UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20212022
or
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☐ | | 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.) 333-264093-01 (Welltower OP Inc.)
WELLTOWER INC.
WELLTOWER OP INC.
(Exact name of registrant as specified in its charter)
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Delaware (Welltower Inc.) | 34-1096634 |
Delaware (Welltower OP Inc.) | 88-1538732 |
(State or other jurisdiction of Incorporation) | (IRS Employer Identification No.) |
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4500 Dorr Street | Toledo, | Ohio | | 43615 |
(Address of principal executive offices) | (Zip Code) |
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(419) - | 247-2800 |
(Registrant’sRegistrants' telephone number, including area code) |
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Not Applicable |
(Former name, former address and former fiscal year, if changed since last report) |
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Securities registered pursuant to Section 12(b) of the Act |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Welltower Inc. | Common stock, $1.00 par value per share | WELL | New York Stock Exchange |
Welltower OP Inc. | 4.800% Notes due 2028 | WELL28WELL/28 | New York Stock Exchange |
Welltower OP Inc. | 4.500% Notes due 2034 | WELL34WELL/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.
Welltower Inc. Yes þ No ¨
Welltower OP Inc. 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).
Welltower Inc. Yes þ No ¨
Welltower OP Inc. 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.
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Welltower Inc. | | | | | | | | | |
| Large accelerated filer | þ | Accelerated filer | ¨ | Non-accelerated filer | ¨ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
(Do not check if a smaller reporting company) |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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Welltower OP Inc. | | | | | | | | | |
| Large accelerated filer | þ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Welltower Inc. Yes ☐ No þ
AsWelltower OP Inc. Yes ☐ No þ
As of April 23, 2021, th29, 2022,e registrant h Welltower Inc. ad 417,520,500had share453,967,774 shares of common stock outstanding.
EXPLANATORY NOTE
On March 7, 2022, Welltower Inc. issued a press release announcing that it intends to implement a corporate reorganization into an Umbrella Partnership Real Estate Investment Trust ("UPREIT"). Through March 31, 2022, the business of the registrant was conducted by an entity known as Welltower Inc., a Delaware corporation and real estate investment trust ("Old Welltower"). In February 2022, Old Welltower formed WELL Merger Holdco Inc., a Delaware corporation ("New Welltower"), as a wholly owned subsidiary and New Welltower formed WELL Merger Holdco Sub Inc., a Delaware corporation ("Merger Sub"), as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation (the "Merger"). As a result, New Welltower became the publicly traded parent company of Old Welltower and Old Welltower's subsidiaries and inherited the name "Welltower Inc." In conjunction with the Merger, Old Welltower changed its name to "Welltower OP Inc." and, subject to approval of New Welltower's shareholders at the 2022 annual meeting, Old Welltower will convert to a Delaware limited liability company ("Welltower OP LLC"). At the effective time of the Merger, each outstanding capital share of Old Welltower was converted into one equivalent capital share of New Welltower. Following the UPREIT reorganization, Welltower Inc. expects its business to be conducted through Welltower OP LLC and does not expect to have substantial assets or liabilities, other than through its investment in Welltower OP LLC.
As a result of the Merger, New Welltower became the successor issuer to Old Welltower pursuant to Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as a result, New Welltower's common shares were deemed registered under Section 12(b) of the Exchange Act. This Quarterly Report on Form 10-Q pertains to the business and results of operations of Welltower OP Inc. (Old Welltower) for its quarter ended March 31, 2022, and all data, discussions or references to other periods prior to the effectiveness of the Merger pertain to Old Welltower. At the effective time of the Merger, both Old Welltower and New Welltower were, and remain, public registrants and New Welltower began to conducts its operations through Old Welltower. As such, we have elected to co-file this Quarterly Report on Form 10-Q to ensure continuity of information to investors. For additional information on our UPREIT reorganization, please see our Current Reports on Form 8-K filed on March 7, 2022 and April 1, 2022.
Throughout this Quarterly Report on Form 10-Q, unless the context requires otherwise, "the Company", "we", "us" and "our" refer to Welltower OP Inc. (Old Welltower) through March 31, 2022. Forward-looking references to dates and periods occurring after April 1, 2022 are references to Welltower Inc. (New Welltower).
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | Page |
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Item 1. Financial Statements (Unaudited) | |
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Consolidated Balance Sheets | |
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Consolidated Statements of Comprehensive Income | |
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Consolidated Statements of Equity | |
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Consolidated Statements of Cash Flows | |
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Notes to Unaudited Consolidated Financial Statements | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
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Item 4. Controls and Procedures | |
