0000766704-17-000035.txt : 20170728 0000766704-17-000035.hdr.sgml : 20170728 20170728161644 ACCESSION NUMBER: 0000766704-17-000035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 96 CONFORMED PERIOD OF REPORT: 20170630 FILED AS OF DATE: 20170728 DATE AS OF CHANGE: 20170728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLTOWER INC. CENTRAL INDEX KEY: 0000766704 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341096634 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08923 FILM NUMBER: 17990200 BUSINESS ADDRESS: STREET 1: 4500 DORR STREET CITY: TOLEDO STATE: OH ZIP: 43615 BUSINESS PHONE: 419-247-2800 MAIL ADDRESS: STREET 1: 4500 DORR STREET CITY: TOLEDO STATE: OH ZIP: 43615 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH CARE REIT INC /DE/ DATE OF NAME CHANGE: 19920703 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, 2017

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 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 14, 2017, the registrant had 368,878,685 shares of common stock outstanding.  

 

 

 


TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets — June 30, 2017 and December 31, 2016

3

 

 

Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2017 and 2016

4

 

 

Consolidated Statements of Equity — Six months ended June 30, 2017 and 2016

6

 

 

Consolidated Statements of Cash Flows — Six months ended June 30, 2017 and 2016

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

28

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

51

 

 

Item 4. Controls and Procedures

52

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

Item 1A. Risk Factors

52

 

53

 

 

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

53

 

 

Item 5. Other Information

53

 

 

Item 6. Exhibits

53

 

 

Signatures

54

 

  

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

 

 

 

  

(Unaudited)

 

(Note)

Assets:  

 

 

 

 

 

Real estate investments:  

 

 

 

 

 

 

Real property owned:  

 

 

 

 

 

 

 

Land and land improvements  

$

2,746,483

 

$

2,591,071

 

 

Buildings and improvements  

 

25,399,178

 

 

24,496,153

 

 

Acquired lease intangibles  

 

1,436,041

 

 

1,402,884

 

 

Real property held for sale, net of accumulated depreciation  

 

141,319

 

 

1,044,859

 

 

Construction in progress  

 

321,655

 

 

506,091

 

 

 

Gross real property owned  

 

30,044,676

 

 

30,041,058

 

 

Less accumulated depreciation and amortization  

 

(4,568,408)

 

 

(4,093,494)

 

 

 

Net real property owned  

 

25,476,268

 

 

25,947,564

 

Real estate loans receivable  

 

520,479

 

 

622,628

 

 

Less allowance for losses on loans receivable  

 

(5,811)

 

 

(6,563)

 

 

 

Net real estate loans receivable  

 

514,668

 

 

616,065

 

Net real estate investments  

 

25,990,936

 

 

26,563,629

Other assets:  

 

 

 

 

 

 

 

Investments in unconsolidated entities  

 

425,489

 

 

457,138

 

 

Goodwill  

 

68,321

 

 

68,321

 

 

Cash and cash equivalents  

 

442,284

 

 

419,378

 

 

Restricted cash  

 

45,357

 

 

187,842

 

 

Straight-line rent receivable

 

370,819

 

 

342,578

 

 

Receivables and other assets  

 

632,580

 

 

826,298

 

 

 

Total other assets  

 

1,984,850

 

 

2,301,555

Total assets  

$

27,975,786

 

$

28,865,184

 

 

 

 

  

 

 

 

 

 

Liabilities and equity  

 

 

 

 

 

Liabilities:  

 

 

 

 

 

 

 

Borrowings under primary unsecured credit facility  

$

385,000

 

$

645,000

 

 

Senior unsecured notes  

 

8,250,940

 

 

8,161,619

 

 

Secured debt  

 

2,670,914

 

 

3,477,699

 

 

Capital lease obligations  

 

73,092

 

 

73,927

 

 

Accrued expenses and other liabilities  

 

893,441

 

 

827,034

Total liabilities  

 

12,273,387

 

 

13,185,279

Redeemable noncontrolling interests  

 

388,876

  

  

398,433

Equity:  

 

 

 

 

 

 

 

Preferred stock  

 

718,750

 

 

1,006,250

 

 

Common stock  

 

369,525

 

 

363,071

 

 

Capital in excess of par value  

 

17,439,977

 

 

16,999,691

 

 

Treasury stock  

 

(62,335)

 

 

(54,741)

 

 

Cumulative net income  

 

5,330,702

 

 

4,803,575

 

 

Cumulative dividends  

 

(8,805,336)

