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, 2023

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 office)			(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)

Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1.00 par value per share	WELL	New York Stock Exchange
Guarantee of 4.800% Notes due 2028 issued by Welltower OP LLC	WELL/28	New York Stock Exchange
Guarantee of 4.500% Notes due 2034 issued by Welltower OP LLC	WELL/34	New York Stock Exchange

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 ☐

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 July 28, 2023, Welltower Inc. had 518,729,078 shares of common stock outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page
Item 1. Financial Statements (Unaudited)		3
	Consolidated Balance Sheets	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Unaudited Consolidated Financial Statements	9
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		53
Item 1A. Risk Factors		53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 5. Other Information		53
Item 6. Exhibits		54
Signatures		55

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands) 

	June 30, 2023 (Unaudited)		December 31, 2022 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	4,262,745	$	4,249,834
Buildings and improvements	34,127,012		33,651,336
Acquired lease intangibles	1,950,349		1,945,458
Real property held for sale, net of accumulated depreciation	404,071		133,058
Construction in progress	1,108,773		1,021,080
Less accumulated depreciation and amortization	(8,599,622)		(8,075,733)
Net real property owned	33,253,328		32,925,033
Right of use assets, net	322,316		323,942
Real estate loans receivable, net of credit allowance	965,509		890,844
Net real estate investments	34,541,153		34,139,819
Other assets:
Investments in unconsolidated entities	1,650,133		1,499,790
Goodwill	68,321		68,321
Cash and cash equivalents	2,203,788		631,681
Restricted cash	95,281		90,611
Straight-line rent receivable	389,381		322,173
Receivables and other assets	1,116,078		1,140,838
Total other assets	5,522,982		3,753,414
Total assets	$	40,064,135	$	37,893,233
Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	—	$	—
Senior unsecured notes	13,530,788		12,437,273
Secured debt	2,460,349		2,110,815
Lease liabilities	348,770		415,824
Accrued expenses and other liabilities	1,531,114		1,535,325
Total liabilities	17,871,021		16,499,237
Redeemable noncontrolling interests	369,191		384,443
Equity:
Common stock	509,805		491,919
Capital in excess of par value	28,085,297		26,742,750
Treasury stock	(112,032)		(111,001)
Cumulative net income	8,933,663		8,804,950
Cumulative dividends	(16,116,698)		(15,514,097)
Accumulated other comprehensive income (loss)	(95,594)		(119,707)
Total Welltower Inc. stockholders’ equity	21,204,441		20,294,814
Noncontrolling interests	619,482		714,739
Total equity	21,823,923		21,009,553
Total liabilities and equity	$	40,064,135	$	37,893,233

Note: The consolidated balance sheet at December 31, 2022 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				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues:
Resident fees and services	$	1,159,449	$	1,009,999	$	2,291,134	$	2,004,334
Rental income	383,439		361,411		767,498		717,801
Interest income	38,710		37,140		75,115		76,134
Other income	83,880		63,986		92,460		69,971
Total revenues	1,665,478		1,472,536		3,226,207		2,868,240
Expenses:
Property operating expenses	958,672		854,083		1,916,425		1,707,752
Depreciation and amortization	341,945		310,295		681,057		614,383
Interest expense	152,337		127,750		296,740		249,446
General and administrative expenses	44,287		36,554		88,658		74,260
Loss (gain) on derivatives and financial instruments, net	1,280		(1,407)		2,210		1,171
Loss (gain) on extinguishment of debt, net	1		603		6		591
Provision for loan losses, net	2,456		165		3,233		(639)
Impairment of assets	1,086		—		13,715		—
Other expenses	11,069		35,166		33,814		61,235
Total expenses	1,513,133		1,363,209		3,035,858		2,708,199
Income (loss) from continuing operations before income taxes and other items	152,345		109,327		190,349		160,041
Income tax (expense) benefit	(3,503)		(3,065)		(6,548)		(8,078)
Income (loss) from unconsolidated entities	(40,332)		(7,058)		(47,403)		(9,942)
Gain (loss) on real estate dispositions, net	(2,168)		(3,532)		(1,421)		19,402
Income (loss) from continuing operations	106,342		95,672		134,977		161,423
Net income (loss)	106,342		95,672		134,977		161,423
Less: Net income (loss) attributable to noncontrolling interests(1)	3,302		5,888		6,264		9,714
Net income (loss) attributable to common stockholders	$	103,040	$	89,784	$	128,713	$	151,709
Weighted average number of common shares outstanding:
Basic	499,023		454,327		495,561		450,865
Diluted	501,970		457,082		498,305		453,455
Earnings per share:
Basic:
Income (loss) from continuing operations	$	0.21	$	0.21	$	0.27	$	0.36
Net income (loss) attributable to common stockholders	$	0.21	$	0.20	$	0.26	$	0.34
Diluted:
Income (loss) from continuing operations	$	0.21	$	0.21	$	0.27	$	0.36
Net income (loss) attributable to common stockholders(2)	$	0.20	$	0.20	$	0.26	$	0.33
Dividends declared and paid per common share	$	0.61	$	0.61	$	1.22	$	1.22

