Real Property Acquisitions and Development

9 Months Ended

Sep. 30, 2024

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 directly 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. Our acquisitions of properties are at times subject to earn out provisions based on the future operating performance of the acquired properties, which could result in incremental payments in the future. Our policy is to recognize such contingent consideration when the contingency is resolved

and the consideration becomes payable. In the fourth quarter of 2024, we expect to make earn out payments of approximately $150 million. We will capitalize any payments made as additional costs of the acquisitions.

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


	Nine Months Ended
	September 30, 2024								September 30, 2023
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	208,219	$	63,075	$	10,160	$	281,454	$	58,049	$	58,797	$	72,992	$	189,838
Buildings and improvements	1,446,475		621,378		34,481		2,102,334		411,273		430,041		314,892		1,156,206
Acquired lease intangibles	89,460		33,232		2,193		124,885		25,617		—		45,936		71,553
Construction in progress	45,983		—		—		45,983		165,934		—		—		165,934
Real property held for sale	—		297,000		—		297,000		—		—		—		—
Right of use assets, net	—		—		—		—		16,539		—		927		17,466
Total net real estate assets	1,790,137		1,014,685		46,834		2,851,656		677,412		488,838		434,747		1,600,997
Receivables and other assets	9,592		1,118		112		10,822		16,789		—		545		17,334
Total assets acquired(1)	1,799,729		1,015,803		46,946		2,862,478		694,201		488,838		435,292		1,618,331
Secured debt	(350,978)		(465,820)		—		(816,798)		(292,160)		—		(40,953)		(333,113)
Lease liabilities	—		—		—		—		(16,539)		—		(953)		(17,492)
Accrued expenses and other liabilities	(19,752)		(20,309)		(182)		(40,243)		(10,825)		—		(10,832)		(21,657)
Total liabilities acquired	(370,730)		(486,129)		(182)		(857,041)		(319,524)		—		(52,738)		(372,262)
Noncontrolling interests	(25,787)		—		—		(25,787)		—		—		(775)		(775)
Non-cash acquisition related activity(2)	(119,012)		(191,532)		—		(310,544)		(171,667)		—		—		(171,667)
Cash disbursed for acquisitions	1,284,200		338,142		46,764		1,669,106		203,010		488,838		381,779		1,073,627
Construction in progress additions	424,827		28		269,840		694,695		450,205		25,646		297,862		773,713
Less: Capitalized interest	(36,247)		—		(7,708)		(43,955)		(28,289)		(2,416)		(5,447)		(36,152)
Accruals(3)	1,217		126		(19,572)		(18,229)		3,447		(2,692)		(7,604)		(6,849)
Cash disbursed for construction in progress	389,797		154		242,560		632,511		425,363		20,538		284,811		730,712
Capital improvements to existing properties	448,144		19,870		70,738		538,752		261,935		17,933		54,222		334,090
Total cash invested in real property, net of cash acquired	$	2,122,141	$	358,166	$	360,062	$	2,840,369	$	890,308	$	527,309	$	720,812	$	2,138,429

(1) Excludes $33,577,000 and $6,431,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2024 and September 30, 2023, respectively.

(2) Primarily relates to the acquisition of assets previously financed as real estate loans receivable, the acquisition of assets previously recognized as investments in unconsolidated entities, the acquisition of assets for which consideration was only partially funded at close, and the $179,770,000 gain on acquisition of controlling interests described below.

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

Significant Joint Venture Transactions

During the three months ended September 30, 2023, we paid $69,606,000 to acquire the 45% redeemable noncontrolling ownership interest in two consolidated joint ventures with the Canadian Pension Plan Investment Board, which owned interests in ten medical office buildings. In conjunction with the transaction $118,256,000 was removed from redeemable noncontrolling interests with the difference recorded to capital in excess of par value on our Consolidated Balance Sheets. The transaction is excluded from the table above.

On September 30, 2024, the Company, which held a 25% minority interest in an existing equity method joint venture that owned 39 properties subject to triple-net leases with two tenants, acquired the remaining beneficial interest for $205,029,000 in cash, net of cash and restricted cash acquired. The properties were encumbered with secured debt with an aggregate principal balance of $532,575,000. We evaluated the acquisition and determined that the entity meets the criteria of a variable interest entity ("VIE") and that we are its primary beneficiary; therefore, upon consolidation we recognized a gain of $179,770,000 in gains (losses) on real estate dispositions and acquisitions of controlling interests, net in the Consolidated Statements of Comprehensive Income during the period ended September 30, 2024. The fair value of the assets acquired and liabilities assumed is included in the Triple-net segment in the table above.

Affinity Living Communities

In February 2024, we entered into a definitive agreement to acquire 25 Seniors Housing Operating properties for a total purchase price of approximately $969 million, which will be managed under the Affinity brand. During the three months ended September 30, 2024, we closed on the acquisition of 20 properties with a purchase price of $690,510,000 through a combination of cash, the issuance of 203,328 OP Units, and the assumption of $364,130,000 of secured debt. The acquisition of the remaining properties is expected to close by the end of the year, subject to customary closing conditions and lender consents.

Announced Acquisitions

In July 2024, we entered into a definitive agreement to acquire a seniors housing portfolio of 136 properties and leasehold interests in the U.K. for approximately $1.0 billion of consideration. The transaction closed in October 2024.

Construction Activity

The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):


	Nine Months Ended
	September 30, 2024		September 30, 2023
Development projects:
Seniors Housing Operating	$	462,246	$	280,333
Triple-net	—		141,142
Outpatient Medical	162,699		30,071
Total development projects	624,945		451,546
Expansion projects	20,229		62,292
Total construction in progress conversions	$	645,174	$	513,838