 

 

(8,144,981)

 

 

Accumulated other comprehensive income (loss)  

 

(163,624)

 

 

(169,531)

 

 

Other equity  

 

1,173

 

 

3,059

 

 

 

Total Welltower Inc. stockholders’ equity  

 

14,828,832

 

 

14,806,393

 

 

Noncontrolling interests  

 

484,691

 

 

475,079

Total equity  

 

15,313,523

 

 

15,281,472

Total liabilities and equity  

$

27,975,786

 

$

28,865,184

 

NOTE: The consolidated balance sheet at December 31, 2016 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,

 

 

 

2017

 

2016

 

2017

 

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income  

$

355,599

 

$

422,628

 

$

722,741

 

$

838,290

 

Resident fees and services

 

677,040

 

 

615,220

 

 

1,347,377

 

 

1,217,369

 

Interest income

 

20,901

 

 

24,007

 

 

41,649

 

 

49,195

 

Other income

 

5,062

 

 

14,802

 

 

9,133

 

 

18,851

 

 

Total revenues

 

1,058,602

 

 

1,076,657

 

 

2,120,900

 

 

2,123,705

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

116,231

 

 

132,326

 

 

234,827

 

 

265,285

 

Property operating expenses

 

501,855

 

 

458,832

 

 

1,012,024

 

 

908,468

 

Depreciation and amortization

 

224,847

 

 

226,569

 

 

453,124

 

 

455,265

 

General and administrative

 

32,632

 

 

39,914

 

 

63,733

 

 

85,606

 

Transaction costs

 

-

 

 

5,157

 

 

-

 

 

13,365

 

Loss (gain) on derivatives, net

 

736

 

 

-

 

 

1,960

 

 

-

 

Loss (gain) on extinguishment of debt, net

 

5,515

 

 

33

 

 

36,870

 

 

9

 

Impairment of assets

 

13,631

 

 

-

 

 

24,662

 

 

14,314

 

Other expenses

 

6,339

 

 

3,161

 

 

18,014

 

 

3,161

 

 

Total expenses

 

901,786

 

 

865,992

 

 

1,845,214

 

 

1,745,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes

 

 

 

 

 

 

 

 

 

 

 

 

and income from unconsolidated entities

 

156,816

 

 

210,665

 

 

275,686

 

 

378,232

Income tax (expense) benefit

 

8,448

 

 

513

 

 

6,203

 

 

2,239

Income (loss) from unconsolidated entities

 

(3,978)

 

 

(1,959)

 

 

(27,084)

 

 

(5,778)

Income (loss) from continuing operations

 

161,286

 

 

209,219

 

 

254,805

 

 

374,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on real estate dispositions, net

 

42,155

 

 

1,530

 

 

286,247

 

 

1,530

Net income

 

203,441

 

 

210,749

 

 

541,052

 

 

376,223

Less:

Preferred stock dividends

 

11,680

 

 

16,352

 

 

26,059

 

 

32,703

Less:

Preferred stock redemption charge

 

-

 

 

-

 

 

9,769

 

 

-

Less:

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

 

3,332

 

 

(1,077)

 

 

4,156

 

 

(924)

Net income (loss) attributable to common stockholders

$

188,429

 

$

195,474

 

$

501,068

 

$

344,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

366,524

 

 

356,646

 

 

364,551

 

 

355,879

 

Diluted

 

368,149

 

 

358,891

 

 

366,423

 

 

357,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

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

$

0.51

 

$

0.55

 

$

1.37

 

$

0.97

 

Net income (loss) attributable to common stockholders*

$

0.51

 

$

0.55

 

$

1.37

 

$

0.97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

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

$

0.51

 

$

0.54

 

$

1.37

 

$

0.96

 

Net income (loss) attributable to common stockholders*

$

0.51

 

$

0.54

 

$

1.37

 

$

0.96

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

$

0.87

 

$

0.86

 

$

1.74

 

$

1.72

 

* 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,

 

 

 

2017

 

2016

 

2017

 

2016

Net income

$

203,441

 

$

210,749

 

$

541,052

 

$

376,223

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized gain (loss) on equity investments

 

(5,908)

 

 

(3,611)

 

 

(16,477)

 

 

(11,160)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on cash flow hedges

 

-

 

 

487

 

 

-

 

 

970

 

Unrecognized actuarial gain (loss)

 

-

 

 

-

 

 

-

 

 

2

 

Foreign currency translation gain (loss)

 

27,713

 

 

(50,384)

 

 