(1) Includes amounts attributable to redeemable noncontrolling interests.

(2) Includes adjustment to the numerator for income (loss) attributable to OP Units and DownREIT Units.

4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands) 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income (loss)	$	106,342	$	95,672	$	134,977	$	161,423
Other comprehensive income (loss):
Foreign currency translation gain (loss)	119,519		(306,723)		200,284		(373,671)
Derivative and financial instruments designated as hedges gain (loss)	(85,884)		284,081		(155,622)		336,021
Total other comprehensive income (loss)	33,635		(22,642)		44,662		(37,650)
Total comprehensive income (loss)	139,977		73,030		179,639		123,773
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)	8,286		(10,031)		14,127		(4,057)
Total comprehensive income (loss) attributable to common stockholders	$	131,691	$	83,061	$	165,512	$	127,830
(1) Includes amounts attributable to redeemable noncontrolling interests.

5

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

	Six Months Ended June 30, 2023
	Common Stock		Capital in Excess of Par Value		Treasury Stock		Cumulative Net Income		Cumulative Dividends		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balances at January 1, 2023	$	491,919	$	26,742,750	$	(111,001)	$	8,804,950	$	(15,514,097)	$	(119,707)	$	714,739	$	21,009,553
Comprehensive income:
Net income (loss)							25,673						2,688		28,361
Other comprehensive income (loss)											8,148		3,023		11,171
Total comprehensive income															39,532
Net change in noncontrolling interests			(8,304)										29,648		21,344
Adjustment to members' interest from change in ownership in Welltower OP			(6,139)										6,139		—
Redemption of OP Units and DownREIT Units	272		17,515										(432)		17,355
Amounts related to stock incentive plans, net of forfeitures	134		9,330		(1,924)										7,540
Net proceeds from issuance of common stock	5,603		404,862												410,465
Dividends paid:
Common stock dividends									(301,829)						(301,829)
Balances at March 31, 2023	$	497,928	$	27,160,014	$	(112,925)	$	8,830,623	$	(15,815,926)	$	(111,559)	$	755,805	$	21,203,960
Comprehensive income:
Net income (loss)							103,040						3,505		106,545
Other comprehensive income (loss)											28,651		4,410		33,061
Total comprehensive income															139,606
Net change in noncontrolling interests			8,579								(12,686)		(149,013)		(153,120)
Adjustment to members' interest from change in ownership in Welltower OP			(4,794)										4,794		—
Redemption of OP Units and DownREIT Units	1		18										(19)		—
Amounts related to stock incentive plans, net of forfeitures	43		11,088		893										12,024
Net proceeds from issuance of common stock	11,833		910,392												922,225
Dividends paid:
Common stock dividends									(300,772)						(300,772)
Balances at June 30, 2023	$	509,805	$	28,085,297	$	(112,032)	$	8,933,663	$	(16,116,698)	$	(95,594)	$	619,482	$	21,823,923

