40
Weighted average shares used in computing earnings per common share:
Basic			156,631				156,250				156,566				151,309
Diluted			157,941				156,516				157,453				151,439
Dividends declared per common share		$	0.535			$	0.5125			$	1.605			$	1.5375

See accompanying notes.

VENTAS, INC.

										Accumulated
		Common				Capital in				Other				Retained								Total Ventas
		Stock Par				Excess of				Comprehensive				Earnings				Treasury				Stockholders’				Noncontrolling
		Value				Par Value				Income (Loss)				(Deficit)				Stock				Equity				Interest				Total Equity
Balance at January 1, 2009		$	35,825			$	2,264,125			$	(21,089	)		$	(117,806	)		$	(457	)		$	2,160,598			$	19,137			$	2,179,735
Comprehensive Income:
Net income			—				—				—				266,495				—				266,495				2,865				269,360
Foreign currency translation			—				—				23,552				—				—				23,552				—				23,552
Unrealized gain on marketable debt securities			—				—				17,327				—				—				17,327				—				17,327
Other			—				—				(121	)			—				—				(121	)			—				(121	)
Comprehensive income			—				—				—				—				—				307,253				2,865				310,118
Net change in noncontrolling interest			—				334				—				—				—				334				(3,453	)			(3,119	)
Dividends to common stockholders — $2.05 per share			—				—				—				(314,399	)			—				(314,399	)			—				(314,399	)
Issuance of common stock			3,266				295,935				—				—				—				299,201				—				299,201
Issuance of common stock for stock plans			30				12,819				—				—				175				13,024				—				13,024
Grant of restricted stock, net of forfeitures			39				(174	)			—				—				(365	)			(500	)			—				(500	)
Balance at December 31, 2009			39,160				2,573,039				19,669				(165,710	)			(647	)			2,465,511				18,549				2,484,060
Comprehensive Income:
Net income			—				—				—				168,584				—				168,584				2,443				171,027
Foreign currency translation			—				—				3,898				—				—				3,898				—				3,898
Unrealized loss on marketable debt securities			—				—				438				—				—				438				—				438
Other			—				—				(189	)			—				—				(189	)			—				(189	)
Comprehensive income			—				—				—				—				—				172,731				2,443				175,174
Net change in noncontrolling interest			—				2,246				—				—				—				2,246				(6,288	)			(4,042	)
Dividends to common stockholders — $1.605 per share			—				—				—				(251,921	)			—				(251,921	)			—				(251,921	)
Issuance of common stock for stock plans			152				10,908				—				—				2,658				13,718				—				13,718
Grant of restricted stock, net of forfeitures			34				1,174				—				—				(2,011	)			(803	)			—				(803	)
Balance at September 30, 2010		$	39,346			$	2,587,367			$	23,816			$	(249,047	)		$	—			$	2,401,482			$	14,704			$	2,416,186

See accompanying notes.

VENTAS, INC.

		For the Nine Months
		Ended September 30,
		2010				2009
Cash flows from operating activities:
Net income		$	171,027			$	214,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amounts in discontinued operations)			154,922				149,166
Amortization of deferred revenue and lease intangibles, net			(4,580	)			(5,151	)
Other amortization expenses			6,455				4,295
Stock-based compensation			10,128				9,215
Straight-lining of rental income			(7,975	)			(8,961	)
Loss on extinguishment of debt			6,549				6,080
Net gain on sale of real estate assets (including amounts in discontinued operations)			(5,393	)			(67,011	)
Income tax expense (benefit)			2,352				(1,352	)
Loss from unconsolidated entities			392				—
Other			(8	)			83
Changes in operating assets and liabilities:
Increase in other assets			(9,017	)			(4,277	)
Increase in accrued interest			15,763				13,550
Increase in accounts payable and other liabilities			5,504				12,978
Net cash provided by operating activities			346,119				323,197
Cash flows from investing activities:
Net investment in real estate property			(239,157	)			(23,728	)
Investment in loans receivable			(38,725	)			(7,373	)
Proceeds from real estate disposals			25,597				57,802
Proceeds from loans receivable			1,552				7,908
Contributions to unconsolidated entities			(4,658	)			—
Distributions from unconsolidated entities			158				—
Capital expenditures			(13,243	)			(7,184	)
Net cash (used in) provided by investing activities			(268,476	)			27,425
Cash flows from financing activities:
Net change in borrowings under revolving credit facilities			233,004				(291,456	)
Proceeds from debt			201,237				304,202
Repayment of debt			(331,378	)			(516,531	)
Payment of deferred financing costs			(1,872	)			(13,422	)
Issuance of common stock, net			—				299,201
Cash distribution to common stockholders			(251,921	)			(234,086	)
Contributions from noncontrolling interest			818				635
Distributions to noncontrolling interest			(6,633	)			(7,496	)
Other			5,426				2,003
Net cash used in financing activities			(151,319	)			(456,950	)
Net decrease in cash and cash equivalents			(73,676	)			(106,328	)
Effect of foreign currency translation on cash and cash equivalents			69				405
Cash and cash equivalents at beginning of period			107,397				176,812
Cash and cash equivalents at end of period		$	33,790			$	70,889
Supplemental schedule of non-cash activities:
Assets and liabilities assumed from acquisitions:
Real estate investments		$	125,846			$	8,456
Utilization of escrow funds held for an Internal Revenue Code Section 1031 exchange			—				(9,295	)
Other assets acquired			(385	)			—
Debt assumed			125,320				—
Other liabilities			141				(1,886	)
Noncontrolling interest			—				1,047
Debt transferred on the sale of assets			—				38,759

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF BUSINESS

Ventas, Inc. (together with its subsidiaries, unless otherwise indicated or except where the context otherwise requires, “we,” “us” or “our”) is a real estate investment trust (“REIT”) with a geographically diverse portfolio of seniors housing and healthcare properties in the United States and Canada. As of September 30, 2010, this portfolio consisted of 598 assets: 241 seniors housing communities, 187 skilled nursing facilities, 40 hospitals and 130 medical office buildings (“MOBs”) and other properties in 43 states, the District of Columbia and two Canadian provinces. With the exception of our seniors housing communities that are managed by independent third parties, such as Sunrise Senior Living, Inc. (together with its subsidiaries, “Sunrise”), pursuant to long-term management agreements and the majority of our MOBs, we lease our properties to healthcare operating companies under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. We also had real estate loan investments relating to seniors housing and healthcare companies or properties as of September 30, 2010.

