Edgar Filing: NATIONWIDE HEALTH PROPERTIES INC

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2010.


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

For the transition period from to .

Commission file number 1-9028

NATIONWIDE HEALTH PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		95-3997619
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)


610 Newport Center Drive, Suite 1150
Newport Beach, California		92660
(Address of Principal Executive Offices)		(Zip Code)

(949) 718-4400
(Registrant’s Telephone Number, Including Area Code)

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. (Check one):


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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.

Common stock, $0.10 par value, outstanding at November 5, 2010: 126,249,723

NATIONWIDE HEALTH PROPERTIES, INC.
FORM 10-Q
SEPTEMBER 30, 2010
TABLE OF CONTENTS


	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		2

Condensed Consolidated Balance Sheets		2

Condensed Consolidated Income Statements		3

Condensed Consolidated Statement of Equity		4

Condensed Consolidated Statements of Cash Flows		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		48

Item 4. Controls and Procedures		49

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		50

Item 1A. Risk Factors		50

Item 6. Exhibits		52

SIGNATURE		53

Exhibit 31.1
Exhibit 31.2
Exhibit 32
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

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,
	2010			2009
	(Unaudited)
	(Dollars in thousands)
ASSETS
Investments in real estate:
Land	$	332,379		$	318,457
Buildings and improvements		3,553,712			3,088,183
Development in progress		16,195			—

		3,902,286			3,406,640
Less accumulated depreciation		(655,619	)		(585,294	)

		3,246,667			2,821,346
Mortgage loans receivable, net		238,926			110,613
Mortgage loan receivable from related party		—			47,500
Investments in unconsolidated joint ventures		42,824			51,924

		3,528,417			3,031,383
Cash and cash equivalents		116,173			382,278
Receivables, net		6,497			6,605
Intangible assets		146,572			93,657
Other assets		149,034			133,152

	$	3,946,693		$	3,647,075


LIABILITIES AND EQUITY
Unsecured senior credit facility	$	—		$	—
Senior notes		991,633			991,633
Notes and bonds payable		454,779			431,456
Accounts payable and accrued liabilities		140,314			132,915

Total liabilities		1,586,726			1,556,004

Redeemable OP unitholder interests		84,688			57,335
Commitments and contingencies
Equity:
NHP stockholders’ equity:
Preferred stock $1.00 par value; 5,000,000 shares authorized; 7.750% Series B Convertible, none and 513,644 shares issued and outstanding at September 30, 2010 and December 31, 2009, stated at liquidation preference of $100 per share		—			51,364
Common stock $0.10 par value; 200,000,000 shares authorized; issued and outstanding: 124,945,712 and 114,320,786 at September 30, 2010 and December 31, 2009, respectively		12,495			11,432
Capital in excess of par value		2,458,235			2,128,843
Cumulative net income		1,813,732			1,705,279
Accumulated other comprehensive loss		(9,211	)		(823	)
Cumulative dividends		(2,027,078	)		(1,862,996	)

Total NHP stockholders’ equity		2,248,173			2,033,099
Noncontrolling interests		27,106			637

Total equity		2,275,279			2,033,736

	$	3,946,693		$	3,647,075

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS
(Unaudited)


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
	(In thousands, except per share amounts)
Revenue:
Triple-net lease rent	$	80,123	$	72,675		$	229,369	$	218,105
Medical office building operating rent		26,868		17,588			75,677		52,111

		106,991		90,263			305,046		270,216
Interest and other income		7,054		6,748			19,905		19,741

		114,045		97,011			324,951		289,957


Expenses:
Interest expense		23,782		23,221			71,824		70,540
Depreciation and amortization		36,204		30,625			101,734		91,721
General and administrative		7,902		6,514			22,262		20,404
Acquisition costs		35		—			3,104		—
Medical office building operating expenses		11,192		7,240			30,109		21,201

		79,115		67,600			229,033		203,866

Operating income		34,930		29,411			95,918		86,091
Income from unconsolidated joint ventures		1,379		1,513			4,055		3,700
Gain on debt extinguishment		—		—			75		4,564

Income from continuing operations		36,309		30,924			100,048		94,355

Discontinued operations:
Gains on sale of facilities, net		2,686		—			6,487		21,152
Income from discontinued operations		301		301			1,023		1,177

		2,987		301			7,510		22,329

Net income		39,296		31,225			107,558		116,684
Net loss (income) attributable to noncontrolling interests		558		(82	)		895		(184	)

Net income attributable to NHP		39,854		31,143			108,453		116,500
Preferred stock dividends		—		(1,451	)		—		(4,355	)

Net income attributable to NHP common stockholders	$	39,854	$	29,692		$	108,453	$	112,145


Basic earnings per share amounts:
Income from continuing operations attributable to NHP common stockholders	$	0.30	$	0.27		$	0.83	$	0.86
Discontinued operations attributable to NHP common stockholders		0.02		0.01			0.06		0.21

Net income attributable to NHP common stockholders	$	0.32	$	0.28		$	0.89	$	1.07

Basic weighted average shares outstanding		123,721		107,175			120,242		104,224


Diluted earnings per share amounts:
Income from continuing operations attributable to NHP common stockholders	$	0.29	$	0.27		$	0.81	$	0.84
Discontinued operations attributable to NHP common stockholders		0.02		—			0.06		0.21

Net income attributable to NHP common stockholders	$	0.31	$	0.27		$	0.87	$	1.05

Diluted weighted average shares outstanding		126,497		109,477			122,878		106,389


Dividends declared per share	$	0.46	$	0.44		$	1.35	$	1.32

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
(In thousands)


	NHP Stockholders’ Equity
																Accumulated
											Capital in					other
	Preferred Stock						Common stock				excess of			Cumulative		comprehensive			Cumulative			Noncontrolling			Total
	Shares			Amount			Shares		Amount		par value			net income		loss			dividends			interests			equity
Balances at December 31, 2009		514		$	51,364			114,321	$	11,432	$	2,128,843		$	1,705,279	$	(823	)	$	(1,862,996	)	$	637		$	2,033,736
Comprehensive income:
Net income		—			—			—		—		—			108,453		—			—			(895	)		107,558
Loss on interest rate swap agreements		—			—			—		—		—			—		(5,977	)		—			—			(5,977	)
Amortization of gain on Treasury lock agreements		—			—			—		—		—			—		(386	)		—			—			(386	)
Pro rata share of accumulated other comprehensive loss from unconsolidated joint venture		—			—			—		—		—			—		(2,025	)		—			—			(2,025	)

Comprehensive income																										99,170
Conversion/redemption of preferred stock		(514	)		(51,364	)		2,315		232		51,040			—		—			—			—			(92	)
Issuance of common stock, net		—			—			8,294		829		285,196			—		—			—			—			286,025
Conversion of OP unitholder interests to common stock		—			—			16		2		452			—		—			—			—			454
Amortization of stock-based compensation		—			—			—		—		5,174			—		—			—			—			5,174
Common dividends		—			—			—		—		—			—		—			(164,082	)		—			(164,082	)
Adjust redeemable OP unitholder interests to current redemption value		—			—			—		—		(11,400	)		—		—			—			—			(11,400	)
Noncash acquisition/ elimination of noncontrolling interests		—			—			—		—		(1,070	)		—		—			—			1,727			657
Noncash contributions from noncontrolling interests		—			—			—		—		—			—		—			—			25,289			25,289
Contributions from noncontrolling interests		—			—			—		—		—			—		—			—			1,805			1,805
Distributions to noncontrolling interests		—			—			—		—		—			—		—			—			(1,457	)		(1,457	)

Balances at September 30, 2010		—		$	—			124,946	$	12,495	$	2,458,235		$	1,813,732	$	(9,211	)	$	(2,027,078	)	$	27,106		$	2,275,279

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


	Nine Months Ended
	September 30,
	2010			2009
	(In thousands)
Cash flows from operating activities:
Net income	$	107,558		$	116,684
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		102,147			93,128
Stock-based compensation		5,174			5,226
Gain on re-measurement of equity interest upon acquisition, net		(620	)		—
Gain on debt extinguishment		(75	)		(4,564	)
Gains on sale of facilities, net		(6,487	)		(21,152	)
Straight-line rent		(8,292	)		(4,840	)
Amortization of above/below market lease intangibles, net		207			(425	)
Mortgage and other loan premium amortization		(37	)		49
Amortization of deferred financing costs		2,378			1,875
Equity in earnings from unconsolidated joint ventures		(720	)		(632	)
Distributions of income from unconsolidated joint ventures		741			792
Changes in operating assets and liabilities:
Receivables		505			(580	)
Intangible and other assets		13,940			5,190
Accounts payable and accrued liabilities		(9,727	)		(13,422	)

Net cash provided by operating activities		206,692			177,329

Cash flows from investing activities:
Investment in real estate and related assets and liabilities		(346,405	)		(26,191	)
Proceeds from sale of real estate facilities		15,638			36,284
Investment in mortgage and other loans receivable		(179,134	)		(15,235	)
Principal payments on mortgage and other loans receivable		3,635			12,431
Contributions to unconsolidated joint ventures		(136	)		(1,994	)
Distributions from unconsolidated joint ventures		4,222			1,770

Net cash (used in) provided by investing activities		(502,180	)		7,065

Cash flows from financing activities:
Repayment of senior notes		—			(57,436	)
Issuance of notes and bonds payable		—			6,862
Principal payments on notes and bonds payable		(86,190	)		(8,212	)
Redemption of preferred stock		(92	)		—
Issuance of common stock, net		285,072			227,631
Dividends paid		(163,783	)		(142,411	)
Distributions to noncontrolling interests		(1,457	)		(751	)
Distributions to redeemable OP unitholders		(2,640	)		(2,349	)
Payment of deferred financing costs		(1,527	)		(130	)

Net cash provided by financing activities		29,383			23,204

(Decrease) increase in cash and cash equivalents		(266,105	)		207,598
Cash and cash equivalents, beginning of period		382,278			82,250

Cash and cash equivalents, end of period	$	116,173		$	289,848


Supplemental schedule of cash flow information:
Non-cash investing activities:
Assumption of debt upon acquisition of real estate	$	109,514		$	—

Retirement of mortgage loan receivable upon acquisition of real estate	$	47,500		$	—

Capital contributions from noncontrolling interests upon acquisition of real estate	$	25,289		$	—

Issuance of redeemable OP units upon acquisition of real estate	$	18,986		$	—

Issuance of mortgage loan receivables upon sale of real estate/disposition of noncontrolling interest	$	10,495		$	—

Acquisition/disposition of noncontrolling interests	$	1,727		$	—

Non-cash financing activities:
Conversion of preferred stock to common stock	$	51,272		$	—

Adjust redeemable OP unitholder interest to current redemption value	$	11,400		$	2,065

Conversion of OP unitholder interests to common stock	$	454		$	2,485

See accompanying notes.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Organization

Nationwide Health Properties, Inc., a Maryland corporation, is a real estate investment trust (“REIT”) that invests in healthcare related real estate, primarily senior housing, long-term care properties and medical office buildings. Whenever we refer herein to “NHP” or to “us” or use the terms “we” or “our,” we are referring to Nationwide Health Properties, Inc. and its subsidiaries, unless the context otherwise requires.

We primarily make our investments by acquiring an ownership interest in senior housing and long-term care facilities and leasing them to unaffiliated tenants under “triple-net” “master” leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. We also invest in medical office buildings which are not generally subject to “triple-net” leases and generally have several tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). Some of the medical office buildings are subject to “triple-net” leases. In addition, but to a much lesser extent because we view the risks of this activity to be greater due to less favorable bankruptcy treatment and other factors, from time to time, we extend mortgage loans and other financing to operators. For the nine months ended September 30, 2010, approximately 94% of our revenues were derived from leases, with the remaining 6% from mortgage loans, other financing activities and other miscellaneous income.

We believe we have operated in such a manner as to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). We intend to continue to qualify as such and therefore distribute at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding capital gain) to our stockholders. If we qualify for taxation as a REIT, and we distribute 100% of our taxable income to our stockholders, we will generally not be subject to U.S. federal income taxes on our income that is distributed to stockholders. Accordingly, no provision has been made for federal income taxes.

As of September 30, 2010, we had investments in 636 healthcare facilities, one land parcel and one development project located in 43 states, consisting of:


					Facilities and land
	Consolidated		Unconsolidated		parcel securing
	facilities		facilities		mortgage loans		Total
Assisted and independent living facilities		257		19		11		287
Skilled nursing facilities		180		14		17		211
Continuing care retirement communities		9		1		1		11
Specialty hospitals		7		—		—		7
Triple-net medical office buildings		25		—		27		52
Multi-tenant medical office buildings		68		—		—		68
Land parcel		—		—		1		1
Development project		1		—		—		1

		547		34		57		638

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 30, 2010, our directly owned facilities, other than our multi-tenant medical office buildings, were operated by 87 different healthcare providers, including the following publicly traded companies:


	Facilities
	operated
Assisted Living Concepts, Inc		4
Brookdale Senior Living, Inc		94
Emeritus Corporation		6
Extendicare, Inc		1
HealthSouth Corporation		2
Kindred Healthcare, Inc		1
Sun Healthcare Group, Inc		4

One of our triple-net lease tenants accounted for more than 10% of our revenues at September 30, 2010 as follows:


Brookdale Senior Living, Inc			13.0	%

2. Summary of Significant Accounting Policies

Basis of Presentation

We have prepared the condensed consolidated financial statements included herein without audit. These financial statements include all adjustments that are, in the opinion of management, necessary for a fair presentation of the results of operations for the three and nine months ended September 30, 2010 and 2009 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All such adjustments are of a normal recurring nature.

Certain items in prior period financial statements have been reclassified to conform to current year presentation, including those required by the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant and Equipment (“ASC 360”), which require the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale and in which we have no continuing interest to be removed from income from continuing operations and reported as discontinued operations.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to these rules and regulations. Although we believe that the disclosures in the financial statements included herein are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with our financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC. The results of operations for the three and nine months ended September 30, 2010 and 2009 are not necessarily indicative of the results for a full year.

We have evaluated events subsequent to September 30, 2010 for their impact on our condensed consolidated financial statements (see Note 19).

Principles of Consolidation

The condensed consolidated financial statements include our accounts, the accounts of our wholly owned subsidiaries and the accounts of our joint ventures that are controlled through voting rights or other means. We apply the provisions of ASC Topic 810, Consolidation (“ASC 810”), for arrangements with variable interest entities (“VIEs”) and would consolidate those VIEs where we are the primary beneficiary. All material intercompany accounts and transactions have been eliminated.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our judgment with respect to our level of influence or control of an entity and whether we are the primary beneficiary of a VIE involves the consideration of various factors including, but not limited to, the form of our ownership interest, our representation on the entity’s governing body, the size of our investment, estimates of future cash flows, our ability to participate in policy-making decisions and the rights of the other investors to participate in the decision-making process and to replace us as manager and/or liquidate the venture, if applicable. Our ability to correctly assess our influence or control over an entity or determine the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements.

We apply the provisions of ASC Topic 323, Investments — Equity Method and Joint Ventures (“ASC 323”), to investments in joint ventures. Investments in entities that 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. Under the equity method of accounting, our share of the entity’s earnings or losses is included in our operating results.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

Segment Reporting

We report our consolidated financial statements in accordance with the provisions of ASC Topic 280, Segment Reporting. We operate in two segments based on our investment and leasing activities: triple-net leases and multi-tenant leases (see Note 16).

Revenue Recognition

We derive the majority of our revenue from leases related to our real estate investments and a much smaller portion of our revenue from mortgage loans, other financing activities and other miscellaneous income. Revenue is recognized when it is realized or is realizable and earned.

Rental income from operating leases is recognized in accordance with the provisions of ASC Topic 840, Leases, and ASC Topic 605, Revenue Recognition. Our leases generally contain annual rent escalators. Many of our leases contain non-contingent rent escalators for which we recognize income on a straight-line basis over the lease term. Recognizing income on a straight-line basis requires us to calculate the total non-contingent rent to be paid over the life of a lease and to recognize the revenue evenly over that life. This method results in rental income in the early years of a lease being higher than actual cash received, creating a straight-line rent receivable asset included in the caption “Other assets” on our consolidated balance sheets. At some point during the lease, depending on its terms, the cash rent payments eventually exceed the straight-line rent which results in the straight-line rent receivable asset decreasing to zero over the remainder of the lease term. Certain leases contain rent escalators contingent on revenues or other factors, including increases based on changes in the Consumer Price Index. Such revenue increases are recognized as the related contingencies are met.

