CALCULATION OF REGISTRATION FEE

Amount to be Registered/Proposed

Maximum Offering Price Per

Title of Securities

Unit/Proposed

Amount of

to be Registered

Maximum Offering Price (1)(2)

Registration Fee(1)(2)

Convertible Senior Notes

$

345,000,000

$

0

Common Stock, $1.00 par value per share

—

—

(1)

The filing fee of $36,915 (calculated in accordance with Rule 457(r) and relating to the Registration Statement on Form S-3 (No. 333-134082) filed by Health Care REIT, Inc. on May 12, 2006) is being offset entirely by the $39,698.13 that was paid with respect to $313,323,819 aggregate initial offering price of securities that were previously registered pursuant to Registration Statement No. 333-120917 (filed by Health Care REIT, Inc. on December 1, 2004, as amended on May 19, 2005) and were not sold thereunder.

(2)

There are also registered an indeterminate number of shares of common stock into which the Convertible Senior Notes may be converted. Pursuant to Rule 457(i), no separate registration fee is payable where securities and securities into which conversion is offered are registered at the same time and no additional consideration is payable upon conversion.

 

Filed Pursuant To Rule 424(b)(5)

Registration No. 333-134082

PROSPECTUS SUPPLEMENT

(To Prospectus dated May 12, 2006)

 

$300,000,000

 

4.75% Convertible Senior Notes due 2026

NOTES

CONVERSION

REDEMPTION AND REPURCHASE

RANKING

LISTING

 

Investing in the notes involves significant risks. See “Risk factors” beginning on page S-10.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

 

We have granted to the underwriters the option, exercisable on or before the 30th day after the date of this prospectus supplement, to purchase up to an additional $45 million aggregate principal amount of notes, solely to cover over-allotments, if any.

 

We expect that the notes will be ready for delivery in book-entry-only form through The Depository Trust Company on or about November 20, 2006.

 

Joint Book-Running Managers

 

Co-Lead Manager

 

Banc of America Securities LLC

 

Co-Managers

 

The date of this prospectus supplement is November 14, 2006.

 

 

 

You should rely only on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and any “free writing prospectus” we authorize to be delivered to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus supplement, the accompanying prospectus and any such “free writing prospectus.” We are not making an offer to sell the notes in any jurisdiction where the offer or sale of the notes is not permitted. You should not assume that the information appearing in this prospectus supplement, the accompanying prospectus, any such “free writing prospectus” or the documents incorporated therein by reference is accurate as of any date other than their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

Table of Contents

 

 

 

S-i

 

S-1 

						Percentage of								Percentage of				Number of				Number of				Investment per				Number of				Number of
Type of Facility		Investments(1)				investments				Revenues(2)				revenues				facilities				beds/units				bed/unit(3)				operators(4)				states(4)
		(in thousands)								(in thousands)
Independent living/CCRCs		$	488,863				16	%		$	29,756				12	%			39				5,224			$	112,737				16				18
Assisted living facilities			996,318				32	%			85,271				36	%			204				12,615				88,480				23				33
Skilled nursing facilities			1,413,508				46	%			111,262				46	%			220				30,063				47,662				22				28
Specialty care facilities			205,745				6	%			13,894				6	%			14				1,265				183,067				7				8
Totals		$	3,104,434				100	%		$	240,183				100	%			477				49,167

(1)		Investments include real estate investments and credit enhancements which amounted to $3,101,984,000 and $2,450,000, respectively.
(2)		Revenues include gross revenues and revenues from discontinued operations for the nine months ended September 30, 2006.
(3)		Investment per Bed/Unit was computed by using the total investment amount of $3,369,546,000 which includes real estate investments, credit enhancements and unfunded commitments for which initial funding has commenced which amounted to $3,101,984,000, $2,450,000 and $265,112,000, respectively.
(4)		We have investments in properties located in 37 states and managed by 58 different operators.

 

 S-2

	-	expertise and critical mass across all sectors of senior housing and health care real estate;
	-	property management and development capabilities;
	-	increased portfolio growth through expanded investment and development opportunities;
	-	enhanced asset type diversification, reduced tenant concentration, and a favorable investment maturity profile; and
	-	improved key portfolio metrics, including a higher non-governmental component of tenant revenues.

 

S-3 

Issuer		Health Care REIT, Inc.
Notes		$300 million aggregate principal amount of 4.75% convertible senior notes due 2026. We have granted to the underwriters an option to purchase up to $45 million aggregate principal amount of additional notes, solely to cover over-allotments, if any.
Maturity		The notes will mature on December 1, 2026, unless earlier redeemed, repurchased or converted.
Interest payment dates		We will pay 4.75% interest per annum on the principal amount of the notes, payable semi-annually in arrears on June 1 and December 1 of each year, starting on June 1, 2007, to holders of record at the close of business on the preceding May 15 and November 15, respectively. Interest will accrue on the notes from and including November 20, 2006 or from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date or maturity date, as the case may be.
Ranking		The notes will be our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness. The notes will be effectively subordinated to all of our existing and future secured indebtedness and all existing and future liabilities of our subsidiaries, including trade payables. As of September 30, 2006, our subsidiaries had approximately $406.4 million of indebtedness and other obligations (which includes $276 million outstanding under our unsecured lines of credit arrangements under which we and certain of our subsidiaries are co-borrowers) that would effectively rank senior to the notes. In addition, to the extent that we complete the mergers, the notes may be structurally subordinated to the indebtedness and other obligations of Windrose and its subsidiaries.
Conversion rights		The notes will be convertible into cash and, if applicable, shares of our common stock, $1.00 par value per share, based on an initial conversion rate, subject to adjustment, of 20.8833 shares per $1,000 principal amount of notes (which represents an initial conversion price of approximately $47.89 per share), only in the following circumstances and to the following extent:
		- the notes will be convertible during any calendar quarter after the calendar quarter ending December 31, 2006, if the closing sale price of our common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter;
		- the notes will be convertible during the five consecutive business days immediately after any five consecutive trading day period (we refer to this five consecutive trading day period as the “note measurement period”) in which the

 

 S-4

		average trading price per $1,000 principal amount of notes was equal to or less than 97% of the average conversion value of the notes during the note measurement period;
		- the notes will be convertible if we make certain distributions on our common stock or engage in certain transactions;
		- the notes will be convertible if we call the notes for redemption; and
		- the notes will be convertible at any time from, and including, November 1, 2011 to, and including, December 1, 2011 and at any time from, and including, November 1, 2026 until the close of business on the business day immediately preceding December 1, 2026 or earlier redemption or repurchase.
		Upon conversion, holders will receive, per $1,000 principal amount being converted, a “settlement amount” that is equal to the sum of the “daily settlement amounts” for each of the 20 trading days during the “cash settlement averaging period.”
		The “cash settlement averaging period” with respect to any note means:
		- for notes that are converted at any time on or after the 23rd scheduled trading day prior to the maturity date of the applicable notes, the 20 consecutive trading days beginning on, and including, the 20th scheduled trading day prior to the maturity date; and
		- in all other circumstances, the 20 consecutive trading days beginning on, and including, the third trading day following the conversion date.
		The “daily settlement amount” for a given trading day consists of:
		- cash equal to the lesser of $50 and the “daily conversion value”; and
		- to the extent the daily conversion value exceeds $50, a number of whole shares equal to:
		- the excess of the daily conversion value over $50, divided by
		- the volume weighted average price of our common stock on that trading day.
		We refer to the cash due upon conversion as the “principal return,” and we refer to the shares, if any, that are due upon conversion as the “net shares.” The “daily conversion value” on a given trading day generally means one-twentieth of the product of the applicable conversion rate and the volume weighted average price of our common stock on that trading day.
		A holder that surrenders notes for conversion in connection with a “make-whole fundamental change” that occurs before December 1, 2011 may in certain circumstances be entitled to an increased conversion rate.
		See “Description of notes—Conversion Rights.”
Sinking fund		None.