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PART II. OTHER INFORMATION | |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 5. Other Information | |
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Item 6. Exhibits | |
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Signatures | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
| | | March 31, 2021 (Unaudited) | | December 31, 2020 (Note) | | March 31, 2022 (Unaudited) | | December 31, 2021 (Note) |
Assets: | Assets: | | | | | Assets: | | | | |
Real estate investments: | Real estate investments: | | | | | Real estate investments: | | | | |
Real property owned: | Real property owned: | | Real property owned: | |
Land and land improvements | Land and land improvements | | $ | 3,397,055 | | | $ | 3,440,650 | | Land and land improvements | | $ | 4,030,150 | | | $ | 3,968,430 | |
Buildings and improvements | Buildings and improvements | | 27,667,188 | | | 28,024,971 | | Buildings and improvements | | 31,724,328 | | | 31,062,203 | |
Acquired lease intangibles | Acquired lease intangibles | | 1,506,823 | | | 1,500,030 | | Acquired lease intangibles | | 1,844,780 | | | 1,789,628 | |
Real property held for sale, net of accumulated depreciation | Real property held for sale, net of accumulated depreciation | | 564,062 | | | 216,613 | | Real property held for sale, net of accumulated depreciation | | 199,490 | | | 134,097 | |
Construction in progress | Construction in progress | | 542,302 | | | 487,742 | | Construction in progress | | 717,657 | | | 651,389 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | | (6,212,432) | | | (6,104,297) | | Less accumulated depreciation and amortization | | (7,215,622) | | | (6,910,114) | |
Net real property owned | Net real property owned | | 27,464,998 | | | 27,565,709 | | Net real property owned | | 31,300,783 | | | 30,695,633 | |
Right of use assets, net | Right of use assets, net | | 454,787 | | | 465,866 | | Right of use assets, net | | 404,689 | | | 522,796 | |
Real estate loans receivable, net of credit allowance | Real estate loans receivable, net of credit allowance | | 487,674 | | | 443,372 | | Real estate loans receivable, net of credit allowance | | 1,003,136 | | | 1,068,681 | |
Net real estate investments | Net real estate investments | | 28,407,459 | | | 28,474,947 | | Net real estate investments | | 32,708,608 | | | 32,287,110 | |
Other assets: | Other assets: | | | Other assets: | | |
Investments in unconsolidated entities | Investments in unconsolidated entities | | 1,020,010 | | | 946,234 | | Investments in unconsolidated entities | | 1,138,526 | | | 1,039,043 | |
Goodwill | Goodwill | | 68,321 | | | 68,321 | | Goodwill | | 68,321 | | | 68,321 | |
Cash and cash equivalents | Cash and cash equivalents | | 2,131,846 | | | 1,545,046 | | Cash and cash equivalents | | 301,089 | | | 269,265 | |
Restricted cash | Restricted cash | | 426,976 | | | 475,997 | | Restricted cash | | 65,954 | | | 77,490 | |
Straight-line rent receivable | Straight-line rent receivable | | 312,721 | | | 344,066 | | Straight-line rent receivable | | 385,639 | | | 365,643 | |
Receivables and other assets | Receivables and other assets | | 624,918 | | | 629,031 | | Receivables and other assets | | 804,316 | | | 803,453 | |
Total other assets | Total other assets | | 4,584,792 | | | 4,008,695 | | Total other assets | | 2,763,845 | | | 2,623,215 | |
Total assets | Total assets | | $ | 32,992,251 | | | $ | 32,483,642 | | Total assets | | $ | 35,472,453 | | | $ | 34,910,325 | |
| Liabilities and equity | Liabilities and equity | | | Liabilities and equity | |
Liabilities: | Liabilities: | | | Liabilities: | |
| Unsecured credit facility and commercial paper | | Unsecured credit facility and commercial paper | | $ | 299,968 | | | $ | 324,935 | |
Senior unsecured notes | Senior unsecured notes | | $ | 12,183,710 | | | $ | 11,420,790 | | Senior unsecured notes | | 12,136,760 | | | 11,613,758 | |
Secured debt | Secured debt | | 2,329,474 | | | 2,377,930 | | Secured debt | | 2,104,945 | | | 2,192,261 | |
Lease liabilities | Lease liabilities | | 408,916 | | | 418,266 | | Lease liabilities | | 548,999 | | | 545,944 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | | 1,023,219 | | | 1,041,594 | | Accrued expenses and other liabilities | | 1,203,755 | | | 1,235,554 | |
Total liabilities | Total liabilities | | 15,945,319 | | | 15,258,580 | | Total liabilities | | 16,294,427 | | | 15,912,452 | |
Redeemable noncontrolling interests | Redeemable noncontrolling interests | | 355,915 | | | 343,490 | | Redeemable noncontrolling interests | | 445,960 | | | 401,294 | |
Equity: | Equity: | | | Equity: | | |
Common stock | Common stock | | 418,866 | | | 418,691 | | Common stock | | 455,376 | | | 448,605 | |
Capital in excess of par value | Capital in excess of par value | | 20,814,196 | | | 20,823,145 | | Capital in excess of par value | | 23,620,112 | | | 23,133,641 | |
Treasury stock | Treasury stock | | (106,519) | | | (104,490) | | Treasury stock | | (112,518) | | | (107,750) | |
Cumulative net income | Cumulative net income | | 8,399,144 | | | 8,327,598 | | Cumulative net income | | 8,725,661 | | | 8,663,736 | |
Cumulative dividends | Cumulative dividends | | (13,598,673) | | | (13,343,721) | | Cumulative dividends | | (14,654,583) | | | (14,380,915) | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | (128,136) | | | (148,504) | | Accumulated other comprehensive income (loss) | | (138,472) | | | (121,316) | |
Total Welltower Inc. stockholders’ equity | Total Welltower Inc. stockholders’ equity | | 15,798,878 | | | 15,972,719 | | Total Welltower Inc. stockholders’ equity | | 17,895,576 | | | 17,636,001 | |
Noncontrolling interests | Noncontrolling interests | | 892,139 | | | 908,853 | | Noncontrolling interests | | 836,490 | | | 960,578 | |