33,426

 

 

(49,012)

Total other comprehensive income (loss)

 

21,805

 

 

(53,508)

 

 

16,949

 

 

(59,200)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

225,246

 

 

157,241

 

 

558,001

 

 

317,023

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

 

11,562

 

 

(4,000)

 

 

15,198

 

 

11,271

Total comprehensive income (loss) attributable to common stockholders

$

213,684

 

$

161,241

 

$

542,803

 

$

305,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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, 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)

 

 

 

 

 

 

 

 

 

536,896

 

 

 

 

 

 

 

5,302

 

542,198

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

5,907

 

 

 

11,042

 

16,949

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

559,147

Net change in noncontrolling interests

 

 

 

  

 

(4,247)

 

 

 

 

 

 

 

 

 

 

 

(6,732)

 

(10,979)

Amounts related to stock incentive plans, net of forfeitures

 

 

 

337

 

11,803

 

(7,583)

 

 

 

 

 

 

 

(1,896)

 

 

 

2,661

Proceeds from issuance of common stock

 

 

 

6,026

 

417,506

 

 

 

 

 

 

 

 

 

 

 

 

 

423,532

Redemption of preferred stock

 

(287,500)

 

 

 

9,760

 

 

 

(9,769)

 

 

 

 

 

 

 

 

 

(287,509)

Redemption of equity membership units

 

 

 

91

 

5,464

 

(11)

 

 

 

 

 

 

 

 

 

 

 

5,544

Option compensation expense

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

10

Dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(634,296)

 

 

 

 

 

 

 

(634,296)

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

(26,059)

 

 

 

 

 

 

 

(26,059)

Balances at end of period

$

718,750

$

369,525

$

17,439,977

$

(62,335)

$

5,330,702

$

(8,805,336)

$

(163,624)

$

1,173

$

484,691

$

15,313,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Dividends paid:

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

(613,163)

 

 

 

 

 

 

 

(613,163)

 

Preferred stock 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

 

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,

 

 

 

  

2017

 

2016

Operating activities:  

 

 

 

 

 

Net income  

$

541,052

 

$

376,223

Adjustments to reconcile net income to  

 

 

 

 

 

 

net cash provided from (used in) operating activities:  

 

 

 

 

 

 

 

Depreciation and amortization  

 

453,124

 

 

455,265

 

 

Other amortization expenses  

 

7,789

 

 

3,141

 

 

Impairment of assets  

 

24,662

 

 

14,314

 

 

Stock-based compensation expense  

 

9,669

 

 

15,217

 

 

Loss (gain) on derivatives, net  

 

1,960

 

 

-

 

 

Loss (gain) on extinguishment of debt, net  

 

36,870

 

 

9

 

 

Loss (income) from unconsolidated entities

 

27,084

 

 

5,778

 

 

Rental income in excess of cash received  

 

(41,325)

 

 

(54,055)

 

 

Amortization related to above (below) market leases, net  

 

48

 

 

332

 

 

Loss (gain) on sales of properties, net  

 

(286,247)

 

 

(1,530)

 

 

Distributions by unconsolidated entities

 

3,225

 

 

351

 

 

Increase (decrease) in accrued expenses and other liabilities  

 

70,005

 

 

43,621

 

 

Decrease (increase) in receivables and other assets  

 

(3,807)

 

 

(3,009)

Net cash provided from (used in) operating activities  

 

844,109

 

 

855,657

 

 

 

  

 

 

 

 

 

Investing activities:  

 

 

 

 

 

 

Cash disbursed for acquisitions  

 

(237,119)

 

 

(287,455)

 

Cash disbursed for capital improvements to existing properties

 

(93,147)

 

 

(87,529)

 

Cash disbursed for construction in progress

 

(149,046)

 

 

(249,867)

 

Capitalized interest  

 

(7,488)

 

 

(7,343)

 

Investment in real estate loans receivable  

 

(50,717)

 

 

(51,059)

 

Other investments, net of payments  

 

52,457

 

 

(16,664)

 

Principal collected on real estate loans receivable  

 

36,500

 

 

168,343

 

Contributions to unconsolidated entities  

 

(65,631)

 

 

(39,644)

 

Distributions by unconsolidated entities  

 

47,384

 

 

19,301

 

Proceeds from (payments on) derivatives  

 

19,665

 

 

56,842

 

Decrease in restricted cash  

 

142,485

 

 

3,342

 

Proceeds from sales of real property  

 

1,203,782

 

 

130,298

Net cash provided from (used in) investing activities  

 