 

S-5 

Redemption of notes at our option		Prior to December 1, 2011, we cannot redeem the notes except to preserve our status as a REIT for U.S. federal income tax purposes. On or after December 1, 2011, we may from time to time at our option redeem the notes, in whole or in part. In either case, the notes shall be redeemed at a redemption price in cash equal to 100% of the principal amount of the notes we redeem, plus any accrued and unpaid interest to, but excluding, the redemption date. See “Description of notes—Redemption of Notes at our Option.”
Purchase of notes by us at the option of the holder		On each of December 1, 2011, December 1, 2016 and December 1, 2021, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date. See “Description of notes—Purchase of Notes by Us at the Option of the Holder.”
Right of holder to require us to repurchase notes if a fundamental change occurs		If a fundamental change, as described in this prospectus supplement, occurs, holders may require us to repurchase all or a portion of their notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.
		See “Description of notes—Holders May Require Us to Repurchase Their Notes upon a Fundamental Change.”
Events of default		If an event of default on the notes has occurred and is continuing, the principal amount of the notes plus any premium and accrued and unpaid interest may become immediately due and payable. These amounts automatically become due and payable upon certain events of default. See “Description of notes—Events of Default.”
Use of proceeds		The net proceeds to us from this offering will be approximately $293.6 million (or approximately $337.7 million if the underwriters exercise in full their over-allotment option). We intend to use the net proceeds to invest in additional health care and senior housing properties. Pending such use, the net proceeds primarily will be used to repay borrowings under our unsecured lines of credit arrangements. See “Use of proceeds.”
Restrictions on ownership		In order to assist us in maintaining our qualification as a REIT for U.S. federal income tax purposes, no person may own, or be deemed to own by virtue of the attribution rules of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code” or the “Code”), more than 9.8% of the value of our outstanding capital stock, subject to certain exceptions. Notwithstanding any other provision of the notes, no holder of notes will be entitled to convert such notes for our common stock to the extent that receipt of our common stock would cause the holder (together with the holder’s affiliates) to exceed the ownership limit contained in our by-laws (with respect to our common stock and preferred stock) and our certificates of

 

 S-6

		designation (with respect to our preferred stock). See “Restrictions on Transfer of Securities” in the accompanying prospectus.
DTC eligibility		The notes will be issued in book-entry-only form and will be represented by one or more global certificates, without interest coupons, deposited with, or on behalf of, the Depository Trust Company, or DTC, and registered in the name of a nominee of DTC. Beneficial interests in the notes will be shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants. Except in limited circumstances, holders may not exchange interests in their notes for certificated securities. See “Description of notes—Form, Denomination and Registration of Notes.”
Listing and trading		The notes are a new issue of securities, and there is currently no established trading market for the notes. An active or liquid market may not develop for the notes or, if developed, be maintained. We have not applied, and do not intend to apply, for the listing of the notes on any securities exchange. Our common stock is listed on the New York Stock Exchange under the symbol “HCN.”
Certain U.S. federal tax considerations		For a discussion of certain U.S. federal tax considerations relating to the purchase, ownership and disposition of the notes and shares of common stock into which the notes are convertible, see “Certain federal income tax considerations.”
Risk factors		In analyzing an investment in the notes we are offering pursuant to this prospectus supplement, you should carefully consider, along with other matters included or incorporated by reference in this prospectus supplement, the information set forth under “Risk factors” beginning on page S-10.

 

S-7 

		Year ended												Nine months ended
		December 31,												September 30,
		2003				2004				2005				2005				2006
Operating Data
Revenues		$	178,560			$	232,453			$	275,317			$	198,951			$	236,229
Income from continuing operations available to common stockholders			57,617				67,098				55,427				33,554				59,922
Net income available to common stockholders			70,732				72,634				62,692				36,105				63,793
Per Share Data
Basic:
Income from continuing operations available to common stockholders		$	1.32			$	1.30			$	1.02			$	0.63			$	0.99
Net income available to common stockholders		$	1.62			$	1.41			$	1.16			$	0.67			$	1.05
Diluted:
Income from continuing operations available to common stockholders		$	1.30			$	1.29			$	1.02			$	0.62			$	0.98
Net income available to common stockholders		$	1.60			$	1.39			$	1.15			$	0.67			$	1.04
Cash distributions per common share		$	2.34			$	2.385			$	2.46			$	1.84			$	1.90

 

 S-8

		September 30, 2006
										Pro forma
		Actual				As adjusted				as adjusted
Balance Sheet Data
Net real estate investments		$	3,094,828			$	3,094,828			$	4,011,424
Total assets			3,200,829				3,224,829				4,179,270
Total debt			1,603,302				1,627,302				2,116,611
Total liabilities and minority interests			1,653,860				1,677,860				2,196,297
Total stockholders’ equity			1,546,969				1,546,969				1,982,973

 

S-9 

 

Investing in the notes involves a high degree of risk. In addition to the other information included and incorporated by reference in this prospectus supplement and the accompanying prospectus, you should carefully consider the risks described below before purchasing the notes. If any of the following risks actually occurs, our business, results of operations and financial condition will likely suffer. As a result, the trading price of the notes and our common stock may decline, and you may lose part or all of your investment.

 

RISKS RELATED TO OUR BUSINESS

 

Our expected results may not be achieved

 

Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including prevailing interest rates; serious issues facing the health care industry, including compliance with, and changes to, regulations and payment policies and operators’ difficulty in obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and senior housing industries; negative developments in the operating results or financial condition of operators, including, but not limited to, their ability to pay rent and repay loans; the Company’s ability to transition or sell facilities with profitable results; the failure of closings to occur as and when anticipated; acts of God affecting our properties; our ability to reinvest sale proceeds at similar rates to assets sold; operator bankruptcies or insolvencies; government regulations affecting Medicare and Medicaid reimbursement rates; liability claims and insurance costs for our operators; unanticipated difficulties and/or expenditures relating to future acquisitions; environmental laws affecting our properties; delays in reinvestment of sale proceeds; changes in rules or practices governing the Company’s financial reporting; and other factors, including REIT qualification, anti-takeover provisions and key management personnel.

 

Risk factors related to our operators’ revenues and expenses

 

Our facility operators’ revenues are primarily driven by occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates. Expenses for these facilities are primarily driven by the costs of labor, food, utilities, taxes, insurance and rent or debt service. Revenues from government reimbursement have, and may continue, to come under pressure due to reimbursement cuts and state budget shortfalls. Liability insurance and staffing costs continue to increase for our operators. To the extent that any decrease in revenues and/or any increase in operating expenses result in a facility not generating enough cash to make payments to us, the credit of our operator and the value of other collateral would have to be relied upon.