Total equity | Total equity | | 16,691,017 | | | 16,881,572 | | Total equity | | 18,732,066 | | | 18,596,579 | |
Total liabilities and equity | Total liabilities and equity | | $ | 32,992,251 | | | $ | 32,483,642 | | Total liabilities and equity | | $ | 35,472,453 | | | $ | 34,910,325 | |
Note: The consolidated balance sheet at December 31, 20202021 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.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands, except per share data)
| | | Three Months Ended | | | Three Months Ended | |
| | March 31, | | | March 31, | |
| | | 2021 | | 2020 | | | | 2022 | | 2021 | |
Revenues: | Revenues: | | | | | | Revenues: | | | | | |
Resident fees and services | Resident fees and services | | $ | 723,464 | | | $ | 849,972 | | | Resident fees and services | | $ | 994,335 | | | $ | 723,464 | | |
Rental income | Rental income | | 302,843 | | | 389,960 | | | Rental income | | 356,390 | | | 302,843 | | |
Interest income | Interest income | | 19,579 | | | 15,241 | | | Interest income | | 38,994 | | | 19,579 | | |
Other income | Other income | | 6,176 | | | 3,429 | | | Other income | | 5,985 | | | 6,176 | | |
Total revenues | Total revenues | | 1,052,062 | | | 1,258,602 | | | Total revenues | | 1,395,704 | | | 1,052,062 | | |
| Expenses: | Expenses: | | | | Expenses: | | |
Property operating expenses | Property operating expenses | | 617,326 | | | 681,781 | | | Property operating expenses | | 853,669 | | | 617,326 | | |
Depreciation and amortization | Depreciation and amortization | | 244,426 | | | 274,801 | | | Depreciation and amortization | | 304,088 | | | 244,426 | | |
Interest expense | Interest expense | | 123,142 | | | 142,007 | | | Interest expense | | 121,696 | | | 123,142 | | |
General and administrative expenses | General and administrative expenses | | 29,926 | | | 35,481 | | | General and administrative expenses | | 37,706 | | | 29,926 | | |
Loss (gain) on derivatives and financial instruments, net | Loss (gain) on derivatives and financial instruments, net | | 1,934 | | | 7,651 | | | Loss (gain) on derivatives and financial instruments, net | | 2,578 | | | 1,934 | | |
Loss (gain) on extinguishment of debt, net | Loss (gain) on extinguishment of debt, net | | (4,643) | | | 0 | | | Loss (gain) on extinguishment of debt, net | | (12) | | | (4,643) | | |
Provision for loan losses | | 1,383 | | | 7,072 | | | |
Provision for loan losses, net | | Provision for loan losses, net | | (804) | | | 1,383 | | |
Impairment of assets | Impairment of assets | | 23,568 | | | 27,827 | | | Impairment of assets | | — | | | 23,568 | | |
Other expenses | Other expenses | | 10,994 | | | 6,292 | | | Other expenses | | 26,069 | | | 10,994 | | |
Total expenses | Total expenses | | 1,048,056 | | | 1,182,912 | | | Total expenses | | 1,344,990 | | | 1,048,056 | | |
| Income (loss) from continuing operations before income taxes and other items | Income (loss) from continuing operations before income taxes and other items | | 4,006 | | | 75,690 | | | Income (loss) from continuing operations before income taxes and other items | | 50,714 | | | 4,006 | | |
Income tax (expense) benefit | Income tax (expense) benefit | | (3,943) | | | (5,442) | | | Income tax (expense) benefit | | (5,013) | | | (3,943) | | |
Income (loss) from unconsolidated entities | Income (loss) from unconsolidated entities | | 13,049 | | | (3,692) | | | Income (loss) from unconsolidated entities | | (2,884) | | | 13,049 | | |
Gain (loss) on real estate dispositions, net | Gain (loss) on real estate dispositions, net | | 59,080 | | | 262,824 | | | Gain (loss) on real estate dispositions, net | | 22,934 | | | 59,080 | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | 72,192 | | | 329,380 | | | Income (loss) from continuing operations | | 65,751 | | | 72,192 | | |
| Net income | Net income | | 72,192 | | | 329,380 | | | Net income | | 65,751 | | | 72,192 | | |
Less: Net income (loss) attributable to noncontrolling interests(1) | Less: Net income (loss) attributable to noncontrolling interests(1) | | 646 | | | 19,096 | | | Less: Net income (loss) attributable to noncontrolling interests(1) | | 3,826 | | | 646 | | |
Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | | $ | 71,546 | | | $ | 310,284 | | | Net income (loss) attributable to common stockholders | | $ | 61,925 | | | $ | 71,546 | | |
| Average number of common shares outstanding: | | | | |
Weighted average number of common shares outstanding: | | Weighted average number of common shares outstanding: | | |
Basic | Basic | | 417,241 | | | 410,306 | | | Basic | | 447,379 | | | 417,241 | | |
Diluted | Diluted | | 419,079 | | | 412,420 | | | Diluted | | 449,802 | | | 419,079 | | |
| Earnings per share: | Earnings per share: | | | | Earnings per share: | | |
Basic: | Basic: | | | | Basic: | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | 0.17 | | | $ | 0.80 | | | Income (loss) from continuing operations | | $ | 0.15 | | | $ | 0.17 | | |
Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | | $ | 0.17 | | | $ | 0.76 | | | Net income (loss) attributable to common stockholders | | $ | 0.14 | | | $ | 0.17 | | |
| Diluted: | Diluted: | | | | Diluted: | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | 0.17 | | | $ | 0.80 | | | Income (loss) from continuing operations | | $ | 0.15 | | | $ | 0.17 | | |
Net income (loss) attributable to common stockholders(2) | Net income (loss) attributable to common stockholders(2) | | $ | 0.17 | | | $ | 0.75 | | | Net income (loss) attributable to common stockholders(2) | | $ | 0.14 | | | $ | 0.17 | | |
| Dividends declared and paid per common share | Dividends declared and paid per common share | | $ | 0.61 | | | $ | 0.87 | | | Dividends declared and paid per common share | | $ | 0.61 | | | $ | 0.61 | | |
(1) Includes amounts attributable to redeemable noncontrolling interests.