We conduct substantially all of our business through our wholly owned subsidiaries, Ventas Realty, Limited Partnership (“Ventas Realty”), PSLT OP, L.P. and Ventas SSL, Inc. Our primary business consists of acquiring, financing and owning seniors housing and healthcare properties and leasing those properties to third parties or operating those properties through independent third party managers. Through our Lillibridge Healthcare Services, Inc. (“Lillibridge”) subsidiary, we also provide management, leasing, marketing, facility development and advisory services to highly rated hospitals and health systems throughout the United States.

NOTE 2 — ACCOUNTING POLICIES

The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information set forth in the Accounting Standards Codification (“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the Securities and Exchange Commission (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily an indication of the results that may be expected for the year ending December 31, 2010. The accompanying Consolidated Financial Statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in our Current Report on Form 8-K filed with the SEC on May 3, 2010. Certain prior period amounts have been reclassified to conform to the current period presentation.

Revenue Recognition

Certain of our leases, including the majority of our leases with Brookdale Senior Living Inc. (together with its subsidiaries, “Brookdale Senior Living”) and the majority of our MOB leases, provide for periodic and determinable increases in base rent. Base rental revenues under these leases are recognized on a straight-line basis over the terms of the applicable lease. Income on our straight-line revenue is recognized when collectibility is reasonably assured, and in the event we determine that collectibility of straight-line revenue is not reasonably assured, we establish an allowance for estimated losses. Recognizing rental income on a straight-line basis results in recognized revenue exceeding cash amounts contractually due from our tenants during the first half of the term for leases that have straight-line treatment. The cumulative excess is included in other assets, net of allowances, on our Consolidated Balance Sheets and totaled $83.6 million and $78.4 million at September 30, 2010 and December 31, 2009, respectively.

Our master lease agreements with Kindred Healthcare, Inc. (together with its subsidiaries, “Kindred”) (the “Kindred Master Leases”) and certain of our other leases provide for an annual increase in rental payments only if certain revenue parameters or other substantive contingencies are met. We recognize the increased rental revenue under these leases only if the revenue parameters or other substantive contingencies are met, rather than on a straight-line basis over the term of the applicable lease.

We recognize income from rent, lease termination fees, management advisory services and all other income when all of the following criteria are met in accordance with SEC Staff Accounting Bulletin 104: (i) the agreement has been fully executed and delivered; (ii) services have been rendered; (iii) the amount is fixed or determinable; and (iv) collectibility is reasonably assured.

We recognize resident fees and services, other than move-in fees, monthly as services are provided. Move-in fees, a component of resident fees and services, are recognized on a straight-line basis over the term of the applicable lease agreement. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.

Fair Values of Financial Instruments

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

•

Cash and cash equivalents: The carrying amount of unrestricted cash and cash equivalents reported in our Consolidated Balance Sheets approximates fair value due to the short maturity of these instruments.

•

Loans receivable: The fair value of loans receivable is estimated by discounting the future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

•

Marketable debt securities: The fair value of marketable debt securities is estimated using quoted prices in active markets for identical assets or liabilities that we have the ability to access.

•

Senior notes payable and other debt: The fair values of borrowings are estimated by discounting the future cash flows using current interest rates at which similar borrowings could be made by us.

Long-Lived Assets and Intangibles

Investments in real estate assets are recorded at cost. We account for acquisitions using the purchase method and allocate the cost of the properties acquired among tangible and recognized intangible assets and liabilities based upon their estimated fair values as of the acquisition date. Recognized intangibles primarily include the value of in place leases, acquired lease contracts, tenant and customer relationships, trade names/trademarks and goodwill.

We estimate the fair value of buildings on an as-if-vacant basis and depreciate the building value over the estimated remaining life of the building. We determine the allocated value of other fixed assets based upon the replacement cost and depreciate such value over their estimated remaining useful lives. We determine the value of land either based on real estate tax assessed values in relation to the total value of the asset, on internal analyses of recently acquired and existing comparable properties within our portfolio or by considering the sales prices of recent transactions of similar properties. The fair value of lease intangibles, if any, reflects (i) the estimated value of any above and/or below market leases, determined by discounting the difference between the estimated current market rent and the in-place rentals, the resulting intangible asset or liability of which is amortized to revenue over the remaining life of the associated lease plus any fixed rate renewal periods, if applicable, (ii) the estimated value of in-place leases related to the cost to obtain tenants, including tenant allowances, tenant improvements and leasing commissions and an estimated value of the absorption period to reflect the value of the rents and recovery costs foregone during a reasonable lease-up period, as if the acquired space was vacant, which is amortized over the remaining life of the associated lease, and (iii) the estimated value of any above and/or below market ground leases, determined by discounting the difference between the estimated market rental rate and the in-place lease rate, which is amortized over the remaining life of the associated lease. We estimate the value of tenant or other customer relationships acquired, if any, by considering the nature and extent of existing business relationships with the tenant or customer, growth prospects for developing new business with the tenant or customer, the tenant’s credit quality, expectations of lease renewals with the tenant, and the potential for significant, additional future leasing arrangements with the tenant and amortize that value over the expected life of the associated arrangements or leases, which includes the remaining lives of the related leases and any expected renewal periods. We estimate the value of trade names/trademarks using a royalty rate methodology which is amortized over the estimated useful life. We calculate the fair value of long-term debt by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which is approximated based on the rate we estimate we would incur to replace each instrument on the date of acquisition. Any fair value adjustments related to long-term debt are recognized as effective yield adjustments over the remaining term of the instrument. Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired business and is not amortized.

