10-Q 1 10-Q.htm 10-Q  

 

 

 

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 June 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 July 31, 2016, the registrant had 357,915,158 shares of common stock outstanding.  

 

 

 

 


TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

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

3

 

 

Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2016 and 2015

4

 

 

Consolidated Statements of Equity — Six months ended June 30, 2016 and 2015

6

 

 

Consolidated Statements of Cash Flows — Six months ended June 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

55

 

55

 

 

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

56

 

 

Item 5. Other Information

56

 

 

Item 6. Exhibits

56

 

 

Signatures

57

 

  

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

 

 

  

(Unaudited)

 

(Note)

Assets:  

 

 

 

 

 

Real estate investments:  

 

 

 

 

 

 

Real property owned:  

 

 

 

 

 

 

 

Land and land improvements  

$

2,537,508

 

$

2,563,445

 

 

Buildings and improvements  

 

25,293,007

 

 

25,522,542

 

 

Acquired lease intangibles  

 

1,345,424

 

 

1,350,585

 

 

Real property held for sale, net of accumulated depreciation  

 

501,192

 

 

169,950

 

 

Construction in progress  

 

475,203

 

 

258,968

 

 

 

Gross real property owned  

 

30,152,334

 

 

29,865,490

 

 

Less accumulated depreciation and amortization  

 

(4,109,585)

 

 

(3,796,297)

 

 

 

Net real property owned  

 

26,042,749

 

 

26,069,193

 

Real estate loans receivable  

 

647,677

 

 

819,492

 

Net real estate investments  

 

26,690,426

 

 

26,888,685

Other assets:  

 

 

 

 

 

 

 

Investments in unconsolidated entities  

 

543,068

 

 

542,281

 

 

Goodwill  

 

68,321

 

 

68,321

 

 

Cash and cash equivalents  

 

466,585

 

 

360,908

 

 

Restricted cash  

 

58,440

 

 

61,782

 

 

Straight-line rent receivable

 

449,617

 

 

395,562

 

 

Receivables and other assets  

 

688,044

 

 

706,306

 

 

 

Total other assets  

 

2,274,075

 

 

2,135,160

Total assets  

$

28,964,501

 

$

29,023,845

 

 

 

 

  

 

 

 

 

 

Liabilities and equity  

 

 

 

 

 

Liabilities:  

 

 

 

 

 

 

 

Borrowings under primary unsecured credit facility  

$

745,000

 

$

835,000

 

 

Senior unsecured notes  

 

8,711,790

 

 

8,548,055

 

 

Secured debt  

 

3,442,178

 

 

3,509,142

 

 

Capital lease obligations  

 

74,759

 

 

75,489

 

 

Accrued expenses and other liabilities  

 

728,080

 

 

697,191

Total liabilities  

 

13,701,807

 

 

13,664,877

Redeemable noncontrolling interests  

 

394,126

  

  

183,083

Equity:  

 

 

 

 

 

 

 

Preferred stock  

 

1,006,250

 

 

1,006,250

 

 

Common stock  

 

357,950

 

 

354,811

 

 

Capital in excess of par value  

 

16,625,186

 

 

16,478,300

 

 

Treasury stock  

 

(51,288)

 

 

(44,372)

 

 

Cumulative net income  

 

4,102,919

 

 

3,725,772

 

 

Cumulative dividends  

 

(7,491,922)

 

 

(6,846,056)

 

 

Accumulated other comprehensive income (loss)  

 

(159,638)

 

 

(88,243)

 

 

Other equity  

 

3,917

 

 

4,098

 

 

 

Total Welltower Inc. stockholders’ equity  

 

14,393,374

 

 

14,590,560

 

 

Noncontrolling interests  

 

475,194

 

 

585,325

Total equity  

 

14,868,568

 

 

15,175,885

Total liabilities and equity  

$

28,964,501

 

$

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income  

$

422,628

 

$

396,626

 

$

838,290

 

$

776,213

 

Resident fees and services

 

615,220

 

 

535,553

 

 

1,217,369

 

 

1,028,063

 

Interest income

 

24,007

 

 

20,576

 

 

49,195

 

 

37,570

 

Other income

 

14,802

 

 

4,414

 

 

18,851

 

 

9,500

 

 

Total revenues

 

1,076,657

 

 

957,169

 

 

2,123,705

 

 

1,851,346

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

132,326

 

 

118,861

 

 

265,285

 

 

239,942

 

Property operating expenses

 

458,832

 

 

398,354

 

 

908,468

 

 

774,815

 

Depreciation and amortization

 

226,569

 

 

208,802

 

 

455,265

 

 

397,631

 

General and administrative

 

39,914

 

 

38,474

 

 

85,606

 

 

73,612

 

Transaction costs

 

5,157

 

 

12,491

 

 

13,365

 

 