We assess the collectability of straight-line rent in accordance with the applicable accounting standards and our reserve policy and defer recognition of straight-line rent if its collectability is not reasonably assured. Our assessment of the collectability of straight-line rent is based on several factors, including the financial strength of the tenant and any guarantors, the historical operations and operating trends of the facility, the historical payment pattern of the tenant and the type of facility, among others. If our evaluation of these factors indicates we may not receive the rent payments due in the future, we defer recognition of the straight-line rental income and, depending on the circumstances, we will provide a reserve against the previously recognized straight-line rent receivable asset for a portion, up to its full value, that we estimate may not be recoverable. If we change our assumptions or estimates regarding the collectability of future rent payments required by a lease, we may adjust our reserve to increase or reduce the rental revenue recognized, and/or to increase or reduce the reserve against the existing straight-line rent receivable balance.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We recorded $3.0 million and $8.3 million of revenues in excess of cash received during the three and nine months ended September 30, 2010, respectively, and $1.6 million and $4.8 million of revenues in excess of cash received during the three and nine months ended September 30, 2009, respectively. We had straight-line rent receivables, net of reserves, recorded under the caption “Other assets” on our consolidated balance sheets of $36.2 million at September 30, 2010 and $27.5 million at December 31, 2009, net of reserves of $113.5 million and $108.3 million, respectively. We evaluate the collectability of the straight-line rent receivable balances on an ongoing basis and provide reserves against receivables we believe may not be fully recoverable. The ultimate amount of straight-line rent we realize could vary from the amounts currently recorded.

Interest income from loans, including discounts and premiums, is recognized using the effective interest method when collectability is reasonably assured. The effective interest method is applied on a loan-by-loan basis, and discounts and premiums are recognized as yield adjustments over the term of the related loans. We recognize interest income on impaired loans to the extent our estimate of the fair value of the collateral is sufficient to support the balance of the loans, other receivables and all related accrued interest. Once the total of the loans, other receivables and all related accrued interest is equal to our estimate of the fair value of the collateral, we recognize interest income on a cash basis. We provide reserves against impaired loans to the extent our total investment exceeds our estimate of the fair value of the loan collateral.

We recognize sales of facilities upon closing. Payments received from purchasers prior to closing are recorded as deposits. Gains on facilities sold are recognized using the full accrual method upon closing when the requirements of gain recognition on sale of real estate under the provisions of ASC 360 are met, including: the collectability of the sales price is reasonably assured; we have received adequate initial investment from the buyer; we are not obligated to perform significant activities after the sale to earn the gain; and other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy these requirements. We had $20.3 million and $19.3 million of deferred gains included in the caption “Mortgage loans receivable, net” at September 30, 2010 and December 31, 2009, respectively.

Gains on facilities sold to unconsolidated joint ventures in which we maintain an ownership interest are included in income from continuing operations, and the portion of the gain representing our retained ownership interest in the joint venture is deferred and included in the caption “Accounts payable and accrued liabilities” on our consolidated balance sheets. We had $15.3 million of such deferred gains at September 30, 2010 and December 31, 2009. All other gains are included in discontinued operations.

Investments in Real Estate

We record properties at cost and use the straight-line method of depreciation for buildings and improvements over their estimated remaining useful lives of up to 40 years, generally 20 to 40 years depending on factors including building type, age, quality and location. We review and adjust useful lives periodically. Depreciation expense from continuing operations was $32.1 million and $88.3 million for the three and nine months ended September 30, 2010, respectively, and $27.2 million and $79.8 million for the three and nine months ended September 30, 2009, respectively.

We allocate purchase prices of properties in accordance with the provisions of ASC Topic 805, Business Combinations (“ASC 805”), which require that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 also establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. Certain transaction costs that have historically been capitalized as acquisition costs are expensed for business combinations completed on or after January 1, 2009, which may have a significant impact on our future results of operations and financial position based on historical acquisition costs and activity levels. During the three and nine months ended September 30, 2010, we incurred $35,000 and $3.1 million, respectively, of acquisition costs that are included on our consolidated income statements.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The allocation of the cost between land, building and, if applicable, equipment and intangible assets and liabilities, and the determination of the useful life of a property are based on management’s estimates, which are based in part on independent appraisals or other consultants’ reports. For our triple-net leased facilities, the allocation is made as if the property was vacant, and a significant portion of the cost of each property is allocated to buildings. This amount generally approximates 90% of the total property value. Historically, we have generally acquired properties and simultaneously entered into a new market rate lease for the entire property with one tenant. For our multi-tenant medical office buildings, the percentage allocated to buildings may be substantially lower as allocations are made to assets such as lease-up intangible assets, above market tenant and ground lease intangible assets and in-place lease intangible assets (collectively, “Intangible assets”) included on our consolidated balance sheets and/or below market tenant and ground lease intangible liabilities included in the caption “Accounts payable and accrued liabilities” on our consolidated balance sheets.

Asset Impairment

We review our long-lived assets individually on a quarterly basis to determine if there are indicators of impairment in accordance with the provisions of ASC 360. Indicators may include, among others, a tenant’s inability to make rent payments, operating losses or negative operating trends at the facility level, notification by a tenant that it will not renew its lease, or a decision to dispose of an asset or adverse changes in the fair value of any of our properties. For operating assets, if indicators of impairment exist, we compare the undiscounted cash flows from the expected use of the property to its net book value to determine if impairment exists. The evaluation of the undiscounted cash flows from the related lease agreement and expected use of the property is highly subjective and is based in part on various factors and assumptions, including, but not limited to, historical operating results, available market information and known trends and market/economic conditions that may affect the property, as well as estimates of future operating income, occupancy, rental rates, leasing demand and competition. If the sum of the future estimated undiscounted cash flows is higher than the current net book value, we conclude no impairment exists. If the sum of the future estimated undiscounted cash flows is lower than its current net book value, we recognize an impairment loss for the difference between the net book value of the asset and its estimated fair value. To the extent we decide to sell an asset, we recognize an impairment loss if the current net book value of the asset exceeds its fair value less selling costs.

We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying value of our investment in an unconsolidated joint venture may exceed the fair value. If it is determined that a decline in the fair value of our investment in an unconsolidated joint venture is other-than-temporary, and if such reduced fair value is below its carrying value, an impairment is recorded. The determination of the fair value of investments in unconsolidated joint ventures involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows discounted at market rates, general economic conditions and trends and other relevant factors.

The above analyses require us to determine whether there are indicators of impairment for individual assets or investments in unconsolidated joint ventures, to estimate the most likely stream of cash flows from operating assets and to determine the fair value of assets that are impaired or held for sale. If our assumptions, projections or estimates regarding an asset change in the future, we may have to record an impairment charge to reduce or further reduce the net book value of such individual asset or investment in unconsolidated joint venture.

No impairment charges were recorded during the three and nine months ended September 30, 2010 or 2009.

Collectability of Receivables

We evaluate the collectability of our rent, mortgage and other loans and other receivables on a regular basis based on factors including, among others, payment history, the financial strength of the borrower and any guarantors, the value of the underlying collateral, the operations and operating trends of the underlying collateral, if any, the asset type and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, we provide a reserve against the portion of the receivable that we estimate may not be recovered. This analysis requires us to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected. We had reserves included in the caption “Receivables, net” on our consolidated balance sheets of $12.7 million at September 30, 2010 and December 31, 2009.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents

Cash and cash equivalents include short-term investments with original maturities of three months or less when purchased.

Capital Raising Costs

Deferred financing costs are included in the caption “Other assets” on our consolidated balance sheets and are amortized as a component of interest expense over the terms of the related borrowings using a method that approximates a level yield. Deferred financing cost amortization is included in the caption “Interest expense” on our consolidated income statements. Costs incurred in connection with the issuance of common stock are recorded as a reduction of capital in excess of par value.

Derivatives

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest-bearing liabilities. We endeavor to limit these risks by following established risk management policies, procedures and strategies, including, on occasion, the use of derivative instruments. We do not use derivative instruments for trading or speculative purposes.

Derivative instruments are recorded on our consolidated balance sheets as assets or liabilities based on each instrument’s fair value. Changes in the fair value of derivative instruments are recognized currently in earnings, unless the derivative instrument meets the criteria for hedge accounting contained in ASC Topic 815, Derivatives and Hedging (“ASC 815”). If the derivative instruments meet the criteria for a cash flow hedge, the gains and losses recognized upon changes in the fair value of the derivative instrument are recorded in other comprehensive income. Gains and losses on a cash flow hedge are reclassified into earnings when the forecasted transaction affects earnings. A contract that is designated as a hedge of an anticipated transaction which is no longer likely to occur is immediately recognized in earnings.

For investments in entities reported under the equity method of accounting, we record our pro rata share of the entity’s derivative instruments’ fair value, other comprehensive income or loss and gains and losses determined in accordance with ASC 323 and ASC 815 as applicable.

Redeemable Limited Partnership Unitholders

NHP/PMB L.P. (“NHP/PMB”) is a limited partnership that we formed in February 2008 to acquire properties from entities affiliated with Pacific Medical Buildings LLC (see Note 5). We consolidate NHP/PMB consistent with the provisions of ASC 810, as our wholly owned subsidiary is the general partner and exercises control. As of September 30, 2010 and December 31, 2009, third party investors owned 2,190,581 and 1,629,752 Class A limited partnership units in NHP/PMB (“OP Units”), respectively, which represented 32.2% and 52.4% of the total units outstanding at September 30, 2010 and December 31, 2009, respectively. As of September 30, 2010 and December 31, 2009, 4,605,460 and 1,482,713 Class B limited partnership units in NHP/PMB were outstanding, respectively, all of which were held by our subsidiaries. During the nine months ended September 30, 2010, 575,326 and 1,788 OP Units were issued by NHP/PMB in connection with acquisitions and under terms of an agreement with Pacific Medical Buildings and certain of its affiliates, respectively (see Note 5). After a one year holding period, the OP Units are exchangeable for cash or, at our option, shares of our common stock equal to the “REIT Shares Amount” per OP Unit. As of September 30, 2010, the REIT Shares Amount was 1.000. We have entered into a registration rights agreement with the holders of the OP Units which, subject to the terms and conditions set forth therein, obligates us to register the shares of common stock that we may issue in exchange for such OP Units. As registration rights are outside of our control, the redeemable OP unitholder interests are classified outside of permanent equity on our consolidated balance sheets. During the nine months ended September 30, 2010, 16,285 OP Units were converted into 16,285 shares of our common stock. We applied the provisions of ASC Topic 480, Distinguishing Liabilities from Equity, to reflect the redeemable OP unitholder interests at the greater of cost or fair value. As of September 30, 2010, the fair value of the OP Units exceeded the cost basis by $11.4 million, and the adjustment was recorded through capital in excess of par value. The value of the OP Units held by redeemable OP unitholder interests was $84.7 million and $57.3 million at September 30, 2010 and December 31, 2009, respectively.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Noncontrolling Interests

We have four consolidated joint ventures in which we have equity interests, ranging from 71% to 95%, in nine multi-tenant medical office buildings and one development project (see Note 5).

NHP/PMB has equity interests, ranging from 50% to 69%, in three joint ventures which each own one multi-tenant medical office building (see Note 5). The joint ventures are consolidated by NHP/PMB, and we consolidate NHP/PMB in our consolidated financial statements.

We also have three partnerships in which we have equity interests, ranging from 51% to 81%, in one assisted and independent living facility, one skilled nursing facility and one specialty hospital (see Note 3). We consolidate the partnerships in our consolidated financial statements.

Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of ASC Topic 718, Compensation-Stock Compensation, which require stock-based compensation awards to be valued at the fair value on the date of grant and amortized as an expense over the vesting period and require any dividend equivalents earned to be treated as dividends for financial reporting purposes. Net income reflects stock-based compensation expense of $1.7 million and $5.2 million for the three and nine months ended September 30, 2010, respectively, and $1.8 million and $5.2 million for the three and nine months ended September 30, 2009, respectively.

Income Taxes

We intend to continue to qualify as a REIT under Sections 856 through 860 of the Code, and accordingly, no provision has been made for federal income taxes. However, we are subject to certain state and local taxes on our income and/or property, and these amounts are included in the expense caption “General and administrative” on our consolidated income statements.

As part of the process of preparing our consolidated financial statements, significant management judgment is required to estimate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of i) audits conducted by federal and state tax authorities; ii) our ability to qualify as a REIT; iii) the potential for built-in-gain recognized related to prior-tax-free acquisitions of C corporations; and iv) changes in tax laws. Adjustments required in any given period are included in income, other than adjustments to income tax liabilities acquired in business combinations, which would be adjusted through goodwill.

Earnings per Share (EPS)

Basic EPS is computed by dividing income from continuing operations available to common stockholders by the weighted average common shares outstanding. Income from continuing operations available to common stockholders is calculated by deducting amounts attributable to noncontrolling interests, amounts attributable to participating securities and dividends declared on preferred stock from income from continuing operations.

We apply the provisions of ASC Topic 260, Earnings per Share, which require that the two-class method of computing basic earnings per share be applied when there are unvested share-based payment awards that contain rights to nonforfeitable dividends outstanding during a reporting period. These participating securities share in undistributed earnings with common stockholders for purposes of calculating basic earnings per share.

Diluted EPS includes the effect of any potential shares outstanding, which for us is comprised of dilutive stock options, other share-settled compensation plans and, if the effect is dilutive, our 7.75% Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”), which was redeemed on January 18, 2010 (see Note 10) and/or OP Units. The dilutive effect of stock options and other share-settled compensation plans that do not contain rights to nonforfeitable dividends is calculated using the treasury stock method with an offset from expected proceeds upon exercise of the stock options and unrecognized compensation expense.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value

We apply the provisions of ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to our financial assets and liabilities measured at fair value on a recurring basis and to our nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also specifies a three-level hierarchy of valuation techniques based upon whether the inputs reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs) or reflect our own assumptions of market participant valuation (unobservable inputs) and requires the use of observable inputs if such data is available without undue cost and effort. The hierarchy is as follows:

•

Level 1 — quoted prices for identical instruments in active markets.

•

Level 2 — observable inputs other than Level 1 inputs, including quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and other derived valuations with significant inputs or value drivers that are observable or can be corroborated by observable inputs in active markets.

•

Level 3 — unobservable inputs or derived valuations with significant inputs or value drivers that are unobservable.

Fair value measurements at September 30, 2010 are as follows:


	Fair Value			Level 1			Level 2			Level 3
	(In thousands)
Financial assets	$	4,848		$	4,848		$	—		$	—
Financial liabilities		(4,848	)		(4,848	)		—			—
Interest rate swaps		(5,977	)		—			(5,977	)		—
Redeemable OP unitholder interests		84,688			—			84,688			—

	$	78,711		$	—		$	78,711		$	—

Amounts related to our deferred compensation plan are invested in various financial assets, and the fair value of the corresponding assets and liabilities is based on market quotes. Interest rate swaps are valued using standard derivative pricing models that consider forward yield curves and discount rates. OP Units are exchangeable for cash or, at our option, shares of our common stock equal to the REIT Shares Amount. As such, the fair value of OP Units outstanding at September 30, 2010 is based on the closing price of our common stock on September 30, 2010, which was $38.67 per share.

The provisions of ASC Topic 825, Financial Instruments, provide companies with an option to report selected financial assets and liabilities at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. We have not elected to apply the fair value option to any specific financial assets or liabilities.

The carrying amount of cash and cash equivalents approximates fair value because of the short maturities of these instruments. The fair value of mortgage and other loans receivable are based upon the estimates of management and on rates currently prevailing for comparable loans. The fair value of long-term debt is estimated based on discounting future cash flows utilizing current rates offered to us for debt of a similar type and remaining maturity.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below details the book value and fair value for mortgage and other loans receivable and the components of long-term debt at September 30, 2010. These fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of these financial instruments.


	Book Value		Fair Value
	(In thousands)
Mortgage loans receivable	$	259,219	$	263,193
Other loans receivable	$	76,216	$	69,337
Unsecured senior credit facility	$	—	$	—
Senior notes	$	991,633	$	1,096,019
Notes and bonds payable	$	454,779	$	472,354

Impact of New Accounting Standards Updates

In June 2009, the FASB updated ASC 810 to require ongoing analyses to determine whether an entity’s variable interest gives it a controlling financial interest in a variable interest entity (“VIE”), making it the primary beneficiary, based on whether the entity (i) has the power to direct activities of the VIE that most significantly impact its economic performance, including whether it has an implicit financial responsibility to ensure the VIE operates as designed, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Enhanced disclosures regarding an entity’s involvement with VIEs are also required under the provisions of ASC 810. These requirements became effective January 1, 2010. The adoption of these requirements did not have a material impact on our results of operations or financial position.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures About Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 adds new requirements for disclosures of significant transfers into and out of Levels 1, 2 and 3 of the fair value hierarchy, the reasons for the transfers and the policy for determining when transfers are recognized. ASU 2010-06 also adds new requirements for disclosures about purchases, sales, issuances and settlements on a gross rather than net basis relating to the reconciliation of the beginning and ending balances of Level 3 recurring fair value measurements. It also clarifies the level of disaggregation to require disclosures by “class” rather than by “major category of assets and liabilities” and clarifies that a description of inputs and valuation techniques used to measure fair value is required for both recurring and nonrecurring fair value measurements classified as Level 2 or 3. ASU 2010-06 became effective January 1, 2010 except for the requirements to provide the Level 3 activity of purchases, sales, issuances and settlements on a gross basis which are effective January 1, 2011. The adoption of ASU 2010-06 has not and is not expected to have a material impact on our results of operations or financial position.