Impairment of Long-Lived and Intangible Assets

We periodically evaluate our long-lived assets, primarily consisting of our investments in real estate, for impairment indicators. If indicators of impairment are present, we evaluate the carrying value of the related real estate investments in relation to the future undiscounted cash flows of the underlying operations, and we adjust the net book value of leased properties and other long-lived assets to fair value if the sum of the expected future undiscounted cash flows including sales proceeds is less than book value. An impairment loss is recognized at the time we make any such determination. Future events could occur that would cause us to conclude that impairment indicators exist and an impairment loss is warranted. Intangible assets with finite useful lives are reviewed for impairment if indicators of impairment arise. The evaluation of impairment is based upon a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then the fair value of the asset is estimated. The impairment expense is determined by comparing the estimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period. Goodwill is reviewed for impairment annually or more frequently if indicators arise. The evaluation is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit’s carrying value. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions, such as revenue and expense growth rates, capitalization rates and discount rates.

Investments in Unconsolidated Entities

Investments in entities which we do not consolidate but for which we have the ability to exercise significant influence over operating and financial policies are reported under the equity method of accounting. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our Consolidated Statements of Income.

The initial carrying value of investments in unconsolidated entities is based on the fair market value of the assets at the time we purchased the joint venture interest. To the extent our cost basis is different from the basis reflected at the joint venture level, we generally amortize the difference over the lives of the related assets and liabilities and include it in our share of income or loss from unconsolidated entities. Our estimated fair values for our equity method investments are 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 models are based upon assumptions that we believe to be within a reasonable range of current market rates for the respective investments.

Segment Reporting

As of September 30, 2010, we operated through three reportable business segments: triple-net leased properties, senior living operations and MOB operations. Our triple-net leased properties segment consists of acquiring and owning seniors housing and healthcare properties in the United States and leasing those properties to healthcare operating companies under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our senior living operations segment primarily consists of investments in seniors housing communities located in the United States and Canada for which we engage independent third parties, such as Sunrise, to manage the operations. Our MOB operations segment primarily consists of acquiring, owning, developing, leasing and managing MOBs.

On July 1, 2010, we completed the acquisition of businesses owned and operated by Lillibridge and its related entities and their real estate interests in 96 MOBs and ambulatory facilities. With the addition of these properties, we believed the segregation of our MOB operations into its own reporting segment would be useful in assessing the performance of this portion of our business in the same way that management intends to review our performance and make operating decisions. Prior to the acquisition, we operated through two reportable segments: triple-net leased properties and senior living operations. See “Note 14-Segment Information.”

Recently Issued or Adopted Accounting Standards

On January 1, 2010, we adopted Accounting Standards Update (“ASU”) No. 2009-17, Consolidation (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. ASU No. 2009-17 requires an enterprise to analyze whether its variable interest gives it a controlling financial interest in a variable interest entity (“VIE”). This analysis identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. ASU No. 2009-17 requires an enterprise to perform this analysis on an ongoing basis and requires additional disclosures about an enterprise’s involvement in VIEs. The adoption of ASU No. 2009-17 did not impact our Consolidated Financial Statements.

On January 1, 2010, we adopted ASU No. 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification. ASU No. 2010-02 provides additional clarification regarding decrease-in-ownership provisions and expands the disclosures required upon deconsolidation of a subsidiary. The adoption of ASU 2010-02 did not impact our Consolidated Financial Statements.

On January 1, 2010, we adopted ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 adds new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. ASU No. 2010-06 is partially effective for periods beginning after December 15, 2009; requirements related to additional Level 3 disclosures will be effective for fiscal years beginning after December 15, 2010. The adoption of ASU No. 2010-06 did not impact our Consolidated Financial Statements.

In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU No. 2010-09 includes, among other things, an exemption for SEC filers from the requirement to disclose the date through which subsequent events have been evaluated. We adopted ASU No. 2010-09 during the first quarter of 2010 and will no longer include the date through which subsequent events have been evaluated in our notes to Consolidated Financial Statements.

In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires additional, segregated disclosures about the credit quality of an entity’s financing receivables and its allowance for credit losses. The new and amended disclosures of ASU No. 2010-20 that relate to information as of the end of a reporting period will be effective for the first interim or annual reporting period ending on or after December 15, 2010. The disclosures that include information for activity that occurs during a reporting period will be effective for the first interim or annual period beginning after December 15, 2010. We will adopt ASU No. 2010-20 during the fourth quarter of 2010. We do not anticipate that the adoption of ASU No. 2010-20 will have a material impact on our Consolidated Financial Statements.

NOTE 3 — CONCENTRATION OF CREDIT RISK

As of September 30, 2010, approximately 37.8%, 19.7% and 13.1% of our properties, based on the gross book value of real estate investments (including assets held for sale), were managed or operated by Sunrise, Brookdale Senior Living (whose subsidiaries include Brookdale Living Communities, Inc. (“Brookdale”) and Alterra Healthcare Corporation (“Alterra”)) and Kindred, respectively. Seniors housing communities and skilled nursing facilities constituted approximately 70.5% and 11.7%, respectively, of our portfolio, based on the gross book value of real estate investments (including assets held for sale), as of September 30, 2010, with the remaining properties consisting of hospitals, MOBs and other healthcare assets. As of September 30, 2010, our properties were located in 43 states, the District of Columbia and two Canadian provinces, with properties in two states each accounting for 10% or more of our total revenues during the nine months then ended.

Approximately 24.6% and 26.5% of our total revenues and 36.2% and 38.6% of our total net operating income (“NOI,” which is defined as total revenues, less interest and other income, property-level operating expenses and MOB services costs) (including amounts in discontinued operations) for the nine months ended September 30, 2010 and 2009, respectively, were derived from our four Kindred Master Leases. Approximately 12.1% and 12.9% of our total revenues and 17.8% and 19.1% of our total NOI (including amounts in discontinued operations) for the nine months ended September 30, 2010 and 2009, respectively, were derived from our lease agreements with Brookdale Senior Living. Each of the Kindred Master Leases and our leases with Brookdale Senior Living is a triple-net lease pursuant to which the tenant is required to pay all insurance, taxes, utilities and maintenance and repairs related to the properties. In addition, the tenants are required to comply with the terms of the mortgage financing documents, if any, affecting the properties.