(2) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
| | | | Three Months Ended | | | | Three Months Ended | |
| | March 31, | | | March 31, | |
| | | 2021 | | 2020 | | | | 2022 | | 2021 | |
Net income | Net income | | $ | 72,192 | | | $ | 329,380 | | | Net income | | $ | 65,751 | | | $ | 72,192 | | |
| Other comprehensive income (loss): | Other comprehensive income (loss): | | | | Other comprehensive income (loss): | | |
Foreign currency translation gain (loss) | Foreign currency translation gain (loss) | | 44,210 | | | (265,577) | | | Foreign currency translation gain (loss) | | (66,948) | | | 44,210 | | |
Derivative and financial instruments designated as hedges gain (loss) | Derivative and financial instruments designated as hedges gain (loss) | | (20,037) | | | 259,112 | | | Derivative and financial instruments designated as hedges gain (loss) | | 51,940 | | | (20,037) | | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | | 24,173 | | | (6,465) | | | Total other comprehensive income (loss) | | (15,008) | | | 24,173 | | |
| Total comprehensive income (loss) | Total comprehensive income (loss) | | 96,365 | | | 322,915 | | | Total comprehensive income (loss) | | 50,743 | | | 96,365 | | |
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1) | Less: Total comprehensive income (loss) attributable to noncontrolling interests(1) | | 4,451 | | | (3,313) | | | Less: Total comprehensive income (loss) attributable to noncontrolling interests(1) | | 5,974 | | | 4,451 | | |
Total comprehensive income (loss) attributable to common stockholders | Total comprehensive income (loss) attributable to common stockholders | | $ | 91,914 | | | $ | 326,228 | | | Total comprehensive income (loss) attributable to common stockholders | | $ | 44,769 | | | $ | 91,914 | | |
| (1) Includes amounts attributable to redeemable noncontrolling interests. | (1) Includes amounts attributable to redeemable noncontrolling interests. | | | (1) Includes amounts attributable to redeemable noncontrolling interests. | | |
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
| | | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2022 |
| | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Cumulative Net Income | | Cumulative Dividends | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total | | 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, 2021 | | $ | 418,691 | | | $ | 20,823,145 | | | $ | (104,490) | | | $ | 8,327,598 | | | $ | (13,343,721) | | | $ | (148,504) | | | $ | 908,853 | | | $ | 16,881,572 | | |
Balances at January 1, 2022 | | 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: | Comprehensive income: | | Comprehensive income: | | |
Net income (loss) | Net income (loss) | | 71,546 | | | (177) | | | 71,369 | | Net income (loss) | | | 61,925 | | | 2,752 | | | 64,677 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | 20,368 | | | 3,729 | | | 24,097 | | Other comprehensive income (loss) | | | (17,156) | | | 1,465 | | | (15,691) | |
Total comprehensive income | Total comprehensive income | | 95,466 | | Total comprehensive income | | | 48,986 | |
Net change in noncontrolling interests | Net change in noncontrolling interests | | (14,250) | | | (20,266) | | | (34,516) | | Net change in noncontrolling interests | | | (63,026) | | | (128,305) | | | (191,331) | |
Amounts related to stock incentive plans, net of forfeitures | Amounts related to stock incentive plans, net of forfeitures | | 175 | | | 5,393 | | | (2,029) | | | 3,539 | | Amounts related to stock incentive plans, net of forfeitures | | 166 | | | 7,279 | | | (4,768) | | | 2,677 | |
Net proceeds from issuance of common stock | Net proceeds from issuance of common stock | | 0 | | (92) | | | (92) | | Net proceeds from issuance of common stock | | 6,605 | | | 542,218 | | | 548,823 | |
Dividends paid: | Dividends paid: | | Dividends paid: | | |
Common stock dividends | Common stock dividends | | (254,952) | | | (254,952) | | Common stock dividends | | | (273,668) | | | (273,668) | |
Balances at March 31, 2021 | | $ | 418,866 | | | $ | 20,814,196 | | | $ | (106,519) | | | $ | 8,399,144 | | | $ | (13,598,673) | | | $ | (128,136) | | | $ | 892,139 | | | $ | 16,691,017 | | |
Balances at March 31, 2022 | | 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 | |
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| | | | Three Months Ended March 31, 2020 | | | Three Months Ended March 31, 2021 |
| | | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Cumulative Net Income | | Cumulative Dividends | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total | | | 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, 2020 | | $ | 411,005 | | | $ | 20,190,119 | | | $ | (78,955) | | | $ | 7,353,966 | | | $ | (12,223,534) | | | $ | (112,157) | | | $ | 966,183 | | | $ | 16,506,627 | | |
Cumulative change in accounting principle (Note 2) | | (5,212) | | | (5,212) | | |
Balances at January 1, 2020 (as adjusted for change in accounting principle) | | 411,005 | | | 20,190,119 | | | (78,955) | | | 7,348,754 | | | (12,223,534) | | | (112,157) | | | 966,183 | | | 16,501,415 | | |
Balances at January 1, 2021 | | Balances at January 1, 2021 | | $ | 418,691 | | | $ | 20,823,145 | | | $ | (104,490) | | | $ | 8,327,598 | | | $ | (13,343,721) | | | $ | (148,504) | | | $ | 908,853 | | | $ | 16,881,572 | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income (loss) | Net income (loss) | | 310,284 | | | 18,988 | | | 329,272 | | Net income (loss) | | | 71,546 | | | (177) | | | 71,369 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | 15,944 | | | (21,955) | | | (6,011) | | Other comprehensive income (loss) | | | 20,368 | | | 3,729 | | | 24,097 | |
Total comprehensive income | Total comprehensive income | | 323,261 | | Total comprehensive income | | | | 95,466 | |
Net change in noncontrolling interests | Net change in noncontrolling interests | | 37,625 | | | (29,662) | | | 7,963 | | Net change in noncontrolling interests | | | (14,250) | | | (20,266) | | | (34,516) | |
Amounts related to stock incentive plans, net of forfeitures | Amounts related to stock incentive plans, net of forfeitures | | 246 | | | 6,608 | | | (8,020) | | | (1,166) | | Amounts related to stock incentive plans, net of forfeitures | | 175 | | | 5,393 | | | (2,029) | | | | 3,539 | |
Net proceeds from issuance of common stock | Net proceeds from issuance of common stock | | 6,975 | | | 583,890 | | | 590,865 | | Net proceeds from issuance of common stock | | 0 | | (92) | | | | (92) | |
| Dividends paid: | Dividends paid: | | Dividends paid: | | | | |
Common stock dividends | Common stock dividends | | (356,001) | | | (356,001) | | Common stock dividends | | | (254,952) | | | | (254,952) | |
Balances at March 31, 2020 | | $ | 418,226 | | | $ | 20,818,242 | | | $ | (86,975) | | | $ | 7,659,038 | | | $ | (12,579,535) | | | $ | (96,213) | | | $ | 933,554 | | | $ | 17,066,337 | | |
Balances at March 31, 2021 | | Balances at March 31, 2021 | | $ | 418,866 | | | $ | 20,814,196 | | | $ | (106,519) | | | $ | 8,399,144 | | | $ | (13,598,673) | | | $ | (128,136) | | | $ | 892,139 | | | $ | 16,691,017 | |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