 

Risk factors related to operator bankruptcies

 

We are exposed to the risk that our operators may not be able to meet the rent, principal and interest or other payments due us, which may result in an operator bankruptcy or insolvency, or that an operator might become subject to bankruptcy or insolvency proceedings for other reasons. Although our operating lease agreements provide us with the right to evict an operator, demand immediate payment of rent and exercise other remedies, and our loans provide us with the right to terminate any funding obligation, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy laws afford certain rights to a party that has filed for bankruptcy or reorganization. An operator in bankruptcy may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and interest in the case of a loan, and to exercise other rights and remedies.

 

S-10

 

Risk factors

 

We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of a facility, avoid the imposition of liens on a facility and/or transition a facility to a new operator. In some instances, we have terminated our lease with an operator and relet the facility to another operator. In some of those situations, we have provided working capital loans to and limited indemnification of the new operator. If we cannot transition a leased facility to a new operator, we may take possession of that facility, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.

 

Risk factors related to government regulations

 

Our operators’ businesses are affected by government reimbursement and private payor rates. To the extent that a facility receives a significant portion of its revenues from governmental payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries, government funding restrictions (at a program level or with respect to specific facilities) and interruption or delays in payments due to any ongoing governmental investigations and audits at such facility. In recent years, governmental payors have frozen or reduced payments to health care providers due to budgetary pressures. Health care reimbursement will likely continue to be of paramount importance to federal and state authorities. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of the skilled nursing industry, the specialty care industry or the health care industry in general. There can be no assurance that adequate reimbursement levels will continue to be available for services provided by any facility operator, whether the facility receives reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an operator’s liquidity, financial condition and results of operations, which could adversely affect the ability of an operator to meet its obligations to us. In addition, the replacement of an operator that has defaulted on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the facility or the replacement of the operator licensed to manage the facility.

 

Risk factors related to liability claims and insurance costs

 

Long-term care facility operators (skilled nursing facilities, assisted living facilities, and independent living/continuing care retirement communities) have experienced substantial increases in both the number and size of patient care liability claims in recent years, particularly in the states of Texas and Florida. As a result, general and professional liability costs have increased and may continue to increase. Long-term care liability insurance rates have increased nationwide because of large jury awards in states like Texas and Florida. Over the past four years, both Texas and Florida have adopted skilled nursing facility liability laws that modify or limit tort damages. Despite some of these reforms, the long-term care industry overall continues to experience very high general and professional liability costs. Insurance companies have responded to this claims crisis by severely restricting their capacity to write long-term care general and professional liability policies. No assurances can be given that the climate for long-term care general and professional liability insurance will improve in any of the foregoing states or any other states where the facility operators conduct business. Insurance companies may continue to reduce or stop writing general and professional liability policies for long-term care facilities. Thus, general professional liability insurance coverage may be restricted or very costly, which may adversely affect the facility operators’ future operations, cash flows and financial condition, and may have a material adverse effect on the facility operators’ ability to meet their obligations to us.

 

S-11

 

Risk factors

 

Risk factors related to acquisitions

 

We are exposed to the risk that our future acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and newly acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. If we agree to provide construction funding to an operator and the project is not completed, we may need to take steps to ensure completion of the project or we could lose the property. These costs may negatively affect our results of operations. Moreover, if we issue equity securities or incur additional debt, or both, to finance future acquisitions, it may reduce our per share financial results.

 

Risk factors related to environmental laws

 

Under various federal and state laws, owners or operators of real estate may be required to respond to the release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination. These laws also expose us to the possibility that we may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property and since we are a passive landlord, we do not “participate in the management” of any property in which we have an interest. Moreover, we review environmental site assessments of the properties that we own or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition.

 

Risk factors related to reinvestment of sale proceeds

 

From time to time, we will have cash available from (1) the proceeds of sales of our securities, (2) principal payments on our loans receivable and (3) the sale of properties, including non-elective dispositions, under the terms of master leases or similar financial support arrangements. We must re-invest these proceeds, on a timely basis, in properties or in qualified short-term investments. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us. Delays in acquiring properties may negatively impact revenues and perhaps our ability to make distributions to stockholders.

 

Other risk factors related to our business

 

We are subject to a number of other risks related to our business. First, we might fail to qualify or remain qualified as a REIT. We intend to operate as a REIT under the Internal Revenue Code and believe we have and will continue to operate in such a manner. Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and if we do, our earnings will be reduced by the amount of federal taxes owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. Also, if we were not a REIT, we would not be required to make distributions to stockholders since a non-REIT is not required to pay dividends to stockholders amounting to at least 90% of its annual taxable income (including 100% of capital gains).

 

Second, our certificate of incorporation and by-laws contain anti-takeover provisions (staggered board provisions, restrictions on share ownership and transfer and super majority stockholder approval requirements for business combinations) that could make it more difficult for or even prevent a third

 

S-12

 

Risk factors

 

party from acquiring us without the approval of our incumbent board of directors. Provisions and agreements that inhibit or discourage takeover attempts could reduce the market value of our common stock.

 

Third, we are dependent on key personnel. Although we have entered into employment agreements with our executive officers, losing any one of them could, at least temporarily, have an adverse impact on our operations. We believe that losing more than one would have a material adverse impact on our business.

 

RISKS RELATED TO THE MERGERS

 

We may not consummate the mergers.

 

The merger agreement that we entered into with Windrose is subject to a number of conditions, including, among other things, the approval of Windrose’s shareholders. If the transaction with Windrose is not consummated, our growth prospects may be negatively impacted. Accordingly, in making an investment decision to purchase the notes, you should consider our operations both on a stand-alone basis and on a combined basis with Windrose and consider the possibility that the transaction with Windrose may not be consummated.

 

The closing of the mergers poses risks for the ongoing operations of Health Care REIT, including that:

 

 

If we fail to successfully integrate Windrose and/or to realize the intended benefits of the mergers, the market price of our common stock could decline from its market price after the mergers, and this may depress the trading price of the notes.

 

If the IRS successfully asserts that we were not or will not continue to be qualified as a REIT, or that Windrose is not a REIT at the effective time of the mergers, we will incur adverse tax consequences.

 

We have been organized as, and believe that our past and present operations qualifies us as, a REIT. In addition, following the mergers, we intend to operate in a manner that will allow us to continue to qualify as a REIT. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations and involves the determination of various factual matters and circumstances not entirely within our control. If we fail to qualify as a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing taxable income and will become subject to federal income tax at regular corporate tax rates. In such an event, we could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, we will also be disqualified from treatment as a REIT for the four taxable years following the year in which we lost our qualification. If Windrose fails to qualify as a REIT at the time of the mergers, we will be subject to tax at the highest regular corporate rate on the

 

S-13

 

Risk factors

 

built-in gain on each Windrose asset existing at the time of the mergers if we were to dispose of the asset within the ten-year period following the merger.

 

RISKS RELATED TO THE NOTES AND OUR COMMON STOCK

 

Our business operations may not generate the cash needed to service our indebtedness.