In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09 amends ASC Topic 855, Subsequent Events, to require SEC registrants and conduit bond obligors to evaluate subsequent events through the date that the financial statements are issued, however, SEC registrants are exempt from disclosing the date through which subsequent events have been evaluated. All other entities are required to evaluate subsequent events through the date that the financial statements are available to be issued and must disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective upon issuance for all entities except conduit debt obligors. The adoption of ASU 2010-09 did not have an impact on our results of operations or financial position.

In July 2010, the FASB issued ASU 2010-20, Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 amends ASC Topic 310, Receivables, to require additional disclosures regarding credit quality and the allowance for credit losses related to financing receivables, including credit quality indicators and past due and modification information. Disclosures must be disaggregated by segment and class. The disclosures as of the end of a reporting period are effective December 31, 2010, and the disclosures about activity that occurs during a reporting period are effective January 1, 2011.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Real Estate Properties

As of September 30, 2010, we had direct ownership of:


Assisted and independent living facilities			257
Skilled nursing facilities			180
Continuing care retirement communities			9
Specialty hospitals			7
Triple-net medical office buildings			25
Multi-tenant medical office buildings, including 21 owned by consolidated joint ventures (see Note 5)			68

			546

We lease our owned senior housing and long-term care facilities and certain medical office buildings to single tenants under “triple-net,” and in most cases, “master” leases that are accounted for as operating leases. These leases generally have an initial term of up to 21 years and generally have two or more multiple-year renewal options. As of September 30, 2010, approximately 86% of these facilities were leased under master leases. In addition, the majority of these leases contain cross-collateralization and cross-default provisions tied to other leases with the same tenant, as well as grouped lease renewals and grouped purchase options. As of September 30, 2010, leases covering 465 facilities were backed by security deposits consisting of irrevocable letters of credit or cash totaling $77.8 million. Under the terms of the leases, the tenant is responsible for all maintenance, repairs, taxes, insurance and capital expenditures on the leased properties. As of September 30, 2010, leases covering 373 facilities contained provisions for property tax impounds, and leases covering 257 facilities contained provisions for capital expenditure impounds. We generally lease medical office buildings to multiple tenants under separate non-triple-net leases, where we are responsible for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). However, some of the medical office buildings are subject to triple-net leases, where the lessees are responsible for the associated operating expenses.

During the nine months ended September 30, 2010, we acquired 16 skilled nursing facilities, seven medical office buildings and nine assisted and independent living facilities subject to triple-net leases in ten separate transactions for an aggregate investment of $238.3 million. In connection with the acquisition of five of the assisted and independent living facilities and one of the skilled nursing facilities described above, we funded two unsecured loans totaling $5.5 million and funded an additional $0.4 million subsequent to acquisition during the nine months ended September 30, 2010.

During the nine months ended September 30, 2010, we acquired the remaining 55.05% interest in PMB SB 399-401 East Highland LLC (“PMB SB”), an entity affiliated with Pacific Medical Buildings LLC that owns two multi-tenant medical office buildings. PMB SB was valued at $17.4 million at the date of acquisition, and the acquisition was paid in a combination of cash and the assumption of $11.2 million of mortgage financing (of which $6.2 million was previously attributable to the controlling interest in PMB SB) (see Note 6).

During the nine months ended September 30, 2010, we funded $15.4 million in expansions, construction and capital improvements at certain facilities in our triple-net leases segment in accordance with existing lease provisions. Such expansions, construction and capital improvements generally result in an increase in the minimum rents earned by us on these facilities either at the time of funding or upon completion of the project. As of September 30, 2010, we had committed to fund additional expansions, construction and capital improvements of $108.7 million. During the nine months ended September 30, 2010, we also funded $0.9 million in capital and tenant improvements at certain multi-tenant medical office buildings.

During the nine months ended September 30, 2010, we sold three skilled nursing facilities and two assisted and independent living facilities for net cash proceeds of $15.6 million that resulted in a total gain of $6.4 million which is included on our consolidated income statements in gains on sale of facilities in discontinued operations.

During the nine months ended September 30, 2010, we sold the assisted living portion of a continuing care retirement community for which we had an existing mortgage loan secured by the skilled nursing portion of such continuing care retirement community (see Note 4) to the tenant of the facility. We provided financing of $6.5 million related to the sale, including the concurrent repayment of a $0.7 million unsecured loan which had previously been included in the caption “Other assets” on our consolidated balance sheets (see Note 4). As we have a continuing interest in the facility, operating results from the facility are included in income from continuing operations on our consolidated income statements.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the nine months ended September 30, 2010, we transferred and assigned our controlling interest in one consolidated partnership which owned one assisted and independent living facility (“Partnership A”) to our partner in exchange for our partner’s noncontrolling interest in a second consolidated partnership which owned one assisted and independent living facility (“Partnership B”). We had previously provided a mortgage loan to Partnership A which was assigned to our partner as part of the exchange transaction (see Note 4). Upon exchange of the ownership interests, the remaining $1.7 million of noncontrolling interests in the partnerships was eliminated.

No impairment charges were recorded on our real estate properties during the nine months ended September 30, 2010 or 2009.

4. Mortgage Loans Receivable

As of September 30, 2010, we held 18 mortgage loans receivable secured by:


Multi-tenant medical office buildings			27
Skilled nursing facilities			17
Assisted and independent living facilities			11
Continuing care retirement communities			1
Land parcel			1

			57

As of September 30, 2010, the mortgage loans receivable had an aggregate principal balance of $259.2 million and are reflected in our consolidated balance sheets net of aggregate deferred gains totaling $20.3 million, with individual outstanding principal balances ranging from $0.7 million to $83.1 million and maturities ranging from 2010 to 2031.

During the nine months ended September 30, 2010, we funded three mortgage loans secured by 27 medical office buildings, one assisted and independent living facility and one skilled nursing facility in the amount of $117.3 million. In connection with the funding of the mortgage loan secured by the skilled nursing facility, we agreed to fund up to $10.9 million to expand the facility. No amounts have been funded under the agreement at September 30, 2010.

During the nine months ended September 30, 2010, we also funded $6.8 million and $52.8 million under loans to our consolidated joint ventures with PMB Gilbert LLC and PMB Pasadena LLC, respectively (see Note 5). As we consolidate these joint ventures, these balances have been eliminated for purposes of our consolidated financial statements.

During the nine months ended September 30, 2010, we sold the assisted living portion of a continuing care retirement community for which we had an existing mortgage loan secured by the skilled nursing portion of such continuing care retirement community to the tenant of the facility. For facility count purposes, this was previously accounted for in real estate properties as a continuing care retirement community (see Note 3). We provided financing of $6.5 million related to the sale, including the concurrent repayment of a $0.7 million unsecured loan which had previously been included in the caption “Other assets” on our consolidated balance sheets, and funded an additional $0.3 million subsequent to the sale.

During the nine months ended September 30, 2010, we transferred and assigned our controlling interest in Partnership A to our partner in exchange for our partner’s noncontrolling interest in Partnership B (see Note 3). We had previously provided a mortgage loan in the amount of $5.2 million to Partnership A which was assigned to our partner as part of the exchange transaction. Fair value at the exchange transaction date was determined based on estimates considering factors and assumptions including historical operating results, available market information and known trends and market/economic conditions. The exchange transaction resulted in a $1.0 million gain which was deferred.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the nine months ended September 30, 2010, we also funded $0.3 million on existing loans.

As of February 1, 2010, we acquired the multi-tenant medical office building which served as collateral for our $47.5 million mortgage loan from a related party, and as a result, the loan was retired (see Notes 5 and 18).

5. Medical Office Building Joint Ventures

NHP/PMB L.P.

In February 2008, we entered into an agreement (the “Contribution Agreement”) with Pacific Medical Buildings LLC and certain of its affiliates to acquire up to 18 multi-tenant medical office buildings, including six that were in development, for $747.6 million, including the assumption of approximately $282.6 million of mortgage financing. Under the Contribution Agreement, in 2008, NHP/PMB acquired interests in nine of the 18 medical office buildings, one of which consisted of a 50% interest through a joint venture which is consolidated by NHP/PMB. During 2008, we also acquired one of the 18 medical office buildings directly (not through NHP/PMB). During 2009, we elected to terminate the Contribution Agreement with respect to six properties after the conditions for us to close on such properties were not satisfied. As a result of the elimination of these six properties, under the Contribution Agreement, NHP/PMB became obligated to pay $3.0 million, of which $2.7 million was payable to Pacific Medical Buildings LLC.

As of February 1, 2010, we entered into an amendment to the Contribution Agreement which reinstated one of the six properties that were previously eliminated from the Contribution Agreement. NHP/PMB acquired this multi-tenant medical office building for $74.0 million, which was paid in a combination of cash and the issuance of 301,599 OP Units with a fair value at the date of issuance of $10.0 million. As a result of such acquisition, we retired our $47.5 million mortgage loan from a related party to which such acquired medical office building had served as collateral (see Note 18). Additionally, as of February 1, 2010, we acquired a majority ownership interest in a joint venture which owns one multi-tenant medical office building (see NHP/PMB Gilbert LLC below), amended and restated our agreement with NHP/PMB, PMB LLC and PMB Real Estate Services LLC (“PMBRES”) as described below and amended our agreement with PMB Pomona LLC to provide for the future acquisition by NHP/PMB of a medical office building currently in development (see Note 18). In connection with these transactions, NHP/PMB entered into a Third Amendment to the Amended and Restated Agreement of Limited Partnership of NHP/PMB, which, among other things, authorized NHP/PMB to acquire properties affiliated with Pacific Medical Buildings LLC pursuant to agreements other than the Contribution Agreement.

As of March 1, 2010, we entered into an amendment to the Contribution Agreement which reinstated another two of the six properties that were previously eliminated from the Contribution Agreement. NHP/PMB acquired a 65% interest in a joint venture which is consolidated by NHP/PMB that owns one of the two multi-tenant medical office buildings valued at $79.9 million. The acquisition was paid in a combination of cash, the assumption of $48.1 million of mortgage financing and the issuance of 152,238 OP Units with a fair value at the date of issuance of $5.0 million. NHP/PMB acquired a 69% interest in a joint venture which is consolidated by NHP/PMB that owns the second multi-tenant medical office building valued at $69.3 million. The acquisition was paid in a combination of cash, the assumption of $50.2 million of mortgage financing and the issuance of 121,489 OP Units with a fair value at the date of issuance of $4.0 million. Additionally, as of March 1, 2010, we acquired the remaining interest in PMB SB (see Note 6).

The amendment to the Contribution Agreement dated as of March 1, 2010 also eliminated one of the two remaining properties from the Contribution Agreement, however, we concurrently entered into a joint venture with PMB Pasadena LLC (an entity affiliated with Pacific Medical Buildings LLC) to acquire this property (see NHP/PMB Pasadena LLC below). As a result of the elimination of this property from the Contribution Agreement, NHP/PMB became obligated to pay $2.1 million (the “Premium Adjustment”), of which $1.9 million was payable to Pacific Medical Buildings LLC in cash. The portion of the Premium Adjustment not payable to Pacific Medical Buildings LLC was paid in the form of $0.1 million in cash and the issuance of 1,788 additional OP Units with an aggregate value of $57,000. As a result of the payment, we received an additional 4,514 Class B limited partnership units in NHP/PMB. Under the Contribution Agreement, if the agreement is terminated with respect to the remaining development property, NHP/PMB will become obligated to pay approximately $2.4 million (the “Future Premium Adjustment”) which has been accrued at September 30, 2010 and of which a portion would be payable to Pacific Medical Buildings LLC.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under the terms of the Contribution Agreement, a portion of the consideration for the multi-tenant medical office buildings is paid in the form of OP Units. After a one-year holding period, the OP Units are exchangeable for cash or, at our option, shares of our common stock equal to the REIT Shares Amount. During the nine months ended September 30, 2010, 16,285 OP Units were converted into 16,285 shares of our common stock. As of September 30, 2010, 1,613,467 of the remaining OP Units had been outstanding for one year or longer and were exchangeable for cash of $62.4 million. During the nine months ended September 30, 2010, cash distributions from NHP/PMB of $2.6 million were made to OP unitholders.

Additionally, we have entered into an agreement (the “Pipeline Agreement”) with NHP/PMB, PMB LLC and PMBRES (see Note 6) pursuant to which we or NHP/PMB currently have the right, but not the obligation, to acquire up to approximately $1.3 billion of multi-tenant medical office buildings developed by PMB LLC through April 2019. As of February 1, 2010, the Pipeline Agreement was amended and restated to provide NHP/PMB with the option to acquire medical office buildings developed in the future through a joint venture between NHP and PMB LLC, obligate us to provide or arrange financing for approved developments and provide us with improved terms, including preferred returns, a reduction in PMB LLC’s promote interest and acquisition pricing determined at the time of acquisition rather than at the pre-development stage. As of September 23, 2010, we entered into a joint venture with PMB Mission Hills 1 LLC (an entity affiliated with Pacific Medical Buildings LLC) to develop a medical office building with a total budget of $53.0 million (see PDP Mission Hills 1 LLC below) in accordance with the terms of the Pipeline Agreement. We concurrently entered into an agreement with NHP/PMB, PMB LLC and PMB Mission Hills 1 LLC under which the interests in the joint venture will be contributed to NHP/PMB subsequent to completion of development in accordance with the terms of the Pipeline Agreement.

During the nine months ended September 30, 2010, NHP/PMB funded $0.5 million in capital and tenant improvements at certain facilities.

All intercompany balances with NHP/PMB have been eliminated for purposes of our consolidated financial statements.

NHP/PMB Gilbert LLC

As of February 1, 2010, we entered into a joint venture with PMB Gilbert LLC (an entity affiliated with Pacific Medical Buildings LLC) called NHP/PMB Gilbert LLC (“Gilbert JV”) to acquire a multi-tenant medical office building. PMB Gilbert LLC contributed the multi-tenant medical office building to Gilbert JV, and we contributed $6.3 million in cash. Additionally, we agreed to loan Gilbert JV up to $8.8 million as project financing at an interest rate of 7.00%, including $6.8 million that was disbursed initially and remains outstanding at September 30, 2010. We hold a 71.17% equity interest in the joint venture and PMB Gilbert LLC holds a 28.83% equity interest. PMB Gilbert LLC is the managing member of Gilbert JV, but we consolidate the joint venture in our consolidated financial statements. The accounting policies of the joint venture are consistent with our accounting policies. Pursuant to a contribution agreement dated as of February 1, 2010, among us, NHP/PMB, Pacific Medical Buildings LLC and PMB Gilbert LLC, NHP/PMB may in the future acquire Gilbert JV if certain conditions are met.

Net income or loss is allocated between the partners in the joint venture based on the hypothetical liquidation at book value method (the “HLBV method”). Under the HLBV method, net income or loss is allocated between the partners based on the difference between each partner’s claim on the net assets of the partnership at the end and beginning of the period, after taking into account contributions and distributions. Each partner’s share of the net assets of the partnership is calculated as the amount that the partner would receive if the partnership were to liquidate all of its assets at net book value and distribute the resulting cash to creditors and partners in accordance with their respective priorities. Under this method, in any given period, we could be recording more or less income than the joint venture has generated or more or less income than actual cash distributions received and more or less than what we may receive in the event of an actual liquidation. During the nine months ended September 30, 2010, operating cash distributions from Gilbert JV of $0.2 million and $4,000 were made to us and to PMB Gilbert LLC, respectively.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

All intercompany balances with Gilbert JV have been eliminated for purposes of our consolidated financial statements.

NHP/PMB Pasadena LLC

As of March 1, 2010, we entered into a joint venture with PMB Pasadena LLC (an entity affiliated with Pacific Medical Buildings LLC) called NHP/PMB Pasadena LLC (“Pasadena JV”) to acquire a multi-tenant medical office building. PMB Pasadena LLC contributed the multi-tenant medical office building to Pasadena JV, and we contributed $13.5 million in cash. Additionally, we provided Pasadena JV with a $56.5 million mortgage loan at an initial interest rate equal to the greater of 3.50% or LIBOR plus 165 basis points (increasing to the greater of 5.125% or LIBOR plus 375 basis points as of April 1, 2010), of which $49.8 million has been funded, and a $3.0 million mezzanine loan at an interest rate of 15.00%, both of which remain outstanding at September 30, 2010. We hold a 71% equity interest in the joint venture and PMB Pasadena LLC holds a 29% equity interest. PMB Pasadena LLC is the managing member of Pasadena JV, but we consolidate the joint venture in our consolidated financial statements. The accounting policies of the joint venture are consistent with our accounting policies. Pursuant to a contribution agreement dated as of March 1, 2010, among us, NHP/PMB, Pacific Medical Buildings LLC and PMB Pasadena LLC, NHP/PMB may in the future acquire Pasadena JV if certain conditions are met.

