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EX-12 - EXHIBIT 12 - WELLTOWER INC.exhibit123q18.htm
EX-32.2 - EXHIBIT 32.2 - WELLTOWER INC.exhibit3223q18.htm
EX-32.1 - EXHIBIT 32.1 - WELLTOWER INC.exhibit3213q18.htm
EX-31.2 - EXHIBIT 31.2 - WELLTOWER INC.exhibit3123q18.htm
EX-31.1 - EXHIBIT 31.1 - WELLTOWER INC.exhibit3113q18.htm
EX-10.2 - EXHIBIT 10.2 - WELLTOWER INC.exhibit1023q18.htm
EX-10.1 - EXHIBIT 10.1 - WELLTOWER INC.exhibit1013q18.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
 
 
 
 
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)
 
(IRS 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  þ  No  ¨
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer
 þ
 Accelerated filer
¨
 Non-accelerated filer
¨
 Smaller reporting company
¨
Emerging growth company
¨
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  þ
As of October 25, 2018, the registrant had 375,644,415 shares of common stock outstanding. 



TABLE OF CONTENTS
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets — September 30, 2018 and December 31, 2017
 
 
Consolidated Statements of Comprehensive Income — Three and nine months ended September 30, 2018 and 2017
 
 
Consolidated Statements of Equity — Nine months ended September 30, 2018 and 2017
 
 
Consolidated Statements of Cash Flows — Nine months ended September 30, 2018 and 2017
 
 
Notes to Unaudited Consolidated Financial Statements
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 5. Other Information
 
 
Item 6. Exhibits
 
 
Signatures



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 
CONSOLIDATED BALANCE SHEETS
WELLTOWER INC. AND SUBSIDIARIES
(In thousands) 
 
 
September 30, 2018 (Unaudited)
 
December 31, 2017 (Note)
Assets:  
 
 
 
 
Real estate investments:  
 
 
 
 
Real property owned:  
 
 
 
 
Land and land improvements  
 
$
3,193,555

 
$
2,734,467

Buildings and improvements  
 
27,980,830

 
25,373,117

Acquired lease intangibles  
 
1,562,650

 
1,502,471

Real property held for sale, net of accumulated depreciation  
 
619,141

 
734,147

Construction in progress  
 
135,343

 
237,746

Gross real property owned  
 
33,491,519

 
30,581,948

Less accumulated depreciation and amortization  
 
(5,394,274
)
 
(4,838,370
)
Net real property owned  
 
28,097,245

 
25,743,578

Real estate loans receivable  
 
409,196

 
495,871

Less allowance for losses on loans receivable  
 
(68,372
)
 
(68,372
)
Net real estate loans receivable  
 
340,824

 
427,499

Net real estate investments  
 
28,438,069

 
26,171,077

Other assets:  
 
 
 
 
Investments in unconsolidated entities  
 
423,192

 
445,585

Goodwill  
 
68,321

 
68,321

Cash and cash equivalents  
 
191,199

 
243,777

Restricted cash  
 
90,086

 
65,526

Straight-line rent receivable
 
388,045

 
389,168

Receivables and other assets  
 
650,207

 
560,991

Total other assets  
 
1,811,050

 
1,773,368

Total assets  
 
$
30,249,119

 
$
27,944,445

 
 
 
 
 
Liabilities and equity  
 
 
 
 
Liabilities:  
 
 
 
 
Borrowings under primary unsecured credit facility  
 
$
1,312,000

 
$
719,000

Senior unsecured notes  
 
9,655,022

 
8,331,722

Secured debt  
 
2,465,661

 
2,608,976

Capital lease obligations  
 
71,377

 
72,238

Accrued expenses and other liabilities  
 
1,074,994

 
911,863

Total liabilities  
 
14,579,054

 
12,643,799

Redeemable noncontrolling interests  
 
400,864

 
375,194

Equity:  
 
 
 
 
Preferred stock  
 
718,498

 
718,503

Common stock  
 
376,353

 
372,449

Capital in excess of par value  
 
17,889,514

 
17,662,681

Treasury stock  
 
(68,753
)
 
(64,559
)
Cumulative net income  
 
6,008,095

 
5,316,580

Cumulative dividends  
 
(10,478,020
)
 
(9,471,712
)
Accumulated other comprehensive income (loss)  
 
(138,491
)
 
(111,465
)
Other equity  
 
489

 
670

Total Welltower Inc. stockholders’ equity  
 
14,307,685

 
14,423,147

Noncontrolling interests  
 
961,516

 
502,305

Total equity  
 
15,269,201

 
14,925,452

Total liabilities and equity  
 
$
30,249,119

 
$
27,944,445

 
NOTE: The consolidated balance sheet at December 31, 2017 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.