In view of the fact that Kindred and Brookdale Senior Living lease a substantial portion of our triple-net leased properties and are each a significant source of our revenues and NOI, their financial condition and ability and willingness to satisfy their obligations under their respective leases and other agreements with us, as well as their willingness to renew those leases upon expiration of the terms thereof, have a considerable impact on our results of operations and our ability to service our indebtedness and to make distributions to our stockholders. We cannot assure you that Kindred or Brookdale Senior Living will have sufficient assets, income and access to financing to enable it to satisfy its obligations under its respective leases and other agreements with us, and any inability or unwillingness on its part to do so could have a material adverse effect on our business, financial condition, results of operations and liquidity, our ability to service our indebtedness and our ability to make distributions to our stockholders, as required for us to continue to qualify as a REIT (a “Material Adverse Effect”). We also cannot assure you that Kindred or Brookdale Senior Living will elect to renew its respective leases with us upon expiration of the initial base terms or any renewal terms thereof.

We are party to long-term management agreements with Sunrise pursuant to which Sunrise currently provides comprehensive accounting and property management services with respect to 79 of our seniors housing communities. Each management agreement has a term of 30 years from its effective date, the earliest of which began in 2004. Approximately 43.8% and 44.5% of our total revenues and 22.3% and 20.6% of our total earnings before interest, taxes, depreciation and amortization (including non-cash stock-based compensation), excluding merger-related expenses and deal costs and gains and losses on real estate disposals (“Adjusted EBITDA”) (including amounts in discontinued operations) for the nine months ended September 30, 2010 and 2009, respectively, were attributable to senior living operations managed by Sunrise.

Unlike Kindred and Brookdale Senior Living, Sunrise does not lease properties from us, but rather acts as a property manager for nearly all of our senior living operations. Therefore, while we are not directly exposed to credit risk with Sunrise, Sunrise’s inability to efficiently and effectively manage our properties and to provide timely and accurate accounting information with respect thereto could have a Material Adverse Effect on us. Although we have various rights as owner under the Sunrise management agreements, we rely on Sunrise’s personnel, good faith, expertise, historical performance, technical resources and information systems, proprietary information and judgment to manage our seniors housing communities efficiently and effectively. We also rely on Sunrise to set resident fees and otherwise operate those properties pursuant to our management agreements. Any adverse developments in Sunrise’s business and affairs or financial condition, including without limitation, the acceleration of its indebtedness, the inability to renew or extend its revolving credit facility, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings under the U.S. Bankruptcy Code by or against Sunrise could have a Material Adverse Effect on us.

Each of Kindred, Brookdale Senior Living and Sunrise is subject to the reporting requirements of the 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 Kindred, Brookdale Senior Living and Sunrise contained or referred to in this Quarterly Report on Form 10-Q is derived from filings made by Kindred, Brookdale Senior Living or Sunrise, as the case may be, with the SEC or other publicly available information, or has been provided to us by Kindred, Brookdale Senior Living or Sunrise. We have not verified this information either through an independent investigation or by reviewing Kindred’s, Brookdale Senior Living’s or Sunrise’s public filings. We have no reason to believe that this information is inaccurate in any material respect, but we cannot assure you that all of this information is accurate. Kindred’s, Brookdale Senior Living’s and Sunrise’s filings with the SEC can be found at the SEC’s website at www.sec.gov. We are providing this data for informational purposes only, and you are encouraged to obtain Kindred’s, Brookdale Senior Living’s and Sunrise’s publicly available filings from the SEC.

NOTE 4 — ACQUISITIONS

We engage in acquisition activity primarily to invest in seniors housing and healthcare properties with an expected yield on investment, as well as to diversify our portfolio and revenue base and limit our dependence on any single tenant, operator or manager, geographic location or asset type for our revenue.

Lillibridge Acquisition

On July 1, 2010, we completed the acquisition of businesses owned and operated by Lillibridge and its related entities and their real estate interests in 96 MOBs and ambulatory facilities for approximately $381 million, including the assumption of $79.5 million of mortgage debt. Lillibridge is a fully-integrated healthcare real estate company that owns, designs, develops and manages MOBs, and offers strategic, financial and operational real estate advisory services, principally for highly rated, not-for-profit hospitals and healthcare systems throughout the United States. Lillibridge also manages a total of 31 MOBs for third parties.

As a result of the transaction, we acquired: a 100% interest in Lillibridge’s property management, leasing, construction and development, advisory and asset management services business; a 100% interest in 38 MOBs comprising 1.9 million square feet; a 20% joint venture interest in 24 MOBs comprising 1.5 million square feet; and a 5% joint venture interest in 34 MOBs comprising 2.3 million square feet. We are the managing member of these joint ventures and the property manager for the joint venture properties. Two institutional third parties hold the majority interests in these joint ventures, and we have a right of first offer on those interests. We funded the acquisition with cash on hand, borrowings under our unsecured revolving credit facilities and the assumption of mortgage debt. In connection with the acquisition, $132.7 million of mortgage debt was repaid. Our portfolio now includes 153 owned or managed MOBs containing approximately 8.6 million square feet in 19 states and the District of Columbia.

The Lillibridge acquisition was accounted for under the purchase method. The purchase price was allocated among tangible and intangible real estate assets (approximately $290 million), investments in unconsolidated entities (net investment of approximately $10 million), other assets, including intangible assets (approximately $45 million), mortgage debt (approximately $79.5 million) and other liabilities (approximately $15 million). The estimated fair values of the assets and liabilities acquired were determined using level two and three inputs. Such estimates are subject to refinement as additional valuation information is received.

2009 Acquisitions

During 2009, we purchased four MOBs for an aggregate purchase price of $77.7 million, including $1.7 million of noncontrolling interest. We own one of these MOBs through a consolidated joint venture with a partner that provides management and leasing services for the property. The purchase price was allocated among building and improvements, tenant improvements and lease intangibles of $60.9 million, $11.1 million and $5.7 million, respectively. Additionally, in 2009, we purchased one skilled nursing facility for $10.0 million and leased it to Brookdale Senior Living. The purchase price was allocated between land of $0.7 million and building and improvements of $9.3 million.