 

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will enable us to pay our indebtedness, including the notes we are offering in this prospectus supplement. As adjusted to include the sale of these notes, assuming the underwriters do not exercise their over-allotment option, our total consolidated debt as of September 30, 2006 would have been approximately $1.6 billion, which would have represented approximately 51% of our total capitalization as of that date. In addition, to the extent that we complete the mergers, we will assume the indebtedness and other obligations of Windrose and its subsidiaries. The indenture for the notes will not restrict our ability to incur additional indebtedness.

 

The notes will be effectively subordinated to our secured indebtedness and subordinated to all liabilities of our subsidiaries from time to time outstanding.

 

The notes are obligations only of Health Care REIT, Inc. and will not be guaranteed by our subsidiaries or secured by any of our or their properties or assets. Our subsidiaries, which own approximately 45% of our real estate investments as of September 30, 2006, are separate legal entities and have no obligation to pay any amounts due pursuant to the notes.

As of September 30, 2006, our subsidiaries had approximately $406.4 million of indebtedness and other obligations (which includes $276 million outstanding under our unsecured lines of credit arrangements under which we and certain of our subsidiaries are co-borrowers) that would effectively rank senior to the notes. In addition, to the extent that we complete the mergers, the notes may be structurally subordinated to the indebtedness and other obligations of Windrose and its subsidiaries. See “Description of other indebtedness.”

 

Volatility of the market price of our common stock may depress the trading price of the notes.

 

Since January 1, 2004, the trading price of our common stock on the New York Stock Exchange has ranged from a low of $27.70 per share to a high of $42.24 per share. Because the notes are convertible into shares of our common stock in certain circumstances, volatility in the price of our common stock may depress the trading price of the notes. The risk of volatility and depressed prices of our common stock also applies to holders who receive shares of common stock upon conversion of their notes.

 

The share price of our common stock depends upon several factors, including, but not limited to: our financial condition, performance and prospects; general economic and financial market conditions; changes in estimates by analysts; the market for similar securities issued by REITs; and our ability to meet analysts’ estimates. In addition, the market price of our common stock may be affected by future sales of our securities, including additional issuances of common stock and securities convertible into common stock.

 

These factors, among others, could significantly depress the trading price of the notes and the price of our common stock issued upon conversion of the notes.

 

In addition, the price of our common stock could also be affected by possible sales of our common stock by investors who view the notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. The hedging or arbitrage could, in turn, affect the trading price of the notes, or any common stock that holders receive upon conversion of the notes.

 

S-14

 

Risk factors

 

The net share settlement feature of the notes may have adverse consequences.

 

The net share settlement feature of the notes, as described under “Description of notes—Conversion Rights—Payment upon conversion,” may:

 

 

If the notes are convertible, upon conversion, holders will receive cash and, if applicable, shares of our common stock based on the sum of the “daily settlement amounts” described in this prospectus supplement for the 20 consecutive trading days that begins on, and includes, the third trading day after the day the notes are tendered for conversion, subject to certain exceptions in connection with conversions during a period immediately preceding the maturity date of the notes as described in this prospectus supplement. We refer to this 20 trading day period as the “cash settlement averaging period.”

 

We will generally deliver the cash and, if applicable, shares of common stock issuable upon conversion as soon as practicable, but in no event more than three business days after the last trading day in the cash settlement averaging period, which will generally be at least 22 trading days after the date holders tender their notes for conversion. In addition, because the consideration due upon conversion is based in part on the trading prices of our common stock during the cash settlement averaging period, any decrease in the price of our common stock after you tender your notes for conversion may significantly decrease the value of the consideration you receive. Furthermore, because we must settle at least a portion of our conversion obligation in cash, the conversion of notes may significantly reduce our liquidity.

 

The conversion rate of the notes may not be adjusted for all dilutive events that may occur.

 

As described under “Description of notes—Conversion Rights—Adjustments to the conversion rate,” we will adjust the conversion rate of the notes for certain events, including, among others:

 

 

We will not adjust the conversion rate for other events, such as an issuance of common stock for cash or in connection with an acquisition, that may adversely affect the trading price of the notes or our common stock. If we engage in any of these types of transactions, the value of the common stock into which your notes may be convertible may be diluted. An event that adversely affects the value of the notes, but does not result in an adjustment to the conversion rate may occur.

 

S-15

 

Risk factors

 

The increase in the conversion rate applicable to notes that holders convert in connection with a make-whole fundamental change may not adequately compensate you for the lost option time value of your notes as a result of that fundamental change.

 

If a make-whole fundamental change occurs before December 1, 2011, we will under certain circumstances increase the conversion rate applicable to holders who convert their notes within a specified time frame. The amount of the increase in the conversion rate depends on the date when the fundamental change becomes effective and the applicable price described in this prospectus supplement. See “Description of notes—Conversion Rights—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change.”

 

Although the increase in the conversion rate is designed to compensate you for the lost option time value of your notes as a result of the make-whole fundamental change, the increase in the conversion rate is only an approximation of the lost value and may not adequately compensate you for the loss. In addition, you will not be entitled to an increased conversion rate if:

 

 

Furthermore, a holder may not receive the additional consideration payable as a result of the increase in the conversion rate until the third business day after the effective date of the make-whole fundamental change, or even later, which could be a significant period of time after the date the holder has tendered its notes for conversion. In addition, we will not increase the conversion rate, with respect to a make-whole fundamental change, to an amount (subject to adjustment) that exceeds 25.5820 shares per $1,000 principal amount of notes. Our obligation to increase the conversion rate as described above also could be considered a penalty, in which case its enforceability would be subject to general principles of reasonableness of economic remedies.

 

We may not have the ability to purchase the notes on the purchase dates or upon a fundamental change or to pay the cash payment due upon conversion.

 

On each of December 1, 2011, December 1, 2016 and December 1, 2021, holders may require us to purchase, for cash, all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest to, but excluding, that date. If a fundamental change occurs, holders of the notes may require us to repurchase, for cash, all or a portion of their notes at 100% of their principal amount, plus any accrued and unpaid interest to, but excluding, that date. In addition, upon conversion of the notes, we must pay the principal return in cash. We may not have sufficient funds to pay the repurchase price or principal return when due. In addition, the terms of any borrowing agreements which we may enter into from time to time may require early repayment of borrowings under circumstances similar to those constituting a fundamental change. These agreements may also make our repurchase of notes, or the cash payment due upon conversion of the notes, an event of default under the agreements. If we fail to repurchase the notes or pay the cash payment due upon conversion when required, we will be in default under the indenture governing the notes. See “Description of notes—Conversion Rights,” “Description of notes—Purchase of Notes by Us at the Option of the Holder” and “Description of notes—Holders May Require Us to Repurchase Their Notes Upon a Fundamental Change.”

 

S-16

 

Risk factors

 

You may not be able to convert your notes into cash and, if applicable, shares of our common stock before November 1, 2026, other than during the period from November 1, 2011 to December 1, 2011, and the value of the notes could be less than the value of the common stock into which your notes could otherwise be converted.

 

Prior to November 1, 2026, other than during the period from November 1, 2011 to December 1, 2011, the notes are convertible into cash and, if applicable, shares of our common stock only if specified conditions are met. These conditions may not be met. If these conditions for conversion are not met, you will not be able to convert your notes and you may not be able to receive the value of the common stock into which the notes would otherwise be convertible. In addition, for these and other reasons, the trading price of the notes could be substantially less than the conversion value of the notes.