| | | Three Months Ended | | Three Months Ended |
| | March 31, | | March 31, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
Operating activities: | Operating activities: | | | | | Operating activities: | | | | |
Net income | Net income | | $ | 72,192 | | | $ | 329,380 | | Net income | | $ | 65,751 | | | $ | 72,192 | |
Adjustments to reconcile net income to net cash provided from (used in) operating activities: | Adjustments to reconcile net income to net cash provided from (used in) operating activities: | | | Adjustments to reconcile net income to net cash provided from (used in) operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | | 244,426 | | | 274,801 | | Depreciation and amortization | | 304,088 | | | 244,426 | |
Other amortization expenses | Other amortization expenses | | 4,197 | | | 3,220 | | Other amortization expenses | | 5,592 | | | 4,197 | |
Provision for loan losses | Provision for loan losses | | 1,383 | | | 7,072 | | Provision for loan losses | | (804) | | | 1,383 | |
Impairment of assets | Impairment of assets | | 23,568 | | | 27,827 | | Impairment of assets | | — | | | 23,568 | |
Stock-based compensation expense | Stock-based compensation expense | | 5,576 | | | 7,083 | | Stock-based compensation expense | | 7,445 | | | 5,576 | |
Loss (gain) on derivatives and financial instruments, net | Loss (gain) on derivatives and financial instruments, net | | 1,934 | | | 7,651 | | Loss (gain) on derivatives and financial instruments, net | | 2,578 | | | 1,934 | |
Loss (gain) on extinguishment of debt, net | Loss (gain) on extinguishment of debt, net | | (4,643) | | | 0 | | Loss (gain) on extinguishment of debt, net | | (12) | | | (4,643) | |
Loss (income) from unconsolidated entities | Loss (income) from unconsolidated entities | | (13,049) | | | 3,692 | | Loss (income) from unconsolidated entities | | 2,884 | | | (13,049) | |
Rental income less than (in excess of) cash received | Rental income less than (in excess of) cash received | | 30,563 | | | (2,119) | | Rental income less than (in excess of) cash received | | (22,215) | | | 30,563 | |
Amortization related to above (below) market leases, net | Amortization related to above (below) market leases, net | | (460) | | | (565) | | Amortization related to above (below) market leases, net | | (419) | | | (460) | |
Loss (gain) on real estate dispositions, net | Loss (gain) on real estate dispositions, net | | (59,080) | | | (262,824) | | Loss (gain) on real estate dispositions, net | | (22,934) | | | (59,080) | |
Distributions by unconsolidated entities | Distributions by unconsolidated entities | | 3,036 | | | 3,385 | | Distributions by unconsolidated entities | | 6,982 | | | 3,036 | |
Increase (decrease) in accrued expenses and other liabilities | Increase (decrease) in accrued expenses and other liabilities | | (4,406) | | | (30,030) | | Increase (decrease) in accrued expenses and other liabilities | | (23,416) | | | (4,406) | |
Decrease (increase) in receivables and other assets | Decrease (increase) in receivables and other assets | | (1,579) | | | 43,284 | | Decrease (increase) in receivables and other assets | | (1,000) | | | (1,579) | |
Net cash provided from (used in) operating activities | Net cash provided from (used in) operating activities | | 303,658 | | | 411,857 | | Net cash provided from (used in) operating activities | | 324,520 | | | 303,658 | |
| | | | | | |
Investing activities: | Investing activities: | | | Investing activities: | | | |
Cash disbursed for acquisitions, net of cash acquired | Cash disbursed for acquisitions, net of cash acquired | | (203,107) | | | (390,802) | | Cash disbursed for acquisitions, net of cash acquired | | (601,410) | | | (203,107) | |
Cash disbursed for capital improvements to existing properties | Cash disbursed for capital improvements to existing properties | | (28,780) | | | (69,382) | | Cash disbursed for capital improvements to existing properties | | (90,229) | | | (28,780) | |
Cash disbursed for construction in progress | Cash disbursed for construction in progress | | (73,605) | | | (48,775) | | Cash disbursed for construction in progress | | (138,141) | | | (73,605) | |
Capitalized interest | Capitalized interest | | (4,496) | | | (4,746) | | Capitalized interest | | (5,479) | | | (4,496) | |
Investment in loans receivable | Investment in loans receivable | | (43,148) | | | (10,441) | | Investment in loans receivable | | (39,201) | | | (43,148) | |
Principal collected on loans receivable | Principal collected on loans receivable | | 2,852 | | | 10,045 | | Principal collected on loans receivable | | 89,207 | | | 2,852 | |
Other investments, net of payments | Other investments, net of payments | | 664 | | | (3,612) | | Other investments, net of payments | | 2,401 | | | 664 | |
Contributions to unconsolidated entities | Contributions to unconsolidated entities | | (94,095) | | | (137,129) | | Contributions to unconsolidated entities | | (115,249) | | | (94,095) | |
Distributions by unconsolidated entities | Distributions by unconsolidated entities | | 36,934 | | | 3,555 | | Distributions by unconsolidated entities | | 5,882 | | | 36,934 | |
Proceeds from (payments on) derivatives | Proceeds from (payments on) derivatives | | (6,567) | | | (357) | | Proceeds from (payments on) derivatives | | 10,104 | | | (6,567) | |
Proceeds from sales of real property | Proceeds from sales of real property | | 274,208 | | | 801,392 | | Proceeds from sales of real property | | 73,568 | | | 274,208 | |
Net cash provided from (used in) investing activities | Net cash provided from (used in) investing activities | | (139,140) | | | 149,748 | | Net cash provided from (used in) investing activities | | (808,547) | | | (139,140) | |
| Financing activities: | Financing activities: | | | Financing activities: | | | |
Net increase (decrease) under unsecured credit facility and commercial paper | Net increase (decrease) under unsecured credit facility and commercial paper | | 0 | | | (742,612) | | Net increase (decrease) under unsecured credit facility and commercial paper | | (24,967) | | | — | |
Net proceeds from issuance of senior unsecured notes | Net proceeds from issuance of senior unsecured notes | | 713,907 | | | 0 | | Net proceeds from issuance of senior unsecured notes | | 545,082 | | | 713,907 | |
| Net proceeds from the issuance of secured debt | Net proceeds from the issuance of secured debt | | 0 | | | 44,921 | | Net proceeds from the issuance of secured debt | | 5,385 | | | — | |
Payments on secured debt | Payments on secured debt | | (57,888) | | | (31,566) | | Payments on secured debt | | (116,789) | | | (57,888) | |
Net proceeds from the issuance of common stock | Net proceeds from the issuance of common stock | | 0 | | | 591,001 | | Net proceeds from the issuance of common stock | | 549,346 | | | — | |
| Payments for deferred financing costs and prepayment penalties | Payments for deferred financing costs and prepayment penalties | | (1,221) | | | (722) | | Payments for deferred financing costs and prepayment penalties | | (69) | | | (1,221) | |