61,045

 

Loss (gain) on derivatives, net

 

-

 

 

-

 

 

-

 

 

(58,427)

 

Loss (gain) on extinguishment of debt, net

 

33

 

 

18,887

 

 

9

 

 

34,288

 

Impairment of assets

 

-

 

 

-

 

 

14,314

 

 

2,220

 

Other expenses

 

3,161

 

 

10,583

 

 

3,161

 

 

10,583

 

 

Total expenses

 

865,992

 

 

806,452

 

 

1,745,473

 

 

1,535,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

and income from unconsolidated entities

 

210,665

 

 

150,717

 

 

378,232

 

 

315,637

Income tax (expense) benefit

 

513

 

 

(7,417)

 

 

2,239

 

 

(7,113)

Income (loss) from unconsolidated entities

 

(1,959)

 

 

(2,952)

 

 

(5,778)

 

 

(15,600)

Income (loss) from continuing operations

 

209,219

 

 

140,348

 

 

374,693

 

 

292,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on real estate dispositions, net

 

1,530

 

 

190,111

 

 

1,530

 

 

246,956

Net income

 

210,749

 

 

330,459

 

 

376,223

 

 

539,880

Less:

Preferred stock dividends

 

16,352

 

 

16,352

 

 

32,703

 

 

32,703

Less:

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

 

(1,077)

 

 

1,534

 

 

(924)

 

 

3,804

Net income (loss) attributable to common stockholders

$

195,474

 

$

312,573

 

$

344,444

 

$

503,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

356,646

 

 

350,399

 

 

355,879

 

 

343,624

 

Diluted

 

358,891

 

 

351,366

 

 

357,489

 

 

344,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

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

$

0.55

 

$

0.89

 

$

0.97

 

$

1.46

 

Net income (loss) attributable to common stockholders*

$

0.55

 

$

0.89

 

$

0.97

 

$

1.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

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

$

0.54

 

$

0.89

 

$

0.96

 

$

1.46

 

Net income (loss) attributable to common stockholders*

$

0.54

 

$

0.89

 

$

0.96

 

$

1.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

$

0.86

 

$

0.825

 

$

1.72

 

$

1.65

 

* 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 June 30,

 

Six Months Ended June 30,

 

 

 

2016

 

2015

 

2016

 

2015

Net income

$

210,749

 

$

330,459

 

$

376,223

 

$

539,880

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized gain (loss) on equity investments

 

(3,611)

 

 

(3,413)

 

 

(11,160)

 

 

(15,100)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow hedges

 

487

 

 

462

 

 

970

 

 

(1,697)

 

Unrecognized actuarial gain (loss)

 

-

 

 

-

 

 

2

 

 

-

 

Foreign currency translation gain (loss)

 

(50,384)

 

 

32,384

 

 

(49,012)

 

 

3,187

Total other comprehensive income (loss)

 

(53,508)

 

 

29,433

 

 

(59,200)

 

 

(13,610)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

157,241

 

 

359,892

 

 

317,023

 

 

526,270

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

 

(4,000)

 

 

5,140

 

 

11,271

 

 

(5,145)

Total comprehensive income (loss) attributable to common stockholders

$

161,241

 

$

354,752

 

$

305,752

 

$

531,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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)

 

 

Six Months Ended June 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)

 

 

 

 

 

 

 

 

 

377,147

 

 

 

 

 

 

 

3,089

 

380,236

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

(71,395)

 

 

 

12,195

 

(59,200)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

321,036

Net change in noncontrolling interests

 

 

 

  

 

(41,658)

 

 

 

 

 

 

 

 

 

 

 

(125,415)

 

(167,073)

Amounts related to stock incentive plans, net of forfeitures

 

 

 

688

 

32,284

 

(6,916)

 

 

 

 

 

 

 

(329)

 

 

 

25,727

Proceeds from issuance of common stock

 

 

 

2,451

 

156,260

 

 

 

 

 

 

 

 

 

 

 

 

 

158,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option compensation expense

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

148

 

 

 

148

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(613,163)

 

 

 

 

 

 

 

(613,163)

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(32,703)

 

 

 

 

 

 

 

(32,703)

Balances at end of period

$

1,006,250

$

357,950

$

16,625,186

$

(51,288)

$

4,102,919

$

(7,491,922)

$

(159,638)

$

3,917

$

475,194

$

14,868,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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)

 

 

 

 

 

 

 

 

 

536,074

 

 

 

 

 

 

 

3,975

 

540,049

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,661)

 

 

 

(8,949)

 

(13,610)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

526,439

Net change in noncontrolling interests

 

 

 

 

 

(2,786)

 

 

 

 

 

 

 

 

 

 

 

65,184

 

62,398

Amounts related to stock incentive plans, net of forfeitures

 

 

 

211

 

16,304

 