 

We have made only limited covenants in the indenture for the notes, and these limited covenants may not protect your investment.

 

The indenture for the notes does not:

 

 

Furthermore, the indenture for the notes contains only limited protections in the event of a change in control. We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations, that could substantially affect our capital structure and the value of the notes and our common stock but would not constitute a “fundamental change” that permits holders to require us to repurchase their notes. For these reasons, you should not consider the covenants in the indenture or the repurchase feature of the notes as a significant factor in evaluating whether to invest in the notes.

 

If an active and liquid trading market for the notes does not develop, the market price of the notes may decline and you may be unable to sell your notes.

 

The notes are a new issue of securities for which there is currently no public market. We do not intend to list the notes on any national securities exchange. An active trading market may not develop for the notes. Even if a trading market for the notes develops, the market may not be liquid. If an active trading market does not develop, you may be unable to resell your notes or may only be able to sell them at a substantial discount.

 

We may invest or spend the proceeds in this offering in ways with which you may not agree and in ways that may not earn a profit.

 

We intend to use the net proceeds from this offering to invest in additional health care and senior housing properties, and, pending such use, the net proceeds primarily will be used to repay borrowings under our unsecured lines of credit arrangements. However, we will retain broad discretion over the use

 

S-17

 

Risk factors

 

of the proceeds from this offering. You may not agree with the ways we decide to use these proceeds, and our use of the proceeds may not yield any profits.

 

Ownership limitations in our by-laws and certificates of designation may impair the ability of holders to convert notes into our common stock.

 

In order to assist us in maintaining our qualification as a REIT for U.S. federal income tax purposes, no person may own, or be deemed to own by virtue of the attribution rules of the Internal Revenue Code, more than 9.8% of the value of our outstanding capital stock, subject to certain exceptions. For this purpose, all options, warrants, convertible securities or other rights to acquire our common stock will be treated as if all such rights had been exercised. Notwithstanding any other provision of the notes, no holder of notes will be entitled to convert such notes for our common stock to the extent that receipt of our common stock would cause the holder (together with the holder’s affiliates) to exceed the ownership limit contained in our by-laws (with respect to our common stock and preferred stock) and our certificates of designation (with respect to our preferred stock). See “Restrictions on Transfer of Securities” in the accompanying prospectus.

 

Provisions in the indenture for the notes, our certificate of incorporation and by-laws and Delaware law could discourage an acquisition of us by a third party, even if the acquisition would be favorable to you.

 

If a “fundamental change” (as defined in the indenture) occurs, holders of the notes will have the right, at their option, to require us to repurchase all or a portion of their notes. In the event of a “make-whole fundamental change,” we also may be required to increase the conversion rate applicable to notes surrendered for conversion in connection with such make-whole fundamental change. In addition, the indenture for the notes prohibits us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the notes. These and other provisions, including the provisions of our charter documents and Delaware law described under “Description of Certain Provisions of Our Certificate of Incorporation and By-Laws” in the accompanying prospectus could prevent or deter a third party from acquiring us even where the acquisition could be beneficial to you.

 

An adverse rating of the notes may cause their trading price to fall.

 

If a rating agency rates the notes, it may assign a rating that is lower than the ratings assigned to our other debt. Ratings agencies also may lower ratings on the notes in the future. If rating agencies assign a lower-than-expected rating or reduce, or indicate that they may reduce, their ratings in the future, the trading price of the notes could significantly decline.

 

You may have to pay U.S. taxes if we adjust the conversion rate in certain circumstances, even if you do not receive any cash.

 

We will adjust the conversion rate of the notes for stock splits and combinations, stock dividends, certain cash dividends and certain other events that affect our capital structure. See “Description of notes—Conversion Rights—Adjustments to the conversion rate.” If we adjust the conversion rate, or if we fail to make certain adjustments, you may be treated as having received a constructive distribution from us, resulting in taxable income to you for U.S. federal income tax purposes, even though you would not receive any cash in connection with the conversion rate adjustment and even though you might not exercise your conversion right. See “Certain federal income tax considerations” on page S-61.

 

We believe that the notes do not constitute “U.S. real property interests” and therefore we currently would not be required to withhold on payments to non-U.S. holders under the

 

S-18

 

Risk factors

 

Foreign Investment in Real Property Act, or FIRPTA. There can be no assurance, however, that the notes will not constitute U.S. real property interests in the future.

 

Although we are not currently aware of any facts that would cause our conclusion to change, depending on the facts in existence at the time of any sale, redemption, repurchase, conversion, or retirement of notes, it is possible that the notes could constitute U.S. real property interests. If so, non-U.S. holders of notes would be subject to withholding on payments in connection with such a sale, redemption, repurchase, conversion, or retirement regardless of whether such non-U.S. holders provide certification documenting their non-U.S. status. See “Certain federal income tax considerations—Non-U.S. Holders.”

 

As a holder of notes, you will not be entitled to any rights with respect to our common stock, but you will be subject to all changes made with respect to our common stock.

 

If you hold notes, you will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), but you will be subject to all changes affecting our common stock. You will have the rights with respect to our common stock only when we deliver shares of common stock, if any, to you upon conversion of your notes. For example, in the event that an amendment is proposed to our certificate of incorporation or by-laws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date you are deemed to have received common stock, if any, upon conversion, you will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes in the powers, preferences or special rights of our common stock. In addition, because of the contingent conversion and net share settlement features of the notes, you may not be able to convert your notes other than during the period from November 1, 2011 to December 1, 2011 and the one month period immediately preceding the maturity date, and you may not receive any shares upon conversion.

 

Holders of our outstanding shares of preferred stock have, and holders of any future outstanding shares of preferred stock will have, liquidation, dividend and other rights that are senior to the rights of the holders of our common stock.

 

Since our board of directors has the authority to designate and issue preferred stock with liquidation, dividend and other rights that are senior to those of our common stock, our issued and outstanding shares of preferred stock, as well as any that may be issued in the future, would receive, upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common stock, their liquidation preferences as well as any accrued and unpaid distributions. These payments would reduce the remaining amount of our assets, if any, available for distribution to holders of our common stock.

 

Our ability to pay dividends in the future is subject to many factors.

 

Our ability to pay dividends may be impaired if any of the risks described in this prospectus supplement and the accompanying prospectus or incorporated by reference herein and in the accompanying prospectus, were to occur. In addition, payment of our dividends depends upon our earnings, our financial condition, maintenance of our REIT status and other factors as our board of directors may deem relevant from time to time.

 

S-19

 

This prospectus supplement and the documents incorporated by reference contain statements that constitute “forward-looking statements” as that term is defined in the federal securities laws. These forward-looking statements include those regarding:

 

 

For example, when we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to the risks discussed above, in the sections captioned “Risk factors” in this prospectus supplement and “Cautionary Statement Concerning Forward-Looking Statements and Risk Factors” in the accompanying prospectus and the documents that are incorporated herein by reference.