Net income or loss is allocated between the partners in the joint venture based on the HLBV method. During the nine months ended September 30, 2010, operating cash distributions from Pasadena JV of $0.1 million were made to us.

All intercompany balances with Pasadena JV have been eliminated for purposes of our consolidated financial statements.

PDP Mission Hills 1 LLC

As of September 23, 2010, we entered into a joint venture with PMB Mission Hills 1 LLC (an entity affiliated with Pacific Medical Buildings LLC) called PDP Mission Hills 1 LLC (“ Mission Hills JV”) to develop a medical office building. We contributed $14.7 million in cash, and PMB Mission Hills 1 LLC contributed $1.8 million in cash, and the joint venture acquired the land on which the medical office building is to be developed for $15.5 million. The total budget for the project is $53.0 million, and construction is expected to commence in late 2010. We hold an 89.1% equity interest in the joint venture and PMB Mission Hills 1 LLC holds a 10.9% equity interest. PMB Mission Hills 1 LLC is the managing member of Mission Hills JV, but we consolidate the joint venture in our consolidated financial statements. The accounting policies of the joint venture are consistent with our accounting policies. Pursuant to a contribution agreement dated as of September 23, 2010, among us, NHP/PMB, PMB LLC and PMB Mission Hills 1 LLC, the interests in the joint venture will be contributed to NHP/PMB subsequent to completion of development in accordance with the terms of the Pipeline Agreement.

During the nine months ended September 30, 2010, Mission Hills JV incurred costs of $16.2 million (including the land acquisition) which is included in the caption “Development in progress” on our consolidated balance sheets.

Net income or loss is allocated between the partners in the joint venture based on the HLBV method. No cash distributions were made during the nine months ended September 30, 2010.

All intercompany balances with Mission Hills JV have been eliminated for purposes of our consolidated financial statements.

McShane/NHP JV, LLC

In December 2007, we entered into a joint venture with McShane called McShane/NHP JV, LLC (“McShane/NHP”) to invest in multi-tenant medical office buildings. We hold a 95% equity interest in the joint venture and McShane holds a 5% equity interest. McShane is the managing member of McShane/NHP, but we consolidate the joint venture in our consolidated financial statements. The accounting policies of the joint venture are consistent with our accounting policies.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash distributions from McShane/NHP are made in accordance with the members’ ownership interests and will continue to be made until specified returns are achieved. As the specified returns are achieved, McShane will receive an increasing percentage of the cash distributions from the joint venture. During the nine months ended September 30, 2010, operating cash distributions from McShane/NHP of $0.9 million and $48,000 were made to us and to McShane, respectively.

As of September 30, 2010, McShane/NHP owned seven multi-tenant medical office buildings located in one state.

During the nine months ended September 30, 2010, McShane/NHP funded $0.9 million in capital and tenant improvements at certain facilities.

All intercompany balances with McShane/NHP have been eliminated for purposes of our consolidated financial statements.

NHP/Broe, LLC and NHP/Broe II, LLC

On August 21, 2009, we acquired for $4.3 million the 10% and 5% noncontrolling interests held by The Broe Companies in NHP/Broe, LLC (“Broe I”) and NHP/Broe II, LLC (“Broe II”), respectively. As a result of this acquisition, we now have direct ownership of the 36 multi-tenant medical office buildings located in nine states previously owned by Broe I and Broe II. Activity subsequent to August 21, 2009 related to these facilities is included in our consolidated activity for wholly owned real estate properties (see Note 3). Prior to our acquisition of Broe’s interests, we consolidated both joint ventures in our consolidated financial statements in accordance with ASC 810.

6. Investment in Unconsolidated Joint Ventures

The following table sets forth the amounts from our unconsolidated joint ventures included in the caption “Income from unconsolidated joint ventures” on our consolidated income statements for the periods presented:


	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands)
Management fees:
State pension fund investor	$	1,139		$	1,032		$	3,335		$	3,068
NHP share of net income (loss):
State pension fund investor		288			482			729			793
PMBRES		(48	)		27			(21	)		(86	)
PMB SB		—			(28	)		12			(75	)

	$	1,379		$	1,513		$	4,055		$	3,700

State Pension Fund Investor

In January 2007, we entered into a joint venture with a state pension fund investor. The purpose of the joint venture is to acquire and develop assisted living, independent living and skilled nursing facilities. We manage and own 25% of the joint venture, which will fund its investments with approximately 40% equity contributions and 60% debt. The original approved investment target was $475.0 million, but we exceeded that amount in 2007, and the total potential investment amount has been increased to $975.0 million. The financial statements of the joint venture are not consolidated in our financial statements as our joint venture partner has substantive participating rights, and accordingly our investment is accounted for using the equity method.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 30, 2010, the joint venture owned 19 assisted and independent living facilities, 14 skilled nursing facilities and one continuing care retirement community located in nine states.

During the nine months ended September 30, 2010, the joint venture prepaid two loans totaling $4.3 million with a weighted average rate of 9.16%, and placed $12.0 million of mortgage financing on a portion of its portfolio resulting in net cash distributions of $5.5 million and $1.8 million to our joint venture partner and to us, respectively.

During January 2008, the joint venture entered into an interest rate swap contract that is designated as effectively hedging the variability of expected cash flows related to variable rate debt placed on a portion of its portfolio. The cash flow hedge has a fixed rate of 4.235%, a notional amount of $126.1 million and expires on January 1, 2015. The fair value of this contract at September 30, 2010 and December 31, 2009 was $16.3 million and $8.2 million, respectively, which is included as a liability on the joint venture’s balance sheets.

Cash distributions from the joint venture are made in accordance with the members’ ownership interests until specified returns are achieved. As the specified returns are achieved, we will receive an increasing percentage of the cash distributions from the joint venture. During the nine months ended September 30, 2010, we received additional distributions of $2.4 million from the joint venture. In addition to our share of the income, we receive a monthly management fee calculated as a percentage of the equity investment in the joint venture. This fee is included in our income from unconsolidated joint ventures and in the general and administrative expenses on the joint venture’s income statement.

PMB Real Estate Services LLC

In February 2008, we entered into an agreement with Pacific Medical Buildings LLC to acquire a 50% interest in PMBRES, a full service property management company. The transaction closed on April 1, 2008. In consideration for the 50% interest, we paid $1.0 million at closing, and we will make an additional payment on or before March 31, 2011 equal to six times the normalized net operating profit of PMBRES for 2010 (less the amount of all prior payments). An additional payment equal to six times the Normalized Net Operating Profit, as defined, of PMBRES for 2009 was to be made on or before March 31, 2010. During 2009, PMBRES had a net operating loss, and as such, no additional payment was made on or before March 31, 2010. PMBRES provides property management services for 32 multi-tenant medical office buildings that we own or in which we have an ownership interest.

PMB SB 399-401 East Highland LLC

In August 2008, we acquired from PMB SB (an entity affiliated with Pacific Medical Buildings LLC) a 44.95% interest in an entity that owned two multi-tenant medical office buildings for $3.5 million. As of March 1, 2010, we acquired the remaining 55.05% interest in PMB SB. PMB SB was valued at $17.4 million at the date of acquisition, and the acquisition was paid in a combination of cash and the assumption of $11.2 million of mortgage financing (of which $6.2 million was previously attributable to the controlling interest in PMB SB). Prior to the acquisition, our investment in PMB SB was $3.0 million which was accounted for under the equity method. In connection with the acquisition, we re-measured our previously held equity interest at the acquisition date fair value based on an independent consultant’s report and recognized a net gain on the re-measurement of $0.6 million which is included in the caption “Interest and other income” on our consolidated income statements. Subsequent activity related to these facilities is included in our consolidated activity for wholly owned real estate properties (see Note 3). During the period from January 1, 2010 to February 28, 2010, we received distributions of $0.1 million from PMB SB.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Intangible Assets and Liabilities

Intangible assets include items such as lease-up intangible assets, above market tenant and ground lease intangible assets and in-place lease intangible assets. Intangible liabilities include below market tenant and ground lease intangible liabilities and are included in the caption “Accounts payable and accrued liabilities” on our consolidated balance sheets. As of September 30, 2010 and December 31, 2009, intangible assets and liabilities consisted of:


	September 30,			December 31,
	2010			2009
	(In thousands)
Gross intangible assets	$	190,251		$	129,979
Accumulated amortization		(43,679	)		(36,322	)

	$	146,572		$	93,657


Gross intangible liabilities	$	18,024		$	18,268
Accumulated amortization		(4,933	)		(3,890	)

	$	13,091		$	14,378

The amortization of above/below market lease intangibles is included in the caption “Medical office building operating rent” on our consolidated income statements. The amortization of other intangible assets and liabilities is included in the caption “Depreciation and amortization” on our consolidated income statements. The following table sets forth amounts included on our consolidated income statements related to the amortization of intangible assets and liabilities for the periods presented:


	Three months ended					Nine months ended
	September 30,					September 30,
	2010		2009			2010		2009
	(In thousands)
Amortization:
Above/below market lease intangibles	$	116	$	(143	)	$	207	$	(425	)
Other intangible assets and liabilities		3,852		3,221			12,931		11,416

	$	3,968	$	3,078		$	13,138	$	10,991

8. Other Assets

As of September 30, 2010 and December 31, 2009, other assets consisted of:


	September 30,		December 31,
	2010		2009
	(In thousands)
Other receivables, net of reserves of $6.6 million and $4.2 million at September 30, 2010 and December 31, 2009, respectively	$	69,581	$	68,535
Straight-line rent receivables, net of reserves of $113.5 million and $108.3 million at September 30, 2010 and December 31, 2009, respectively		36,150		27,450
Deferred financing costs		10,055		11,366
Capitalized lease and loan origination costs		2,027		2,418
Investments and restricted funds		13,948		9,545
Prepaid ground leases		12,867		10,051
Other		4,406		3,787

	$	149,034	$	133,152

Included in other receivables at both September 30, 2010 and December 31, 2009, are two unsecured loans to Emeritus Corporation in the amount of $21.4 million and $30.0 million due in March 2012 and April 2012, respectively.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Debt

Unsecured Senior Credit Facility

As of September 30, 2010, we had no balance outstanding on our $700.0 million revolving unsecured senior credit facility. At our option, borrowings under the credit facility bear interest at the prime rate (3.25% at September 30, 2010) or applicable LIBOR plus 0.70% (1.01% at September 30, 2010). We pay a facility fee of 0.15% per annum on the total commitment under the agreement. Effective June 25, 2010, we exercised our option to extend the maturity date by one year to December 15, 2011. As of September 30, 2010, we were in compliance with all covenants under the credit facility.

Senior Notes

The aggregate principal amount of notes outstanding at September 30, 2010 was $991.6 million. As of September 30, 2010, the weighted average interest rate on the notes was 6.47% and the weighted average maturity was 4.2 years.

Notes and Bonds Payable

The aggregate principal amount of notes and bonds payable at September 30, 2010 was $454.8 million. Notes and bonds payable are due through the year 2037, at interest rates ranging from 1.03% to 8.63% and are secured by real estate properties with an aggregate net book value as of September 30, 2010 of $626.8 million. As of September 30, 2010, the weighted average interest rate on the notes and bonds payable was 5.32% and the weighted average maturity was 7.3 years.

During the nine months ended September 30, 2010, we assumed mortgages as part of certain acquisitions totaling $109.5 million.

During the nine months ended September 30, 2010, we repaid at maturity $67.2 million of secured debt with a weighted average interest rate of 5.24% and prepaid $12.4 million of secured debt with an interest rate of 6.95%.

During the nine months ended September 30, 2010, we exercised a 12-month extension option on a $32.4 million loan that was scheduled to mature in April 2010.

From October 1, 2010 to November 8, 2010, we prepaid $70.8 million of secured debt at a weighted average interest rate of 3.76% (see Note 19).

Debt Maturities

The principal balances of our debt as of September 30, 2010 mature as follows:


	Credit		Senior		Notes and Bonds
Year	Facility		Notes		Payable		Total
	(In thousands)
2010	$	—	$	—	$	—	$	—
2011		—		339,040		70,843		409,883
2012		—		72,950		50,576		123,526
2013		—		269,850		38,404		308,254
2014		—		—		21,948		21,948
Thereafter (1)		—		309,793		273,008		582,801

	$	—	$	991,633	$	454,779	$	1,446,412


(1)		There are $52.4 million of senior notes due in 2037 which may be put back to us at their face amount at the option of the holder on October 1 of any of the following years: 2012, 2017 or 2027. There are $23.0 million of senior notes due in 2038 which may be put back to us at their face amount at the option of the holder on July 7 of any of the following years: 2013, 2018, 2023 or 2028.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stockholders’ Equity

Preferred Stock

On January 18, 2010, we redeemed all outstanding shares of our Series B Preferred Stock at a redemption price per share of $103.875 plus an amount equal to accumulated and unpaid dividends thereon to the redemption date ($0.3875), for a total redemption price of $104.2625 per share, payable only in cash. As a result of the redemption, each share of Series B Preferred Stock was convertible until January 14, 2010 into 4.5150 shares of common stock. During that time, 512,727 shares were converted into approximately 2,315,000 shares of common stock. On January 18, 2010, we redeemed 917 shares that remained outstanding.

Common Stock

We enter into sales agreements from time to time with agents to sell shares of our common stock through an at-the-market equity offering program. On January 15, 2010, we entered into two new sales agreements to sell up to an aggregate of 5,000,000 shares of our common stock from time to time. When that program was completed, we entered into two new sales agreements on July 2, 2010 to sell up to an aggregate of 5,000,000 shares of our common stock from time to time. During the nine months ended September 30, 2010, we issued and sold approximately 7,851,000 shares of common stock at a weighted average price of $36.46 per share, resulting in net proceeds of approximately $283.2 million after sales agent fees. As of September 30, 2010, approximately 2,612,000 shares of common stock were available to be sold pursuant to our at-the-market equity offering program. From October 1, 2010 to November 8, 2010, we issued and sold approximately 1,290,000 shares at a weighted average price of $40.59 per share (see Note 19).

We sponsor a dividend reinvestment plan that enables existing stockholders to purchase additional shares of common stock by automatically reinvesting all or part of the cash dividends paid on their shares of common stock at a discount ranging from 0% to 5%, determined by us from time to time in accordance with the plan. The discount at September 30, 2010 was 2%. During the nine months ended September 30, 2010, we issued approximately 146,000 shares of common stock, at an average price of $33.22 per share, resulting in proceeds of approximately $4.9 million.

On January 18, 2010, we redeemed all outstanding shares of Series B Preferred Stock, and as a result, 512,727 shares of Series B Preferred Stock were converted into approximately 2,315,000 shares of common stock during the period from January 1, 2010 to January 14, 2010.

During the nine months ended September 30, 2010, 16,285 OP Units issued by NHP/PMB were exchanged for 16,285 shares of common stock (see Note 5).

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Earnings Per Share (EPS)

Certain of our share-based payment awards are considered participating securities which requires the use of the two-class method for the computation of basic and diluted EPS.