6

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

	Six Months Ended June 30, 2022
	Common Stock		Capital in Excess of Par Value		Treasury Stock		Cumulative Net Income		Cumulative Dividends		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balances at January 1, 2022	$	448,605	$	23,133,641	$	(107,750)	$	8,663,736	$	(14,380,915)	$	(121,316)	$	960,578	$	18,596,579
Comprehensive income:
Net income (loss)							61,925						2,752		64,677
Other comprehensive income (loss)											(17,156)		1,465		(15,691)
Total comprehensive income															48,986
Net change in noncontrolling interests			(63,026)										(128,305)		(191,331)
Amounts related to stock incentive plans, net of forfeitures	166		7,279		(4,768)										2,677
Net proceeds from issuance of common stock	6,605		542,218												548,823
Dividends paid:
Common stock dividends									(273,668)						(273,668)
Balances at March 31, 2022	$	455,376	$	23,620,112	$	(112,518)	$	8,725,661	$	(14,654,583)	$	(138,472)	$	836,490	$	18,732,066
Comprehensive income:
Net income (loss)							89,785						4,409		94,194
Other comprehensive income (loss)											(6,724)		(15,116)		(21,840)
Total comprehensive income															72,354
Net change in noncontrolling interests			(6,760)										118,793		112,033
Adjustment to members' interest from change in ownership in Welltower OP			46,861										(46,861)		—
Amounts related to stock incentive plans, net of forfeitures	20		6,551		827										7,398
Net proceeds from issuance of common stock	9,382		798,277												807,659
Dividends paid:
Common stock dividends									(277,615)						(277,615)
Balances at June 30, 2022	$	464,778	$	24,465,041	$	(111,691)	$	8,815,446	$	(14,932,198)	$	(145,196)	$	897,715	$	19,453,895

7

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

	Six Months Ended
	June 30,
	2023		2022
Operating activities:
Net income	$	134,977	$	161,423
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	681,057		614,383
Other amortization expenses	20,086		11,433
Provision for loan losses, net	3,233		(639)
Impairment of assets	13,715		—
Stock-based compensation expense	19,960		13,466
Loss (gain) on derivatives and financial instruments, net	2,210		1,171
Loss (gain) on extinguishment of debt, net	6		591
Loss (income) from unconsolidated entities	47,403		9,942
Rental income less than (in excess of) cash received	(71,997)		(51,445)
Amortization related to above (below) market leases, net	(248)		(803)
Loss (gain) on real estate dispositions, net	1,421		(19,402)
Loss (gain) on loss of control of subsidiary	(65,485)		—
Distributions by unconsolidated entities	6,895		9,590
Increase (decrease) in accrued expenses and other liabilities	(9,380)		7,234
Decrease (increase) in receivables and other assets	8,450		(37,613)
Net cash provided from (used in) operating activities	792,303		719,331
Investing activities:
Cash disbursed for acquisitions, net of cash acquired	(424,094)		(1,471,767)
Cash disbursed for capital improvements to existing properties	(204,978)		(200,069)
Cash disbursed for construction in progress	(474,115)		(286,427)
Capitalized interest	(22,205)		(11,866)
Investment in loans receivable	(76,397)		(117,565)
Principal collected on loans receivable	46,493		161,180
Other investments, net of payments	(95,819)		3,919
Contributions to unconsolidated entities	(206,160)		(307,513)
Distributions by unconsolidated entities	125,176		13,641
Proceeds from (payments on) derivatives	3,933		27,302
Proceeds from sales of real property	1,950		103,904
Net cash provided from (used in) investing activities	(1,326,216)		(2,085,261)
Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper	—		29,065
Net proceeds from issuance of senior unsecured notes	1,011,427		1,040,232
Net proceeds from the issuance of secured debt	373,462		10,344
Payments on secured debt	(101,277)		(226,854)
Net proceeds from the issuance of common stock	1,333,908		1,357,561
Payments for deferred financing costs and prepayment penalties	(6,958)		(4,081)
Contributions by noncontrolling interests(1)	181,272		38,065
Distributions to noncontrolling interests(1)	(80,672)		(214,288)
Cash distributions to stockholders	(603,597)		(549,842)
Other financing activities	(5,254)		(6,586)
Net cash provided from (used in) financing activities	2,102,311		1,473,616
Effect of foreign currency translation on cash and cash equivalents and restricted cash	8,379		(12,190)
Increase (decrease) in cash, cash equivalents and restricted cash	1,576,777		95,496
Cash, cash equivalents and restricted cash at beginning of period	722,292		346,755
Cash, cash equivalents and restricted cash at end of period	$	2,299,069	$	442,251
Supplemental cash flow information:
Interest paid	$	273,979	$	207,031
Income taxes paid (received), net	1,157		5,462
(1) Includes amounts attributable to redeemable noncontrolling interests.

8

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. We invest 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 Inc., a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), consisting of seniors housing and post-acute communities and outpatient medical properties. 

As of May 24, 2022, we are structured as an umbrella partnership REIT under which substantially all of our business is conducted through Welltower OP LLC, the day-to-day management of which is exclusively controlled by Welltower Inc. Unless stated otherwise or the context otherwise requires, references to "Welltower" mean Welltower Inc. and references to "Welltower OP" mean Welltower OP LLC. References to "we," "us" and "our" mean collectively Welltower, Welltower OP and those entities/subsidiaries owned or controlled by Welltower and/or Welltower OP. Welltower's weighted average ownership in Welltower OP was 99.729% for the six months ended June 30, 2023. As of June 30, 2023, Welltower owned 99.727% of the issued and outstanding units of Welltower OP, with other investors owning the remaining 0.273% of outstanding units. We adjust the noncontrolling members' interest at the end of each period to reflect their interest in the net assets of Welltower OP.

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 six months ended June 30, 2023 are not necessarily an indication of the results that may be expected for the year ending December 31, 2023. 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, 2022.

Impact of COVID-19 Pandemic & Government Grants

The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants in the future is uncertain and cannot be predicted with confidence. We have received government grants under the CARES Act, as well as under similar programs in the U.K. and Canada, primarily to cover increased expenses and lost revenue during the COVID-19 pandemic. We recognized $11,019,000 and $15,155,000 during the three and six months ended June 30, 2023, respectively, as compared to $21,804,000 and $27,564,000 during the three and six ended June 30, 2022, respectively. These grants represent a reduction to property operating expenses in our Consolidated Statements of Comprehensive Income. The amount of qualifying expenditures and lost revenue exceeded grant income recognized and we believe we have complied and will continue to comply with all grant conditions. In the event of non-compliance, all such amounts are subject to recapture.

New Accounting Standards   

In March 2020, the FASB issued an amendment to the reference rate reform standard, which provides the option for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. An example of such reform is the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Entities that make this optional expedient election would not have to remeasure the contracts at the modification date or reassess the accounting treatment if certain criteria are met and would continue applying hedge accounting for relationships affected by reference rate reform. In December 2022, the FASB extended the date for which this guidance can be applied from December 31, 2022 to December 31, 2024. We continue to monitor developments related to the LIBOR transition and identification of an alternative, market-accepted rate.

3. Real Property Acquisitions and Development 

The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets and liabilities at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. 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, 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.

9

WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our real property investment activity by segment for the periods presented (in thousands):

	Six Months Ended
	June 30, 2023								June 30, 2022
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	4,426	$	7,370	$	60,527	$	72,323	$	130,282	$	—	$	26,714	$	156,996
Buildings and improvements	50,172		74,289		256,190		380,651		1,249,982		171		205,161		1,455,314
Acquired lease intangibles	970		—		39,090		40,060		77,705		—		26,836		104,541
Construction in progress	—		—		—		—		108,141		—		—		108,141
Right of use assets, net	—		—		927		927		169		—		3,852		4,021
Total net real estate assets	55,568		81,659		356,734		493,961		1,566,279		171		262,563		1,829,013
Receivables and other assets	2,089		—		358		2,447		6,091		—		260		6,351
Total assets acquired(1)	57,657		81,659		357,092		496,408		1,572,370		171		262,823		1,835,364
Secured debt	(21,767)		—		(40,953)		(62,720)		(219,067)		—		—		(219,067)
Lease liabilities	—		—		(953)		(953)		—		—		(3,852)		(3,852)
Accrued expenses and other liabilities	(570)		—		(8,071)		(8,641)		(11,937)		—		(393)		(12,330)
Total liabilities acquired	(22,337)		—		(49,977)		(72,314)		(231,004)		—		(4,245)		(235,249)
Noncontrolling interests (2)	—		—		—		—		(101,885)		(4)		(664)		(102,553)
Non-cash acquisition related activity(3)	—		—		—		—		(25,795)		—		—		(25,795)
Cash disbursed for acquisitions	35,320		81,659		307,115		424,094		1,213,686		167		257,914		1,471,767
Construction in progress additions	295,120		25,646		190,164		510,930		229,044		45,939		24,336		299,319
Less: Capitalized interest	(16,761)		(2,416)		(3,028)		(22,205)		(9,305)		(2,031)		(530)		(11,866)
Accruals (4)	746		(9,384)		(5,972)		(14,610)		(3,479)		—		2,453		(1,026)
Cash disbursed for construction in progress	279,105		13,846		181,164		474,115		216,260		43,908		26,259		286,427
Capital improvements to existing properties	165,187		11,784		28,007		204,978		146,052		25,016		29,001		200,069
Total cash invested in real property, net of cash acquired	$	479,612	$	107,289	$	516,286	$	1,103,187	$	1,575,998	$	69,091	$	313,174	$	1,958,263

(1) Excludes $5,491,000 of unrestricted and restricted cash acquired during the six months ended June 30, 2022.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests. For the six months ended June 30, 2022, 1,145,000 Welltower OP units were issued as a component of funding for certain transactions.

(3) Relates to the acquisition of assets recognized as investments in unconsolidated entities.

(4) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, offset by amounts paid in the current period.

Effective on April 1, 2022, our leasehold interest relating to the master lease with National Health Investors, Inc. ("NHI") for 17 properties assumed in conjunction with the Holiday Retirement acquisition was terminated as a result of the transition or sale of the properties by NHI. The lease termination was part of an agreement to resolve outstanding litigation with NHI. In conjunction with the agreement, a wholly owned subsidiary and the lessee on the master lease agreed to release $6,883,000 of cash to the landlord, which represents the net cash flow generated from the properties since we assumed the leasehold interest. Additionally, in connection with the lease termination, during the three months ended June 30, 2022, we recognized $58,621,000 in other income on our Consolidated Statements of Comprehensive Income from the derecognition of the right of use asset and related lease liability.

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, 2023		June 30, 2022
Development projects:
Seniors Housing Operating	$	140,865	$	134,562
Triple-net	141,142		—
Outpatient Medical	21,173		—
Total development projects	303,180		134,562
Expansion projects	26,125		—
Total construction in progress conversions	$	329,305	$	134,562

10

WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Real Estate Intangibles 

The following is a summary of our real estate intangibles, excluding those related to ground leases or classified as held for sale, as of the dates indicated (dollars in thousands):

	June 30, 2023		December 31, 2022
Assets:
In place lease intangibles	$	1,802,091	$	1,817,580
Above market tenant leases	66,354		57,203
Lease commissions	81,904		70,675
Gross historical cost	1,950,349		1,945,458
Accumulated amortization	(1,552,953)		(1,484,048)
Net book value	$	397,396	$	461,410
Liabilities:
Below market tenant leases	$	82,084	$	77,985
Accumulated amortization	(56,784)		(52,701)
Net book value	$	25,300	$	25,284

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Rental income related to (above)/below market tenant leases, net	$	130	$	351	$	175	$	736
Amortization related to in place lease intangibles and lease commissions	(53,774)		(50,194)		(109,925)		(98,188)

5. Dispositions, Real Property Held for Sale and Impairment

We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (i.e., property type, relationship or geography). At June 30, 2023, 18 Seniors Housing Operating properties, one Triple-net property and one Outpatient Medical property with an aggregate real estate balance of $404,071,000 were classified as held for sale. In addition to the real property balances, secured debt balances of $171,711,000 and net other assets and (liabilities) of $26,950,000 are included in the Consolidated Balance Sheets related to the held for sale properties. Expected gross sales proceeds related to the held for sale properties are approximately $456,859,000.

During the six months ended June 30, 2023, we recorded $13,715,000 of impairment charges related to two Seniors Housing Operating properties and one Triple-net property classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell and one Seniors Housing Operating property classified as held for use for which the carrying value exceeded the estimated fair value. We did not record any impairment charges during the six months ended June 30, 2022.

Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations are not reclassified on our Consolidated Statements of Comprehensive Income. We recognized income (loss) from continuing operations before income taxes and other items from properties sold or classified as held for sale as of June 30, 2023 of $65,362,000 and $54,381,000 for the three and six months ended June 30, 2023 and $1,588,000 and $2,602,000 for the same periods in 2022, respectively.

The following is a summary of our real property disposition activity for the periods presented (in thousands):

	Six Months Ended
	June 30, 2023		June 30, 2022
Real estate dispositions:
Seniors Housing Operating	$	243,695	$	13,470
Triple-net	2,028		70,571
Total dispositions	245,723		84,041
Gain (loss) on real estate dispositions, net	(1,421)		19,402
Net other assets/(liabilities) disposed	(624)		461
Non-cash consideration	(241,728)		—
Cash proceeds from real estate dispositions	$	1,950	$	103,904

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WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Strategic Dissolution of Revera Joint Ventures

During the three months ended June 30, 2023, we entered into definitive agreements to dissolve our existing Revera joint venture relationships across the U.S., U.K. and Canada. The transactions include acquiring the remaining interests in 110 properties from Revera while simultaneously selling interests in 31 properties to Revera.

During the second quarter, we closed the U.K. portfolio portion of the transaction through the acquisition of the remaining ownership interest in 29 properties previously held in two separate consolidated joint venture structures in which we owned 75% and 90% of the interests in exchange for the disposition to Revera of our interests in four properties. In addition, we received cash from Revera of $107,341,000 relating to the net settlement of loans previously made to the joint ventures. Operations for the 29 retained properties were transitioned to Avery Healthcare.

Total proceeds related to the four properties disposed were $222,521,000, which included non-cash consideration from Revera of $241,728,000, comprised of the fair value of interests received by us of $198,837,000 and an allocation of Revera's noncontrolling interests of $42,891,000, partially offset by $9,049,000 of transaction-related expenses as well as the $10,158,000 of cash paid to equalize the value exchanged between the parties. We disposed of net real property owned of $224,208,000, resulting in a loss of $1,687,000 recognized within gain (loss) on real estate dispositions, net within our Consolidated Statements of Comprehensive Income. Consideration transferred to acquire the additional interests in the 29 properties was comprised of the fair value of interests transferred by us of $198,837,000 and $5,776,000 of cash paid for transaction-related expenses. We derecognized $180,497,000 of noncontrolling interests and $22,270,000 of liabilities previously due to Revera with an adjustment of $1,846,000 recognized in capital in excess of par value. The non-cash investing activity with respect to the sale of the four properties and non-cash financing activity with respect to the acquisition of Revera's interests in the 29 properties has been excluded from our Consolidated Statement of Cash Flows.

In July, we closed transactions related primarily to our U.S portfolio through (i) the acquisition of ten properties currently under development or recently developed by Sunrise Senior Living, previously held 34% by us/66% by Revera within an equity method joint venture for an additional investment of approximately $286 million, (ii) the disposition of our minority interests in 12 U.S. properties and one Canadian development project for approximately $216 million, and (iii) the disposition of our 34% interest in the Sunrise Senior Living management company. During the three months ended June 30, 2023, we recognized an impairment charge of $27,708,000 in income from unconsolidated entities on our Consolidated Statements of Comprehensive Income based on estimated sales proceeds for the sale of the Sunrise Senior Living management company. Operations for two of the now wholly-owned properties, along with operations for 26 existing wholly-owned properties, transitioned to Oakmont Management Group.

We anticipate closing the remainder of the transaction related to our Canadian portfolio before December 31, 2023. The Canadian portfolio consists of 85 properties in a joint venture owned 75% by us and 25% by Revera. As a part of the transaction we intend to acquire Revera's interest in 71 properties and sell our interests in the remaining 14 properties.

Genesis HealthCare

As part of the substantial exit of the Genesis HealthCare operating relationship, which we disclosed on March 2, 2021, we transitioned the sublease of a portfolio of seven facilities from Genesis HealthCare to Complete Care Management in the second quarter of 2021. As part of the March 2021 transaction, we entered into a forward sale agreement for the seven properties valued at $182,618,000, which was expected to close when the Welltower-held purchase option became exercisable. As of March 31, 2023, the right of use assets related to the properties were $115,359,000 and were reflected as held for sale with the corresponding lease liabilities of $66,530,000 on our Consolidated Balance Sheet.

On May 1, 2023, we executed a series of transactions that included the assignment of the leasehold interest to a newly formed tri-party unconsolidated joint venture with Aurora Health Network, Peace Capital (an affiliate of Complete Care Management) and us, and culminated with the closing of the purchase option by the joint venture. The transactions resulted in net cash proceeds to us of $104,240,000 (excluded from the dispositions table above) after our retained interest of $11,571,000 in the joint venture and a gain from the loss of control and derecognition of the leasehold interest of $65,485,000, which we recorded in other income within our Consolidated Statements of Comprehensive Income.

6. Leases

We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities.