Contributions by noncontrolling interests(1) | Contributions by noncontrolling interests(1) | | 5,073 | | | 9,084 | | Contributions by noncontrolling interests(1) | | 4,101 | | | 5,073 | |
Distributions to noncontrolling interests(1) | Distributions to noncontrolling interests(1) | | (30,117) | | | (50,124) | | Distributions to noncontrolling interests(1) | | (177,979) | | | (30,117) | |
| Cash distributions to stockholders | Cash distributions to stockholders | | (254,915) | | | (354,678) | | Cash distributions to stockholders | | (273,045) | | | (254,915) | |
Other financing activities | Other financing activities | | (2,936) | | | (9,599) | | Other financing activities | | (5,960) | | | (2,936) | |
Net cash provided from (used in) financing activities | Net cash provided from (used in) financing activities | | 371,903 | | | (544,295) | | Net cash provided from (used in) financing activities | | 505,105 | | | 371,903 | |
Effect of foreign currency translation on cash and cash equivalents and restricted cash | Effect of foreign currency translation on cash and cash equivalents and restricted cash | | 1,358 | | | (10,010) | | Effect of foreign currency translation on cash and cash equivalents and restricted cash | | (790) | | | 1,358 | |
Increase (decrease) in cash, cash equivalents and restricted cash | Increase (decrease) in cash, cash equivalents and restricted cash | | 537,779 | | | 7,300 | | Increase (decrease) in cash, cash equivalents and restricted cash | | 20,288 | | | 537,779 | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 2,021,043 | | | 385,766 | | Cash, cash equivalents and restricted cash at beginning of period | | 346,755 | | | 2,021,043 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 2,558,822 | | | $ | 393,066 | | Cash, cash equivalents and restricted cash at end of period | | $ | 367,043 | | | $ | 2,558,822 | |
| Supplemental cash flow information: | Supplemental cash flow information: | | | Supplemental cash flow information: | | | |
Interest paid | Interest paid | | $ | 135,947 | | | $ | 140,216 | | Interest paid | | $ | 123,012 | | | $ | 135,947 | |
Income taxes paid (received), net | Income taxes paid (received), net | | (852) | | | 471 | | Income taxes paid (received), net | | 631 | | | (852) | |
| (1) Includes amounts attributable to redeemable noncontrolling interests. | (1) Includes amounts attributable to redeemable noncontrolling interests. | | (1) Includes amounts attributable to redeemable noncontrolling interests. | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Welltower Inc. (the "Company"), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company investsWe 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™, 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.
On March 7, 2022, we announced our intent to complete an UPREIT reorganization. In February 2022, the company formerly known as Welltower Inc. ("Old Welltower") formed WELL Merger Holdco Inc. ("New Welltower") as a wholly owned subsidiary, and New Welltower formed WELL Merger Holdco Sub Inc. ("Merger Sub") as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation and a wholly owned subsidiary of New Welltower (the "Merger"). In connection with the Merger, Old Welltower's name was changed to "Welltower OP Inc.", and New Welltower inherited the name "Welltower Inc." This Quarterly Report on Form 10-Q pertains to the business and results of Old Welltower for its quarter ended March 31, 2022. Forward-looking references to dates and periods occurring after April 1, 2022 are references to Welltower Inc. (New Welltower). We have elected to co-file this report to ensure continuity of information to investors. For additional information on the UPREIT reorganization, please see our Current Reports on Form 8-K filed with the SEC on March 7, 2022 and April 1, 2022.
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 three months ended March 31, 20212022 are not necessarily an indication of the results that may be expected for the year ending December 31, 2021.2022. 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, 2020.2021.
Impact of COVID-19 Pandemic
The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, the impact of new variants, the effectiveness of vaccines, the overall pace of recovery, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future, including but not limited to, the following:future.
•Our Seniors Housing Operating revenues are dependent on occupancy. Spot occupancy, which has continued to decline since the beginning of the pandemic, dropping to 73.6% assteadily increased in recent months. As of March 31, 2021 compared to 75.9% as of December 31, 2020. Approximately 99% of2022, nearly all communities are currently acceptingopen for new residents, resulting in an acceleration in move-in activity admissions and an increase inallowing visitors, in-person tours and communal dining and activities. Average occupancy of approximately 60 basis pointsincreased from a pandemic-low on March 12, 202173.0% to 73.8% on April 23, 2021. Additionally, rapid distribution and a high acceptance rate of COVID-19 vaccinations by residents within assisted living and memory care facilities in77.5% for the U.S. and U.K. has resulted in a significant decrease in total resident case counts since mid-January 2021 across the portfolio. Spot occupancy rates from the start of the pandemic throughthree months ended March 31, 2022 and 2021, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | February 2020 | | December 2020 | | January 2021 | | February 2021 | | March 2021 |
Spot occupancy (1) | | 85.4 | % | | 75.9 | % | | 74.4 | % | | 73.6 | % | | 73.6 | % |
Sequential occupancy change | | | | | | (1.5) | % | | (0.8) | % | | 0 | % |
(1) Spot occupancy represents approximate month endrespectively. Occupancy metrics represent occupancy at our share for 543 properties in operation as of February 29,December 31, 2020, including unconsolidated properties but excluding acquisitions, executed dispositions, and development conversions since this date.and 4 closed properties.
Increased Seniors Housing Operating expenses are expected to continue until the pandemic subsides. Property-level operating expenses associated with the COVID-19 pandemic relatingrelated to our Seniors Housing Operating portfolio net of reimbursements including Provider Relief Fundstotaled $11,003,000 and similar programs in the U.K. and Canada, resulted in a benefit of approximately $21,204,000$27,976,000 for the three months ended March 31, 2022 and 2021, as compared to an expense of $7,294,000 during the three months ended March 31, 2020. respectively. These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure personal protective equipment ("PPE") and supplies, net of reimbursements. Certain newWe expect total Seniors Housing Operating expenses incurred since the start ofto remain elevated during the pandemic may continue on an ongoing basisand potentially beyond as part of newthese additional health and safety protocols.measures become standard practice.
In 2020 applications were made for amounts under Phase 22021 and Phase 3 of the Provider Relief Fund related to our Seniors Housing Operating portfolio. During the first quarter,2022, we received total Provider Relief Fundsgovernment grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic, as well as under similar programs in the U.K. and Canada. For the three months ended March 31, 2022 and 2021, we recognized $5,760,000 and $49,180,000, respectively, of approximately $35,682,000, which was recognizedgovernment grant income as a reduction to COVID-19 costs within property operating expenses.expenses in our Consolidated Statements of Comprehensive Income.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
•Our Triple-net operators are experiencinghave experienced similar occupancy declines and operating costs as described above with respect to our Seniors Housing Operating properties. Additionally, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the Coronavirus Aid Relief and Economic SecurityCARES Act (“CARES Act”) Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of theProgram and Provider Relief Fund and operators of assisted living facilities have generally received funds from Phases 2 and 3 of the Provider Relief Fund.
During the first quarter, we collected approximately 96% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made. In the Outpatient Medical segment we collected 99% of rent due in the first quarter, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. Virtually all rent subject to approved deferral agreements has been repaid in full. For both our Triple-net operators and Outpatient Medical tenants, we evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. To the extent the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables.
New Accounting Standards
•In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.Equity.” This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements. The ASU is effective for public business entities beginning after December 15, 2021 including interim periods within those fiscal years. EarlyThe adoption is permitted. We are currently evaluating the guidance and theof this standard did not have a significant impact it may have on our consolidated financial statements.
•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. The new standard was effective for us upon issuance and elections can be made through December 31, 2022. We are currently evaluating our options with regards to existing contracts and hedging relationships and the impact of adopting this update on our consolidated financial statements.
3. Real Property Acquisitions and Development
The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets 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.
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):
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 | | March 31, 2022 | | March 31, 2021 |
| | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Totals | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Totals | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Totals | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Totals |
Land and land improvements | Land and land improvements | $ | 1,240 | | | $ | 24,154 | | | $ | 2,273 | | | $ | 27,667 | | | $ | 15,758 | | | $ | 0 | | | $ | 40,847 | | | $ | 56,605 | | Land and land improvements | $ | 43,897 | | | $ | — | | | $ | 240 | | | $ | 44,137 | | | $ | 1,240 | | | $ | 24,154 | | | $ | 2,273 | | | $ | 27,667 | |
Buildings and improvements | Buildings and improvements | 3,491 | | | 170,362 | | | 10,570 | | | 184,423 | | | 132,480 | | | 765 | | | 171,457 | | | 304,702 | | Buildings and improvements | 402,342 | | | 171 | | | 131,412 | | | 533,925 | | | 3,491 | | | 170,362 | | | 10,570 | | | 184,423 | |
Acquired lease intangibles | Acquired lease intangibles | 339 | | | 0 | | | 1,439 | | | 1,778 | | | 10,810 | | | 0 | | | 23,823 | | | 34,633 | | Acquired lease intangibles | 31,366 | | | — | | | 16,978 | | | 48,344 | | | 339 | | | — | | | 1,439 | | | 1,778 | |
| Right of use assets, net | | Right of use assets, net | — | | | — | | | 3,852 | | | 3,852 | | | — | | | — | | | — | | | — | |
Total net real estate assets | | Total net real estate assets | 477,605 | | | 171 | | | 152,482 | | | 630,258 | | | 5,070 | | | 194,516 | | | 14,282 | | | 213,868 | |
Receivables and other assets | Receivables and other assets | 34 | | | 0 | | | 0 | | | 34 | | | 257 | | | 0 | | | 139 | | | 396 | | Receivables and other assets | 1,630 | | | — | | | — | | | 1,630 | | | 34 | | | — | | | — | | | 34 | |
Total assets acquired (1) | Total assets acquired (1) | 5,104 | | | 194,516 | | | 14,282 | | | 213,902 | | | 159,305 | | | 765 | | | 236,266 | | | 396,336 | | Total assets acquired (1) | 479,235 | | | 171 | | | 152,482 | | | 631,888 | | | 5,104 | | | 194,516 | | | 14,282 | | | 213,902 | |
| Lease liabilities | | Lease liabilities | — | | | — | | | (3,852) | | | (3,852) | | | — | | | — | | | — | | | — | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | 0 | | | (8,703) | | | (36) | | | (8,739) | | | (671) | | | 0 | | | (2,036) | | | (2,707) | | Accrued expenses and other liabilities | (4,154) | | | — | | | — | | | (4,154) | | | — | | | (8,703) | | | (36) | | | (8,739) | |
Total liabilities acquired | Total liabilities acquired | 0 | | | (8,703) | | | (36) | | | (8,739) | | | (671) | | | 0 | | | (2,036) | | | (2,707) | | Total liabilities acquired | (4,154) | | | — | | | (3,852) | | | (8,006) | | | — | | | (8,703) | | | (36) | | | (8,739) | |
Noncontrolling interests (2)(1) | Noncontrolling interests (2)(1) | 0 | | | (2,056) | | | 0 | | | (2,056) | | | (2,827) | | | 0 | | | 0 | | | (2,827) | | Noncontrolling interests (2)(1) | (20,348) | | | (4) | | | — | | | (20,352) | | | — | | | (2,056) | | | — | | | (2,056) | |
| Non-cash acquisition related activity(2) | | Non-cash acquisition related activity(2) | (2,120) | | | — | | | — | | | (2,120) | | | — | | | — | | | — | | | — | |
Cash disbursed for acquisitions | Cash disbursed for acquisitions | 5,104 | | | 183,757 | | | 14,246 | | | 203,107 | | | 155,807 | | | 765 | | | 234,230 | | | 390,802 | | Cash disbursed for acquisitions | 452,613 | | | 167 | | | 148,630 | | | 601,410 | | | 5,104 | | | 183,757 | | | 14,246 | | | 203,107 | |