(6,452)

 

 

 

 

 

 

 

(1,721)

 

 

 

8,342

Proceeds from issuance of common stock

 

 

 

21,528

 

1,541,873

 

 

 

 

 

 

 

 

 

 

 

 

 

1,563,401

Equity component of convertible debt

 

 

 

1,077

 

4,738

 

 

 

 

 

 

 

 

 

 

 

 

 

5,815

Option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

452

 

 

 

452

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(561,914)

 

 

 

 

 

 

 

(561,914)

 

Preferred stock cash dividends

 

 

 

 

 

 

 

 

 

 

 

(32,703)

 

 

 

 

 

 

 

(32,703)

Balances at end of period

$

1,006,250

$

351,651

$

16,300,841

$

(41,693)

$

3,378,096

$

(6,230,540)

$

(81,670)

$

4,238

$

358,106

$

15,045,279

 

See notes to unaudited consolidated financial statements

 

6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

Six Months Ended

 

 

 

  

June 30,

 

 

 

  

2016

 

2015

Operating activities:  

 

 

 

 

 

Net income  

$

376,223

 

$

539,880

Adjustments to reconcile net income to  

 

 

 

 

 

 

net cash provided from (used in) operating activities:  

 

 

 

 

 

 

 

Depreciation and amortization  

 

455,265

 

 

397,631

 

 

Other amortization expenses  

 

3,141

 

 

2,458

 

 

Impairment of assets  

 

14,314

 

 

2,220

 

 

Stock-based compensation expense  

 

15,217

 

 

20,178

 

 

Loss (gain) on derivatives, net  

 

-

 

 

(58,427)

 

 

Loss (gain) on extinguishment of debt, net  

 

9

 

 

34,288

 

 

Loss (income) from unconsolidated entities

 

5,778

 

 

15,600

 

 

Rental income in excess of cash received  

 

(54,055)

 

 

(57,047)

 

 

Amortization related to above (below) market leases, net  

 

332

 

 

870

 

 

Loss (gain) on sales of properties, net  

 

(1,530)

 

 

(246,956)

 

 

Distributions by unconsolidated entities

 

351

 

 

282

 

 

Increase (decrease) in accrued expenses and other liabilities  

 

36,705

 

 

10,417

 

 

Decrease (increase) in receivables and other assets  

 

(3,009)

 

 

(42,048)

Net cash provided from (used in) operating activities  

 

848,741

 

 

619,346

 

 

 

  

 

 

 

 

 

Investing activities:  

 

 

 

 

 

 

Cash disbursed for acquisitions  

 

(287,455)

 

 

(2,153,970)

 

Cash disbursed for capital improvements to existing properties

 

(87,529)

 

 

(67,086)

 

Cash disbursed for construction in progress

 

(249,867)

 

 

(114,478)

 

Capitalized interest  

 

(7,343)

 

 

(4,446)

 

Investment in real estate loans receivable  

 

(51,059)

 

 

(416,588)

 

Other investments, net of payments  

 

(16,664)

 

 

(110,531)

 

Principal collected on real estate loans receivable  

 

168,343

 

 

37,342

 

Contributions to unconsolidated entities  

 

(39,644)

 

 

(117,047)

 

Distributions by unconsolidated entities  

 

19,301

 

 

116,288

 

Proceeds from (payments on) derivatives  

 

56,842

 

 

72,477

 

Decrease in restricted cash  

 

3,342

 

 

12,422

 

Proceeds from sales of real property  

 

130,298

 

 

523,175

Net cash provided from (used in) investing activities  

 

(361,435)

 

 

(2,222,442)

 

 

 

  

 

 

 

 

 

Financing activities:  

 

 

 

 

 

 

Net increase (decrease) under unsecured credit facilities  

 

(90,000)

 

 

350,000

 

Proceeds from issuance of senior unsecured notes  

 

693,560

 

 

743,407

 

Payments to extinguish senior unsecured notes  

 

(400,000)

 

 

(477,550)

 

Net proceeds from the issuance of secured debt  

 

161,992

 

 

136,801

 

Payments on secured debt  

 

(281,051)

 

 

(323,950)

 

Net proceeds from the issuance of common stock  

 

159,032

 

 

1,562,350

 

Decrease (increase) in deferred loan costs  

 

(17,439)

 

 

(5,285)

 

Contributions by noncontrolling interests(1)

 

138,458

 

 

4,926

 

Distributions to noncontrolling interests(1)

 

(91,133)

 

 

(19,371)

 

Acquisitions of noncontrolling interests

 

-

 

 

(4,741)

 

Cash distributions to stockholders  

 

(645,866)

 

 

(594,617)

 

Other financing activities

 

(730)

 

 

(27,253)

Net cash provided from (used in) financing activities  

 

(373,177)

 

 