We also completed the development of two MOBs pursuant to an arrangement we entered into with a nationally recognized private developer of MOBs and healthcare facilities in 2008. That arrangement gave us the exclusive right, as part of a joint venture, to develop up to ten identified MOBs on hospital campuses in eight states. As of December 31, 2009, we had invested approximately $35.6 million, including $1.4 million of noncontrolling interest, in two MOBs under the arrangement, both of which we consolidate. The investment was allocated among land, building and improvements and tenant improvements of $1.4 million, $25.5 million and $8.7 million, respectively.

NOTE 5 — DISPOSITIONS

We report separately, as discontinued operations, in all periods presented the results of operations for all long-lived assets disposed of or held for sale during the nine months ended September 30, 2010 and the year ended December 31, 2009.

2010 Dispositions and Assets Held For Sale

During the third quarter of 2010, we classified the operations of one seniors housing community as held for sale. The net book value of this asset, $18.8 million, is reflected as held for sale as of September 30, 2010 and included in other assets on our Consolidated Balance Sheet, and the operations for this asset have been reported as discontinued operations for all periods presented. We expect to record a gain from the sale of this asset during the fourth quarter of 2010 of approximately $12.3 million.

In September 2010, we sold one seniors housing community for approximately $2.6 million. We recognized a gain from the sale of this asset of less than $0.1 million during the third quarter of 2010. The operations for this asset have been reported as discontinued operations for all periods presented.

In June 2010, we sold four seniors housing communities for approximately $22.5 million, including a lease termination fee of $0.2 million. We recognized a gain from the sale of these assets of $4.9 million during the second quarter of 2010. The operations for these assets have been reported as discontinued operations for all periods presented.

In February 2010, we sold one seniors housing community for approximately $2.5 million. We recognized a gain from the sale of this asset of $0.1 million during the first quarter of 2010. The operations for this asset have been reported as discontinued operations for all periods presented.

2009 Dispositions

In June 2009, we sold six skilled nursing facilities to Kindred for total consideration of $58.0 million, consisting of a $55.7 million aggregate sale price and a $2.3 million lease termination fee. The proceeds from the sale were held in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary and used for our acquisition of three MOBs in December 2009. Cash rent for these assets for the May 1, 2008 to April 30, 2009 lease year was approximately $5.6 million. We recognized a net gain from the sale of these assets of $38.9 million in the second quarter of 2009.

During 2009, we also sold five seniors housing communities, one hospital, one MOB and one other property to the existing tenants for an aggregate sale price of $96.2 million and transferred related debt of $38.8 million. We recognized a net gain from the sales of these assets of $27.5 million in 2009.

Set forth below is a summary of the results of operations for the three and nine months ended September 30, 2010 and 2009 with respect to the properties sold or held for sale during the nine months ended September 30, 2010 and the year ended December 31, 2009:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
		(In thousands)
Revenues:
Rental income		$	682			$	1,193			$	2,898			$	6,939
Interest and other income			—				—				225				2,423
			682				1,193				3,123				9,362
Expenses:
Interest			212				369				913				2,373
Depreciation and amortization			96				365				464				1,365
			308				734				1,377				3,738
Income before gain on sale of real estate assets			374				459				1,746				5,624
Gain on sale of real estate assets			168				120				5,393				67,011
Discontinued operations		$	542			$	579			$	7,139			$	72,635

NOTE 6 — INVESTMENTS IN UNCONSOLIDATED ENTITIES

Investments in entities which we do not consolidate but for which we have the ability to exercise significant influence over operating and financial policies are reported under the equity method of accounting. We serve as the managing member of each unconsolidated entity and provide various services in exchange for fees and reimbursements. We own interests in 58 properties which were accounted for under the equity method at September 30, 2010. Our net investment in these properties as of September 30, 2010 was $16.0 million. For the three months ended September 30, 2010, we recorded a loss from unconsolidated entities of $0.4 million.

NOTE 7 — INTANGIBLES

The following is a summary of our intangibles as of September 30, 2010 and December 31, 2009:

		September 30,				December 31,
		2010				2009
		(Dollars in thousands)
Intangible Assets:
Above market leases		$	13,501			$	10,525
In-place leases			122,912				96,274
Other intangibles			41,230				2,522
Accumulated amortization			(97,625	)			(92,636	)
Net Intangible Assets		$	80,018			$	16,685
Intangible Liabilities:
Below market leases		$	20,074			$	15,143
Accumulated amortization			(11,756	)			(10,760	)
Net Intangible Liabilities		$	8,318			$	4,383

Lease-related intangible assets are included in net real estate investments on our Consolidated Balance Sheets. Other intangible assets and below market lease intangibles are included in other assets and accounts payable and other liabilities, respectively, on our Consolidated Balance Sheets.

NOTE 8 — SENIOR NOTES PAYABLE AND OTHER DEBT

The following is a summary of our senior notes payable and other debt as of September 30, 2010 and December 31, 2009:

		September 30,				December 31,
		2010				2009
		(In thousands)
Unsecured revolving credit facilities		$	244,336			$	8,466
63/4% Senior Notes due 2010			—				1,375
37/8% Convertible Senior Notes due 2011			230,000				230,000
9% Senior Notes due 2012			82,433				82,433
Unsecured term loan due 2013			200,000				—
65/8% Senior Notes due 2014			71,654				71,654
71/8% Senior Notes due 2015			—				142,669
61/2% Senior Notes due 2016			400,000				400,000
63/4% Senior Notes due 2017			225,000				225,000
Mortgage loans			1,466,332				1,540,064
Total			2,919,755				2,701,661
Unamortized fair value adjustment			12,573				11,642
Unamortized commission fees and discounts			(36,781	)			(43,202	)
Senior notes payable and other debt		$	2,895,547			$	2,670,101

As of September 30, 2010, our indebtedness had the following maturities:

						Unsecured
		Principal Amount				Revolving Credit				Scheduled Periodic
		Due at Maturity				Facilities (1)				Amortization				Total Maturities
		(In thousands)
2010		$	42,098			$	—			$	7,015			$	49,113
2011			302,420				—				27,248				329,668
2012			388,937				244,336				23,694				656,967
2013			350,962				—				18,167				369,129
2014			125,139				—				15,205				140,344
Thereafter			1,289,547				—				84,987				1,374,534
Total maturities		$	2,499,103			$	244,336			$	176,316			$	2,919,755

As of September 30, 2010, our joint venture partners’ share of total debt was $147.0 million with respect to 56 of our properties owned through consolidated joint ventures. Total debt does not include the portion of debt allocated to our investments in unconsolidated entities.