Diluted EPS also includes the effect of any potential shares outstanding, which for us is comprised of dilutive stock options, other share-settled compensation plans and, if the effect is dilutive, Series B Preferred Stock, which was redeemed on January 18, 2010 (see Note 10) and/or OP Units. There were 270,100 stock options that would not be dilutive for the three and nine months ended September 30, 2010. There were 243,000 stock options that would not be dilutive for the three and nine months ended September 30, 2009. The calculation below excludes 147,600 performance shares that would not be dilutive for the three months ended September 30, 2010. The calculation below excludes 125,000 performance shares that would not be dilutive for the three months ended September 30, 2009 and 330,000 stock appreciation rights that would not be dilutive for the three and nine months ended September 30, 2009. The Series B Preferred Stock is not dilutive for any period presented. The following table sets forth the components of the basic and diluted EPS calculations:


	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands, except per share amounts)
Numerator:
Income from continuing operations	$	36,309		$	30,924		$	100,048		$	94,355
Net loss (income) attributable to noncontrolling interests		558			(82	)		895			(184	)
Net income attributable to participating securities		(331	)		(204	)		(980	)		(616	)
Series B preferred stock dividends		—			(1,451	)		—			(4,355	)

Numerator for Basic and Diluted EPS from continuing operations	$	36,536		$	29,187		$	99,963		$	89,200


Numerator for Basic and Diluted EPS from discontinued operations	$	2,987		$	301		$	7,510		$	22,329


Denominator:
Basic weighted average shares outstanding		123,721			107,175			120,242			104,224
Effect of dilutive securities:
Stock options		40			87			53			72
Other share-settled compensation plans		533			431			471			279
OP Units		2,203			1,784			2,112			1,814

Diluted weighted average shares outstanding		126,497			109,477			122,878			106,389


Basic earnings per share amounts:
Income from continuing operations attributable to NHP common stockholders	$	0.30		$	0.27		$	0.83		$	0.86
Discontinued operations attributable to NHP common stockholders		0.02			0.01			0.06			0.21

Net income attributable to NHP common stockholders	$	0.32		$	0.28		$	0.89		$	1.07


Diluted earnings per share amounts:
Income from continuing operations attributable to NHP common stockholders	$	0.29		$	0.27		$	0.81		$	0.84
Discontinued operations attributable to NHP common stockholders		0.02			—			0.06			0.21

Net income attributable to NHP common stockholders	$	0.31		$	0.27		$	0.87		$	1.05

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Discontinued Operations

ASC 360 requires the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale and in which we have no continuing interest be removed from income from continuing operations and reported as discontinued operations. The operating results for any such assets for any prior periods presented must also be reclassified as discontinued operations. If we have a continuing involvement, as in the sales to our unconsolidated joint venture, the operating results remain in continuing operations. The following table details the operating results reclassified to discontinued operations for the periods presented:


	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(In thousands)
Rental income	$	387	$	813	$	1,447	$	2,586
Interest and other income		—		—		—		19

		387		813		1,447		2,605

Expenses:
Depreciation and amortization		83		505		413		1,407
General and administrative		3		7		11		21

		86		512		424		1,428

Income from discontinued operations	$	301	$	301	$	1,023	$	1,177

13. Derivatives

During August 2010, we entered into six 12-month forward-starting interest rate swap agreements for an aggregate notional amount of $250.0 million at a weighted average rate of 3.16%. We entered into these swap agreements in order to hedge the expected interest payments associated with fixed rate debt forecasted to be issued in 2011. The swap agreements each have an effective date of August 1, 2011 and a termination date of August 1, 2021. We expect to settle the swap agreements when the forecasted debt is issued. We assessed the effectiveness of these swap agreements as hedges at inception and on September 30, 2010 and consider these swap agreements to be highly effective cash flow hedges. The swap agreements are recorded as a liability under the caption “Accounts payable and accrued liabilities” on our consolidated balance sheets at their aggregate estimated fair value of $6.0 million at September 30, 2010.

During August and September 2007, we entered into four six-month Treasury lock agreements totaling $250.0 million at a weighted average rate of 4.212%. We entered into these Treasury lock agreements in order to hedge the expected interest payments associated with a portion of our October 2007 issuance of $300.0 million of notes which mature in 2013. These Treasury lock agreements were settled in cash on October 17, 2007 for an amount equal to the present value of the difference between the locked Treasury rates and the unwind rate. We reassessed the effectiveness of these agreements at the settlement date and determined that they were highly effective cash flow hedges under ASC 815 for $250.0 million of the $300.0 million of notes as intended. The prevailing Treasury rate exceeded the rates in the Treasury lock agreements and, as a result, the counterparties to those agreements made payments to us of $1.6 million, which was recorded as other comprehensive income. The settlement amounts are being amortized over the life of the debt as a yield reduction. We expect to record $0.3 million of amortization during the next 12 months.

In June 2006, we entered into two $125.0 million, two-month Treasury lock agreements in order to hedge the expected interest payments associated with a portion of our July 2006 issuance of $350.0 million of notes which mature in 2011. These Treasury lock agreements were settled in cash on July 11, 2006, concurrent with the pricing of the $350 million of notes, for an amount equal to the present value of the difference between the locked Treasury rates and the unwind rate. We reassessed the effectiveness of these agreements at the settlement date and determined that they were highly effective cash flow hedges under ASC 815 for $250.0 million of the $350.0 million of notes as intended. The prevailing Treasury rate exceeded the rates in the Treasury lock agreements and, as a result, the counterparty to those agreements made payments to us of $1.2 million, which was recorded as other comprehensive income. The settlement amounts are being amortized over the life of the debt as a yield reduction. We expect to record $0.2 million of amortization during the next 12 months.

During January 2008, the unconsolidated joint venture we have with a state pension fund investor entered into an interest rate swap contract (see Notes 6 and 14).

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth amounts included on our consolidated income statements related to the amortization of the Treasury lock agreements for the periods presented:


	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(In thousands)
Amortization:
2007 Treasury lock agreements	$	66	$	62	$	195	$	307
2006 Treasury lock agreements		65		61		191		178

	$	131	$	123	$	386	$	485

14. Comprehensive Income

We recorded the August 2010 swap agreements as a liability under the caption “Accounts payable and accrued liabilities” on our consolidated balance sheets at their aggregate estimated fair value of $6.0 million at September 30, 2010.

We recorded the August and September 2007 Treasury lock agreements on our balance sheets at their estimated fair value of $0.1 million at September 30, 2007. In connection with the settlement of the August and September 2007 Treasury lock agreements on October 17, 2007, we recognized a gain of $1.6 million. The gain was recognized through other comprehensive income and is being amortized over the life of the related $300.0 million of notes which mature in 2013 as a yield reduction. We expect to record $0.3 million of amortization during the next 12 months.

We recorded the June 2006 Treasury lock agreements on our balance sheets at their estimated fair value of $1.6 million at June 30, 2006. In connection with the settlement of the June 2006 Treasury lock agreements on July 11, 2006, we recognized a gain of $1.2 million. The gain was recognized through other comprehensive income and is being amortized over the life of the related $350.0 million of notes which mature in 2011 as a yield reduction. We expect to record $0.2 million of amortization during the next 12 months.

During January 2008, the unconsolidated joint venture we have with a state pension fund investor entered into an interest rate swap contract (see Note 6). As of September 30, 2010, we had recorded our pro rata share of the unconsolidated joint venture’s accumulated other comprehensive loss related to this contract of $4.1 million.

The following table sets forth the computation of comprehensive income for the periods presented:


	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands)
Net income	$	39,296		$	31,225		$	107,558		$	116,684
Other comprehensive income:
Loss on interest rate swap agreements		(5,977	)		—			(5,977	)		—
Amortization of gains on Treasury lock agreements		(131	)		(123	)		(386	)		(485	)
Pro rata share of accumulated other comprehensive (loss) income from unconsolidated joint venture		(626	)		(476	)		(2,025	)		(2,568	)

Comprehensive income		32,562			30,626			99,170			113,631
Comprehensive loss (income) attributable to noncontrolling interests		558			(82	)		895			(184	)

	$	33,120		$	30,544		$	100,065		$	113,447

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Income Taxes

The provisions of ASC Topic 740, Income Taxes, which clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute of tax positions taken or expected to be taken on a tax return became effective January 1, 2007. No amounts have been recorded for unrecognized tax benefits or related interest expense and penalties. The taxable periods ending December 31, 2005 through December 31, 2009 remain open to examination by the Internal Revenue Service and the tax authorities of the significant jurisdictions in which we do business.

Hearthstone Acquisition

On June 1, 2006, we acquired the stock of Hearthstone Assisted Living, Inc. (“HAL”), causing HAL to become a qualified REIT subsidiary. As a result of the acquisition, we succeeded to HAL’s tax attributes, including HAL’s tax basis in its net assets. Prior to the acquisition, HAL was a corporation subject to federal and state income taxes. In connection with the acquisition of HAL, NHP acquired approximately $82.5 million of federal net operating losses (“NOLs”) which we can carry forward to future periods and the use of which is subject to annual limitations imposed by IRC Section 382. While we believe that these NOLs are accurate, any adjustments to HAL’s tax returns for periods prior to June 1, 2006 by the Internal Revenue Service could change the amount of the NOLs that we can utilize. We have used a portion of this amount in 2007 and 2008 and anticipate using additional amounts in future years. These NOLs are set to expire between 2017 and 2025. NOLs related to various states were also acquired and are set to expire based on the various laws of the specific states.

In addition, we may be subject to a corporate-level tax on any taxable disposition of HAL’s pre-acquisition assets that occurs within ten years after the June 1, 2006 acquisition. The corporate-level tax would be assessed only to the extent of the built-in gain that existed on the date of acquisition, based on the fair market value of the asset on June 1, 2006. We do not expect to dispose of any asset included in the HAL acquisition if such a disposition would result in the imposition of a material tax liability, and no such sales have taken place through September 30, 2010. Accordingly, we have not recorded a deferred tax liability associated with this corporate-level tax. Gains from asset dispositions occurring more than 10 years after the acquisition will not be subject to this corporate-level tax. However, we may dispose of HAL assets before the 10-year period if we are able to complete a tax-deferred exchange.

16. Segment Information

Our operations are organized into two segments — triple-net leases and multi-tenant leases. In the triple-net leases segment, we invest in healthcare related properties and lease the facilities to unaffiliated tenants under “triple-net” and generally “master” leases that transfer the obligation for all facility operating costs (including maintenance, repairs, taxes, insurance and capital expenditures) to the tenant. In the multi-tenant leases segment, we invest in healthcare related properties that have several tenants under separate leases in each building, thus requiring active management and responsibility for many of the associated operating expenses (although many of these are, or can effectively be, passed through to the tenants). During 2009 and the nine months ended September 30, 2010, the multi-tenant leases segment was comprised exclusively of medical office buildings.

Non-segment revenues primarily consist of interest income on mortgages and unsecured loans and other income. Interest expense, depreciation and amortization and other expenses not attributable to individual facilities are not allocated to individual segments for purposes of assessing segment performance. Non-segment assets primarily consist of corporate assets including mortgages and unsecured loans, investment in unconsolidated joint ventures, cash, deferred financing costs and other assets not attributable to individual facilities.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Certain items in prior period financial statements have been reclassified to conform to current period presentation, including those required by ASC 360 which require the operating results of any assets with their own identifiable cash flows that are disposed of or held for sale and in which we have no continuing interest to be removed from income from continuing operations and reported as discontinued operations. Summary information related to our reportable segments is as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
	2010		2009		2010		2009
	(In thousands)
Revenue:
Triple-net leases	$	80,123	$	72,675	$	229,369	$	218,105
Multi-tenant leases		26,868		17,588		75,677		52,111
Non-segment		7,054		6,748		19,905		19,741

	$	114,045	$	97,011	$	324,951	$	289,957


Net operating income (1):
Triple-net leases	$	80,123	$	72,675	$	229,369	$	218,105
Multi-tenant leases		15,676		10,348		45,568		30,910

	$	95,799	$	83,023	$	274,937	$	249,015


	September 30,		December 31,
	2010		2009
	(In thousands)
Assets:
Triple-net leases	$	2,574,670	$	2,402,664
Multi-tenant leases		868,530		555,998
Non-segment		503,493		688,413

	$	3,946,693	$	3,647,075


(1)		Net operating income (“NOI”) is a non-GAAP supplemental financial measure used to evaluate the operating performance of our facilities. We define NOI for our triple-net leases segment as rent revenue. For our multi-tenant leases segment, we define NOI as revenue minus medical office building operating expenses. In some cases, revenue for medical office buildings includes expense reimbursements for common area maintenance charges. NOI excludes interest expense, depreciation and amortization expense, general and administrative expense and discontinued operations. We present NOI as it effectively presents our portfolio on a “net” rent basis and provides relevant and useful information as it measures the operating performance at the facility level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties. Furthermore, we believe that NOI provides investors relevant and useful information because it measures the operating performance of our real estate at the property level on an unleveraged basis. We believe that net income is the GAAP measure that is most directly comparable to NOI. However, NOI should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes the items described above. Additionally, NOI as presented above may not be comparable to other REITs or companies as their definitions of NOI may differ from ours.

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of net income, a GAAP measure, to NOI, a non-conforming GAAP measure, is as follows:


	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands)
Net income	$	39,296		$	31,225		$	107,558		$	116,684
Interest and other income		(7,054	)		(6,748	)		(19,905	)		(19,741	)
Interest expense		23,782			23,221			71,824			70,540
Depreciation and amortization expense		36,204			30,625			101,734			91,721
General and administrative expense		7,902			6,514			22,262			20,404
Acquisition costs		35			—			3,104			—
Income from unconsolidated joint ventures		(1,379	)		(1,513	)		(4,055	)		(3,700	)
Gain on debt extinguishment		—			—			(75	)		(4,564	)
Gain on sale of facilities, net		(2,686	)		—			(6,487	)		(21,152	)
Income from discontinued operations		(301	)		(301	)		(1,023	)		(1,177	)

Net operating income from reportable segments	$	95,799		$	83,023		$	274,937		$	249,015

17. Commitments and Contingencies

Litigation

From time to time, we are a party to various legal proceedings, lawsuits and other claims (as to some of which we may not be insured) that arise in the normal course of our business. Regardless of their merits, these matters may require us to expend significant financial resources. Except as described in our Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the period ended March 31, 2010, we are not aware of any other legal proceedings or claims that we believe may have, individually or taken together, a material adverse effect on our business, results of operations or financial position. However, we are unable to predict the ultimate outcome of pending litigation and claims, and if our assessment of our liability with respect to these actions and claims is incorrect, such actions and claims could have a material adverse effect on our business, results of operations or financial position.

Development Agreements

During the nine months ended September 30, 2010, we entered into Mission Hills JV to develop a medical office building (see Note 5) and entered into another agreement to fund the expansion of a skilled nursing facility (see Note 4). As of September 30, 2010, we had committed to fund an additional $47.4 million under these agreements, of which $36.5 million relates to Mission Hills JV and is expected to be funded through a third party construction loan.

Lines of Credit

Under the terms of an agreement with PMB LLC, we agreed to extend to PMB LLC a $10.0 million line of credit at an interest rate equal to LIBOR plus 175 basis points to fund certain costs of PMB LLC with respect to the proposed development of multi-tenant medical office buildings. During the nine months ended September 30, 2010, we funded $0.8 million under the line of credit. As of September 30, 2010, $4.0 million was outstanding and is included in the caption “Other assets” on our consolidated balance sheet.

We entered into an agreement with PMB LLC, the manager of PMB Pomona LLC, to extend up to $3.0 million of funding at an interest rate of 7.25%, which was secured by 100% of the membership interests in PMB Pomona LLC (see Note 18). During the nine months ended September 30, 2010, we funded $0.3 million, and the total $1.9 million outstanding was subsequently repaid. No further disbursements will be made under the agreement.

As of February 1, 2010, in connection with the formation of Gilbert JV, a consolidated joint venture, we agreed to loan Gilbert JV up to $8.8 million as project financing at an interest rate of 7.00%, including $6.8 million that was disbursed initially and remains outstanding at September 30, 2010 (see Note 5).

NATIONWIDE HEALTH PROPERTIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of March 1, 2010, in connection with the formation of Pasadena JV, a consolidated joint venture, we agreed to loan Pasadena JV up to $56.5 million as project financing at an initial interest rate equal to the greater of 3.50% or LIBOR plus 165 basis points (increasing to the greater of 5.125% or LIBOR plus 375 basis points as of April 1, 2010), including $49.8 million that was disbursed initially and remains outstanding at September 30, 2010 (see Note 5).

Indemnities

We have entered into indemnification agreements with those partners who contributed appreciated property into NHP/PMB. Under these indemnification agreements, if any of the appreciated real estate contributed by the partners is sold by NHP/PMB in a taxable transaction within a specified number of years after the property was contributed, we will reimburse the affected partners for the federal and state income taxes associated with the pre-contribution gain that is specially allocated to the affected partner under the Code. We have no current plans to sell any of these properties.

18. Related Party Transactions

In August 2008, Dr. Jeffrey Rush became a director of NHP. In August 2008, we acquired for $3.5 million a 44.95% interest in PMB SB, an entity that owns two multi-tenant medical office buildings, and as of March 1, 2010, we acquired the remaining interest in PMB SB (see Note 6). Dr. Rush, through an unaffiliated entity, had an ownership interest in PMB SB.

In September 2008, we funded a mortgage loan secured by a multi-tenant medical office building in the amount of $47.5 million. As of February 1, 2010, we acquired the multi-tenant medical office building, and as a result, the loan was retired (see Notes 4 and 5). Dr. Rush has an ownership interest in another unaffiliated entity that owned the multi-tenant medical office building that was security for this loan.

In February 2008, we entered into an agreement with Pacific Medical Buildings LLC to acquire a 50% interest in PMBRES, a full service property management company (see Note 6). Dr. Rush, through an unaffiliated entity, has an ownership interest in PMB Partners LLC which owns 50% of PMBRES.

We have entered into an agreement with PMB Pomona LLC to acquire a medical office building currently in development for $37.5 million upon completion which was amended as of February 1, 2010 to provide for the future acquisition of the medical office building by NHP/PMB. Dr. Rush, through an unaffiliated entity, has an ownership interest in PMB Pomona LLC. We also entered into an agreement with PMB LLC, the manager of PMB Pomona LLC, to extend up to $3.0 million of funding at an interest rate of 7.25%, which was secured by 100% of the membership interests in PMB Pomona LLC (see Note 17).