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,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Rental income  
 
$
342,887

 
$
362,880

 
$
1,019,857

 
$
1,085,621

Resident fees and services
 
875,171

 
702,380

 
2,374,450

 
2,049,757

Interest income
 
14,622

 
20,187

 
42,732

 
61,836

Other income
 
3,699

 
6,036

 
22,217

 
15,169

Total revenues
 
1,236,379

 
1,091,483


3,459,256


3,212,383

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Interest expense
 
138,032

 
122,578

 
382,223

 
357,405

Property operating expenses
 
657,157

 
523,997

 
1,782,373

 
1,536,021

Depreciation and amortization
 
243,149

 
230,138

 
707,625

 
683,262

General and administrative
 
28,746

 
29,913

 
95,282

 
93,643

Loss (gain) on derivatives and financial instruments, net
 
8,991

 
324

 
(5,642
)
 
2,284

Loss (gain) on extinguishment of debt, net
 
4,038

 

 
16,044

 
36,870

Impairment of assets
 
6,740

 

 
39,557

 
24,662

Other expenses
 
88,626

 
99,595

 
102,396

 
117,608

Total expenses
 
1,175,479

 
1,006,545

 
3,119,858

 
2,851,755

 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes
 
 
 
 
 
 
 
 
and income from unconsolidated entities
 
60,900

 
84,938

 
339,398

 
360,628

Income tax (expense) benefit
 
(1,741
)
 
(669
)
 
(7,170
)
 
5,535

Income (loss) from unconsolidated entities
 
344

 
3,408

 
(836
)
 
(23,676
)
Income (loss) from continuing operations
 
59,503

 
87,677

 
331,392

 
342,487

Gain (loss) on real estate dispositions, net
 
24,723

 
1,622

 
373,662

 
287,869

Net income
 
84,226

 
89,299

 
705,054

 
630,356

Less: Preferred stock dividends
 
11,676

 
11,676

 
35,028

 
37,734

Less: Preferred stock redemption charge
 

 

 

 
9,769

Less: Net income (loss) attributable to noncontrolling interests(1)
 
8,166

 
3,580

 
13,539

 
7,735

Net income (loss) attributable to common stockholders
 
$
64,384

 
$
74,043

 
$
656,487

 
$
575,118

 
 
 
 
 
 
 
 
 
Average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
373,023

 
369,089

 
372,052

 
366,096

Diluted
 
374,487

 
370,740

 
373,638

 
367,894

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.16

 
$
0.24

 
$
0.89

 
$
0.94

Net income (loss) attributable to common stockholders
 
$
0.17

 
$
0.20

 
$
1.76

 
$
1.57

Diluted:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
0.16

 
$
0.24

 
$
0.89

 
$
0.93

Net income (loss) attributable to common stockholders
 
$
0.17

 
$
0.20

 
$
1.76

 
$
1.56

 
 
 
 
 
 
 
 
 
Dividends declared and paid per common share
 
$
0.87

 
$
0.87

 
$
2.61

 
$
2.61

 
(1) Includes amounts attributable to redeemable noncontrolling interests.


4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands) 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
84,226

 
$
89,299

 
$
705,054

 
$
630,356

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrecognized gain (loss) on available-for-sale securities
 

 
(3,808
)
 

 
(20,285
)
Unrealized gains (losses) on cash flow hedges
 

 
2

 

 
2

Foreign currency translation gain (loss)
 
(3,093
)
 
37,343

 
(36,890
)
 
70,769

Total other comprehensive income (loss)
 
(3,093
)
 
33,537

 
(36,890
)
 
50,486

 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
81,133

 
122,836

 
668,164

 
680,842

Less: Total comprehensive income (loss) attributable
to noncontrolling interests(1)
 
10,933

 
14,732

 
3,675

 
29,930

Total comprehensive income (loss) attributable to common stockholders
 
$
70,200

 
$
108,104

 
$
664,489

 
$
650,912

 
 
 
 
 
 
 
 
 
(1) Includes amounts attributable to redeemable noncontrolling interests.
 
 
 
 
 
 
 
 


5


CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands) 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Treasury
Stock
 
Cumulative
Net Income
 
Cumulative
Dividends
 
Other
Comprehensive
Income (Loss)
 
Other
Equity
 
Noncontrolling
Interests
 
Total
Balances at beginning of period
 
$
718,503

 
$
372,449

 
$
17,662,681

 
$
(64,559
)
 
$
5,316,580

 
$
(9,471,712
)
 
$
(111,465
)
 
$
670

 
$
502,305

 
$
14,925,452

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Net income (loss)
 
 
 
 
 
 
 
 
 
691,515

 
 
 
 
 
 
 
15,393

 
706,908

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
(27,026
)
 
 
 
(9,864
)
 
(36,890
)
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
670,018

Net change in noncontrolling interests
 
 
 
 
 
(34,139
)
 
 
 
 
 
 
 
 
 
 
 
453,682

 
419,543

Amounts related to stock incentive plans, net of forfeitures
 
 
 
172

 
23,127

 
(4,194
)
 
 
 
 
 
 
 
(181
)
 
 
 
18,924

Proceeds from issuance of common stock
 
 
 
3,732

 
237,840

 
 
 
 
 
 
 
 