899,125

 

 

(361,435)

 

 

 

  

 

 

 

 

 

Financing activities:  

 

 

 

 

 

 

Net increase (decrease) under unsecured credit facilities  

 

(260,000)

 

 

(90,000)

 

Proceeds from issuance of senior unsecured notes  

 

-

 

 

693,560

 

Payments to extinguish senior unsecured notes  

 

-

 

 

(400,000)

 

Net proceeds from the issuance of secured debt  

 

161,799

 

 

161,992

 

Payments on secured debt  

 

(1,020,129)

 

 

(281,051)

 

Net proceeds from the issuance of common stock  

 

424,451

 

 

159,032

 

Redemption of preferred stock  

 

(287,500)

 

 

-

 

Payments for deferred financing costs and prepayment penalties  

 

(52,838)

 

 

(17,439)

 

Contributions by noncontrolling interests(1)

 

9,663

 

 

138,458

 

Distributions to noncontrolling interests(1)

 

(38,143)

 

 

(91,133)

 

Cash distributions to stockholders  

 

(660,355)

 

 

(645,866)

 

Other financing activities

 

(8,925)

 

 

(7,646)

Net cash provided from (used in) financing activities  

 

(1,731,977)

 

 

(380,093)

Effect of foreign currency translation on cash and cash equivalents

 

11,649

 

 

(8,452)

Increase (decrease) in cash and cash equivalents  

 

22,906

 

 

105,677

Cash and cash equivalents at beginning of period  

 

419,378

 

 

360,908

Cash and cash equivalents at end of period  

$

442,284

 

$

466,585

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

$

210,184

 

$

236,861

 

Income taxes paid

 

4,360

 

 

3,889

 

 

 

 

 

 

 

 

 

(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 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.  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. Operating results for the six months ended June 30, 2017 are not necessarily an indication of the results that may be expected for the year ending December 31, 2017. 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, 2016.

     New Accounting Standards     

     In May 2014, the Financial Accounting Standards Board (the “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.  A reporting entity may apply the new standard using either a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or a full retrospective approach.  We are currently evaluating the impact that the adoption of the standard will have on our consolidated financial statements and have not yet determined the method by which we will adopt the new standard.  A significant source of our revenue is generated through leasing arrangements, which are specifically excluded from the new standard.  We expect that the new standard will affect our accounting policies related to non-lease revenue, including certain fees in our RIDEA joint ventures, common area maintenance in our outpatient medical properties and real estate sales.  Under ASU 2014-09, revenue recognition for real estate sales is mainly based on the transfer of control versus current guidance of continuing involvement.  We expect that the new guidance will result in more transactions qualifying as sales of real estate and being recognized at an earlier date than under the current guidance.

     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 regarding 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 of this standard on our consolidated financial statements.  We believe that the adoption of this standard will likely have a material impact to our consolidated balance sheet for the recognition of certain operating leases as right-of-use assets and lease liabilities.  We are in the process of analyzing our lease portfolio and evaluating systems to comply with the standard’s retrospective adoption requirements

     In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”.  ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is

8


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

permitted.  We adopted ASU 2016-09 on January 1, 2017.  The standard allows companies to make a policy election as to whether they will include an estimate of awards expected to be forfeited or whether they will account for forfeitures as they occur.  We have elected to account for forfeitures as they occur. This election had an immaterial impact on our consolidated financial statements.  The standard also requires an employer to classify as a financing activity in the statement of cash flow the cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation.  This standard is required to be applied on a retrospective basis and resulted in an increase in net cash provided by operating activities and a decrease in net cash used in financing activities of $6,916,000 for the six months ended June 30, 2016.  Upon adoption, no other provisions of ASU 2016-09 had an effect on our unaudited consolidated financial statements or related footnote disclosures.

     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

     In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business”.  This standard changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business.  ASU 2017-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted.  A reporting entity must apply ASU 2017-01 using a prospective approach.  We adopted ASU 2017-01 on January 1, 2017 and as a result, have classified our real estate acquisitions completed during the six months ended June 30, 2017 as asset acquisitions rather than business combinations due to the fact that substantially all of the fair value of the gross assets acquired were concentrated in a single asset or group of similar identifiable assets. We have recorded identifiable assets acquired, liabilities assumed and any noncontrolling interests associated with any asset acquisitions at cost on a relative fair value basis and have capitalized transaction costs incurred.

  

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 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.  Effective January 1, 2017, with our adoption of ASU 2017-01, 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. See Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016 for information regarding our foreign currency policies.  