As of March 1, 2010, NHP/PMB became obligated to pay $2.1 million under the Contribution Agreement, of which $1.9 million was paid to Pacific Medical Buildings LLC in cash (see Note 5). Dr. Rush is the Chairman of and owns an interest in Pacific Medical Buildings LLC. In addition, Dr. Rush and certain of his family members own or owned interests, directly and indirectly through partnerships and trusts, in the entities that contributed the five multi-tenant medical office buildings acquired by NHP/PMB, Gilbert JV and Pasadena JV during the nine months ended September 30, 2010 (see Note 6), in PMB Mission Hills 1 LLC (see Note 6) and/or own the remaining development property that may be acquired in the future under the Contribution Agreement.

19. Subsequent Events

From October 1, 2010 to November 8, 2010, we completed approximately $39 million of investments in three skilled nursing facilities.

From October 1, 2010 to November 8, 2010, we prepaid $70.8 million of secured debt at a weighted average interest rate of 3.76% (see Note 9).

From October 1, 2010 to November 8, 2010, we issued and sold approximately 1,290,000 shares at a weighted average price of $40.59 per share through our at-the-market equity offering program (see Note 10).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statement Regarding Forward-Looking Disclosure

Certain information contained in this report includes statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are not statements of historical facts. These statements may be identified, without limitation, by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “believes,” “intends,” “should” or comparable terms or the negative thereof. All forward-looking statements included in this report are based on information available to us on the date hereof. These statements speak only as of the date hereof and we assume no obligation to update such forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in the statements. Risks and uncertainties associated with our business include (without limitation) the following:

•

deterioration in the operating results or financial condition, including bankruptcies, of our tenants;

•

non-payment or late payment of rent, interest or loan principal amounts by our tenants;

	•		our reliance on one tenant for a significant percentage of our revenue;

	•		occupancy levels at certain facilities;

	•		our level of indebtedness;

	•		changes in the ratings of our debt securities;

	•		maintaining compliance with our debt covenants;

	•		access to the capital markets and the cost and availability of capital;

	•		the effect of healthcare reform legislation or government regulations, including changes in the reimbursement levels under the Medicare and Medicaid programs;

	•		the general distress of the healthcare industry;

	•		increasing competition in our business sector;

	•		the effect of economic and market conditions and changes in interest rates;

	•		the amount and yield of any additional investments;

•

risks associated with acquisitions, including our ability to identify and complete favorable transactions, delays or failures in obtaining third party consents or approvals, the failure to achieve perceived benefits, unexpected costs or liabilities and potential litigation;

•

risks associated with development, including our ability to obtain financing, delays or failures in obtaining necessary permits and authorizations, the failure to achieve original project estimates and our limited history in conducting ground-up development projects;

•

the ability of our tenants to pay contractual rent and/or interest escalations in future periods;

•

the ability of our tenants to obtain and maintain adequate liability and other insurance;

•

our ability to attract new tenants for certain facilities;

•

our ability to sell certain facilities for their book value;

•

our ability to retain key personnel;

•

potential liability under environmental laws;

•

the possibility that we could be required to repurchase some of our senior notes;

•

changes in or inadvertent violations of tax laws and regulations and other factors that can affect our status as a real estate investment trust (“REIT”); and

•

the risk factors set forth under the caption “Risk Factors” in Item 1A and other factors discussed from time to time in our news releases, public statements and/or filings with the SEC, especially the risk factors set forth in our most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in different presentation of our financial statements. For a description of the risks associated with our critical accounting policies and estimates, see “Risk Factors — Risks Relating to Us and Our Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2009. On an ongoing basis, we evaluate our estimates and assumptions, including those that impact our most critical accounting policies. We base our estimates and assumptions on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates. We believe the following are our most critical accounting estimates.

Principles of Consolidation

Our consolidated financial statements include the accounts of NHP, its wholly owned subsidiaries and its joint ventures that are controlled through voting rights or other means. We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), for arrangements with variable interest entities (“VIEs”) and would consolidate those VIEs where we are the primary beneficiary. All material intercompany accounts and transactions have been eliminated.

We apply the provisions of ASC Topic 323, Investments — Equity Method and Joint Ventures, to investments in joint ventures. Investments in entities that 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. Under the equity method of accounting, our share of the entity’s earnings or losses is included in our operating results.

Revenue Recognition

We evaluate the collectability of the straight-line rent receivable balances on an ongoing basis and provide reserves against receivables we believe may not be fully recoverable. The ultimate amount of straight-line rent we realize could vary from the amounts currently recorded.

Investments in Real Estate

We calculate depreciation and amortization on equipment and lease costs using the straight-line method based on estimated useful lives of up to five years or the lease term, whichever is appropriate. We amortize intangible assets and liabilities over the remaining lease terms of the respective leases to real estate amortization expense or medical office building operating rent, as appropriate. We review and adjust useful lives periodically. If we do not allocate appropriately between land and building or we incorrectly estimate the useful lives of our assets, our computation of depreciation and amortization will not appropriately reflect the usage of the assets over future periods. If we overestimate the useful life of an asset, the depreciation expense related to the asset will be understated, which could result in a loss if the asset is sold in the future.

Asset Impairment

We review our long-lived assets individually on a quarterly basis to determine if there are indicators of impairment in accordance with the provisions of ASC Topic 360, Property, Plant and Equipment. Indicators may include, among others, a tenant’s inability to make rent payments, operating losses or negative operating trends at the facility level, notification by a tenant that it will not renew its lease, or a decision to dispose of an asset or adverse changes in the fair value of any of our properties. For operating assets, if indicators of impairment exist, we compare the undiscounted cash flows from the expected use of the property to its net book value to determine if impairment exists. The evaluation of the undiscounted cash flows from the expected use of the property is highly subjective and is based in part on various factors and assumptions, including, but not limited to, historical operating results, available market information and known trends and market/economic conditions that may affect the property, as well as estimates of future operating income, occupancy, rental rates, leasing demand and competition. If the sum of the future estimated undiscounted cash flows is higher than the current net book value, we conclude no impairment exists. If the sum of the future estimated undiscounted cash flows is lower than its current net book value, we recognize an impairment loss for the difference between the net book value of the asset and its estimated fair value. To the extent we decide to sell an asset, we recognize an impairment loss if the current net book value of the asset exceeds its fair value less selling costs.

Collectability of Receivables

We evaluate the collectability of our rent, mortgage and other loans and other receivables on a regular basis based on factors including, among others, payment history, the financial strength of the borrower and any guarantors, the value of the underlying collateral, the operations and operating trends of the underlying collateral, if any, the asset type and current economic conditions. If our evaluation of these factors indicates we may not recover the full value of the receivable, we provide a reserve against the portion of the receivable that we estimate may not be recovered. This analysis requires us to determine whether there are factors indicating a receivable may not be fully collectible and to estimate the amount of the receivable that may not be collected. If our assumptions or estimates regarding the collectability of a receivable change in the future, we may have to record a reserve to reduce or further reduce the carrying value of the receivable.

Income Taxes

We intend to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and accordingly, no provision has been made for federal income taxes. However, we are subject to certain state and local taxes on our income and/or property, and these amounts are included in the expense caption “General and administrative” on our consolidated income statements.

Impact of New Accounting Standards Updates

In June 2009, the FASB updated ASC 810 to require ongoing analyses to determine whether an entity’s variable interest gives it a controlling financial interest in a variable interest entity (“VIE”), making it the primary beneficiary, based on whether the entity (i) has the power to direct activities of the VIE that most significantly impact its economic performance, including whether it has an implicit financial responsibility to ensure the VIE operates as designed, and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Enhanced disclosures regarding an entity’s involvement with variable interest entities are also required under the provisions of ASC 810. These requirements became effective January 1, 2010. The adoption of these requirements did not have a material impact on our results of operations or financial position.

In February 2010, the FASB issued ASU 2010-09, Amendments to Certain Recognition and Disclosure Requirements (“ASU 2010-09”). ASU 2010-09 amends ASC Topic 855, Subsequent Events, to require Securities and Exchange Commission (“SEC”) registrants and conduit bond obligors to evaluate subsequent events through the date that the financial statements are issued, however, SEC registrants are exempt from disclosing the date through which subsequent events have been evaluated. All other entities are required to evaluate subsequent events through the date that the financial statements are available to be issued and must disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective upon issuance for all entities except conduit debt obligors. The adoption of ASU 2010-09 did not have an impact on our results of operations or financial position.

Operating Results

Nine Months Ended September 30, 2010 vs. Nine Months Ended September 30, 2009


	Nine Months Ended
	September 30,
	2010		2009			$ Change			% Change
	(Dollars in thousands)
Revenue:
Triple-net lease rent	$	229,369	$	218,105		$	11,264			5	%
Medical office building operating rent		75,677		52,111			23,566			45	%

		305,046		270,216			34,830			13	%
Interest and other income		19,905		19,741			164			1	%

		324,951		289,957			34,994			12	%

Expenses:
Interest expense		71,824		70,540			1,284			2	%
Depreciation and amortization		101,734		91,721			10,013			11	%
General and administrative		22,262		20,404			1,858			9	%
Acquisition costs		3,104		—			3,104			100	%
Medical office building operating expenses		30,109		21,201			8,908			42	%

		229,033		203,866			25,167			12	%

Operating income		95,918		86,091			9,827			11	%
Income from unconsolidated joint ventures		4,055		3,700			355			10	%
Gain on debt extinguishment		75		4,564			(4,489	)		(98	%)

Income from continuing operations		100,048		94,355			5,693			6	%

Discontinued operations:
Gains on sale of facilities, net		6,487		21,152			(14,665	)		(69	%)
Income from discontinued operations		1,023		1,177			(154	)		(13	%)

		7,510		22,329			(14,819	)		(66	%)

Net income		107,558		116,684			(9,126	)		(8	%)
Net loss (income) attributable to noncontrolling interests		895		(184	)		1,079			586	%

Net income attributable to NHP		108,453		116,500			(8,047	)		(7	%)
Preferred stock dividends		—		(4,355	)		4,355			100	%

Net income attributable to NHP common stockholders	$	108,453	$	112,145		$	(3,692	)		(3	%)

Triple-net lease rental income increased primarily due to rental income from 32 facilities acquired during 2010, increased straight-line rental income and rent increases at existing facilities, offset in part by reserves.

Medical office building operating rent increased primarily due to operating rent resulting from our 2010 acquisition of majority interests in seven multi-tenant medical office buildings and operating rent growth at existing facilities.

Interest and other income increased primarily due to the funding of three new mortgage loans and additional fundings on an existing mortgage loan during 2010 and a net gain recognized upon acquisition of the controlling interest in an unconsolidated joint venture during 2010, offset in part by the retirement of our $47.5 million loan from a related party as a result of the acquisition of the multi-tenant medical office building serving as collateral during 2010 and reserves.

Interest expense increased primarily due to the assumption of $109.5 million of secured debt during 2010, offset in part by the repayment of $79.6 million and $2.7 million of secured debt during 2010 and 2009, respectively, and the repayment of $64.6 million of senior notes during 2009.

Depreciation and amortization increased primarily due to the acquisition of 39 facilities during 2010, including majority interests in seven multi-tenant medical office buildings.

General and administrative expenses increased primarily due to increased employee related costs, tax expense and other general corporate expenses, offset in part by decreased expenses for third party advisors.

Acquisition costs represent costs related to acquisition transactions. No acquisition costs were incurred during 2009.

Medical office building operating expenses increased primarily due to operating expenses resulting from our 2010 acquisition of majority interests in seven multi-tenant medical office buildings acquired during 2010.

Income from unconsolidated joint ventures increased primarily due to increased income from our unconsolidated joint venture with a state pension fund investor and losses from PMB SB 399-401 East Highland LLC (“PMB SB”) in 2009 as compared to income in 2010.

In connection with our acquisition of one multi-tenant medical office building through a consolidated joint venture in 2010, we provided funding that was concurrently used to prepay existing debt, and as a result the consolidated joint venture recognized a gain on debt extinguishment. During 2009, we retired $30.0 million of senior notes due in 2013 for $25.4 million, resulting in a net gain on debt extinguishment of $4.6 million.

Discontinued operations income of $7.5 million for 2010 was primarily comprised of gains on sale of $6.5 million and rental income of $1.4 million, offset in part by depreciation and amortization expense of $0.4 million. Discontinued operations income of $22.3 million for 2009 was primarily comprised of gains on sale of $21.2 million, rental income of $2.6 million, offset in part by depreciation and amortization expense of $1.4 million. We expect to have future sales of facilities or reclassifications of facilities to assets held for sale, and the related income or loss would be included in discontinued operations unless the facilities were transferred to an entity in which we maintain an interest.

Three Months Ended September 30, 2010 vs. Three Months Ended September 30, 2009


	Three Months Ended
	September 30,
	2010		2009			$ Change			% Change
	(Dollars in thousands)
Revenue:
Triple-net lease rent	$	80,123	$	72,675		$	7,448			10	%
Medical office building operating rent		26,868		17,588			9,280			53	%

		106,991		90,263			16,728			19	%
Interest and other income		7,054		6,748			306			5	%

		114,045		97,011			17,034			18	%

Expenses:
Interest expense		23,782		23,221			561			2	%
Depreciation and amortization		36,204		30,625			5,579			18	%
General and administrative		7,902		6,514			1,388			21	%
Acquisition costs		35		—			35			100	%
Medical office building operating expenses		11,192		7,240			3,952			55	%

		79,115		67,600			11,515			17	%

Operating income		34,930		29,411			5,519			19	%
Income from unconsolidated joint ventures		1,379		1,513			(134	)		(9	%)

Income from continuing operations		36,309		30,924			5,385			17	%

Discontinued operations:
Gains on sale of facilities, net		2,686		—			2,686			100	%
Income from discontinued operations		301		301			—			0	%

		2,987		301			2,686			892	%

Net income		39,296		31,225			8,071			26	%
Net loss (income) attributable to noncontrolling interests		558		(82	)		640			781	%

Net income attributable to NHP		39,854		31,143			8,711			28	%
Preferred stock dividends		—		(1,451	)		1,451			100	%

Net income attributable to NHP common stockholders	$	39,854	$	29,692		$	10,162			34	%

Medical office building operating rent increased primarily due to operating rent resulting from our 2010 acquisition of majority interests in seven multi-tenant medical office buildings.

Interest and other income increased primarily due to the funding of three new mortgage loans and additional fundings on an existing mortgage loan during 2010, offset in part by the retirement of our $47.5 million loan from a related party as a result of the acquisition of the multi-tenant medical office building serving as collateral during 2010 and reserves.

Interest expense increased primarily due to the assumption of $109.5 million of secured debt during 2010, offset in part by the repayment of $79.6 million and $2.7 million of secured debt during 2010 and the last six months of 2009, respectively, and the repayment of $2.6 million of senior notes during the last six months of 2009.

Depreciation and amortization increased primarily due to the acquisition of 39 facilities during 2010, including majority interests in seven multi-tenant medical office buildings.

Acquisition costs represent costs related to acquisition transactions. No acquisition costs were incurred during 2009.

Income from unconsolidated joint ventures decreased primarily due to decreased income from our unconsolidated joint venture with a state pension fund investor and losses from PMB Real Estate Services LLC (“PMBRES”) in 2010 as compared to income in 2009.

Discontinued operations income of $3.0 million for 2010 was primarily comprised of gains on sale of $2.7 million and rental income of $0.4 million, offset in part by depreciation and amortization expense of $0.1 million. Discontinued operations income of $0.3 million for 2009 was primarily comprised of rental income of $0.8 million, offset in part by depreciation and amortization expense of $0.5 million. We expect to have future sales of facilities or reclassifications of facilities to assets held for sale, and the related income or loss would be included in discontinued operations unless the facilities were transferred to an entity in which we maintain an interest.

Funds From Operations and Funds Available for Distribution


	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
	(In thousands, except per share amounts)
Funds From Operations (“FFO”):
Net income	$	39,296		$	31,225		$	107,558		$	116,684
Net loss (income) attributable to noncontrolling interests		558			(82	)		895			(184	)
Preferred stock dividends		—			(1,451	)		—			(4,355	)
Real estate related depreciation and amortization		35,863			30,875			100,908			92,548
Depreciation in income from unconsolidated joint ventures		1,188			1,319			3,608			3,937
Gains on sale of facilities, net		(2,686	)		—			(6,487	)		(21,152	)

FFO available to NHP common stockholders		74,219			61,886			206,482			187,478
Series B preferred stock dividends add-back		—			1,451			—			4,355

Diluted FFO		74,219			63,337			206,482			191,833
Acquisition costs		35			—			3,104			—
Gain on re-measurement of equity interest upon acquisition, net		—			—			(620	)		—
Gain on debt extinguishment, net		—			—			(75	)		(4,564	)
Gain on debt extinguishment, net from unconsolidated joint ventures		—			(332	)		—			(332	)

Adjusted diluted FFO	$	74,254		$	63,005		$	208,891		$	186,937


Funds Available for Distribution (“FAD”):
Net income	$	39,296		$	31,225		$	107,558		$	116,684
Net loss (income) attributable to noncontrolling interests		558			(82	)		895			(184	)
Preferred stock dividends		—			(1,451	)		—			(4,355	)
Real estate related depreciation and amortization		35,863			30,875			100,908			92,548
Gains on sale of facilities, net		(2,686	)		—			(6,487	)		(21,152	)
Straight-lined rent		(2,867	)		(1,578	)		(8,066	)		(4,766	)
Amortization of intangible assets and liabilities		116			(139	)		207			(408	)
Non-cash stock-based compensation expense		1,749			1,816			5,174			5,226
Deferred financing cost amortization		1,090			766			2,764			2,336
Lease commissions and tenant and capital improvements		(1,354	)		(1,407	)		(3,057	)		(3,476	)
NHP’s share of FAD reconciling items from unconsolidated joint ventures:
Real estate related depreciation and amortization		1,188			1,319			3,608			3,937
Straight-lined rent		9			(19	)		6			(43	)
Amortization of intangible assets and liabilities		—			5			—			5
Deferred financing cost amortization		25			21			68			63

FAD available to NHP common stockholders		72,987			61,351			203,578			186,415
Series B preferred stock dividends add-back		—			1,451			—			4,355

Diluted FAD		72,987			62,802			203,578			190,770
Acquisition costs		35			—			3,104			—
Gain on re-measurement of equity interest upon acquisition, net		—			—			(620	)		—
Gain on debt extinguishment		—			—			(75	)		(4,564	)
Gain on debt extinguishment, net from unconsolidated joint ventures		—			(332	)		—			(332	)

Adjusted diluted FAD	$	73,022		$	62,470		$	205,987		$	185,874


Weighted average shares outstanding for FFO:
Diluted weighted average shares outstanding (1)		126,586			109,568			122,980			106,433
Series B preferred stock add-back if not converted		—			3,375			102			3,367

Fully diluted weighted average shares outstanding		126,586			112,943			123,082			109,800


Diluted per share amounts — FFO:
FFO	$	0.59		$	0.56		$	1.68		$	1.75

Adjusted FFO	$	0.59		$	0.56		$	1.70		$	1.70


(1)		Diluted weighted average shares outstanding includes the effect of all participating and non-participating share-based payment awards which for us consists of stock options and other share-based payment awards if the effect is dilutive. The dilutive effect of all share-based payment awards is calculated using the treasury stock method. Additionally, our redeemable OP units are included as if converted to common stock on a one-for-one basis.

While net income and its related per share amounts, as defined by accounting principles generally accepted in the United States (“GAAP”), are the most appropriate earnings measures, we believe that FFO and FAD and the related FFO per share amounts are important non-GAAP supplemental measures of operating performance. GAAP requires the use of straight-line depreciation of historical costs and implies that real estate values diminish predictably and ratably over time. However, real estate values have historically risen and fallen based on various market conditions and other factors. FFO was developed as a supplemental measure of operating performance primarily in order to exclude historical cost-based depreciation and amortization and its effects as it does not generally reflect the actual change in value of real estate over time. We calculate FFO in accordance with the National Association of Real Estate Investment Trusts’ (“NAREIT”) definition. FFO is defined as net income (computed in accordance with GAAP) excluding gains and losses from the sale of real estate plus real estate related depreciation and amortization. The same adjustments are made to reflect our share of these same items from unconsolidated joint ventures. Adjusted FFO is defined as FFO excluding impairments of assets, acquisition costs and gains and losses other than those from the sale of real estate.

FAD was developed as a supplemental measure of operating performance primarily to exclude non-cash revenues and expenses that are included in FFO. FAD is defined as net income (computed in accordance with GAAP) excluding gains and losses from the sale of real estate plus real estate related depreciation and amortization, plus or minus straight-lined rent (plus cash in excess of rent or minus rent in excess of cash), plus or minus amortization of above or below market lease intangibles, plus non-cash stock based compensation, plus deferred financing cost amortization plus any impairments minus lease commissions, tenant improvements and capital improvements paid. The same adjustments are made to reflect our share of these same items from unconsolidated joint ventures. Adjusted FAD is defined as FAD excluding acquisition costs and gains and losses other than those from the sale of real estate.

We believe that the use of FFO, adjusted FFO and the related per share amounts, and FAD and adjusted FAD in conjunction with the required GAAP disclosures provides investors with a more comprehensive understanding of the operating results of a REIT and enables investors to compare the operating results between REITs without having to account for differences caused by different depreciation assumptions and different non-cash revenues and expenses. Additionally, FFO and FAD are used by us and widely used by industry analysts as a measure of operating performance for equity REITs.

Our calculations of FFO, adjusted FFO and the related per share amounts, and FAD and adjusted FAD presented herein may not be comparable to similar measures reported by other REITs that do not define FFO in accordance with the NAREIT definition, interpret that definition differently than we do or that do not use the same definitions as we do for such terms. These supplemental reporting measures should not be considered as alternatives to net income (a GAAP measure) as primary indicators of our financial performance or as alternatives to cash flow from operating activities (a GAAP measure) as primary measures of our liquidity, nor are these measures necessarily indicative of sufficient cash flow to satisfy all of our liquidity requirements. We believe that these supplemental reporting measures 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 in order to facilitate a clear understanding of our consolidated operating results.

Liquidity and Capital Resources

Operating Activities

Cash provided by operating activities during the nine months ended September 30, 2010 increased $29.4 million, or 17%, as compared to the same period in 2009. This was primarily due to increased operating income from our owned facilities as a result of acquisitions during 2010. There have been no significant changes in the underlying sources and uses of cash provided by operating activities.

Investing Activities

Our investing activities primarily consist of investments in and sales of real estate and related assets and liabilities, investments in and principal payments on mortgage and other loans receivable and contributions to and distributions from unconsolidated joint ventures.

Investments in and Sales of Real Estate and Related Assets and Liabilities

During the nine months ended September 30, 2010, we completed the following transactions related to our February 2008 agreement (the “Contribution Agreement”) with Pacific Medical Buildings LLC and certain of its affiliates (see Note 5 to our condensed consolidated financial statements):

•

Three multi-tenant medical office buildings with an aggregate value of $223.2 million that had previously been eliminated from the Contribution Agreement were reinstated and the majority interests therein were acquired through our consolidated joint venture NHP/PMB L.P (“NHP/PMB”). NHP/PMB acquired a 100% interest in one of the three multi-tenant medical office buildings and, through two consolidated joint ventures, acquired a 65% and a 69% interest in the other two multi-tenant medical office buildings. The acquisitions were paid in a combination of cash, the retirement of our $47.5 million mortgage loan from a related party to which one of the multi-tenant medical office buildings had served as collateral, the assumption of $98.3 million of mortgage financing and the issuance of Class A limited partnership units in NHP/PMB (“OP Units”) with a fair value at the date of issuance of $19.0 million.

•

One of the two multi-tenant medical office buildings which remained under the Contribution Agreement at December 31, 2009 was eliminated from the Contribution Agreement and acquired through NHP/PMB Pasadena LLC (“Pasadena JV”), a new consolidated joint venture with an entity affiliated with Pacific Medical Office Buildings LLC in which we have a 71% equity interest. Our joint venture partner contributed the multi-tenant medical office building, and we contributed $13.5 million in cash. Additionally, we provided Pasadena JV with a $56.5 million mortgage loan, of which $49.8 million has been funded, and a $3.0 million mezzanine loan.

•

As a result of the elimination of the above property from the Contribution Agreement, NHP/PMB became obligated to pay $2.1 million (which had previously been accrued), of which $2.0 million was paid in cash and the remaining $0.1 million through the issuance of OP Units. Under the Contribution Agreement, if the agreement is terminated with respect to the remaining development property, NHP/PMB will become obligated to pay approximately $2.4 million.

During the nine months ended September 30, 2010, we also completed the following transactions with certain affiliates of Pacific Medical Buildings LLC:

•

One multi-tenant medical office building was acquired through NHP/PMB Gilbert LLC (“Gilbert JV”), a new consolidated joint venture with an entity affiliated with Pacific Medical Buildings LLC in which we have a 71.17% equity interest. Our joint venture partner contributed a multi-tenant medical office building, and we contributed $6.3 million in cash. Additionally, we agreed to loan Gilbert JV up to $8.8 million as project financing, including $6.8 million that was disbursed initially.

•

We acquired the remaining 55.05% interest in PMB SB, an entity affiliated with Pacific Medical Buildings LLC that owns two multi-tenant medical office buildings. PMB SB was valued at $17.4 million at the date of acquisition, and the acquisition was paid in a combination of cash and the assumption of $11.2 million of mortgage financing (of which $6.2 million was previously attributable to the controlling interest in PMB SB). In connection with the acquisition, we re-measured our previously held equity interest at the acquisition date fair value and recognized a gain on the re-measurement of $0.6 million.

Additionally, we have entered into an agreement (the “Pipeline Agreement”) with NHP/PMB, PMB LLC and PMBRES pursuant to which we or NHP/PMB currently have the right, but not the obligation, to acquire up to approximately $1.3 billion of multi-tenant medical office buildings developed by PMB LLC through April 2019. As of February 1, 2010, the Pipeline Agreement was amended and restated to provide NHP/PMB with the option to acquire medical office buildings developed in the future through a joint venture between NHP and PMB LLC, obligate us to provide or arrange financing for approved developments and provide us with improved terms, including preferred returns, a reduction in PMB LLC’s promote interest and acquisition pricing determined at the time of acquisition rather than at the pre-development stage. During the nine months ended September 30, 2010, we completed the following transaction with an affiliate of Pacific Medical Buildings LLC related to our Pipeline agreement:

•

We entered into a consolidated joint venture called PDP Mission Hills 1 LLC (“Mission Hills JV”) to develop a medical office building with a total budget of $53.0 million and concurrently entered into an agreement with NHP/PMB, PMB LLC and PMB Mission Hills 1 LLC under which the interests in Mission Hills JV will be contributed to NHP/PMB subsequent to completion of development in accordance with the terms of the Pipeline Agreement. We have an 89.1% equity interest in Mission Hills JV. We contributed $14.7 million in cash, and our joint venture partner contributed $1.8 million in cash. During the nine months ended September 30, 2010, Mission Hills JV incurred developments costs of $16.2 million, including the acquisition of the land on which the medical office building is to be developed for $15.5 million. Construction is expected to commence in late 2010.

As of September 30, 2010, we had committed to fund an additional $47.4 million under existing development agreements, of which $36.5 million relates to Mission Hills JV and is expected to be funded through a third party construction loan.

During the nine months ended September 30, 2010, we funded $15.4 million in expansions, construction and capital improvements at certain facilities in accordance with existing lease provisions. Such expansions, construction and capital improvements generally result in an increase in the minimum rents earned by us on these facilities either at the time of funding or upon completion of the project. As of September 30, 2010, we had committed to fund additional expansions, construction and capital improvements of $108.7 million. During the nine months ended September 30, 2010, we also funded, directly and through our consolidated joint ventures, $2.6 million in capital and tenant improvements at certain multi-tenant medical office buildings.

Investments in and Principal Payments on Mortgage and Other Loans Receivable

During the nine months ended September 30, 2010, we sold the assisted living portion of a continuing care retirement community for which we had an existing mortgage loan secured by the skilled nursing portion of such continuing care retirement community, to the tenant of the facility. For facility count purposes, this was previously accounted for in real estate properties as a continuing care retirement community. We provided financing of $6.5 million related to the sale, including the concurrent repayment of a $0.7 million unsecured loan which had previously been included in the caption “Other assets” on our consolidated balance sheets, and funded an additional $0.3 million subsequent to the sale.

In connection with the acquisition of five of the assisted and independent living facilities and one of the skilled nursing facilities described above, we funded two unsecured loans totaling $5.5 million and funded an additional $0.4 million subsequent to acquisition during the nine months ended September 30, 2010.

During the nine months ended September 30, 2010, we also funded $1.8 million on existing loans. As of September 30, 2010, we had committed to fund additional amounts under existing loan agreements of $9.8 million.

During the nine months ended September 30, 2010, we received payments of $3.6 million on other mortgage and other loans and retired our $47.5 million loan from a related party as a result of the acquisition of the multi-tenant medical office building serving as collateral by NHP/PMB as described above.

Contributions to and Distributions from Unconsolidated Joint Ventures

During the nine months ended September 30, 2010, we received distributions of $4.2 million and $0.1 million from our unconsolidated joint venture with a state pension fund investor and PMB SB, respectively.

Financing Activities

Our financing activities primarily consist of issuance of and principal payments on debt instruments, issuance of and redemption of equity instruments and distributions.

Issuance of and Principal Payments on Debt Instruments

During the nine months ended September 30, 2010, we repaid at maturity $67.2 million of secured debt with a weighted average interest rate of 5.24%, prepaid $12.4 million of secured debt with an interest rate of 6.95% and made payments of $6.6 million on other notes and bonds payable.

During the nine months ended September 30, 2010, we exercised a 12-month extension option on a $32.4 million loan that was scheduled to mature in April 2010.

During the nine months ended September 30, 2010, we paid $1.5 million of deferred financing costs in connection with our one-year extension of our $700.0 million revolving unsecured senior credit facility.

Issuance and Redemption of Equity Instruments

On January 18, 2010, we redeemed all outstanding shares of our 7.75% Series B Cumulative Convertible Preferred Stock (“Series B Preferred Stock”) at a redemption price per share of $103.875 plus an amount equal to accumulated and unpaid dividends thereon to the redemption date ($0.3875), for a total redemption price of $104.2625 per share, payable only in cash. As a result of the redemption, each share of Series B Preferred Stock was convertible until January 14, 2010 into 4.5150 shares of common stock. During that time, 512,727 shares were converted into approximately 2,315,000 shares of common stock. On January 18, 2010, we redeemed 917 shares that remained outstanding.

During the nine months ended September 30, 2010, we issued and sold approximately 7,851,000 shares of common stock through our at-the-market equity offering program at a weighted average price of $36.46 per share, resulting in net proceeds of approximately $283.2 million after sales agent fees.

During the nine months ended September 30, 2010, we issued approximately 146,000 shares of common stock through our dividend reinvestment plan at an average price of $33.22 per share, resulting in proceeds of approximately $4.9 million.

Distributions

We paid $163.8 million, or $1.35 per common share, in dividends to our common stockholders during the nine months ended September 30, 2010.

During the nine months ended September 30, 2010, cash distributions of $1.5 million and $2.6 million were made to noncontrolling interests and OP unitholders, respectively.

Sources and Uses of Capital

Sources of Capital

Financing for operating expenses, the repayment of our obligations and commitments, dividend distributions and future investments may be provided by cash on hand/cash from operations, borrowings under our credit facility, the sale of debt or equity securities in private placements or public offerings, which may be made through our at-the-market equity offering program or otherwise under our current shelf registration statement or under new registration statements, proceeds from asset sales or mortgage and other loan receivable repayments, the assumption of secured indebtedness, mortgage financing on a portion of our owned portfolio or through joint ventures.

Our plans for growth require regular access to the capital and credit markets. If capital is not available at an acceptable cost, it will significantly impair our ability to make future investments and make acquisitions and development projects difficult or impractical to pursue.

We invest in various short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. These investments may include (either directly or indirectly) obligations of the U.S. government or its agencies, obligations (including certificates of deposit) of banks, commercial paper, money market funds and other highly rated short-term securities. We monitor our investments on a daily basis and do not believe our cash and cash equivalents are exposed to any material risk of loss. However, given the recent market volatility, there can be no assurances that future losses of principal will not occur.

Our leases and mortgages generally contain provisions under which rents or interest income increase with increases in facility revenues and/or increases in the Consumer Price Index. If facility revenues and/or the Consumer Price Index do not increase, our revenues may not increase. Rent levels under renewed leases will also impact revenues. Excluding multi-tenant medical office buildings, as of September 30, 2010, we had leases on five facilities expiring during the remainder of 2010.

We evaluate the collectability of our rent, mortgage and other loans and other receivables on a regular basis and record reserves when collectability is not reasonably assured. As of September 30, 2010, we had reserves included in the caption “Receivables, net” on our consolidated balance sheets of $12.7 million. Of the related $19.2 million gross receivable balance, 50% is due from two tenants. One of the tenants has a gross receivable balance of $5.4 million which is fully reserved as a result of non-payment when contractually due, and the related lease terms have been subsequently amended to provide for payment ratably over time beginning in 2012. We are currently in litigation with the other tenant which has a gross receivable balance of $4.2 million, of which $3.5 million is reserved. We will continue to evaluate the collectability of our receivables, and if our assumptions or estimates regarding the collectability of a receivable change in the future, it may result in an adjustment to the existing reserve balance.

As of September 30, 2010, we had $700.0 million available under our $700.0 million revolving unsecured senior credit facility. At our option, borrowings under the credit facility bear interest at the prime rate (3.25% at September 30, 2010) or applicable LIBOR plus 0.70% (1.01% at September 30, 2010). We pay a facility fee of 0.15% per annum on the total commitment under the agreement. Effective June 25, 2010, we exercised our option to extend the maturity date by one year to December 15, 2011.

On January 15, 2010, we filed a new shelf registration statement with the Securities and Exchange Commission under which we may issue securities including debt, convertible debt, common and preferred stock and warrants to purchase any of these securities. Our senior notes have been investment grade rated since 1994. Our credit ratings at September 30, 2010 were BBB from Fitch Ratings, Baa2 from Moody’s Investors Service and BBB from Standard & Poor’s Ratings Services (upgraded to BBB from BBB- on March 8, 2010).

We enter into sales agreements from time to time with agents to sell shares of our common stock through an at-the-market equity offering program. On January 15, 2010, we entered into two new sales agreements to sell up to an aggregate of 5,000,000 shares of our common stock from time to time. When that program was completed, we entered into two new sales agreements on July 2, 2010 to sell up to an aggregate of 5,000,000 shares of our common stock from time to time. As of September 30, 2010, approximately 2,612,000 shares of common stock were available to be sold pursuant to our at-the-market equity offering program. From October 1, 2010 to November 8, 2010, we issued and sold approximately 1,290,000 shares at a weighted average price of $40.59 per share through our at-the-market equity offering program.

We anticipate the possible sale of certain facilities, primarily due to purchase option exercises. In addition, mortgage and other loans receivable might be prepaid. We anticipate using the proceeds from any asset sales or mortgage and other loan receivable repayments to provide capital for future investments, to reduce any outstanding balance on our credit facility or to repay other borrowings as they mature. Any such future investments would increase revenues, and any such reduction in debt levels would result in reduced interest expense that we believe would partially offset any decrease in revenues from asset sales or mortgage or other loan receivable repayments. We believe our tenants may exercise purchase options on assets with option prices totaling approximately $26.8 million during the remainder of 2010.

Uses of Capital

From October 1, 2010 to November 8, 2010, we completed approximately $39 million of investments. We may make additional acquisitions during 2010, although we cannot predict the quantity or timing of any such acquisitions as we continue to be confronted with uncertainty surrounding the future of the capital markets and general economic conditions. If we make additional investments in facilities, interest expense would likely increase. We expect any such increases to be at least partially offset by associated rental or interest income.

Assuming certain conditions are met under our Contribution Agreement with Pacific Medical Buildings LLC and certain of its affiliates, we would expect to finance the acquisition of the remaining building subject to the Contribution Agreement with a combination of assumed debt, the issuance of OP Units, cash on hand/cash from operations and/or equity issuances through our at-the-market equity offering program and borrowings under our credit facility.

As of September 30, 2010, we had no debt maturing during the remainder of 2010, however, from October 1, 2010 to November 8, 2010, we prepaid $70.8 million of secured debt with a weighted average interest rate of 3.76%. Some of our senior notes can be put to us prior to the stated maturity date; however, there are no such senior notes that we may be required to repay in 2010 or 2011. We anticipate repaying senior notes and notes and bonds payable at or prior to maturity with a combination of proceeds from borrowings on our credit facility and cash on hand/cash from operations. Borrowings on our credit facility could be repaid by cash on hand/cash from operations, the issuance of debt or equity securities under our shelf registration statement or proceeds from asset sales or mortgage and other loan receivable repayments.

We expect that our current common stock dividend policy will continue, but it is subject to regular review by our board of directors. Common stock dividends are paid at the discretion of our board of directors and are dependent upon various factors, including our future earnings, our financial condition and liquidity, our capital requirements and applicable legal and contractual restrictions. On November 4, 2010, our board of directors declared a quarterly cash dividend of $0.47 per share of common stock. This dividend will be paid on December 3, 2010 to stockholders of record on November 19, 2010.

Outlook

Recent market and economic conditions have been unprecedented and challenging with tighter credit conditions and slow growth. While there are current signs of a strengthening and stabilizing economy and more liquid and attractive capital markets, there is continued uncertainty over whether our economy will again be adversely impacted by inflation, deflation or stagflation, and the systemic impact of rising unemployment, energy costs, geopolitical issues, the availability and cost of capital, the U.S. mortgage market and a declining real estate market in the U.S., resulting in a return to illiquid credit markets and widening credit spreads. We had $700.0 million available under our credit facility at September 30, 2010, and we currently have no reason to believe that we will be unable to access the facility in the future. However, continued concern about the stability of the markets generally and the strength of borrowers specifically has led many lenders and institutional investors to reduce and, in some cases, cease to provide, funding to borrowers. If we were unable to access our credit facility, it could result in an adverse effect on our liquidity and financial condition. In addition, continued turbulence in market conditions may adversely affect the liquidity and financial condition of our tenants.

If these recent market conditions continue or do not fully abate, they may limit our ability, and the ability of our tenants, to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, resulting in a material adverse effect on our financial condition and results of operations. Additionally, certain of our debt obligations are floating-rate obligations with interest rate and related payments that vary with the movement of LIBOR or other indexes. If the recent market turbulence continues, there could be a rise in interest rates which could reduce our profitability or adversely affect our ability to meet our obligations.

We believe the combination of cash on hand/cash from operations, the ability to draw on our $700.0 million credit facility and the ability to sell securities under our shelf registration statement, as well as our unconsolidated joint venture with a state pension fund investor, provide sufficient liquidity and financing capability to finance anticipated future investments, maintain our current dividend level and repay borrowings at or prior to their maturity, for at least the next 12 months.

Off-Balance Sheet Arrangements

We have interests in the unconsolidated joint ventures discussed in Note 6 to our condensed consolidated financial statements. Our risk of loss is limited to our investment carrying amount. We have no other material off-balance sheet arrangements that we expect would have a material effect on our liquidity, capital resources or results of operations.

Contractual Obligations and Cash Requirements

As of September 30, 2010, our contractual obligations and commitments were as follows:


	2010 (1)		2011 – 2012		2013 – 2014		Thereafter		Total
	(In thousands)
Contractual Obligations:
Long-term debt (2)	$	—	$	533,409	$	330,202	$	582,801	$	1,446,412

Interest expense	$	22,079	$	135,031	$	72,463	$	200,741	$	430,314

Ground leases	$	442	$	3,326	$	3,393	$	87,671	$	94,832

Operating leases	$	137	$	643	$	—	$	—	$	780

Commitments:
Capital expenditures	$	17,641	$	90,369	$	325	$	400	$	108,735

Development projects	$	4,434	$	42,966	$	—	$	—	$	47,400

Loan fundings	$	162	$	8,788	$	—	$	886	$	9,836


(1)		Amounts reflect obligations and commitments for the remaining three months of 2010.

(2)		2011-2012 balance includes $70.8 million of secured debt that was prepaid from October 1, 2010 to November 8, 2010.

The long-term debt amount shown above includes our senior notes and our notes and bonds payable.

Interest expense shown above is estimated assuming the interest rates in effect at September 30, 2010 remain constant for the $107.6 million of variable rate notes and bonds payable. Maturities of our senior notes range from 2011 to 2038 (although certain notes may be put back to us at their face amount at the option of the holders at earlier dates) and maturities of our notes and bonds payable range from 2011 to 2037.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks related to fluctuations in interest rates on our mortgage loans receivable and debt. We may hold derivative instruments to manage our exposure to these risks, and all derivative instruments are matched against specific debt obligations. Readers are cautioned that many of the statements contained in these paragraphs are forward-looking and should be read in conjunction with our disclosures under the heading “Statement Regarding Forward-Looking Disclosure” set forth above.

We provide mortgage loans to tenants of healthcare facilities as part of our normal operations, which generally have fixed rates.

We utilize debt financing primarily for the purpose of making additional investments in healthcare facilities. Historically, we have made short-term borrowings on our variable rate unsecured revolving credit facility to fund our acquisitions until market conditions were appropriate, based on management’s judgment, to issue stock or fixed rate debt to provide long-term financing.

At our option, borrowings under our credit facility bear interest at the prime rate (3.25% at September 30, 2010) or applicable LIBOR plus 0.70% (1.01% at September 30, 2010). As of September 30, 2010 and December 31, 2009, we did not have any borrowings under our unsecured revolving credit facility. Additionally, a portion of our secured debt has variable rates.

For fixed rate debt, changes in interest rates generally affect the fair market value, but do not impact earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact fair market value, but do affect the future earnings and cash flows. We generally cannot prepay fixed rate debt prior to maturity. Therefore, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until we would be required to refinance such debt. Any future interest rate increases will increase the cost of borrowings on our credit facility and any borrowings to refinance long-term debt as it matures or to finance future acquisitions. Holding the variable rate debt balance at September 30, 2010 constant, each one percentage point increase in interest rates would result in an increase in interest expense for the remaining three months of 2010 of $0.3 million.

The table below sets forth certain information regarding our debt as of September 30, 2010 and December 31, 2009:


	September 30, 2010								December 31, 2009
						% of								% of
	Principal		Rate			Total			Principal		Rate			Total
Fixed rate debt:
Senior notes	$	991,633		6.5	%		68.6	%	$	991,633		6.5	%		69.7	%
Notes and bonds payable		347,189		6.0	%		24.0	%		323,025		6.1	%		22.7	%

Total fixed rate debt		1,338,822		6.3	%		92.6	%		1,314,658		6.4	%		92.4	%

Variable rate debt:
Unsecured senior credit facility		—		—			—			—		—			—
Notes and bonds payable		107,590		3.2	%		7.4	%		108,431		3.2	%		7.6	%

Total variable rate debt		107,590		3.2	%		7.4	%		108,431		3.2	%		7.6	%

Total debt	$	1,446,412		6.1	%		100.0	%	$	1,423,089		6.1	%		100.0	%

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial and Portfolio Officer, of the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief Financial and Portfolio Officer concluded that our disclosure controls and procedures were effective as of the end of the quarterly period covered by this report. No change in our internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the information regarding legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the period ended March 31, 2010.

Item 1A. Risk Factors

Except as provided below, as of the date of this report, there have been no material changes to the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2009.

Risks Relating to Our Tenants

Our financial position could be weakened and our ability to make distributions could be limited if any of our major tenants were unable to meet their obligations to us or failed to renew or extend their relationship with us as their lease terms expire or their mortgages mature, or if we were unable to lease or re-lease our facilities or make mortgage loans on economically favorable terms. We have no operational control over our tenants. There may end up being more serious tenant financial problems that lead to more extensive restructurings or tenant disruptions than we currently expect. This could be unique to a particular tenant or it could be more industry wide, such as further federal or state governmental reimbursement reductions in the case of our skilled nursing facilities as governments work through their budget deficits, continuing reduced occupancies or slow lease-ups for our assisted and independent living facilities or medical office buildings due to general economic and other factors and increases in insurance premiums, labor and other expenses. These adverse developments could arise due to a number of factors, including those listed below.

Our tenants may be affected by legislative developments impacting the healthcare system.

During March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act were signed into federal law. The provisions included in the combination of these two bills provide increased access to health benefits for uninsured or underinsured populations through reform of both the private insurance industry and existing government programs. The combined bills also call for reductions in federal health program expenditures over 10 years through reductions in the annual market basket updates for Medicare fee-for-service providers (beginning October 1, 2011), reduced subsidies to Medicare Advantage health plans, reductions in Medicare and Medicaid disproportionate share funding and cuts in payments to hospitals with high readmission rates. Additionally, many states have enacted or are considering enacting measures to reduce Medicaid expenditures, reduce coverage and program eligibility and/or impose additional taxes. The fiscal condition of certain states may be impacted as budget shortfalls could potentially widen due to provisions within the healthcare reform legislation that expand certain Medicaid programs and other related healthcare expenditures. In addition, the full impact associated with increased costs for our tenants to provide healthcare insurance to their employees may cause additional pressure on our tenant’s operating performance. While the expansion of coverage may result in some additional demand for services provided by our tenants, reimbursement may be lower than the cost required to provide such services which could adversely affect our tenants’ ability to meet their obligations to us.

Most of the provisions of these healthcare bills do not go into effect immediately and may be delayed for several years. During this time, the bills could be subject to further adjustments through future legislation or even constitutional challenges, and additional legislative proposals may be introduced in Congress or in some state legislatures that could affect further changes in the healthcare system, nationally or at the state level. We cannot predict whether any such adjustments or proposals will be adopted or, if adopted, what effect, if any, these adjustments or proposals would have on our tenants and, thus, our business.

Risks Relating to Us and Our Operations

In addition to risks relating to our tenants, there are risks directly associated with us and our operations, including those listed below.

We are subject to particular risks associated with real estate development, which could result in unanticipated losses or expenses.

On a strategic and selective basis, we may make investments in development projects. Our success with such projects is subject to many risks associated with real estate development, including, among other things, the following:

•

we may be unable to obtain construction and/or permanent financing for these projects on favorable terms or at all;

•

we may be unable to obtain or experience delays in obtaining all required zoning, land use, building, occupancy, environmental and other required governmental permits and authorizations;

•

development and construction costs of a project may exceed our original estimates;

•

the time required to complete the development, construction and/or lease up of a project may exceed our original estimates;

•

competition may exceed our original estimates and/or demand may be lower than our original estimates;

•

occupancy and rental rates of a completed project may be lower than our original estimates;

•

we have a limited history in conducting ground-up development projects; and

•

unsuccessful projects could result in direct costs to us.

Compliance with changing government regulations may result in additional expenses.

Changing laws, regulations and standards, including those relating to corporate governance and public disclosure, new SEC regulations and New York Stock Exchange rules, may create uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to our business practices. Also, legislative or regulatory efforts that seek to reduce greenhouse gas emissions through “green” building codes could increase the costs of maintaining or improving our existing properties or developing new properties. We are committed to maintaining high standards of compliance with all applicable laws, regulations and standards. As a result, our efforts to comply with evolving laws, regulations and standards may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.

During July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into federal law. The provisions of the Act include new regulations for over-the-counter derivatives and substantially increased regulation and risk of liability for credit rating agencies, all of which could increase our cost of capital. The Act also includes provisions concerning corporate governance and executive compensation which, among other things, require additional executive compensation disclosures and enhanced independence requirements for board compensation committees and related advisors, as well as provide explicit authority for the Securities and Exchange Commission to adopt proxy access, all of which could result in additional expenses in order to maintain compliance. The Act is wide-ranging, and the provisions are broad with significant discretion given to the many and varied agencies tasked with adopting and implementing the Act. The majority of the provisions of the Act do not go into effect immediately and may be adopted and implemented over many months or years. As such, we cannot predict the full impact of the Act on our financial condition or results of operations.

Item 6. Exhibits


Exhibit No.		Description

	3.1	Charter of the Company (Exhibit 3.2 to the Company’s Current Report on Form 8-K, dated August 1, 2008, is incorporated herein by reference).

	3.2	Bylaws of the Company, as amended and restated on February 10, 2009 (Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated February 17, 2009, is incorporated herein by reference).

	31.1	Certification of CEO pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a).

	31.2	Certification of CFO pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a).

	32	Section 1350 Certifications of CEO and CFO.

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*


*		Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (ii) the Condensed Consolidated Income Statements for the three and nine months ended September 30, 2010 and 2009, (iii) the Condensed Consolidated Statement of Equity for the nine months ended September 30, 2010, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 and (v) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

		In accordance with Rule 402 of Regulation S-T, the XBRL related information in this Quarterly Report on Form 10-Q, Exhibit 101, shall not be deemed “filed” for purposes of Section 11 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of those sections, and is not part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing or document.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 8, 2010	Nationwide Health Properties, Inc.

	By:	/s/ Abdo H. Khoury
		Abdo H. Khoury
		Executive Vice President and Chief Financial & Portfolio Officer
		(Principal Financial Officer and Duly Authorized Officer)

EXHIBIT INDEX


Exhibit No.		Description

	31.1	Certification of CEO pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a).

	31.2	Certification of CFO pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a).

	32	Section 1350 Certifications of CEO and CFO.

101.INS		XBRL Instance Document*

101.SCH		XBRL Taxonomy Extension Schema Document*

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.LAB		XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*


*		Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009, (ii) the Condensed Consolidated Income Statements for the three and nine months ended September 30, 2010 and 2009, (iii) the Condensed Consolidated Statement of Equity for the nine months ended September 30, 2010, (iv) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 and (v) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

		In accordance with Rule 402 of Regulation S-T, the XBRL related information in this Quarterly Report on Form 10-Q, Exhibit 101, shall not be deemed “filed” for purposes of Section 11 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of those sections, and is not part of any registration statement to which it may relate, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing or document.