 

S-20

 

The table below sets forth our ratio of earnings to fixed charges for the periods indicated. The ratio of earnings to fixed charges was computed by dividing earnings by our fixed charges. For purposes of calculating this ratio, “earnings” includes pretax income from continuing operations before extraordinary items, excluding the equity earnings in a less than 50% owned subsidiary, plus fixed charges and reduced by capitalized interest. “Fixed charges” consists of interest expensed and capitalized and the amortized premiums, discounts and capitalized expenses related to indebtedness.

 

 

S-21

 

The net proceeds from the sale of the notes will be approximately $293.6 million, after deducting underwriting discounts and commissions and our estimated offering expenses. We intend to use the net proceeds to invest in additional health care and senior housing properties. Pending such use, we intend to use the net proceeds primarily to repay borrowings under our unsecured lines of credit arrangements and other outstanding indebtedness. As of November 10, 2006, we had an outstanding balance of $208.5 million under our unsecured lines of credit arrangements bearing interest at an average rate of 6.3%.

 

Affiliates of certain of the underwriters are lenders under our Third Amended and Restated Loan Agreement, dated as of July 26, 2006, as amended. Pending investments in additional properties, we intend to use the net proceeds of this offering primarily to repay borrowings under such agreement. See “Underwriting.” Pending their ultimate use, any net proceeds from this offering may be invested in short-term, investment grade, interest-bearing securities, certificates of deposit or direct or guaranteed obligations of the United States.

 

S-22

 

The following table sets forth our capitalization as of September 30, 2006: on a historical basis; on an as adjusted basis to give effect to the sale of the notes offered by this prospectus supplement (assuming no exercise of the underwriters’ over-allotment option and not giving effect to the conversion of the notes); and on a pro forma as adjusted basis to give effect to the sale of the notes offered by this prospectus supplement (assuming no exercise of the underwriters’ over-allotment option and not giving effect to the conversion of the notes) and the consummation of the mergers. Completion of the mergers is subject to a number of conditions, and we cannot assure you that the mergers will be completed.

 

 

(footnotes on following page)

 

S-23

 

Capitalization

 

 

 

You should read this table in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2005, as updated by our Current Report on Form 8-K dated October 20, 2006, and Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 and our consolidated financial statements, related notes and other financial information that we have incorporated by reference into this prospectus supplement and the accompanying prospectus.

 

S-24

 

Our common stock is traded on the New York Stock Exchange under the symbol “HCN.” As of September 30, 2006, there were 5,757 holders of record of our common stock. The following table sets forth, for the periods shown, the high and low sale prices of our common stock as reported by the NYSE, for the periods indicated, and cash dividends per share. On November 14, 2006, the last reported sale price of our common stock as reported by the NYSE was $39.09 per share.

 

 

 

 

Under the real estate investment trust rules of the Internal Revenue Code, we are required to pay at least 90% of our ordinary taxable income (including 100% of capital gains) as dividends in order to avoid taxation as a corporation. The declaration of dividends is at the discretion of our board of directors and depends upon our distributable funds, financial requirements, tax considerations and other factors. Decisions with respect to the distribution of capital gains are made on a case-by-case basis. A portion of our dividends paid may be deemed either capital gain income or a return of capital, or both, to our stockholders. We provide our stockholders with an annual statement which designates the taxability of their dividends.

 

We have a dividend reinvestment and stock purchase plan under which stockholders of record may invest all or a portion of their dividends and up to an additional $5,000 per month to purchase additional shares. Additionally, investors who are not stockholders of the Company may use this plan to make an initial investment in the Company’s shares of up to $5,000. We have the discretion to grant waivers for purchases in excess of $5,000.

 

S-25

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HEALTH CARE REIT

 

The selected historical consolidated financial data set forth below should be read in conjunction with “Capitalization” and “Prospectus supplement summary—Recent developments,” as well as the other information that we have filed with the SEC and incorporated by reference herein. See “Where you can find additional information” beginning on page S-71. The selected historical consolidated financial data for each of the years in the five-year period ended December 31, 2005 have been derived from our audited consolidated financial statements. These financial statements have been audited by Ernst & Young LLP, our independent registered public accounting firm. The following selected historical consolidated financial data as of and for the nine months ended September 30, 2006 and 2005 have been derived from our unaudited interim consolidated financial statements. In the opinion of our management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of such dates and for such periods. Results for the interim periods are not necessarily indicative of the results to be expected for the full year. This information is only a summary, and should be read together with, and is qualified in its entirety by reference to, our historical consolidated financial statements and notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006 and our Annual Report on Form 10-K for the year ended December 31, 2005, as updated by our Current Report on Form 8-K filed October 20, 2006, which are incorporated by reference herein. Amounts are in thousands, except per share data.

 

 

S-26

 

Selected consolidated financial data

 

 

S-27

 

Selected consolidated financial data

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF WINDROSE

 

The selected historical consolidated financial data of Windrose set forth below should be read in conjunction with “Capitalization” and “Prospectus supplement summary—Recent developments,” as well as the other information that we have filed with the SEC and incorporated by reference herein. See “Where you can find additional information” beginning on page S-71. The following selected historical consolidated financial data for (i) each of the years in the three-year period ended December 31, 2005 and for the period from August 16, 2002 (inception) to December 31, 2002 for Windrose and (ii) the period from January 1, 2002 to August 15, 2002 and the year ended December 31, 2001 for Windrose’s accounting predecessor, have been derived from Windrose’s audited consolidated financial statements. These financial statements have been audited by KPMG LLP, Windrose’s independent registered public accounting firm. The following selected historical consolidated financial data as of and for the nine months ended September 30, 2006 and 2005 have been derived from Windrose’s unaudited interim consolidated financial statements. In the opinion of Windrose’s management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations as of such dates and for such periods. Results for the interim periods are not necessarily indicative of the results to be expected for the full year. This information is only a summary and should be read together with, and is qualified in its entirety by reference to, Windrose’s historical consolidated financial statements and notes thereto for the quarterly period ended September 30, 2006 and for the year ended December 31, 2005, as filed with our Current Report on Form 8-K dated November 13, 2006, which is incorporated by reference herein. Amounts are in thousands, except per share data. Completion of the mergers is subject to a number of conditions, and we cannot assure you that the mergers will be completed.

 

 

S-28

 

Selected consolidated financial data

 

 

 

 

 

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

 

The following selected unaudited pro forma condensed consolidated financial data is presented as if the mergers had occurred as of January 1, 2005 for income statement purposes and on September 30, 2006 for balance sheet purposes. This data should be read in conjunction with, and the information is qualified in its entirety by, (i) our historical consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2005, as updated by our Current Report on Form 8-K filed on October 20, 2006, (ii) our historical consolidated financial statements and notes thereto contained in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, and (iii) the unaudited pro forma condensed consolidated financial statements and notes and Windrose’s historical consolidated financial statements and notes thereto for the year ended December 31, 2005 and for the quarterly period ended September 30, 2006, as filed with our Current Report on Form 8-K dated November 13, 2006. Each of the foregoing have been incorporated by reference herein. Completion of the mergers is subject to a number of conditions, and we cannot assure you that the mergers will be completed.