Unsecured Revolving Credit Facilities

As of September 30, 2010, our aggregate borrowing capacity under the unsecured revolving credit facilities was $1.0 billion, all of which matures on April 26, 2012. Borrowings under our unsecured revolving credit facilities bear interest at a fluctuating rate per annum (based on U.S. or Canadian LIBOR, the Canadian Bankers’ Acceptance rate, or the U.S. or Canadian Prime rate), plus an applicable percentage based on our consolidated total leverage. At September 30, 2010, the applicable percentage was 2.80%. Our unsecured revolving credit facilities have a 20 basis point facility fee. At September 30, 2010, we had $244.3 million outstanding, $7.9 million of letters of credit and $747.8 million of available borrowing capacity under our unsecured revolving credit facilities.

In October 2010, we amended the terms of our revolving credit facilities to release the subsidiary guarantees thereunder.

Senior Notes and Other

In June 2010, we repaid in full, at par, $1.4 million principal amount outstanding of our 6³/4% senior notes due 2010 upon maturity. In June 2010, we also exercised our option to redeem all $142.7 million principal amount outstanding of our 7¹/8% senior notes due 2015, at a redemption price equal to 103.56% of par, plus accrued and unpaid interest to the redemption date, pursuant to the call option contained in the indenture governing the notes. As a result, we paid a total of $147.8 million, plus accrued and unpaid interest, and recognized a net loss on extinguishment of debt of $6.4 million during the second quarter.

In September 2010, we closed a new $200.0 million three-year unsecured term loan with Bank of America, N.A., as lender. The term loan is non-amortizing and bears interest at a fixed all-in interest rate of 4% per annum. The term loan contains the same restrictive covenants as our unsecured revolving credit facilities.

On September 30, 2010, the subsidiary guarantees on our outstanding senior notes (other than our 9% senior notes due 2012) and our outstanding convertible notes were released pursuant to the terms of the indentures governing the notes.

In October 2010, we exercised our option to redeem all $71.7 million principal amount outstanding of our 6⁵/8% senior notes due 2014, at a redemption price equal to 102.21% of par, plus accrued and unpaid interest to the redemption date, pursuant to the call option contained in the indenture governing the notes. As a result, we paid a total of $73.3 million, plus accrued and unpaid interest, and expect to recognize a loss on extinguishment of debt of $2.5 million during the fourth quarter of 2010.

Mortgages

In June 2010, we repaid $49.8 million of mortgage loans on two of our Sunrise-managed properties in which we had 80% ownership interests. In connection with our payment of Sunrise’s share ($9.9 million) of those mortgage loans, we acquired Sunrise’s 20% noncontrolling interests in the properties.

On July 1, 2010, in connection with our acquisition of Lillibridge and its related entities, we assumed $79.5 million of mortgage debt.

NOTE 9 — FAIR VALUES OF FINANCIAL INSTRUMENTS

As of September 30, 2010 and December 31, 2009, the carrying amounts and fair values of our financial instruments were as follows:

		September 30, 2010								December 31, 2009
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
		(In thousands)
Cash and cash equivalents		$	33,790			$	33,790			$	107,397			$	107,397
Loans receivable, net			164,829				166,117				131,887				129,512
Marketable debt securities			66,425				66,425				65,038				65,038
Senior notes payable and other debt, gross			(2,919,755	)			(3,173,608	)			(2,701,661	)			(2,780,405	)

Fair value estimates are subjective in nature and depend on a number of important assumptions, including estimates of future cash flows, risks, discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented above are not necessarily indicative of the amounts we would realize in a current market exchange.

At September 30, 2010, we held marketable debt securities, classified as available-for-sale, with an aggregate amortized cost basis and fair value of $61.5 million and $66.4 million, respectively. At December 31, 2009, these securities had an aggregate amortized cost basis and fair value of $60.6 million and $65.0 million, respectively. The contractual maturities of our marketable debt securities range from October 1, 2012 to April 15, 2016. We do not intend to sell these securities and it is more likely than not that we will not be required to sell these securities prior to maturity.

NOTE 10 — LITIGATION

Legal Proceedings Defended and Indemnified by Third Parties

Kindred, Brookdale Senior Living, Sunrise and our other tenants, operators and managers are parties to certain legal actions and regulatory investigations arising in the normal course of their business. In certain cases, the tenant, operator or manager, as applicable, has agreed to indemnify, defend and hold us harmless against these actions and investigations. However, the resolution of any litigation or investigations, either individually or in the aggregate, could have a material adverse effect on Kindred’s, Brookdale Senior Living’s, Sunrise’s or such other tenants’, operators’ and managers’ liquidity, financial condition or results of operations, which, in turn, could have a Material Adverse Effect on us.

Litigation Related to the Sunrise REIT Acquisition

On May 3, 2007, we filed a lawsuit against HCP, Inc. (“HCP”) in the United States District Court for the Western District of Kentucky, entitled Ventas, Inc. v. HCP, Inc., Case No. 07-cv-238-JGH. We asserted claims of tortious interference with contract and tortious interference with prospective business advantage. Our complaint alleged that HCP interfered with our purchase agreement to acquire the assets and liabilities of Sunrise Senior Living Real Estate Investment Trust (“Sunrise REIT”) and with the process for unitholder consideration of the purchase agreement. The complaint alleged, among other things, that HCP made certain improper and misleading public statements and/or offers to acquire Sunrise REIT and that HCP’s actions caused us to suffer substantial damages, including, among other things, the payment of materially greater consideration to acquire Sunrise REIT resulting from the substantial increase in the purchase price above the original contract price necessary to obtain unitholder approval and increased costs associated with the delay in closing the acquisition, including increased costs to finance the transaction as a result of the delay.