 
 
 
 
 
241,572

Conversion of preferred stock
 
(5
)
 
 
 
5

 
 
 
 
 
 
 
 
 
 
 
 
 

Dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Common stock dividends
 
 
 
 
 
 
 
 
 
 
 
(971,280
)
 
 
 
 
 
 
 
(971,280
)
Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
 
(35,028
)
 
 
 
 
 
 
 
(35,028
)
Balances at end of period
 
$
718,498

 
$
376,353

 
$
17,889,514

 
$
(68,753
)
 
$
6,008,095

 
$
(10,478,020
)
 
$
(138,491
)
 
$
489

 
$
961,516

 
$
15,269,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 
$
363,071

 
$
16,999,691

 
$
(54,741
)
 
$
4,803,575

 
$
(8,144,981
)
 
$
(169,531
)
 
$
3,059

 
$
475,079

 
$
15,281,472

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Net income (loss)
 
 
 
 
 
 
 
 
 
622,621

 
 
 
 
 
 
 
9,907

 
632,528

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
28,291

 
 
 
22,195

 
50,486

Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
683,014

Net change in noncontrolling interests
 
 
 
 
 
9,784

 
 
 
 
 
 
 
 
 
 
 
7,558

 
17,342

Amounts related to stock incentive plans, net of forfeitures
 
 
 
337

 
17,151

 
(7,611
)
 
 
 
 
 
 
 
(1,942
)
 
 
 
7,935

Proceeds from issuance of common stock
 
 
 
7,513

 
522,954

 
 
 
 
 
 
 
 
 
 
 
 
 
530,467

Redemption of preferred stock
 
(287,500
)
 
 
 
9,760

 
 
 
(9,769
)
 
 
 
 
 
 
 
 
 
(287,509
)
Redemption of equity membership units
 
 
 
91

 
5,465

 
(11
)
 
 
 
 
 
 
 
 
 
 
 
5,545

Conversion of preferred stock
 
(247
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(247
)
Option compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10

 
 
 
10

Dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Common stock dividends
 
 
 
 
 
 
 
 
 
 
 
(955,631
)
 
 
 
 
 
 
 
(955,631
)
Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
 
(37,734
)
 
 
 
 
 
 
 
(37,734
)
Balances at end of period
 
$
718,503

 
$
371,012

 
$
17,564,805

 
$
(62,363
)
 
$
5,416,427

 
$
(9,138,346
)
 
$
(141,240
)
 
$
1,127

 
$
514,739

 
$
15,244,664



6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
 
 
Nine Months Ended
 
 
September 30,
 
 
2018
 
2017
Operating activities:  
 
 

 
 

Net income  
 
$
705,054

 
$
630,356

Adjustments to reconcile net income to net cash provided from (used in) operating activities:  
 
 
 
 
Depreciation and amortization  
 
707,625

 
683,262

Other amortization expenses  
 
12,110

 
12,095

Impairment of assets  
 
39,557

 
24,662

Stock-based compensation expense  
 
22,800

 
16,459

Loss (gain) on derivatives and financial instruments, net  
 
(5,642
)
 
2,284

Loss (gain) on extinguishment of debt, net  
 
16,044

 
36,870

Loss (income) from unconsolidated entities
 
836

 
23,676

Rental income less than (in excess of) cash received  
 
(7,830
)
 
(64,865
)
Amortization related to above (below) market leases, net  
 
1,984

 
180

Loss (gain) on real estate dispositions, net  
 
(373,662
)
 
(287,869
)
Distributions by unconsolidated entities
 
21

 
116

Increase (decrease) in accrued expenses and other liabilities  
 
103,474

 
171,713

Decrease (increase) in receivables and other assets  
 
(11,223
)
 
(86,475
)
Net cash provided from (used in) operating activities  
 
1,211,148


1,162,464

 
 
 
 
 

Investing activities:  
 
 
 
 
Cash disbursed for acquisitions  
 
(3,190,534
)
 
(574,002
)
Cash disbursed for capital improvements to existing properties
 
(173,635
)
 
(159,142
)
Cash disbursed for construction in progress
 
(88,146
)
 
(198,068
)
Capitalized interest  
 
(6,357
)
 
(10,033
)
Investment in real estate loans receivable  
 
(67,136
)
 
(70,051
)
Principal collected on real estate loans receivable  
 
149,592

 
82,263

Other investments, net of payments  
 
(49,572
)
 
50,877

Contributions to unconsolidated entities  
 
(42,697
)
 
(73,802
)
Distributions by unconsolidated entities  
 
61,253

 
58,754

Proceeds from (payments on) derivatives  
 
65,438

 
55,771

Proceeds from sales of real property  
 
1,208,501

 
1,237,851

Net cash provided from (used in) investing activities  
 
(2,133,293
)

400,418

 
 
 
 
 
Financing activities:  
 
 
 
 
Net increase (decrease) under unsecured credit facilities  
 
593,000

 
(225,000
)
Proceeds from issuance of senior unsecured notes
 
2,825,898

 
7,500

Payments to extinguish senior unsecured notes  
 
(1,450,000
)
 