12

WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense were as follows for the periods presented (in thousands):

		Six Months Ended
	Classification	June 30, 2023		June 30, 2022
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	11,093	$	11,209
Non-real estate investment lease expense	General and administrative expenses	3,586		2,101
Finance lease cost:
Amortization of leased assets	Property operating expenses	3,628		3,171
Interest on lease liabilities	Interest expense	1,980		2,937
Sublease income	Rental income	(3,933)		(5,587)
Total		$	16,354	$	13,831

(1) Includes short-term leases which are immaterial.

Supplemental balance sheet information related to leases in which we are the lessee is as follows (in thousands):

	Classification	June 30, 2023		December 31, 2022
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	284,601	$	287,984
Finance leases - real estate	Right of use assets, net	37,715		35,958
Real estate right of use assets, net		322,316		323,942
Operating leases - non-real estate investments	Receivables and other assets	8,433		10,119
Finance leases - held for sale (1)	Real property held for sale, net of accumulated depreciation	—		116,453
Total right of use assets, net		$	330,749	$	450,514
Lease liabilities:
Operating leases		$	299,377	$	302,360
Financing leases		49,393		113,464
Total		$	348,770	$	415,824
(1) During the quarter ended June 30, 2023, we contributed finance leases at seven properties which was previously classified as held for sale into a newly formed unconsolidated joint venture, which recognized the purchase option within the leases. See Note 5 for further discussion.

Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. 

Leases in our Triple-net and Outpatient Medical portfolios recognized under ASC 842, "Leases" (ASC 842), typically include some form of operating expense reimbursement by the tenant. For the six months ended June 30, 2023, we recognized $767,498,000 of rental income related to operating leases, of which $108,566,000 was for variable lease payments that primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the six months ended June 30, 2022, we recognized $717,801,000 of rental income related to operating leases, of which $96,309,000 was for variable lease payments.

For the majority of our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and as such, resident agreements are accounted for under ASC 606, "Revenue from Contracts with Customers." Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842. The amount of revenue related to these leases was $222,452,000 and $198,052,000 for the six months ended June 30, 2023 and 2022, respectively.

7. Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, as well as corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $26,641,000 and $22,878,000 as of June 30, 2023 and December 31, 2022, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):

13

WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

	June 30, 2023		December 31, 2022
Mortgage loans	$	738,496	$	707,464
Other real estate loans	239,920		195,566
Allowance for credit losses on real estate loans receivable	(12,907)		(12,186)
Real estate loans receivable, net of credit allowance	965,509		890,844
Non-real estate loans	470,786		441,231
Allowance for credit losses on non-real estate loans receivable	(173,433)		(152,063)
Non-real estate loans receivable, net of credit allowance	297,353		289,168
Total loans receivable, net of credit allowance	$	1,262,862	$	1,180,012

The following is a summary of our loan activity for the periods presented (in thousands):    

	Six Months Ended
	June 30, 2023		June 30, 2022
Advances on loans receivable	$	76,397	$	117,565
Less: Receipts on loans receivable	46,493		161,180
Net cash advances (receipts) on loans receivable	$	29,904	$	(43,615)

The allowance for credit losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of each of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral.

A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality, we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses. The following is a summary of our loans by credit loss category (in thousands):

	June 30, 2023
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2023	$	213,105	$	(169,978)	$	43,127	8
Collective loan pool	2007 - 2018	216,440		(2,878)		213,562		12
Collective loan pool	2019	23,397		(311)		23,086		4
Collective loan pool	2020	33,891		(451)		33,440		6
Collective loan pool	2021	783,161		(10,339)		772,822		14
Collective loan pool	2022	118,720		(1,579)		117,141		29
Collective loan pool	2023	60,488		(804)		59,684		7
Total loans		$	1,449,202	$	(186,340)	$	1,262,862	80

The total allowance for credit losses balance is deemed sufficient to absorb expected losses relating to our loan portfolio. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):                            

	Six Months Ended
	June 30, 2023		June 30, 2022
Balance at beginning of period	$	164,249	$	166,785
Provision for loan losses, net	3,233		(639)
Purchased deteriorated loan	19,077		—
Foreign currency translation	(219)		(1,063)
Balance at end of period	$	186,340	$	165,083

14

WELLTOWER INC.

 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investments in Unconsolidated Entities

We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. Our share of the results of operations for these properties has 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)	June 30, 2023		December 31, 2022
Seniors Housing Operating	10% to 95%	$	1,271,079	$	1,171,307
Triple-net