HCP brought counterclaims against us alleging misrepresentation and negligent misrepresentation by Sunrise REIT related to its sale process, claiming that we were responsible for those actions as successor. HCP sought compensatory and punitive damages. On March 25, 2009, the District Court granted us judgment on the pleadings against all counterclaims brought by HCP and dismissed HCP’s counterclaims with prejudice. Thereafter, the District Court confirmed the dismissal of HCP’s counterclaims.

On July 16, 2009, the District Court denied HCP’s summary judgment motion as to our claim for tortious interference with business advantage, permitting us to present that claim against HCP at trial. The District Court granted HCP’s motion for summary judgment as to our claim for tortious interference with contract and dismissed that claim. The District Court also ruled that we could not seek to recover a portion of our alleged damages.

On September 4, 2009, the jury unanimously held that HCP tortiously interfered with our business expectation to acquire Sunrise REIT at the agreed price by employing significantly wrongful means such as fraudulent misrepresentation, deceit and coercion. The jury awarded us $101.6 million in compensatory damages, which is the full amount of damages the District Court permitted us to seek at trial. The District Court entered judgment on the jury’s verdict on September 8, 2009.

On November 16, 2009, the District Court affirmed the jury’s verdict and denied all of HCP’s post-trial motions, including a motion requesting that the District Court overturn the jury’s verdict and enter judgment for HCP or, in the alternative, award HCP a new trial. The District Court also denied our motion for pre-judgment interest and/or to modify the jury award to increase it to reflect the currency rates in effect on September 8, 2009, the date of entry of the judgment.

On November 17, 2009, HCP appealed the District Court’s judgment to the United States Court of Appeals for the Sixth Circuit (the “Sixth Circuit”). HCP argues that the judgment against it should be vacated and the case remanded for a new trial and/or that judgment should be entered in its favor as a matter of law. We are vigorously contesting HCP’s appeal and seek confirmation by the Sixth Circuit of both the jury’s verdict and the various rulings in our favor in the District Court.

On November 24, 2009, we filed a cross-appeal to the Sixth Circuit, which will be heard and decided in conjunction with HCP’s appeal. In addition to maintaining the full benefit of our favorable jury verdict, in our cross-appeal, we have asserted that we are entitled to substantial monetary relief in addition to the jury verdict, including punitive damages, additional compensatory damages and pre-judgment interest. We are vigorously pursuing our cross-appeal and seek additional proceedings in the District Court in which a jury may supplement the current judgment.

On December 11, 2009, HCP posted a $102.8 million letter of credit in our favor to serve as security to stay execution of the jury verdict pending the appellate proceedings.

The briefing process for HCP’s appeal and our cross-appeal is complete, and a final decision by the Sixth Circuit could be issued by June 2011. There can be no assurance as to the outcome of HCP’s appeal or our cross-appeal or the timing of a decision by the Sixth Circuit.

Other Litigation

We are party to various other lawsuits, investigations and claims (some of which may not be insured) arising in the normal course of our business, including without limitation in connection with the operations of our seniors housing communities managed by Sunrise, our MOBs and the businesses owned and operated by Lillibridge. It is the opinion of management that, except as set forth in this Note 10, the disposition of these actions, investigations and claims will not, individually or in the aggregate, have a Material Adverse Effect on us. However, we are unable to predict the ultimate outcome of pending litigation, investigations and claims, and if management’s assessment of our liability with respect to these actions, investigations and claims is incorrect, such actions, investigations and claims could have a Material Adverse Effect on us.

NOTE 11 — INCOME TAXES

We have elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”), which are subject to federal and state income taxes. Although the TRS entities were not liable for any cash federal income taxes for the three or nine months ended September 30, 2010, federal income tax liabilities for these TRS entities may increase in future periods as we exhaust net operating loss carryforwards and as our senior living operations segment grows. Such increases could be significant.

The consolidated provision for income taxes for the three months ended September 30, 2010 and 2009 was an expense of $1.7 million and a benefit of $0.4 million, respectively. These amounts were adjusted by income tax expense of $0.6 million and $0.4 million, respectively, related to the noncontrolling interest share of net income. The consolidated provision for income taxes for the nine months ended September 30, 2010 and 2009 was an expense of $2.4 million and a benefit of $1.4 million, respectively. These amounts were adjusted by income tax expense of $1.6 million and $1.3 million, respectively, related to the noncontrolling interest share of net income. Realization of a deferred tax benefit is dependent in part upon generating sufficient taxable income in future periods. Our net operating loss carryforwards begin to expire in 2024 with respect to the TRS entities and 2020 with respect to our other entities.

Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Net deferred tax liabilities related to TRS entities totaled $252.4 million and $253.7 million at September 30, 2010 and December 31, 2009, respectively, and related primarily to book and tax basis differences for fixed and intangible assets and to net operating losses.

Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2007 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2006 and subsequent years. We are also subject to audit by the Canada Revenue Agency for periods subsequent to 2003 related to entities acquired or formed in connection with our Sunrise REIT acquisition.

NOTE 12 — STOCKHOLDERS’ EQUITY

In March 2010, in connection with our outstanding 3⁷/8% convertible senior notes due 2011, issued in 2006, we filed a registration statement on Form S-3 with the SEC relating to the resale, from time to time, by the selling stockholders of shares of our common stock, if any, that may become issuable upon conversion of the convertible notes. The registration statement replaced our previous resale shelf registration statement, which expired pursuant to the SEC’s rules.