(5,000
)
Net proceeds from the issuance of secured debt  
 
44,606

 
190,459

Payments on secured debt  
 
(238,867
)
 
(1,050,879
)
Net proceeds from the issuance of common stock  
 
242,411

 
530,992

Redemption of preferred stock  
 

 
(287,500
)
Payments for deferred financing costs and prepayment penalties  
 
(29,701
)
 
(54,027
)
Contributions by noncontrolling interests(1)
 
11,238

 
47,209

Distributions to noncontrolling interests(1)
 
(86,462
)
 
(51,824
)
Cash distributions to stockholders  
 
(1,006,274
)
 
(992,621
)
Other financing activities
 
(6,290
)
 
(8,416
)
Net cash provided from (used in) financing activities  
 
899,559


(1,899,107
)
Effect of foreign currency translation on cash, cash equivalents and restricted cash
 
(5,432
)

24,316

Increase (decrease) in cash, cash equivalents and restricted cash  
 
(28,018
)
 
(311,909
)
Cash, cash equivalents and restricted cash at beginning of period  
 
309,303


607,220

Cash, cash equivalents and restricted cash at end of period  
 
$
281,285

 
$
295,311

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Interest paid
 
$
312,452

 
$
312,896

Income taxes paid (received), net
 
3,195

 
5,606
 
 
 
 
 
(1) Includes amounts attributable to redeemable noncontrolling interests.
 
 
 
 


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 properties concentrated 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.  
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 (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2018 are not necessarily an indication of the results that may be expected for the year ending December 31, 2018. 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, 2017.
     New Accounting Standards     
We adopted the following accounting standards, each of which did not have a material impact on our consolidated financial statements:
In 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (ASC 606),” which 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.  We adopted ASC 606 on January 1, 2018 using the modified retrospective method of adoption.  This guidance did not have a significant impact on our consolidated financial statements.
We have evaluated our various revenue streams to identify whether they would be subject to the provisions of ASC 606 and any differences in timing, measurement or presentation of revenue recognition.  A significant source of our revenue is generated through leasing arrangements, which are specifically excluded from ASC 606.  Management contracts are present in our seniors housing operating and outpatient medical segments and represent agreements to provide asset and property management, leasing, marketing and other services.  Under ASC 606, the pattern and timing of recognition of income from these contracts is consistent with the prior accounting model. 
In 2017, the FASB issued ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”  The standard clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset.  The standard also defines the term “in substance nonfinancial asset” and clarifies that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control over it.  We adopted Subtopic 610-20 using a modified retrospective approach on January 1, 2018 and it did not have a material impact on our consolidated financial statements.
In 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires 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 is available for equity investments that do not have readily determinable fair values. This standard requires us to recognize gains and losses from changes in the fair value of our available-for-sale equity securities through the consolidated statement of comprehensive income rather than through accumulated other comprehensive income.  During the nine months ended September 30, 2018, we recognized a gain of $5,642,000 in loss (gain) on derivatives and financial instruments, net on the Consolidated Statement of Comprehensive Income. There was no adjustment to accumulated other comprehensive income upon adoption at January 1, 2018 as accumulated losses were recognized as other-than-temporary impairment during the year ended December 31, 2017.

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WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2017, we adopted ASU No. 2016-18, “Restricted Cash,” and ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.”  ASU No. 2016-18 requires an entity to reconcile and explain the period over period change in total cash, cash equivalents and restricted cash within its consolidated statement of cash flows and ASU 2016-15 provides guidance clarifying how certain cash receipts and cash payments should be classified.  We adopted these accounting standards retrospectively and, accordingly, certain line items in the consolidated statement of cash flows have been reclassified to conform to the current presentation.  The following table summarizes the change in cash flows as reported and as previously reported prior to the adoption of these standards for the nine months ended September 30, 2017 (in thousands):
 
 
As Reported
 
As Previously
Reported
Cash disbursed for acquisitions
 
$
(574,002
)
 
$
(575,694
)
Decrease (increase) in restricted cash
 

 
130,470

Net cash provided from (used in) investing activities
 
400,418

 
529,196

Increase (decrease) in balance(1)
 
(311,909
)
 
(183,131
)
Balance at beginning of period(1)
 
607,220

 
419,378

Balance at end of period(1)
 
295,311

 
236,247

(1) Amounts in As Reported column include cash and cash equivalents and restricted cash as required.  Amounts in the As Previously Reported column reflect only cash and cash equivalents.