9


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Triple-net Activity

 

 

Six Months Ended

 

(In thousands)

June 30, 2017

June 30, 2016

 

Land and land improvements

 

$

30,440

 

$

18,901

 

Buildings and improvements

 

 

188,569

 

 

160,209

 

Acquired lease intangibles

 

 

-

 

 

2,876

 

 

Total assets acquired

 

 

219,009

 

 

181,986

 

Accrued expenses and other liabilities  

 

 

(20,855)

 

 

(1,459)

 

 

Total liabilities assumed

 

 

(20,855)

 

 

(1,459)

 

Noncontrolling interests

 

 

(7,284)

 

 

-

 

Non-cash acquisition related activity(1)

 

 

(54,989)

 

 

(37,703)

 

 

Cash disbursed for acquisitions

 

 

135,881

 

 

142,824

 

Construction in progress additions

 

 

76,245

 

 

85,687

 

Less:

Capitalized interest

 

 

(3,215)

 

 

(3,771)

 

 

Foreign currency translation

 

 

(3,044)

 

 

(2,712)

 

Cash disbursed for construction in progress

 

 

69,986

 

  

79,204

 

Capital improvements to existing properties

 

 

15,269

 

 

14,877

 

 

Total cash invested in real property, net of cash acquired

 

$

221,136

 

$

236,905

 

 

 

 

 

 

 

 

 

 

(1) For the six months ended June 30, 2017, $54,989,000 is related to the acquisition of assets previously financed as real estate loans receivable. For the six months ended June 30, 2016, $31,014,000 is related to the acquisition of assets previously financed as real estate loans receivable and $6,630,000 is related to the acquisition of assets previously financed as an investment in an unconsolidated entity.

 

     Seniors Housing Operating Activity

 

 

Six Months Ended

 

(In thousands)

June 30, 2017

June 30, 2016

 

Land and land improvements

 

$

10,590

 

$

5,617

 

Building and improvements

 

 

69,056

 

 

128,200

 

Acquired lease intangibles

 

 

3,596

 

 

6,334

 

Receivables and other assets

 

 

296

 

 

894

 

  

Total assets acquired(1)

 

 

83,538

 

 

141,045

 

Accrued expenses and other liabilities  

 

 

(8,606)

 

 

(4,853)

 

 

Total liabilities assumed

 

 

(8,606)

 

 

(4,853)

 

Noncontrolling interests

 

 

(647)

 

 

(549)

 

Non-cash acquisition related activity(2)

 

 

(31,546)

 

 

(7,659)

 

 

Cash disbursed for acquisitions

 

 

42,739

 

 

127,984

 

Construction in progress additions

 

 

42,787

 

 

134,019

 

Less:

Capitalized interest

 

 

(3,804)

 

 

(2,011)

 

 

Foreign currency translation

 

 

3,060

 

 

(5,344)

 

Cash disbursed for construction in progress

 

 

42,043

 

  

126,664

 

Capital improvements to existing properties

 

 

60,129

 

 

47,553

 

 

Total cash invested in real property, net of cash acquired

 

$

144,911

 

$

302,201

 

 

 

 

 

 

 

 

 

 

(1) Excludes $400,000 and $134,000 of cash acquired during the six months ended June 30, 2017 and 2016, respectively.

(2) Includes $6,349,000 related to the acquisition of assets previously financed as real estate loans receivable during the six months ended June 30, 2017.  Includes $25,197,000 and $7,659,000 for the six months ended June 30, 2017 and 2016 related to the acquisition of assets previously financed as an investments in an unconsolidated entity.

10


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Outpatient Medical Activity

 

 

Six Months Ended

 

(In thousands)

June 30, 2017

 

June 30, 2016

 

Land and land improvements

 

$

25,060

 

$

-

 

Buildings and improvements

 

 

62,038

 

 

32,650

 

Acquired lease intangibles

 

 

8,397

 

 

-

 

Receivables and other assets

 

 

118

 

 

-

 

  

Total assets acquired

 

 

95,613

 

  

32,650

 

Secured debt

 

 

(25,824)

 

 

-

 

Accrued expenses and other liabilities

 

 

(2,210)

 

 

(990)

 

 

Total liabilities assumed  

 

 

 (28,034)  

 

 

 (990)  

 

Noncontrolling interests

 

 

(9,080)

 

 

-

 

Non-cash acquisition activity(1)

 

 

-

 

 

(15,013)

 

 

Cash disbursed for acquisitions

 