Accumulated Other Comprehensive Income

		September 30,				December 31,
		2010				2009
		(In thousands)
Foreign currency translation		$	19,957			$	16,059
Unrealized gain on marketable debt securities			4,878				4,440
Other			(1,019	)			(830	)
Total accumulated other comprehensive income		$	23,816			$	19,669

NOTE 13 — EARNINGS PER COMMON SHARE

The following table shows the amounts used in computing basic and diluted earnings per common share:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2010				2009				2010				2009
		(In thousands, except per share amounts)
Numerator for basic and diluted earnings per share:
Income from continuing operations attributable to common stockholders		$	57,356			$	49,226			$	161,445			$	139,779
Discontinued operations			542				579				7,139				72,635
Net income attributable to common stockholders		$	57,898			$	49,805			$	168,584			$	212,414
Denominator:
Denominator for basic earnings per share — weighted average shares			156,631				156,250				156,566				151,309
Effect of dilutive securities:
Stock options			451				171				375				94
Restricted stock awards			95				95				62				36
Convertible notes			764				—				450				—
Denominator for diluted earnings per share — adjusted weighted average shares			157,941				156,516				157,453				151,439
Basic earnings per share:
Income from continuing operations attributable to common stockholders		$	0.37			$	0.32			$	1.03			$	0.92
Discontinued operations			0.00				0.00				0.05				0.48
Net income attributable to common stockholders		$	0.37			$	0.32			$	1.08			$	1.40
Diluted earnings per share:
Income from continuing operations attributable to common stockholders		$	0.37			$	0.32			$	1.02			$	0.92
Discontinued operations			0.00				0.00				0.05				0.48
Net income attributable to common stockholders		$	0.37			$	0.32			$	1.07			$	1.40

NOTE 14 — SEGMENT INFORMATION

As of September 30, 2010, we operated through three reportable business segments: triple-net leased properties, senior living operations and MOB operations. Our triple-net leased properties segment consists of acquiring and owning seniors housing and healthcare properties in the United States and leasing those properties to healthcare operating companies under “triple-net” or “absolute-net” leases, which require the tenants to pay all property-related expenses. Our senior living operations segment primarily consists of investments in seniors housing communities located in the United States and Canada for which we engage independent third parties, such as Sunrise, to manage the operations. Our MOB operations segment primarily consists of acquiring, owning, developing, leasing and managing MOBs.

On July 1, 2010, we completed the acquisition of businesses owned and operated by Lillibridge and its related entities and their real estate interests in 96 MOBs and ambulatory facilities. With the addition of these properties, we believed the segregation of our MOB operations into its own reporting segment would be useful to assess the performance of this portion of our business in the same way that management intends to review our performance and make operating decisions. Prior to the Lillibridge acquisition, we operated through two reportable segments: triple-net leased properties and senior living operations. Prior period results have been restated to reflect the segregation of our MOB operations into a reportable business segment.

We evaluate performance of the combined properties in each segment based on segment profit, which we define as NOI adjusted for gain/loss from unconsolidated entities. We define NOI as total revenues, less interest and other income, property-level operating expenses and MOB services costs. We believe that net income, as defined by GAAP, is the most appropriate earnings measurement. However, we believe that segment profit provides useful information to supplement net income because it allows investors, analysts and our management to measure unlevered property-level operating results and to compare our operating results to the operating results of other real estate companies and between periods on a consistent basis. Segment profit should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our financial performance, and, accordingly, we believe that in order to facilitate a clear understanding of our consolidated historical operating results, segment profit should be examined in conjunction with net income as presented in our Consolidated Financial Statements and data included elsewhere in this Quarterly Report on Form 10-Q.

Interest expense, depreciation and amortization and non-property specific revenues and expenses are not allocated to individual segments for purposes of assessing segment performance. There are no intersegment sales or transfers.

All other revenues consist primarily of income from loans and investments and other miscellaneous income. All other assets consist primarily of corporate assets including cash, restricted cash, deferred financing costs, notes receivable and miscellaneous accounts receivable.

Summary information by business segment is as follows:

For the three months ended September 30, 2010:

		Triple-Net				Senior
		Leased				Living				MOB				All
		Properties				Operations				Operations				Other				Total
		(In thousands)
Revenues:
Rental income		$	117,906			$	—			$	22,817			$	—			$	140,723
Resident fees and services			—				113,182				—				—				113,182
MOB services revenue			—				—				6,711				—				6,711
Income from loans and investments			—				—				—				4,014				4,014
Interest and other income			—				—				—				35				35
Total revenues		$	117,906			$	113,182			$	29,528			$	4,049			$	264,665
Total revenues		$	117,906			$	113,182			$	29,528			$	4,049			$	264,665
Less:
Interest and other income			—				—				—				35				35
Property-level operating expenses			—				74,066				7,941				—				82,007
MOB services costs			—				—				4,633				—				4,633
Segment NOI			117,906				39,116				16,954				4,014				177,990
Loss from unconsolidated entities			—				—				(392	)			—				(392	)
Segment profit		$	117,906			$	39,116			$	16,562			$	4,014				177,598
Interest and other income																			35
Interest expense																			(45,519	)
Depreciation and amortization																			(52,104	)
General, administrative and professional fees																			(15,278	)
Foreign currency gain																			419
Merger-related expenses and deal costs																			(5,142	)
Income tax expense																			(1,657	)
Discontinued operations																			542
Net income																		$	58,894

For the three months ended September 30, 2009:

		Triple-Net				Senior
		Leased				Living				MOB				All
		Properties				Operations				Operations				Other				Total
		(In thousands)
Revenues:
Rental income		$	115,752			$	—			$	9,057			$	—			$	124,809
Resident fees and services			—				106,515				—				—				106,515
Income from loans and investments			—				—				—				3,214				3,214
Interest and other income			—				—				—				99				99
Total revenues		$	115,752			$	106,515			$	9,057			$	3,313			$	234,637
Total revenues		$	115,752			$	106,515			$	9,057			$	3,313			$	234,637
Less:
Interest and other income			—				—				—				99				99
Property-level operating expenses			—				73,131				3,207				—				76,338
Segment NOI			115,752				33,384				5,850				3,214				158,200
Loss from unconsolidated entities			—				—				—				—				—
Segment profit		$	115,752			$	33,384			$	5,850			$	3,214				158,200
Interest and other income																			99
Interest expense																			(43,291	)
Depreciation and amortization																			(49,984	)
General, administrative and professional fees																			(9,657	)
Foreign currency loss																			(32	)
Merger-related expenses and deal costs																			(5,894	)
Income tax benefit																			410
Discontinued operations																			579
Net income																		$	50,430