In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. It also includes certain targeted improvements to simplify the application of current guidance related to hedge accounting. The early adoption of this standard on April 1, 2018, did not result in a cumulative effect adjustment and all applicable changes for the company were prospectively made. Please refer to Note 11 of the consolidated financial statements for additional detail on this adoption.
 The following ASUs have been issued but not yet adopted:
In 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize assets and liabilities on their consolidated balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their consolidated statements of comprehensive income over the lease term.  It will also require disclosures designed to give financial statement users information regarding amount, timing, and uncertainty of cash flows arising from leases.  The FASB issued ASU 2018-11, "Leases (Topic 842) Targeted Improvements" in July 2018, which provides lessors with a practical expedient, by class of underlying assets, to not separate non-lease components from the related lease components, and, instead, to account for those components as a single lease component, if certain criteria are met.  ASU 2016-02 is effective for us beginning January 1, 2019, with early adoption 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 consolidated financial statements.  ASU 2018-11 also provides a practical expedient that allows companies to use an optional transition method. Under the optional transition method, a cumulative adjustment to retained earnings during the period of adoption is recorded and prior periods would not require restatement. We are currently evaluating the impact of this guidance on our consolidated financial statements from both the lessee and lessor perspective.  We believe that adoption will likely have a material impact to our consolidated financial statements for the recognition of certain operating leases as right-of-use assets and lease liabilities and related amortization.  We expect to utilize the practical expedients in ASU 2018-11 as part of our adoption of this guidance. 
In 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 relative 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

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WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

a component of the appropriate segments.  Transaction costs primarily represent costs incurred with 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.  Transaction costs related to asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in “Other expenses” on our Consolidated Statements of Comprehensive Income. Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries.
Acquisition of Quality Care Properties

On July 26, 2018, we completed the acquisition of Quality Care Properties Inc. ("QCP"), with QCP shareholders receiving $20.75 of cash for each share of QCP common stock and all existing QCP debt was repaid upon closing. Prior to the acquisition, ProMedica Health System ("ProMedica") completed the acquisition of HCR ManorCare. Immediately following the acquisition of QCP, we formed an 80/20 joint venture with ProMedica to own the real estate associated with the 218 seniors housing properties leased to ProMedica under a lease agreement with the following key terms: (i) 15-year absolute triple-net master lease with three five-year renewal options; (ii) initial annual cash rent of $179 million with a year one escalator of 1.375% and 2.75% annual escalators thereafter; and (iii) full corporate guarantee of ProMedica. Additionally, we acquired 59 seniors housing properties classified as held for sale and leased to ProMedica under a non-yielding lease, 12 seniors housing properties and one surgery center classified as held for sale and leased to operators under existing triple-net leases, 14 seniors housing properties leased to operators under existing triple-net leases and one multi-tenant medical office building leased to various tenants.

We drew on a $1.0 billion term loan facility to fund a portion of the acquisition cash consideration and other related expenses. The term loan facility matures two years from the closing. In addition to the term loan facility draw, we drew on our unsecured credit facility described in Note 9, in order to fund the acquisition. The aggregate consideration to acquire the QCP shares and repay outstanding QCP debt was approximately $3.5 billion.

We concluded that the QCP acquisition met the definition of an asset acquisition under ASU No. 2017-01, "Clarifying the Definition of a Business". The following table presents the purchase price calculation and the allocation to assets acquired and liabilities assumed based upon their relative fair value:
(In thousands)
 
 
 
Land and land improvements
 
$
417,983

 
Buildings and improvements
 
2,249,803

 
Acquired lease intangibles
 
15,512

 
Real property held for sale
 
418,297

 
Cash and cash equivalents
 
381,913

 
Restricted cash
 
4,981

 
Receivables and other assets
 
1,322

 
 
Total assets acquired
 
3,489,811

 
Accrued expenses and other liabilities  
 
(13,199
)
 
 
Total liabilities assumed
 
(13,199
)
 
Noncontrolling interests
 
(512,741
)
 
 
Net assets acquired
 
$
2,963,871

 

Net assets acquired in the QCP acquisition detailed above are included in the respective segment tables below.














10

WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Triple-net Activity
 
 
 
Nine Months Ended
(In thousands)
 
September 30, 2018
 
September 30, 2017
Land and land improvements
 
$
413,588

 
$
31,948

Buildings and improvements
 
2,239,422

 
206,910

Acquired lease intangibles
 
12,383

 

Real property held for sale
 
396,265

 

Receivables and other assets
 
1,322

 

 
Total assets acquired(1)
 
3,062,980

 
238,858

Accrued expenses and other liabilities  
 
(13,199
)
 
(21,236
)
 
Total liabilities assumed
 
(13,199
)
 
(21,236
)
Noncontrolling interests
 
(512,741
)
 
(7,275
)
Non-cash acquisition related activity(2)
 

 
(54,901
)
 
Cash disbursed for acquisitions
 
2,537,040

 
155,446

Construction in progress additions
 
49,619

 
106,186

Less:
Capitalized interest
 
(1,932
)
 
(3,886
)
 
Foreign currency translation
 
180

 
(656
)
Cash disbursed for construction in progress
 
47,867

 
101,644

Capital improvements to existing properties
 
6,766

 
17,873

 
Total cash invested in real property, net of cash acquired
 
$
2,591,673

 
$
274,963

(1) Excludes $386,894,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2018.
(2) For the nine months ended September 30, 2017, $54,901,000 is related to the acquisition of assets previously financed as a real estate loan receivable.