S-29

 

Selected consolidated financial data

 

The pro forma amounts in the table below are presented for illustrative purposes only. You should not rely on the pro forma amounts as being indicative of the financial position or results of operations of the combined company that would have actually occurred had the mergers been completed as of the dates indicated above, nor is it necessarily indicative of the future operating results or financial position of the combined company. See also “Risk factors—Risks Related to the Mergers—We may not consummate the mergers.” The pro forma amounts in the table below have not been adjusted to give effect to the sale of the notes offered by this prospectus supplement. Amounts are in thousands, except per share data.

 

 

 

S-30

 

The following table sets forth certain information regarding our Executive Officers and Directors:

 

Executive Officers

 

 

 

Board of Directors

 

 

If the mergers with Windrose are completed, (1) Fred S. Klipsch, Chairman and Chief Executive Officer of Windrose, will be appointed to the Company’s Board of Directors (provided that such appointment does not violate any applicable legal requirements or the rules of the NYSE) and will become the Vice Chairman of the Company, (2) Frederick L. Farrar, President, Chief Operating Officer and Treasurer of Windrose, will become an Executive Vice President of the Company and Senior Vice President of the Medical Properties Division, and (3) Daniel R. Loftus, Executive Vice President, Secretary and General Counsel of Windrose, will become a Senior Vice President of the Company and Executive Vice President of the Medical Properties Division.

 

S-31

 

We will issue the notes under an indenture, to be dated as of November 20, 2006, between us and The Bank of New York Trust Company, N.A., as trustee, as supplemented by a supplemental indenture thereto, to be dated as of November 20, 2006, relating to the notes. We refer to the indenture as so supplemented as the “indenture.” The following summary of the terms of the notes and the indenture does not purport to be complete and is subject, and qualified in its entirety by reference, to the detailed provisions of the notes and the indenture. We will provide copies of the indenture to you upon request. The indenture is also available for inspection at the office of the trustee. The notes and the indenture, and not this description, define your legal rights as a holder of the notes.

 

The following description of the particular terms of the notes supplements and, to the extent inconsistent therewith, replaces the description of the general terms and provisions of the debt securities set forth in the accompanying prospectus, to which reference is hereby made. For purposes of this summary, the terms “Health Care REIT,” “we,” “us” and “our” refer only to Health Care REIT, Inc. and not to any of its subsidiaries, unless we specify otherwise.

 

GENERAL

 

The notes we are offering:

 

 

S-32

 

 

repurchase price in cash equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date; and

 

 

All cash payments on the notes will be made in U.S. dollars.

 

We will issue the notes in denominations of integral multiples of $1,000 principal amount, without coupons. We will initially issue the notes as global securities in book-entry form. We will make payments in respect of notes represented by global securities by wire transfer of immediately available funds to DTC or its nominee as registered owner of the global securities. We will make payments in respect of notes that are issued in certificated form by wire transfer of immediately available funds to the accounts specified by each holder of more than $5.0 million aggregate principal amount of notes. However, if a holder of a certificated note does not specify an account, or holds $5.0 million or less in aggregate principal amount of notes, then we will mail a check to that holder’s registered address.

 

You may convert notes at the office of the conversion agent, present notes for registration of transfer at the office of the registrar for the notes and present notes for payment at maturity at the office of the paying agent. We have appointed the trustee as the initial conversion agent, registrar and paying agent for the notes.

 

We will not provide a sinking fund for the notes. The indenture does not contain any financial covenants and will not limit our ability to incur additional indebtedness, including senior or secured indebtedness, pay dividends or repurchase our securities. In addition, the indenture does not provide any protection to holders of notes in the event of a highly leveraged transaction or a change in control, except as, and only to the limited extent, described under “—Holders may require us to repurchase their notes upon a fundamental change” and “—Consolidation, merger and sale of assets.”

 

If any payment date with respect to the notes falls on a day that is not a business day, we will make the payment on the next business day. The payment made on the next business day will be treated as though it had been made on the original payment date, and no interest will accrue on the payment for the additional period of time.

 

INTEREST PAYMENTS

 

We will pay interest on the notes at a rate of 4.75% per annum, payable semi-annually in arrears on each June 1 and December 1 of each year, beginning on June 1, 2007. Except as described below, we will pay interest that is due on an interest payment date to holders of record at the close of business on the preceding May 15 and November 15, respectively. Interest will accrue on the notes from and including November 20, 2006 or from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date or maturity date, as the case may be. We will pay interest on the notes on the basis of a 360-day year consisting of twelve 30-day months.

 

If notes are converted after a record date but prior to the next interest payment date, holders of such notes at the close of business on the record date will, on the corresponding interest payment date, receive the interest payable on such notes on that interest payment date notwithstanding the conversion. However, a holder who surrenders a note for conversion after a record date but prior to the next interest payment date must pay to the conversion agent, upon surrender, an amount equal to the amount of interest payable on the corresponding interest payment date on the note being converted; provided that no such interest payment need be made to us:

 

 

S-33

 

 

 

 

CONVERSION RIGHTS

 

If the conditions for conversion of the notes described below, including those described under “—Conditions for conversion” and “—Conversion procedures,” are satisfied, holders of notes may, subject to prior maturity, redemption or repurchase, convert their notes in integral multiples of $1,000 principal amount into cash in an amount described below and, if applicable, shares of our common stock, based on an initial conversion rate of 20.8833 shares of our common stock per $1,000 principal amount of notes, subject to adjustment as described below. This rate results in an initial conversion price of approximately $47.89 per share. We will not issue fractional shares of common stock upon conversion of the notes and instead will pay a cash adjustment for fractional shares based on the volume-weighted average price per share of our common stock on the last trading day of the cash settlement averaging period. Except as described above, we will not make any payment or other adjustment on conversion with respect to any accrued interest on the notes, and we will not adjust the conversion rate to account for accrued and unpaid interest.

 

On conversion, the holders of notes will, to the extent they receive any shares of our common stock upon conversion, receive, in addition to the consideration that is otherwise due upon conversion, the rights under any future stockholder rights plan (i.e., a poison pill) that we may establish, unless the rights have separated from our common stock at the time of conversion, in which case the conversion rate will be adjusted at the time of separation as if we had distributed to all holders of our common stock shares of our capital stock, evidences of indebtedness, other assets or certain rights or warrants as described in the fourth bullet point under “—Adjustments to the conversion rate” below, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

In certain circumstances, a holder must pay interest if the conversion occurs between a record date and an interest payment date. See “—Interest Payments” above.

 

The conversion right with respect to any notes we have called for redemption will expire at the close of business on the last business day immediately preceding the redemption date, unless we default in the payment of the redemption price. A note for which a holder has delivered a purchase notice or a fundamental change repurchase notice, as described below, requiring us to purchase the note may be surrendered for conversion only if the holder withdraws the notice in accordance with the indenture, unless we default in the payment of the purchase price or fundamental change repurchase price. In all cases, the right to convert the notes will terminate at the close of business on the business day immediately preceding the maturity date.

 

Conversion procedures

 

To convert a certificated note, the holder must complete the conversion notice on the back of the note and deliver it, together with the note and any required interest payment, to the office of the conversion agent for the notes, which will initially be the office of the trustee. In addition, the holder must pay any tax or duty payable as a result of any transfer involving the issuance or delivery of the shares of common stock in a name other than that of the registered holder of the note. The note will be deemed to be converted on the date on which the holder has satisfied all of these requirements. We refer to this

 

S-34

 

Description of notes

 

date as the “conversion date.” To convert interests in a global note, the holder must comply with DTC’s then applicable conversion program procedures.