1,344,717

Effect of foreign currency translation on cash and cash equivalents

 

(8,452)

 

 

2,595

Increase (decrease) in cash and cash equivalents  

 

105,677

 

 

(255,784)

Cash and cash equivalents at beginning of period  

 

360,908

 

 

473,726

Cash and cash equivalents at end of period  

$

466,585

 

$

217,942

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

$

236,861

 

$

208,885

 

Income taxes paid

 

3,889

 

 

10,140

 

 

 

 

 

 

 

 

 

(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 1,486 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 six months ended June 30, 2016.  Operating results for the six months ended June 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

 

 

Six Months Ended

 

(In thousands)

June 30, 2016(1)

June 30, 2015

 

Land and land improvements

 

$

18,901

 

$

45,268

 

Buildings and improvements

 

 

160,209

 

 

447,229

 

Acquired lease intangibles

 

 

2,876

 

 

2,817

 

Restricted cash

 

 

-

 

 

6

 

Receivables and other assets

 

 

-

 

 

60

 

 

Total assets acquired

 

 

181,986

 

 

495,380

 

Accrued expenses and other liabilities  

 

 

(1,459)

 

 

(1,845)

 

 

Total liabilities assumed

 

 

(1,459)

 

 

(1,845)

 

Non-cash acquisition related activity(2)

 

 

(37,703)

 

 

(936)

 

 

Cash disbursed for acquisitions

 

 

142,824

 

 

492,599

 

Construction in progress additions

 

 

85,687

 

 

74,694

 

Less:

Capitalized interest

 

 

(3,771)

 

 

(3,303)

 

 

Foreign currency translation

 

 

(2,712)

 

 

240

 

Cash disbursed for construction in progress

 

 

79,204

 

  

71,631

 

Capital improvements to existing properties

 

 

14,877

 

 

19,029

 

 

Total cash invested in real property, net of cash acquired

 

$

236,905

 

$

583,259

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $166,343,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

(2) For the six months ended June 30, 2016, $31,014,000 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

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

(In thousands)

June 30, 2016(1)

June 30, 2015

 

Land and land improvements

 

$

5,617

 

$

94,294

 

Building and improvements

 

 

128,200

 

 

1,174,465

 

Acquired lease intangibles

 

 

6,334

 

 

71,089

 

Restricted cash

 

 

-

 

 

5,425

 

Receivables and other assets

 

 

894

 

 

23,645

 

  

Total assets acquired(2)

 

 

141,045

 

 

1,368,918

 

Secured debt

 

 

-

 

 

(208,960)

 

Accrued expenses and other liabilities  

 

 

(4,853)

 

 

(19,011)

 

 

Total liabilities assumed

 

 

(4,853)

 

 

(227,971)

 

Noncontrolling interests

 

 

(549)

 

 

(86,842)

 

Non-cash acquisition related activity(3)

 

 

(7,659)

 

 

-

 

 

Cash disbursed for acquisitions

 

 

127,984

 

 

1,054,105

 

Construction in progress additions

 

 

134,019

 

 

19,926

 

Less:

Capitalized interest

 

 

(2,011)

 

 

(715)

 

 

Foreign currency translation

 

 

(5,344)

 

 

(40)

 

Cash disbursed for construction in progress

 

 

126,664

 

  

19,171

 

Capital improvements to existing properties

 

 

47,553

 

 

32,766

 

 

Total cash invested in real property, net of cash acquired

 

$

302,201

 

$

1,106,042

 

 

 

 

 

 

 

 

 

 

(1) Includes acquisitions with an aggregate purchase price of $117,545,000 for which the allocation of the purchase price consideration is preliminary and subject to change.

(2) Excludes $134,000 and $3,390,000 of cash acquired during the six months ended June 30, 2016 and 2015, respectively.

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

 

 

 

 

 

 

 

 

 

      Outpatient Medical Activity

 

 

Six Months Ended

 

(In thousands)

June 30, 2016 (1)

 

June 30, 2015

 

Land and land improvements

 

$

-

 

$

737

 

Buildings and improvements

 

 

32,650

 

 

426,130

 

Acquired lease intangibles

 

 

-

 

 

19,372

 

  

Total assets acquired(2)

 

 

32,650

 

  

446,239

 

Secured debt

 

 

-

 

 

(112,000)

 

Accrued expenses and other liabilities

 

 

(990)

 

 

(2,743)

 

 

Total liabilities assumed  

 

 

 (990)  

 

 

 (114,743)  

 

Noncontrolling interests

 

 

-

 

 

(68,535)

 

Non-cash acquisition activity(3)

 

 

(15,013)

 

 

-

 

 

Cash disbursed for acquisitions

 

 

16,647

 

 

262,961

 

Construction in progress additions

 

 

50,896

 

 

26,025

 

Less:

Capitalized interest

 

 

(1,561)