 

58,499

 

 

16,647

 

Construction in progress additions

 

 

31,830

 

 

50,896

 

Less:

Capitalized interest

 

 

(1,343)

 

 

(1,561)

 

 

Accruals(2)

 

 

6,530

 

 

(5,336)

 

Cash disbursed for construction in progress

 

 

37,017

 

  

43,999

 

Capital improvements to existing properties

 

 

17,409

 

 

25,099

 

 

Total cash invested in real property

 

$

112,925

 

$

85,745

 

 

 

 

 

 

 

 

 

 

(1) Represents the acquisition of assets previously financed as real estate loans receivable. Please refer to Note 6 for additional information.

(2) Represents the change in non-cash consideration accruals for amounts to be paid in periods other than the period in which the construction projects converted to operations.

 

      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):

 

 

 

 

Six Months Ended

 

 

 

 

June 30, 2017

 

June 30, 2016

 

Development projects:

 

 

 

 

 

 

 

 

 

 

Triple-net

  

 

$

266,650

 

 

$

-

 

 

Seniors housing operating

 

 

 

3,634

 

 

 

-

 

 

Outpatient medical

 

 

 

63,036

 

 

 

35,363

 

Total development projects

 

 

 

333,320

 

 

 

35,363

 

Expansion projects

 

 

 

2,798

 

 

 

2,879

Total construction in progress conversions

  

 

$

336,118

 

 

$

38,242

 

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):

11


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

June 30, 2017

 

December 31, 2016

Assets:

  

 

 

 

 

 

 

In place lease intangibles

  

$

1,278,755

 

$

1,252,143

 

Above market tenant leases

  

 

64,408

 

 

61,700

 

Below market ground leases

  

 

62,224

 

 

61,628

 

Lease commissions

  

 

30,654

 

 

27,413

 

Gross historical cost

  

 

1,436,041

 

 

1,402,884

 

Accumulated amortization

  

 

(1,053,353)

 

 

(966,714)

 

Net book value

  

$

382,688

 

$

436,170

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

15.1

 

 

13.7

 

 

  

 

 

 

 

 

Liabilities:

  

 

 

 

 

 

 

Below market tenant leases

  

$

90,683

 

$

89,468

 

Above market ground leases

  

 

8,540

 

 

8,107

 

Gross historical cost

  

 

99,223

 

 

97,575

 

Accumulated amortization

  

 

(55,749)

 

 

(52,134)

 

Net book value

  

$

43,474

 

$

45,441

 

 

  

 

 

 

 

 

 

Weighted-average amortization period in years

  

 

15.4

 

 

15.2

 

     The following is a summary of real estate intangible amortization for the periods presented (in thousands):

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

  

 

2017

 

2016

 

2017

 

2016

Rental income related to above/below market tenant leases, net

 

$

267

 

$

210

 

$

571

 

$

290

Property operating expenses related to above/below market ground leases, net

 

 

(307)

 

 

(311)

 

 

(619)

 

 

(622)

Depreciation and amortization related to in place lease intangibles and lease commissions

 

 

(35,439)

 

 

(31,109)

 

 

(74,741)

 

 

(65,473)

 

     The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):

 

 

 

Assets

 

 

Liabilities

2017

 

$

71,356

 

$

3,337

2018

 

 

83,762

 

 

6,190

2019

 

 

35,095

 

 

5,731

2020

 

 

24,793

 

 

5,234

2021

 

 

20,695

 

 

4,746

Thereafter

 

 

146,987

 

 

18,236

Total

 

$

382,688

 

$

43,474

 

5. Dispositions, Assets Held for Sale and Discontinued Operations

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, operator or geography). During the six months ended June 30, 2017 and 2016, we recorded impairment charges on certain held-for-sale seniors housing operating, triple-net, and outpatient medical properties for which the carrying values exceeded the fair values less estimated costs to sell. The following is a summary of our real property disposition activity for the periods presented (in thousands):

12


WELLTOWER INC.

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 2017

June 30, 2016

Real estate dispositions:

 

 

 

 

 

 

 

Triple-net

 

$

882,436

 

$

128,768

 

Seniors housing operating

 

 

13,845

 

 

-

 

Total dispositions

 

 

896,281

 

 

128,768

Gain (loss) on real estate dispositions, net

 

 

286,247

 

 

1,530

 

Net other assets/liabilities disposed

 

 

21,254

 

 

-

Proceeds from real estate dispositions

 

$

1,203,782

 

$

130,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     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