 

A holder that has delivered a purchase notice or repurchase notice with respect to a note, as described below, may convert that note only if the holder withdraws the notice in accordance with the indenture. See “—Purchase of Notes by Us at the Option of the Holder” and “—Holders May Require Us to Repurchase Their Notes upon a Fundamental Change.”

 

We will deliver, through the conversion agent, the cash and, if applicable, through our transfer agent, shares of common stock issuable upon conversion as soon as practicable, but in no event more than three business days after the last trading day in the “cash settlement averaging period” described below. However, if a holder surrenders a note for conversion in connection with a “make-whole fundamental change” under circumstances where we must increase the conversion rate applicable to that note, then we will deliver, through the conversion agent, the consideration that is payable on account of the increase in the conversion rate as soon as practicable, but in no event after the third business day after the later of:

 

 

See “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change.”

 

For a discussion of certain tax consequences to a holder that converts notes, see “Certain federal income tax considerations—Conversion of the Notes.”

 

Payment upon conversion

 

Holders that tender their notes for conversion will receive cash and, if applicable, shares of our common stock as follows. Upon conversion, holders will receive, per $1,000 principal amount being converted, a “settlement amount” that is equal to the sum of the “daily settlement amounts” (as described below) for each of the 20 trading days during the “cash settlement averaging period” (as described below).

 

The “cash settlement averaging period” with respect to any note means:

 

 

The “daily settlement amount,” for each of the 20 trading days during the cash settlement averaging period, consists of:

 

 

 

We will deliver cash in lieu of any fractional shares of common stock based on the volume-weighted average price per share of our common stock on the last trading day of the cash settlement averaging period.

 

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Description of notes

 

We refer to the cash due upon conversion as the “principal return,” and we refer to the shares, if any, that are due upon conversion as the “net shares.” The “daily conversion value” on a given trading day generally means one-twentieth of the product of:

 

 

The “volume-weighted average price” per share of our common stock on a trading day is the volume-weighted average price per share of our common stock on the New York Stock Exchange or, if our common stock is not listed on the New York Stock Exchange, on the principal exchange or over-the-counter market on which our common stock is then listed or traded, from 9:30 a.m. to 4:00 p.m., New York City time, on that trading day, as displayed by Bloomberg. If such price is not available, the volume weighted average price means the market value per share of our common stock on such day as determined by a nationally recognized investment banking firm retained for this purpose by us.

 

“Trading day” generally means any day during which:

 

 

“Market disruption event” generally means either:

 

 

We may not have the financial resources, and we may not be able to arrange for financing, to pay the cash due upon conversion. Furthermore, payment of cash upon conversion may violate the terms of our then existing indebtedness. See “Risk factors—Risks Related to the Notes and our Common Stock—We may not have the ability to purchase the notes on the purchase dates or upon a fundamental change or to pay the cash payment due upon conversion.” Our failure to pay cash on the notes when converted would result in an event of default with respect to the notes.

 

Conditions for conversion

 

The notes will become convertible only in certain circumstances, which we describe below. If the notes become convertible, we will provide written notice to each holder, at its address appearing in the security register, and we will publicly announce, through a reputable national newswire service, and publish on our website, that the notes have become convertible, stating, among other things:

 

 

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We will mail the notice, and make the public announcement and publication, as soon as practicable, but in no event later than the open of business on the first date the notes become convertible as a result of the event. If we fail to mail the notice or make the public announcement or publication by that time, then the notes will remain convertible for an additional business day for each business day, on or after the first date the notes become convertible, that we fail to mail such notice or make such public announcement or publication. In addition, if the event causing the notes to become convertible is a make-whole fundamental change for which we must increase the conversion rate applicable to holders that convert their notes in connection with that make-whole fundamental change, as described under “—Adjustment to the conversion rate upon the occurrence of a make-whole fundamental change,” then the increased conversion rate will continue to apply to holders that convert their notes during any period that the convertibility of the notes pursuant to that make-whole fundamental change is so extended.

 

Holders may surrender their notes for conversion only in the circumstances described below. In all cases, the right to convert the notes will terminate at the close of business on the business day immediately preceding the maturity date.

 

Conversion based on price of common stock

Prior to maturity or earlier redemption or repurchase, holders may surrender their notes for conversion during any calendar quarter after the calendar quarter ending December 31, 2006, if the “closing sale price” (as defined in the indenture) of our common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 120% of the conversion price in effect on the last trading day of the immediately preceding calendar quarter as determined by us. Our board of directors will make appropriate adjustments, in its good faith determination, to account for any adjustment to the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the “ex date” (as defined in the indenture) of the event occurs, during that 30 consecutive trading day period.

 

The “closing sale price” of our common stock on any trading day generally means the closing sale price per share of our common stock (or, if no closing sale price per share is reported, the average of the bid and ask prices per share or, if more than one in either case, the average of the average bid and the average ask prices per share) on such trading day on the U.S. principal national securities exchange on which our common stock is listed or, if our common stock is not listed on a U.S. national securities exchange, as otherwise provided in the indenture.

 

Conversion upon satisfaction of the trading price condition

Prior to maturity or earlier redemption or repurchase, holders may surrender their notes for conversion during the five consecutive business days immediately after any five consecutive trading day period (we refer to this five consecutive trading day period as the “note measurement period”) in which the average trading price per $1,000 principal amount of notes, as determined by us following a request by a holder of notes in accordance with the procedures described below, was equal to or less than 97% of the average conversion value of the notes during the note measurement period. We refer to this condition as the “trading price condition.”

 

For purposes of the trading price condition, the “conversion value” per $1,000 principal amount of notes on a trading day is the product of the closing sale price per share of our common stock and the conversion rate of the notes in effect on that trading day.

 

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Description of notes

 

Except as described below, the “trading price” of the notes on any day generally means the average secondary market bid quotations obtained by the bid solicitation agent for $5.0 million principal amount of notes at approximately 4:00 p.m., New York City time, on such day from three independent nationally recognized securities dealers we select. However, if the bid solicitation agent can reasonably obtain only two such bids, then the average of the two bids will instead be used, and if the bid solicitation agent can reasonably obtain only one such bid, then that one bid will be used. Even still, if on a given day:

 

 

then the trading price per $1,000 principal amount of notes will be deemed to be equal to 97% of the product of the closing sale price of our common stock on that day and the conversion rate in effect on that day.

 

The bid solicitation agent will have no obligation to determine the trading price of the notes unless we have requested it to do so, and we will have no obligation to make such request unless a holder of at least $1.0 million in aggregate principal amount of notes provides us with reasonable evidence that the trading price per $1,000 principal amount of notes would be equal to or less than 97% of the conversion value of the notes. At such time, we will instruct the bid solicitation agent to determine the trading price of the notes for each of the next five trading days and on each following trading day until the trading price condition is no longer satisfied.

 

Conversion based on redemption

If we call a note for redemption, the holder of that note may surrender the note for conversion at any time before the close of business on the business day immediately preceding the redemption date.

 

Conversion upon the occurrence of certain corporate transactions

If: