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EX-32.1 - EX-32.1 - WELLTOWER INC.Ex-32.1.htm
EX-32.2 - EX-32.2 - WELLTOWER INC.Ex-32.2.htm
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EX-31.1 - EX-31.1 - WELLTOWER INC.Ex-31.1.htm
EX-12 - EX-12 - WELLTOWER INC.Ex-12.htm
EX-10.1 - EX-10.1 - WELLTOWER INC.Ex-10.1.htm

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

 

 

 

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

For the quarterly period ended September 30, 2016

or

 

 

 

o

 

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

For the transition period from                     to                      

Commission file number: 1-8923

WELLTOWER INC.

 

(Exact name of registrant as specified in its charter

 

 

 

Delaware

 

34-1096634

 

 

 

(State or other jurisdiction of

 incorporation or organization)

 

(I.R.S. Employer

 Identification No.)

 

 

 

4500 Dorr Street, Toledo, Ohio

 

43615

 

 

 

(Address of principal executive offices)

 

(Zip Code)

(419) 247-2800

(Registrant’s telephone number, including area code)  

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

 

 

 

 

 

 

 

Large accelerated filer  

 

Accelerated filer o  

 

Non-accelerated filer   o

 (Do not check if a smaller reporting company)

 

Smaller reporting company o  

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

As of October 31, 2016, the registrant had 362,531,659 shares of common stock outstanding.  

 

 

 

 


TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets — September 30, 2016 and December 31, 2015

3

 

 

Consolidated Statements of Comprehensive Income — Three and nine months ended September 30, 2016 and 2015

4

 

 

Consolidated Statements of Equity — Nine months ended September 30, 2016 and 2015

6

 

 

Consolidated Statements of Cash Flows — Nine months ended September 30, 2016 and 2015

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

27

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

54

 

 

Item 4. Controls and Procedures

55

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

Item 1A. Risk Factors

56

 

56

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

56

 

 

Item 5. Other Information

56

 

 

Item 6. Exhibits

56

 

 

Signatures

58

 

  

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

 

September 30, 2016

 

December 31, 2015

 

 

 

 

  

(Unaudited)

 

(Note)

Assets:  

 

 

 

 

 

Real estate investments:  

 

 

 

 

 

 

Real property owned:  

 

 

 

 

 

 

 

Land and land improvements  

$

2,603,590

 

$

2,563,445

 

 

Buildings and improvements  

 

25,671,913

 

 

25,522,542

 

 

Acquired lease intangibles  

 

1,423,032

 

 

1,350,585

 

 

Real property held for sale, net of accumulated depreciation  

 

913,157

 

 

169,950

 

 

Construction in progress  

 

529,471

 

 

258,968

 

 

 

Gross real property owned  

 

31,141,163

 

 

29,865,490

 

 

Less accumulated depreciation and amortization  

 

(4,243,038)

 

 

(3,796,297)

 

 

 

Net real property owned  

 

26,898,125

 

 

26,069,193

 

Real estate loans receivable  

 

630,020

 

 

819,492

 

Net real estate investments  

 

27,528,145

 

 

26,888,685

Other assets:  

 

 

 

 

 

 

 

Investments in unconsolidated entities  

 

479,382

 

 

542,281

 

 

Goodwill  

 

68,321

 

 

68,321

 

 

Cash and cash equivalents  

 

428,617

 

 

360,908

 

 

Restricted cash  

 

83,137

 

 

61,782

 

 

Straight-line rent receivable

 

455,774

 

 

395,562

 

 

Receivables and other assets  

 

812,963

 

 

706,306

 

 

 

Total other assets  

 

2,328,194

 

 

2,135,160

Total assets  

$

29,856,339

 

$

29,023,845

 

 

 

 

  

 

 

 

 

 

Liabilities and equity  

 

 

 

 

 

Liabilities:  

 

 

 

 

 

 

 

Borrowings under primary unsecured credit facility  

$

1,350,000

 

$

835,000

 

 

Senior unsecured notes  

 

8,688,585

 

 

8,548,055

 

 

Secured debt  

 

3,317,933

 

 

3,509,142

 

 

Capital lease obligations  

 

74,370

 

 

75,489

 

 

Accrued expenses and other liabilities  

 

767,683

 

 

697,191

Total liabilities  

 

14,198,571

 

 

13,664,877

Redeemable noncontrolling interests  

 

393,530

  

  

183,083

Equity:  

 

 

 

 

 

 

 

Preferred stock  

 

1,006,250

 

 

1,006,250

 

 

Common stock  

 

362,703

 

 

354,811

 

 

Capital in excess of par value  

 

16,983,562

 

 

16,478,300

 

 

Treasury stock  

 

(52,194)

 

 

(44,372)

 

 

Cumulative net income  

 

4,454,180

 

 

3,725,772

 

 

Cumulative dividends  

 

(7,816,492)

 

 

(6,846,056)

 

 

Accumulated other comprehensive income (loss)  

 

(151,184)

 

 

(88,243)

 

 

Other equity  

 

3,020

 

 

4,098

 

 

 

Total Welltower Inc. stockholders’ equity  

 

14,789,845

 

 

14,590,560

 

 

Noncontrolling interests  

 

474,393

 

 

585,325

Total equity  

 

15,264,238

 

 

15,175,885

Total liabilities and equity  

$

29,856,339

 

$

29,023,845

 

NOTE: The consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

 

See notes to unaudited consolidated financial statements

 

3


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income  

$

421,152

 

$

409,290

 

$

1,259,442

 

$

1,185,502

 

Resident fees and services

 

630,017

 

 

545,255

 

 

1,847,386

 

 

1,573,318

 

Interest income

 

25,080

 

 

22,380

 

 

74,275

 

 

59,950

 

Other income

 

2,884

 

 

2,072

 

 

21,735

 

 

11,572

 

 

Total revenues

 

1,079,133

 

 

978,997

 

 

3,202,838

 

 

2,830,342

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

129,699

 

 

121,130

 

 

394,985

 

 

361,071

 

Property operating expenses

 

473,680

 

 

408,703

 

 

1,382,148

 

 

1,183,519

 

Depreciation and amortization

 

218,061

 

 

205,799

 

 

673,326

 

 

603,431

 

General and administrative

 

36,828

 

 

36,950

 

 

122,434

 

 

110,562

 

Transaction costs

 

19,842

 

 

9,333

 

 

33,207

 

 

70,379

 

Loss (gain) on derivatives, net

 

(2,516)

 

 

-

 

 

(2,516)

 

 

(58,427)

 

Loss (gain) on extinguishment of debt, net

 

-

 

 

584

 

 

9

 

 

34,872

 

Impairment of assets

 

9,705

 

 

-

 

 

24,019

 

 

2,220

 

Other expenses

 

-

 

 

-

 

 

3,161

 

 

10,583

 

 

Total expenses

 

885,299

 

 

782,499

 

 

2,630,773

 

 

2,318,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

and income from unconsolidated entities

 

193,834

 

 

196,498

 

 

572,065

 

 

512,132

Income tax (expense) benefit

 

305

 

 

3,344

 

 

2,543

 

 

(3,769)

Income (loss) from unconsolidated entities

 

(1,749)

 

 

(2,631)

 

 

(7,528)

 

 

(18,231)

Income (loss) from continuing operations

 

192,390

 

 

197,211

 

 

567,080

 

 

490,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on real estate dispositions, net

 

162,351

 

 

2,046

 

 

163,881

 

 

249,002

Net income

 

354,741

 

 

199,257

 

 

730,961

 

 

739,134

Less:

Preferred stock dividends

 

16,352

 

 

16,352

 

 

49,055

 

 

49,055

Less:

Net income (loss) attributable to noncontrolling interests(1)

 

3,479

 

 

862

 

 

2,553

 

 

4,666

Net income (loss) attributable to common stockholders

$

334,910

 

$

182,043

 

$

679,353

 

$

685,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

358,932

 

 

351,765

 

 

356,911

 

 

346,425

 

Diluted

 

361,237

 

 

353,107

 

 

358,752

 

 

347,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions

$

0.93

 

$

0.52

 

$

1.90

 

$

1.98

 

Net income (loss) attributable to common stockholders*

$

0.93

 

$

0.52

 

$

1.90

 

$

1.98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations attributable to common stockholders, including real estate dispositions

$

0.93

 

$

0.52

 

$

1.89

 

$

1.97

 

Net income (loss) attributable to common stockholders*

$

0.93

 

$

0.52

 

$

1.89

 

$

1.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

$

0.86

 

$

0.825

 

$

2.58

 

$

2.475

 

* Amounts may not sum due to rounding

(1) Includes amounts attributable to redeemable noncontrolling interests.

 

See notes to unaudited consolidated financial statements

 

4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2016

 

2015

 

2016

 

2015

Net income

$

354,741

 

$

199,257

 

$

730,961

 

$

739,134

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized gain (loss) on equity investments

 

5,908

 

 

(3,086)

 

 

(5,252)

 

 

(18,186)

 

Change in net unrealized gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow hedges

 

401

 

 

462

 

 

1,371

 

 

(1,235)

 

Unrecognized actuarial gain (loss)

 

(2)

 

 

-

 

 

-

 

 

-

 

Foreign currency translation gain (loss)

 

516

 

 

(25,198)

 

 

(48,496)

 

 

(22,011)

Total other comprehensive income (loss)

 

6,823

 

 

(27,822)

 

 

(52,377)

 

 

(41,432)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

361,564

 

 

171,435

 

 

678,584

 

 

697,702

Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)

 

1,846

 

 

(14,271)

 

 

13,117

 

 

(19,416)

Total comprehensive income (loss) attributable to common stockholders

$

359,718

 

$

185,706

 

$

665,467

 

$

717,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes amounts attributable to redeemable noncontrolling interests.

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

 

5


CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred

Common

Excess of

Treasury

Cumulative

Cumulative

Comprehensive

Other

Noncontrolling

 

 

 

 

 

Stock

Stock

Par Value

Stock

Net Income

Dividends

Income (Loss)

Equity

Interests

Total

Balances at beginning of period

$

1,006,250

$

354,811

$

16,478,300

$

(44,372)

$

3,725,772

$

(6,846,056)

$

(88,243)

$

4,098

$

585,325

$

15,175,885

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

728,408

 

 

 

 

 

 

 

7,363

 

735,771

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

(62,941)

 

 

 

10,564

 

(52,377)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

683,394

Net change in noncontrolling interests

 

 

 

  

 

(45,765)

 

 

 

 

 

 

 

 

 

 

 

(128,859)

 

(174,624)

Amounts related to stock incentive plans, net of forfeitures

 

 

 

689

 

38,888

 

(7,822)

 

 

 

 

 

 

 

(1,285)

 

 

 

30,470

Proceeds from issuance of common stock

 

 

 

7,203

 

512,139

 

 

 

 

 

 

 

 

 

 

 

 

 

519,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option compensation expense

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

207

 

 

 

207

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(921,381)

 

 

 

 

 

 

 

(921,381)

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(49,055)

 

 

 

 

 

 

 

(49,055)

Balances at end of period

$

1,006,250

$

362,703

$

16,983,562

$

(52,194)

$

4,454,180

$

(7,816,492)

$

(151,184)

$

3,020

$

474,393

$

15,264,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred

Common

Excess of

Treasury

Cumulative

Cumulative

Comprehensive

Other

Noncontrolling

 

 

 

 

 

Stock

Stock

Par Value

Stock

Net Income

Dividends

Income (Loss)

Equity

Interests

Total

Balances at beginning of period

$

1,006,250

$

328,835

$

14,740,712

$

(35,241)

$

2,842,022

$

(5,635,923)

$

(77,009)

$

5,507

$

297,896

$

13,473,049

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 

 

 

 

734,468

 

 

 

 

 

 

 

4,476

 

738,944

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,350)

 

 

 

(24,082)

 

(41,432)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

697,512

Net change in noncontrolling interests

 

 

 

 

 

(4,778)

 

 

 

 

 

 

 

 

 

 

 

213,792

 

209,014

Amounts related to stock incentive plans, net of forfeitures

 

 

 

125

 

21,855

 

(9,095)

 

 

 

 

 

 

 

(2,097)

 

 

 

10,788

Proceeds from issuance of common stock

 

 

 

22,733

 

1,618,349

 

 

 

 

 

 

 

 

 

 

 

 

 

1,641,082

Equity component of convertible debt

 

 

 

1,330

 

5,431

 

 

 

 

 

 

 

 

 

 

 

 

 

6,761

Option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

587

 

 

 

587

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(852,563)

 

 

 

 

 

 

 

(852,563)

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(49,055)

 

 

 

 

 

 

 

(49,055)

Balances at end of period

$

1,006,250

$

353,023

$

16,381,569

$

(44,336)

$

3,576,490

$

(6,537,541)

$

(94,359)

$

3,997

$

492,082

$

15,137,175

 

See notes to unaudited consolidated financial statements

 

6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

Nine Months Ended

 

 

 

  

September 30,

 

 

 

  

2016

 

2015

Operating activities:  

 

 

 

 

 

Net income  

$

730,961

 

$

739,134

Adjustments to reconcile net income to  

 

 

 

 

 

 

net cash provided from (used in) operating activities:  

 

 

 

 

 

 

 

Depreciation and amortization  

 

673,326

 

 

603,431

 

 

Other amortization expenses  

 

5,419

 

 

3,867

 

 

Impairment of assets  

 

24,019

 

 

2,220

 

 

Stock-based compensation expense  

 

20,618

 

 

25,655

 

 

Loss (gain) on derivatives, net  

 

(2,516)

 

 

(58,427)

 

 

Loss (gain) on extinguishment of debt, net  

 

9

 

 

34,872

 

 

Loss (income) from unconsolidated entities

 

7,528

 

 

18,231

 

 

Rental income in excess of cash received  

 

(60,212)

 

 

(86,739)

 

 

Amortization related to above (below) market leases, net  

 

362

 

 

2,863

 

 

Loss (gain) on sales of properties, net  

 

(163,881)

 

 

(249,002)

 

 

Distributions by unconsolidated entities

 

473

 

 

435

 

 

Increase (decrease) in accrued expenses and other liabilities  

 

71,797

 

 

42,759

 

 

Decrease (increase) in receivables and other assets  

 

(35,557)

 

 

(42,975)

Net cash provided from (used in) operating activities  

 

1,272,346

 

 

1,036,324

 

 

 

  

 

 

 

 

 

Investing activities:  

 

 

 

 

 

 

Cash disbursed for acquisitions  

 

(1,448,126)

 

 

(2,489,345)

 

Cash disbursed for capital improvements to existing properties

 

(141,200)

 

 

(122,640)

 

Cash disbursed for construction in progress

 

(325,372)

 

 

(165,311)

 

Capitalized interest  

 

(12,109)

 

 

(6,311)

 

Investment in real estate loans receivable  

 

(105,496)

 

 

(445,985)

 

Other investments, net of payments  

 

(88,398)

 

 

(129,311)

 

Principal collected on real estate loans receivable  

 

225,092

 

 

71,111

 

Contributions to unconsolidated entities  

 

(41,747)

 

 

(139,295)

 

Distributions by unconsolidated entities  

 

72,564

 

 

139,557

 

Proceeds from (payments on) derivatives  

 

56,842

 

 

103,615

 

Decrease (increase) in restricted cash  

 

(21,218)

 

 

10,512

 

Proceeds from sales of real property  

 

538,032

 

 

667,761

Net cash provided from (used in) investing activities  

 

(1,291,136)

 

 

(2,505,642)

 

 

 

  

 

 

 

 

 

Financing activities:  

 

 

 

 

 

 

Net increase (decrease) under unsecured credit facilities  

 

515,000

 

 

490,000

 

Proceeds from issuance of senior unsecured notes  

 

693,560

 

 

743,407

 

Payments to extinguish senior unsecured notes  

 

(400,000)

 

 

(534,546)

 

Net proceeds from the issuance of secured debt  

 

193,541

 

 

222,612

 

Payments on secured debt  

 

(471,898)

 

 

(469,455)

 

Net proceeds from the issuance of common stock  

 

520,067

 

 

1,641,981

 

Decrease (increase) in deferred loan costs  

 

(18,831)

 

 

(7,834)

 

Contributions by noncontrolling interests(1)

 

142,381

 

 

163,105

 

Distributions to noncontrolling interests(1)

 

(106,076)

 

 

(27,439)

 

Acquisitions of noncontrolling interests

 

-

 

 

(3,154)

 

Cash distributions to stockholders  

 

(970,436)

 

 

(901,618)

 

Other financing activities

 

(1,119)

 

 

(27,114)

Net cash provided from (used in) financing activities  

 

96,189

 

 

1,289,945

Effect of foreign currency translation on cash and cash equivalents

 

(9,690)

 

 

(2,311)

Increase (decrease) in cash and cash equivalents  

 

67,709

 

 

(181,684)

Cash and cash equivalents at beginning of period  

 

360,908

 

 

473,726

Cash and cash equivalents at end of period  

$

428,617

 

$

292,042

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

$

360,421

 

$

334,511

 

Income taxes paid

 

7,070

 

 

11,489

 

 

 

 

 

 

 

 

 

(1) Includes amounts attributable to redeemable noncontrolling interests.

 

See notes to unaudited consolidated financial statements

 

7


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1. Business

 

     Welltower Inc., an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience.  Welltower™, a real estate investment trust (“REIT”), owns interests in 1,464 properties in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties.  Founded in 1970, we were the first real estate investment trust to invest exclusively in health care facilities.

  

2. Accounting Policies and Related Matters

     Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. During the three months ended March 31, 2016, we determined that an immaterial portion of our noncontrolling interests related to a 2015 transaction was misclassified in permanent equity rather than temporary equity based on a redemption feature of the partnership agreement and we have corrected the $114,714,000 misclassification by recording the change in the consolidated statement of equity for the nine months ended September 30, 2016.  Operating results for the nine months ended September 30, 2016 are not necessarily an indication of the results that may be expected for the year ending December 31, 2016. For further information, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.

     New Accounting Standards     

     In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted beginning after December 15, 2016.  We are currently evaluating the impact that the standard will have on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

     In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”, which makes certain changes to both the variable interest model and the voting model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination.  We adopted ASU 2015-02 on January 1, 2016.  This guidance did not have a significant impact on our consolidated financial statements.

     In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” to simplify the accounting for business combinations, specifically as it relates to measurement-period adjustments.  Acquiring entities in a business combination must recognize measurement-period adjustments in the reporting period in which the adjustment amounts are determined.  Also, ASU 2015-16 requires entities to present separately on the face of the income statement (or disclose in the notes to the financial statements) the portion of the amount recorded in the current period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.  We adopted ASU 2015-16 on January 1, 2016. This guidance did not have a significant impact on our consolidated financial statements.

     In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which will require entities to measure their investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception.  The practicability exception will be available for equity investments that do not have readily determinable fair values. ASU 2016-01 is effective for fiscal years and interim periods within those years, beginning after December 15, 2017.  We are currently evaluating the impact that the standard will have on our consolidated financial statements.

     In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term.  It will also require disclosures designed to give financial statement users information

8


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

regarding the amount, timing, and uncertainty of cash flows arising from leases.  ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted.  Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.  We are currently evaluating the impact that the standard will have on our consolidated financial statements.

     In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This standard simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based compensation. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted.  We are currently evaluating the impact of the standard; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.

     In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”. This standard requires a new forward-looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

 

3. Real Property Acquisitions and Development

 

     The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their respective fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments.  Transaction costs primarily represent costs incurred with property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs.  Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 for information regarding our foreign currency policies.  

 

    Triple-net Activity

 

 

Nine Months Ended

 

(In thousands)

September 30, 2016(1)

September 30, 2015

 

Land and land improvements

 

$

21,713

 

$

64,655

 

Buildings and improvements

 

 

220,274

 

 

727,946

 

Acquired lease intangibles

 

 

2,876

 

 

3,888

 

Restricted cash

 

 

-

 

 

6

 

Receivables and other assets

 

 

-

 

 

60

 

 

Total assets acquired

 

 

244,863

 

 

796,555

 

Accrued expenses and other liabilities  

 

 

(2,145)

 

 

(2,447)

 

 

Total liabilities assumed

 

 

(2,145)

 

 

(2,447)

 

Noncontrolling interests

 

 

(3,162)

 

 

-

 

Non-cash acquisition related activity(2)

 

 

(51,733)

 

 

(2,780)

 

 

Cash disbursed for acquisitions

 

 

187,823

 

 

791,328

 

Construction in progress additions

 

 

133,611

 

 

96,403

 

Less:

Capitalized interest

 

 

(6,263)

 

 

(4,453)

 

 

Foreign currency translation

 

 

(3,179)

 

 

73

 

Cash disbursed for construction in progress

 

 

124,169

 

  

92,023

 

Capital improvements to existing properties

 

 

21,447

 

 

35,042

 

 

Total cash invested in real property, net of cash acquired

 

$

333,439

 

$

918,393

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $183,547,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

(2) For the nine months ended September 30, 2016, $45,044,000 relates to the acquisition of assets previously financed as real estate loans receivable and $6,630,000 previously financed as equity investments.

 

 

 

 

 

 

 

 

 

9


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Seniors Housing Operating Activity

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

(In thousands)

September 30, 2016(1)

September 30, 2015

 

Land and land improvements

 

$

122,649

 

$

98,444

 

Building and improvements

 

 

1,108,195

 

 

1,229,017

 

Acquired lease intangibles

 

 

90,771

 

 

74,091

 

Restricted cash

 

 

137

 

 

5,567

 

Receivables and other assets

 

 

2,179

 

 

23,928

 

  

Total assets acquired(2)

 

 

1,323,931

 

 

1,431,047

 

Secured debt

 

 

(49,381)

 

 

(234,597)

 

Accrued expenses and other liabilities  

 

 

(12,328)

 

 

(19,016)

 

 

Total liabilities assumed

 

 

(61,709)

 

 

(253,613)

 

Noncontrolling interests

 

 

(1,089)

 

 

(86,842)

 

Non-cash acquisition related activity(3)

 

 

(17,477)

 

 

-

 

 

Cash disbursed for acquisitions

 

 

1,243,656

 

 

1,090,592

 

Construction in progress additions

 

 

139,160

 

 

39,493

 

Less:

Capitalized interest

 

 

(3,923)

 

 

(1,116)

 

 

Foreign currency translation

 

 

(5,953)

 

 

(1,345)

 

Cash disbursed for construction in progress

 

 

129,284

 

  

37,032

 

Capital improvements to existing properties

 

 

84,444

 

 

61,911

 

 

Total cash invested in real property, net of cash acquired

 

$

1,457,384

 

$

1,189,535

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $1,194,765,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

(2) Excludes $135,000 and $3,390,000 of cash acquired during the nine months ended September 30, 2016 and 2015, respectively.

(3) Relates to the acquisition of assets previously financed as equity investments.

 

 

 

 

 

 

 

 

 

      Outpatient Medical Activity