Seniors Housing Operating Activity
 
 
 
Nine Months Ended
(In thousands)
 
September 30, 2018
 
September 30, 2017
Land and land improvements
 
$
47,865

 
$
31,006

Building and improvements
 
535,436

 
384,522

Acquired lease intangibles
 
68,084

 
48,197

Receivables and other assets
 
1,255

 
3,164

  
Total assets acquired(1)
 
652,640

 
466,889

Secured debt
 
(89,973
)
 

Accrued expenses and other liabilities  
 
(14,686
)
 
(43,364
)
 
Total liabilities assumed
 
(104,659
)
 
(43,364
)
Noncontrolling interests
 
(9,818
)
 
(4,701
)
Non-cash acquisition related activity(2)
 

 
(59,065
)
 
Cash disbursed for acquisitions
 
538,163

 
359,759

Construction in progress additions
 
28,222

 
65,282

Less:
Capitalized interest
 
(2,608
)
 
(5,996
)
 
Foreign currency translation
 
2,151

 
(6,218
)
Cash disbursed for construction in progress
 
27,765

 
53,068

Capital improvements to existing properties
 
127,274

 
110,372

 
Total cash invested in real property, net of cash acquired
 
$
693,202

 
$
523,199

(1) Excludes $2,442,000 and $6,273,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2018 and 2017, respectively.
(2) Includes $6,349,000 related to the acquisition of assets previously financed as real estate loans receivable and $51,097,000 previously financed as an investment in an unconsolidated entity during the nine months ended September 30, 2017.


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WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outpatient Medical Activity
 
 
 
Nine Months Ended
(In thousands)
 
September 30, 2018
 
September 30, 2017
Land and land improvements
 
$
18,496

 
$
25,060

Buildings and improvements
 
79,205

 
62,336

Acquired lease intangibles
 
11,271

 
8,397

Real property held for sale
 
22,032

 

Receivables and other assets
 
6

 
3

  
Total assets acquired(1)
 
131,010

 
95,796

Secured debt
 
(14,769
)
 
(25,709
)
Accrued expenses and other liabilities
 
(910
)
 
(2,210
)
 
Total liabilities assumed  
 
(15,679
)
 
(27,919
)
Noncontrolling interests
 

 
(9,080
)
 
Cash disbursed for acquisitions
 
115,331

 
58,797

Construction in progress additions
 
16,733

 
33,495

Less:
Capitalized interest
 
(1,817
)
 
(1,847
)
 
Accruals(2)
 
(2,402
)
 
11,708

Cash disbursed for construction in progress
 
12,514

 
43,356

Capital improvements to existing properties
 
39,595

 
30,897

 
Total cash invested in real property
 
$
167,440

 
$
133,050

 
(1) Excludes $2,244,000 and $0 of unrestricted and restricted cash acquired during the nine months ended September 30, 2018 and 2017, respectively.
(2) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period.

Construction Activity 
The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):
 
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
Development projects:
 
 
 
 
Triple-net
 
$
90,055

 
$
283,472

Seniors housing operating
 
86,931

 
3,634

Outpatient medical
 
11,358

 
63,036

Total development projects
 
188,344

 
350,142

Expansion projects
 
8,879

 
10,336

Total construction in progress conversions
 
$
197,223

 
$
360,478

 
4. Real Estate Intangibles 
The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the dates indicated (dollars in thousands):

12

WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
 
September 30, 2018
 
December 31, 2017
Assets:
 
 
 
 
In place lease intangibles
 
$
1,398,850

 
$
1,352,139

Above market tenant leases
 
59,011

 
58,443

Below market ground leases
 
65,022

 
58,784

Lease commissions
 
39,767

 
33,105

Gross historical cost
 
1,562,650

 
1,502,471

Accumulated amortization
 
(1,190,035
)
 
(1,125,437
)
Net book value
 
$
372,615

 
$
377,034

 
 
 
 
 
Weighted-average amortization period in years
 
16.0

 
15.1

 
 
 
 
 
Liabilities:
 
 
 
 
Below market tenant leases
 
$
71,566

 
$
60,430

Above market ground leases
 
8,540

 
8,540

Gross historical cost
 
80,106

 
68,970

Accumulated amortization
 
(42,834
)
 
(39,629
)
Net book value
 
$
37,272

 
$
29,341

 
 
 
 
 
Weighted-average amortization period in years
 
16.1

 
20.1

 
The following is a summary of real estate intangible amortization for the periods presented (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
  
 
2018
 
2017
 
2018
 
2017
Rental income related to above/below market tenant leases, net
 
$
(294
)
 
$
173

 
$
(978
)
 
$
745

Property operating expenses related to above/below market ground leases, net
 
(327
)
 
(306
)
 
(1,006
)
 
(925
)
Depreciation and amortization related to in place lease intangibles and lease commissions
 
(31,455
)
 
(34,270
)
 
(97,479
)
 
(109,011
)
 
The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):
 
 
Assets
 
Liabilities
2018
 
$
32,456

 
$
1,433

2019
 
87,011

 
5,437

2020
 
57,221

 
4,938

2021
 
24,300

 
4,444

2022
 
19,325

 
3,971

Thereafter
 
152,302

 
17,049

Total
 
$
372,615

 
$
37,272

 
5. Dispositions and Assets Held for Sale
We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (e.g., property type, relationship or geography). At September 30, 2018, 60 triple-net, 16 seniors housing operating and three outpatient medical properties with an aggregate real estate balance of $619,141,000 were classified as held for sale. During the nine months ended September 30, 2018, we recorded impairment charges of $39,557,000 on certain held for sale properties for which the carrying values exceeded the fair values, less estimated costs to sell if applicable. The following is a summary of our real property disposition activity for the periods presented (in thousands):

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WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
Real estate dispositions:
 
 
 
 
Triple-net
 
$
604,480

 
$
899,104

Seniors housing operating
 
2,200

 
16,206

Outpatient medical
 
223,069

 
12,202

Total dispositions
 
829,749

 
927,512

Gain (loss) on real estate dispositions, net
 
373,662

 
287,869

Net other assets/liabilities disposed
 
5,090

 
22,470

Proceeds from real estate dispositions
 
$
1,208,501

 
$
1,237,851

     Dispositions and Assets Held for Sale
Pursuant to our adoption of ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, operating results attributable to properties sold subsequent to or classified as held for sale after January 1, 2014 and which do not meet the definition of discontinued operations are no longer reclassified on our Consolidated Statements of Comprehensive Income.  The following represents the activity related to these properties for the periods presented (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Total revenues
 
$
29,035

 
$
52,584

 
$
92,447

 
$
175,934

Expenses:
 
 
 
 
 
 
 
 
Interest expense
 
18

 
1,243

 
261

 
5,514

Property operating expenses
 
21,312

 
19,147

 
59,640

 
58,525

Provision for depreciation
 
801

 
10,999

 
6,605

 
33,806

Total expenses
 
22,131

 
31,389

 
66,506

 
97,845

Income (loss) from real estate dispositions, net
 
$
6,904

 
$
21,195

 
$
25,941

 
$
78,089

 
6. Real Estate Loans Receivable
Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for discussion of our accounting policies for real estate loans receivable and related interest income. 
The following is a summary of our real estate loan activity for the periods presented (in thousands):
 
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
 
Triple-net
 
Seniors Housing Operating
 
Outpatient
Medical
 
Totals
 
Triple-net
 
Outpatient
Medical
 
Totals
Advances on real estate loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in new loans
 
$
10,628

 
$
11,806

 
$
14,993

 
$
37,427

 
$
11,315

 
$

 
$
11,315

Draws on existing loans
 
29,709

 

 

 
29,709

 
58,736

 

 
58,736

Net cash advances on real estate loans
 
40,337

 
11,806

 
14,993

 
67,136

 
70,051

 

 
70,051

Receipts on real estate loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan payoffs
 
116,161

 

 

 
116,161

 
142,392

 
60,500

 
202,892

Principal payments on loans
 
33,431

 

 

 
33,431

 
1,121

 

 
1,121

Sub-total
 
149,592

 

 

 
149,592

 
143,513

 
60,500

 
204,013

Less: Non-cash activity(1)
 

 

 

 

 
(61,250
)
 
(60,500
)
 
(121,750
)
Net cash receipts on real estate loans
 
149,592

 

 

 
149,592

 
82,263

 

 
82,263

Net cash advances (receipts) on real estate loans
 
$
(109,255
)
 
$
11,806

 
$
14,993

 
$
(82,456
)
 
$
(12,212
)
 
$

 
$
(12,212
)
 
(1) Triple-net represents acquisitions of assets previously financed as real estate loans. Please see Note 3 for additional information. Outpatient medical represents a deed in lieu of foreclosure on a previously financed first mortgage property.

14

WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In 2016, we restructured real estate loans with Genesis HealthCare and recorded a loan loss charge in the amount of $6,935,000 on one of the loans as the present value of expected future cash flows was less than the carrying value of the loan.  In 2017, we recorded an additional loan loss charge of $62,966,000 relating to real estate loans with Genesis HealthCare based on an estimation of expected future cash flows discounted at the effective interest rate of the loans. At September 30, 2018, the allowance for loan losses totals $68,372,000 and is deemed to be sufficient to absorb expected losses related to these loans.  At September 30, 2018, we had one real estate loan with an outstanding balance of $2,598,000 on non-accrual status and recorded no provision for loan losses during the nine months ended September 30, 2018.
The following is a summary of our impaired loans (in thousands):
 
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
Balance of impaired loans at end of period
 
$
201,971

 
$
282,929

Allowance for loan losses
 
68,372

 
5,406

Balance of impaired loans not reserved
 
$
133,599

 
$
277,523

Average impaired loans for the period
 
$
230,645

 
$
324,255

Interest recognized on impaired loans(1)
 
13,361

 
23,957

 
(1) Represents cash interest recognized in the period since loans were identified as impaired.

