Cautionary Language Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not historical factual statements are "forward-looking statements." We intend to have our forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with those provisions. Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectations as identified by the use of words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "forecast," "plan," "estimate," "could," "would," "should" and other comparable and derivative terms or the negatives thereof. In addition, we, through our officers, from time to time, make forward-looking oral and written public statements concerning our expected future operations, strategies, securities offerings, growth and investment opportunities, dispositions, capital structure changes, budgets and other developments. Readers are cautioned that, while forward-looking statements reflect our good faith belief and reasonable assumptions based upon current information, we can give no assurance that our expectations or forecasts will be attained. Therefore, readers should be mindful that forward-looking statements are not guarantees of future performance and that they are subject to known and unknown risks and uncertainties that are difficult to predict. As more fully set forth under "Part I, Item 1A. Risk Factors" in the Company's Annual report on Form 10-K for the fiscal year ended December 31, 2008, factors that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include:

(a) Changes in national and local economic conditions, including a prolonged recession;

(b) Continued volatility in the capital markets, including changes in interest rates and the availability and cost of capital;

(c) The ability of the Company to manage its indebtedness level, and changes in the terms of such indebtedness;

(d) Changes in federal, state or local laws and regulations, including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations of our operators, tenants and borrowers;

(e) Changes in the reimbursement available to our tenants and borrowers by governmental or private payors, including changes in Medicare and Medicaid payment levels and the availability and cost of third party insurance coverage;

(f) Competition for tenants and borrowers, including with respect to new leases and mortgages and the renewal or rollover of existing leases;

(g) Availability of suitable properties to acquire at favorable prices and the competition for the acquisition and financing of those properties;

(h) The ability of our operators, tenants and borrowers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and to generate sufficient income to make rent and loan payments to us;

(i) The financial weakness of some operators and tenants, including potential bankruptcies and downturns in their businesses, which results in uncertainties regarding our ability to continue to realize the full benefit of such operators' and/or tenants' leases;

(j) The risk that we will not be able to sell or lease properties that are currently vacant, at all or at competitive rates;

(k) The financial, legal and regulatory difficulties of significant operators of our properties, including Sunrise Senior Living, Inc.;

(l) The risk that we may not be able to integrate acquired businesses successfully or achieve the operating efficiencies and other benefits of acquisitions within expected time-frames or at all, or within expected cost projections;

(m) The ability to obtain financing necessary to consummate acquisitions or on favorable terms; and

(n) The potential impact of existing and future litigation matters, including related developments.

Except as required by law, we undertake no, and hereby disclaim any, obligation to update any forward-looking statements, whether as a result of new information, changed circumstances or otherwise.

The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. We will discuss and provide our analysis in the following order:

† Executive Summary

† 2009 Transaction Overview

† Dividends

† Critical Accounting Policies

† Results of Operations

† Liquidity and Capital Resources

† Off-Balance Sheet Arrangements

† Contractual Obligations

† Inflation

† Recent Accounting Pronouncements

Executive Summary

We are a self-administered REIT that, together with our consolidated subsidiaries, invests primarily in real estate serving the healthcare industry in the United States. We acquire, develop, lease, manage and dispose of healthcare real estate and provide financing to healthcare providers. At March 31, 2009, our portfolio of investments, excluding assets held for sale but including properties owned by our Investment Management Platform, consisted of interests in 692 facilities. Our Investment Management Platform represents the following joint ventures: (i) HCP Ventures II, (ii) HCP Ventures III, LLC,
(iii) HCP Ventures IV, LLC, and (iv) the HCP Life Science ventures.

Our business strategy is based on three principles: (i) opportunistic investing,
(ii) portfolio diversification, and (iii) conservative financing. We actively redeploy capital from investments with lower return potential into assets with higher return potential and recycle capital from shorter-term to longer-term investments. We make investments where the expected risk-adjusted return exceeds our cost of capital and strive to leverage our operator, tenant and other business relationships.

Our strategy contemplates acquiring and developing properties on terms that are favorable to us. We attempt to structure transactions that are tax-advantaged and mitigate risks in our underwriting process. Generally, we prefer larger, more complex private transactions that leverage our management team's experience and our infrastructure.

We follow a disciplined approach to enhancing the value of our existing portfolio, including ongoing evaluation of potential disposition of properties that no longer fit our strategy. During the three months ended March 31, 2009, we sold seven properties for $6.0 million. At March 31, 2009, we had two properties with a carrying amount of $15.1 million classified as held for sale.

We primarily generate revenue by leasing healthcare properties under long-term leases. Most of our rents and other earned income from leases are received under triple-net leases or leases that provide for substantial recovery of operating expenses; however, some of our MOBs and life science leases are structured as gross or modified gross leases. Accordingly, for such MOBs and life science facilities we incur certain property operating expenses, such as real estate taxes, repairs and maintenance, property management fees, utilities and insurance. Our growth depends, in part, on our ability to (i) increase rental income and other earned income from leases by increasing rental rates and occupancy levels; (ii) maximize tenant recoveries given underlying lease structures; and (iii) control operating and other expenses. Our operations are impacted by property specific, market specific, general economic and other conditions.

The slowdown in the economy, decline in the availability of financing from the capital markets, and widened credit spreads has affected, or may in the future adversely affect, the businesses of our tenants, operators and borrowers to varying degrees. Such conditions may further impact their ability to meet their obligations to us and, in certain cases, could lead to additional restructurings, disruptions, or bankruptcies of our tenants, operators and/or borrowers. These market conditions could also adversely affect the amount of revenue we report, require us to increase our allowances for losses, result in impairment charges and valuation allowances that decrease our net income and equity, and reduce our cash flows from operations. In addition, these conditions or events could impair our credit rating and our ability to raise additional capital,

require us to seek alternative operators or tenants, and finance or refinance debt secured by properties they operate or where they are tenants.

Access to external capital on favorable terms is critical to the success of our strategy. Generally, we attempt to match the long-term duration of most of our investments with long-term fixed-rate financing. At March 31, 2009, 16% of our consolidated debt is at variable interest rates, which includes $520 million outstanding under our bridge and term loans. We intend to maintain an investment grade rating on our senior debt securities and manage various capital ratios and amounts within appropriate parameters.

Access to capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as to fund future acquisitions and development through the issuance of additional securities or secured debt. As of April 15, 2009, we had a credit rating of Baa3 (stable) from Moody's, BBB (stable) from S&P and BBB (positive) from Fitch on our senior unsecured debt securities, and Ba1 (stable) from Moody's, BBB- (stable) from S&P and BBB- (positive) from Fitch on our preferred equity securities. In 2008, there was a decline in the availability of financing from the capital markets and widening credit spreads. Our ability to continue to access capital could be impacted by various factors including general market conditions and the continuing slowdown in the economy, interest rates, credit ratings on our securities, and any changes to these ratings, the market price of our capital stock, the performance of our portfolio, tenants, borrowers and operators, including any restructurings, disruptions or bankruptcies of our tenants, borrowers and operators, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us.

2009 Transaction Overview

Investment Transactions

During the quarter ended March 31, 2009, we purchased the remaining interests in three senior housing joint ventures for $9 million, which included $14 million of real estate encumbered by $5 million of mortgage debt, and made fundings of $25 million for construction and other capital projects primarily in our life science segment.

During the quarter ended March 31, 2009, we sold properties with an aggregate value of $6 million primarily from our medical office segment.

On April 10, 2009, we sold our Los Gatos, California hospital for $45 million, recognizing a gain on sale of $31 million.

Dividends

On April 23, 2009, we announced that our Board declared a quarterly common stock cash dividend of $0.46 per share. The common stock dividend will be paid on May 21, 2009 to stockholders of record as of the close of business on May 5, 2009.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, 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 a different presentation of our financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain.

Results of Operations

We evaluate our business and allocate resources among our five business segments: (i) senior housing, (ii) life science, (iii) medical office, (iv) hospital, and (v) skilled nursing. Under the senior housing, life science, hospital and skilled nursing segments, we invest primarily in single operator or tenant properties through the acquisition and development of real estate, secured financing, mezzanine financing and investment in marketable debt securities of operators in these sectors. Under the medical office segment, we invest through acquisition and secured financing in MOBs that are leased under gross or modified gross leases, generally to multiple tenants, and which generally require a greater level of property management. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the Condensed Consolidated Financial Statements).

Our financial results for the three months ended March 31, 2009 and 2008 are summarized as follows:

Comparison of the Three Months Ended March 31, 2009 to the Three Months Ended
March 31, 2008



Rental and related revenues



                     Three Months Ended March 31,           Change
Segments               2009               2008            $         %
                                  (dollars in thousands)
Senior housing    $        69,012    $        70,800   $ (1,788 )   (3)%
Life science               52,044             43,230      8,814     20
Medical office             65,350             65,163        187     -
Hospital                   18,280             18,936       (656 )  (3)
Skilled nursing             8,902              8,776        126     1
Total             $       213,588    $       206,905   $  6,683     3

Senior housing. Senior housing rental and related revenues for the three months ended March 31, 2008 included $1.4 million of additional rents from property level expense credits related to our properties operated by Sunrise. No similar additional rents were received for the three months ended March 31, 2009.

Life science. Life science rental and related revenues increased primarily as a result of an increase in occupancy levels at our life science facilities and the impact of development assets placed in service during 2008.

Tenant recoveries

                        Three Months Ended March 31,               Change
Segments              2009                    2008                $        %
                                     (dollars in thousands)
Life science     $        11,094    $                  9,382   $ 1,712     18%
Medical office            12,037                      11,577       460     4
Hospital                     533                         488        45     9
Total            $        23,664    $                 21,447   $ 2,217    10

Income from direct financing leases

Income from DFLs decreased $2.0 million to $12.9 million for the three months ended March 31, 2009. The decrease was primarily due to two DFLs that were placed on non-accrual status and accounted for on a cost-recovery basis beginning in October 2008. We expect that income from DFLs will remain lower than 2008 as a result of the two DFLs that are accounted for on a cost-recovery basis.

Depreciation and amortization expense

Depreciation and amortization expense increased $2.9 million to $80.5 million for the three months ended March 31, 2009. Approximately $1.5 million of the increase relates to development assets placed in service during 2008 and $1.1 million relates to the purchase in September 2008 of Tenet's noncontrolling interest in Health Care Property Partners ("HCPP"), a joint venture between HCP and an affiliate of Tenet.

Operating expenses

                        Three Months Ended March 31,                Change
Segments              2009                    2008               $         %
                                     (dollars in thousands)
Senior housing   $         2,701    $                  2,857   $ (156 )    (5)%
Life science              11,436                      11,597     (161 )   (1)
Medical office            32,786                      32,953     (167 )   (1)
Hospital                     753                         814      (61 )   (7)
Total            $        47,676    $                 48,221   $ (545 )   (1)

Operating expenses are predominantly related to MOB and life science properties where we incur the expenses and recover a portion of those expenses from the tenants. The presentation of expenses as operating or general and administrative is based on the underlying nature of the expense. Periodically, we review the classification of expenses between categories and make revisions based on changes in the underlying nature of the expense.

General and administrative expenses

General and administrative expenses decreased $1.4 million to $19.0 million for the three months ended March 31, 2009. The decrease in general and administrative expenses was primarily due to decreased compensation related expenses.

The information set forth under the heading "Legal Proceedings" of Note 11 to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, is incorporated herein by reference.

Interest and other income, net

For the three months ended March 31, 2009, interest and other income, net decreased $11.0 million to $24.3 million. This decrease was primarily related to lower interest earned primarily due to a decline in the London Interbank Offered Rate ("LIBOR") rates.

For a more detailed description of our mezzanine loan investment, see Note 6, of the Condensed Consolidated Financial Statements and Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest expense

Interest expense decreased $19.6 million to $76.7 million for the three months ended March 31, 2009. The decrease was primarily due to the net decrease in outstanding indebtedness and decline in interest rates, partially offset by a decrease in capitalized interest resulting from assets under development that were placed in service during 2008.

The table below sets forth information with respect to our debt, excluding premiums and discounts (dollars in thousands):

                              As of March 31,
                            2009          2008
Balance:
Fixed rate               $ 5,021,407   $ 4,697,503
Variable rate                977,471     2,889,247
Total                    $ 5,998,878   $ 7,586,750
Percent of total debt:
Fixed rate                        84 %          62 %
Variable rate                     16 %          38 %
Total                            100 %         100 %

Fixed rate                                            6.34 %     6.22 %
Variable rate                                         1.83 %     4.06 %
Total weighted average rate                           5.60 %     5.39 %

Income taxes

For the three months ended March 31, 2009, income taxes decreased $1.3 million to $0.9 million. This decrease is primarily due to a decrease in taxable income related to lower interest earned due to a decline in LIBOR rates from a portion of one of our mezzanine loan investments held in a taxable REIT subsidiary and increased interest expenses related to increased borrowings by various taxable REIT subsidiaries.

Equity income (loss) from unconsolidated joint ventures

For the three months ended March 31, 2009, equity income from unconsolidated joint ventures decreased $1.8 million to a loss of $0.5 million. This decrease is primarily due to a change in the expected useful life of certain intangible assets of one of our unconsolidated joint ventures that resulted in higher amounts of amortization expense.

Discontinued operations

The decrease of $17.5 million in income from discontinued operations to $2.0 million for the three months ended March 31, 2009 compared to $19.5 million for the comparable period in the prior year is primarily due to a decrease in gains on real estate dispositions of $8.8 million. During the three months ended March 31, 2009, we sold seven properties for $6.0 million, as compared to four properties for $30 million in the year ago period. Discontinued operations for the three months ended March 31, 2009 included nine properties compared to 60 properties for the three months ended March 31, 2008.

Liquidity and Capital Resources

Our principal liquidity needs are to (i) fund normal operating expenses, (ii) repay the $320 million outstanding balance on the bridge loan, (iii) meet debt service requirements, including $117.8 million of our mortgage debt maturing in the remainder of 2009, (iv) fund capital expenditures, including tenant improvements and leasing costs, (v) fund acquisition and development activities, and (vi) make minimum distributions required to maintain our REIT qualification under the Code. We believe these needs will be satisfied using cash flows generated by operations, provided by financing activities and from sales of assets during the next twelve months.

Access to capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as to fund future acquisitions and development through the issuance of additional securities or secured debt. As of April 15, 2009, we had a credit rating of Baa3 (stable) from Moody's, BBB (stable) from S&P and BBB (positive) from Fitch on our senior unsecured debt securities, and Ba1 (stable) from Moody's, BBB- (stable) from S&P and BBB- (positive) from Fitch on our preferred equity securities. During 2008, there was a decline in the availability of financing from the capital markets and widening credit spreads. Our ability to continue to access capital could be impacted by various factors including general market conditions and the continuing slowdown in the economy, interest rates, credit ratings on our securities, and any changes to these ratings, the market price of our capital stock, the performance of our portfolio, tenants, borrowers and operators, including any restructurings, disruptions or bankruptcies of our tenants, borrowers and operators, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us.

Net cash provided by operating activities was $117 million and $132 million for the three months ended March 31, 2009 and 2008, respectively. Cash flows from operations reflects fluctuations in receivables, payables, accruals and deferred revenue, partially offset by increased revenues. Our cash flows from operations are dependent upon the occupancy level of multi-tenant buildings, rental rates on leases, our tenants' performance on their lease obligations, the level of operating expenses and other factors.

Net cash used in investing activities was $18 million during the three months ended March 31, 2009 and principally reflects the net effect of: (i) $20 million used to fund acquisitions and development of real estate, and (ii) $6 million received from the sales of facilities. During the three months ended March 31, 2009 and 2008, we used $10 million and $18 million, respectively, to fund lease commissions and tenant and capital improvements.

Net cash used in financing activities was $90 million for the three months ended March 31, 2009 and principally reflects the net effects of: (i) payments of common and preferred dividends aggregating $122 million, (ii) repayment of our mortgage debt aggregating $38 million, (iii) purchase of noncontrolling interests of $9 million and (iv) distributions to noncontrollinginterest holders of $4 million. The amount of cash used in financing activities was partially offset by $85 million of net borrowings under our line of credit facility. In order to qualify as a REIT for federal income tax purposes, we must distribute at least 90% of our taxable income to our stockholders. Accordingly, we intend to continue to make regular quarterly distributions to holders of our common and preferred stock.

At March 31, 2009, we held approximately $27.8 million in deposits and $33.6 million in irrevocable letters of credit from commercial banks securing tenants' lease obligations and borrowers' loan obligations. We may draw upon the letters of credit or depository accounts if there are defaults under the related leases or loans. Amounts available under letters of credit could change based upon facility operating conditions and other factors, and such changes may be material.

Debt

Bank Line of Credit and Bridge and Term Loans

Our revolving line of credit facility with a syndicate of banks provides for an aggregate borrowing capacity of $1.5 billion and matures on August 1, 2011. This revolving line of credit facility accrues interest at a rate per annum equal to LIBOR plus a margin ranging from 0.325% to 1.00%, depending upon our debt ratings. We pay a facility fee on the entire revolving commitment ranging from 0.10% to 0.25%, depending upon our debt ratings. Based on our debt ratings on March 31, 2009, the margin on the revolving line of credit facility was 0.55% and the facility fee was 0.15%. At March 31, 2009, we had $235 million outstanding under this revolving line of credit facility with a weighted-average effective interest rate of 1.50%.

At March 31, 2009, the outstanding balance of our bridge loan was $320 million. The bridge loan had an initial maturity date of July 31, 2008 that has been extended to July 30, 2009 through the exercise of two extension options. This bridge loan accrues interest at a rate per annum equal to LIBOR plus a margin ranging from 0.425% to 1.25%, depending upon our debt ratings (weighted-average effective interest rate of 1.23% at March 31, 2009). Based on our debt ratings on March 31, 2009, the margin on the bridge loan facility was 0.70%.

. . .