7. Investments in Unconsolidated Entities 
 We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate.  The results of operations for these entities have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities.  The following is a summary of our investments in unconsolidated entities (dollars in thousands):  
 
 
Percentage Ownership(1)
 
September 30, 2018
 
December 31, 2017
Triple-net
 
10% to 49%
 
$
21,004

 
$
22,856

Seniors housing operating
 
10% to 50%
 
310,175

 
352,430

Outpatient medical
 
43%
 
92,013

 
70,299

Total
 
 
 
$
423,192

 
$
445,585

 
(1) Excludes in-substance real estate investments.

At September 30, 2018, the aggregate unamortized basis difference of our joint venture investments of $106,625,000 is primarily attributable to the difference between the amount for which we purchase our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture.  This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities. 
8. Credit Concentration
We use consolidated net operating income (“NOI”) as our credit concentration metric.  See Note 17 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the nine months ended September 30, 2018, excluding our share of NOI in unconsolidated entities (dollars in thousands):
 
 
Number of
 
Total
 
Percent of
Concentration by relationship:(1)
 
Properties
 
NOI
 
NOI(2)
Sunrise Senior Living(3)
 
161

 
$
252,111

 
15%
Brookdale Senior Living
 
137

 
117,367

 
7%
Revera(3)
 
98

 
116,158

 
7%
Genesis HealthCare
 
88

 
102,015

 
6%
Benchmark Senior Living  
 
48

 
75,435

 
4%
Remaining portfolio  
 
997

 
1,013,797

 
61%
Totals  
 
1,529

 
$
1,676,883

 
100%
 
(1) Genesis Healthcare is in our triple-net segment.  Sunrise Senior Living and Revera are in our seniors housing operating segment.  Benchmark Senior Living and Brookdale Senior Living are in both our triple-net and seniors housing operating segments.
(2) NOI with our top five relationships comprised 41% of total NOI for the year ended December 31, 2017.
(3) Revera owns a controlling interest in Sunrise Senior Living.

15

WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


9. Borrowings Under Credit Facilities and Related Items 
 At September 30, 2018, we had a primary unsecured credit facility with a consortium of 31 banks that includes a $3,000,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility.  We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000.  The primary unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (none outstanding at September 30, 2018).  Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (3.09% at September 30, 2018). The applicable margin is based on our debt ratings and was 0.825% at September 30, 2018.  In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount.  The facility fee depends on our debt ratings and was 0.15% at September 30, 2018.  The term credit facilities mature on July 19, 2023. The revolving credit facility is scheduled to mature on July 19, 2022 and can be extended for two successive terms of six months each at our option.
The following information relates to aggregate borrowings under the primary unsecured revolving credit facility for the periods presented (dollars in thousands): 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2018
 
2017
 
2018
 
2017
Balance outstanding at quarter end
 
$
1,312,000

 
$
420,000

 
$
1,312,000

 
$
420,000

Maximum amount outstanding at any month end
 
$
2,148,000

 
$
645,000

 
$
2,148,000

 
$
1,010,000

Average amount outstanding (total of daily
 
 
 
 
 
 
 
 
principal balances divided by days in period)
 
$
1,519,000

 
$
450,130

 
$
819,516

 
$
601,346

Weighted average interest rate (actual interest
 
 
 
 
 
 
 
 
expense divided by average borrowings outstanding)
 
3.00
%
 
2.19
%
 
2.95
%
 
1.95
%
 
10. Senior Unsecured Notes and Secured Debt 
We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms.   The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (1) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (2) any “make-whole” amount due under the terms of the notes in connection with early redemptions.   Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.   At September 30, 2018, the annual principal payments due on these debt obligations were as follows (in thousands):
 
 
Senior
Unsecured Notes(1,2)
 
Secured
Debt (1,3)
 
Totals
2018
 
$

 
$
170,742

 
$
170,742

2019
 
600,000

 
489,166

 
1,089,166

2020(4)
 
689,662

 
138,938

 
828,600

2021
 
450,000

 
347,280

 
797,280

2022
 
600,000

 
225,832

 
825,832

Thereafter(5,6,7,8)
 
7,414,034

 
1,107,797

 
8,521,831

Totals
 
$
9,753,696

 
$
2,479,755

 
$
12,233,451

 
(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the balance sheet.
(2) Annual interest rates range from 2.73% to 6.50%.
(3) Annual interest rates range from 1.69% to 7.93%.  Carrying value of the properties securing the debt totaled $5,303,414,000 at September 30, 2018.
(4) Includes a $300,000,000 Canadian-denominated 3.35% senior unsecured notes due 2020 (approximately $232,162,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2018).
(5) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $193,469,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2018).  The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9% (2.73% at September 30, 2018).
(6) Includes a $500,000,000 unsecured term credit facility.  The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9% (3.07%