Construction in progress additions | Construction in progress additions | 38,373 | | | 31,809 | | | 7,601 | | | 77,783 | | | 29,841 | | | 13,929 | | | 13,645 | | | 57,415 | | Construction in progress additions | 113,407 | | | 20,756 | | | 9,642 | | | 143,805 | | | 38,373 | | | 31,809 | | | 7,601 | | | 77,783 | |
Less: Capitalized interest | Less: Capitalized interest | (2,980) | | | (524) | | | (992) | | | (4,496) | | | (2,812) | | | (941) | | | (993) | | | (4,746) | | Less: Capitalized interest | (4,179) | | | (1,089) | | | (211) | | | (5,479) | | | (2,980) | | | (524) | | | (992) | | | (4,496) | |
Accruals (3) | Accruals (3) | 7 | | | 0 | | | 311 | | | 318 | | | (2,600) | | | 0 | | | (1,294) | | | (3,894) | | Accruals (3) | (1,963) | | | — | | | 1,778 | | | (185) | | | 7 | | | — | | | 311 | | | 318 | |
Cash disbursed for construction in progress | Cash disbursed for construction in progress | 35,400 | | | 31,285 | | | 6,920 | | | 73,605 | | | 24,429 | | | 12,988 | | | 11,358 | | | 48,775 | | Cash disbursed for construction in progress | 107,265 | | | 19,667 | | | 11,209 | | | 138,141 | | | 35,400 | | | 31,285 | | | 6,920 | | | 73,605 | |
Capital improvements to existing properties | Capital improvements to existing properties | (3,159) | | | 25,295 | | | 6,644 | | | 28,780 | | | 52,503 | | | 3,248 | | | 13,631 | | | 69,382 | | Capital improvements to existing properties | 68,612 | | | 8,294 | | | 13,323 | | | 90,229 | | | (3,159) | | | 25,295 | | | 6,644 | | | 28,780 | |
Total cash invested in real property, net of cash acquired | Total cash invested in real property, net of cash acquired | $ | 37,345 | | | $ | 240,337 | | | $ | 27,810 | | | $ | 305,492 | | | $ | 232,739 | | | $ | 17,001 | | | $ | 259,219 | | | $ | 508,959 | | Total cash invested in real property, net of cash acquired | $ | 628,490 | | | $ | 28,128 | | | $ | 173,162 | | | $ | 829,780 | | | $ | 37,345 | | | $ | 240,337 | | | $ | 27,810 | | | $ | 305,492 | |
(1) Excludes $580,000 of unrestricted and restricted cash acquired during the three months ended March 31, 2020.
(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.
(2) Relates to the acquisition of assets previously recognized as investments in unconsolidated entities.
(3) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period.
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. As of March 31, 2022, a right of use asset of $77,080,000 and a related lease liability of $135,701,000 were recorded on the Consolidated Balance Sheet.
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):
| | | | Three Months Ended | | | Three Months Ended |
| | | March 31, 2021 | | March 31, 2020 | | | March 31, 2022 | | March 31, 2021 |
Development projects: | Development projects: | | | | | Development projects: | | | | |
Seniors Housing Operating | Seniors Housing Operating | | $ | 0 | | | $ | 93,188 | | Seniors Housing Operating | | $ | 73,458 | | | $ | — | |
Triple-net | Triple-net | | 22,990 | | | 0 | | Triple-net | | — | | | 22,990 | |
Outpatient Medical | | 0 | | | 19,369 | | |
| | Total construction in progress conversions | Total construction in progress conversions | | $ | 22,990 | | | $ | 112,557 | | Total construction in progress conversions | | $ | 73,458 | | | $ | 22,990 | |
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):
| | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
Assets: | | | | |
In place lease intangibles | | $ | 1,411,060 | | | $ | 1,406,705 | |
Above market tenant leases | | 53,066 | | | 52,621 | |
Lease commissions | | 42,697 | | | 40,704 | |
Gross historical cost | | 1,506,823 | | | 1,500,030 | |
Accumulated amortization | | (1,204,529) | | | (1,177,513) | |
Net book value | | $ | 302,294 | | | $ | 322,517 | |
| | | | |
Weighted-average amortization period in years | | 10.7 | | 10.5 |
| | | | |
Liabilities: | | | | |
Below market tenant leases | | $ | 75,451 | | | $ | 77,851 | |
Accumulated amortization | | (40,542) | | | (40,871) | |
Net book value | | $ | 34,909 | | | $ | 36,980 | |
| | | | |
Weighted-average amortization period in years | | 8.2 | | 8.3 |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Assets: | | | | |
In place lease intangibles | | $ | 1,732,980 | | | $ | 1,681,533 | |
Above market tenant leases | | 53,988 | | | 53,964 | |
Lease commissions | | 57,812 | | | 54,131 | |
Gross historical cost | | 1,844,780 | | | 1,789,628 | |
Accumulated amortization | | (1,338,046) | | | (1,286,259) | |
Net book value | | $ | 506,734 | | | $ | 503,369 | |
| | | | |
Weighted-average amortization period in years | | 7.2 | | 5.5 |
| | | | |
Liabilities: | | | | |
Below market tenant leases | | $ | 74,910 | | | $ | 74,909 | |
Accumulated amortization | | (47,174) | | | (45,291) | |
Net book value | | $ | 27,736 | | | $ | 29,618 | |
| | | | |
Weighted-average amortization period in years | | 8.3 | | 8.2 |
The following is a summary of real estate intangible amortization income (expense) for the periods presented (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
Rental income related to (above)/below market tenant leases, net | Rental income related to (above)/below market tenant leases, net | | $ | 425 | | | $ | 524 | | | Rental income related to (above)/below market tenant leases, net | | $ | 385 | | | $ | 425 | | |
Amortization related to in place lease intangibles and lease commissions | Amortization related to in place lease intangibles and lease commissions | | (22,779) | | | (35,976) | | | Amortization related to in place lease intangibles and lease commissions | | (47,994) | | | (22,779) | | |
The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):
| | | | Assets | | Liabilities | | | Assets | | Liabilities |
2021 | | $ | 55,162 | | | $ | 5,945 | | |
2022 | 2022 | | 44,266 | | | 7,304 | | 2022 | | $ | 138,363 | | | $ | 5,482 | |
2023 | 2023 | | 34,588 | | | 5,153 | | 2023 | | 132,163 | | | 5,262 | |
2024 | 2024 | | 26,981 | | | 3,047 | | 2024 | | 63,179 | | | 3,117 | |
2025 | 2025 | | 21,712 | | | 2,482 | | 2025 | | 26,311 | | | 2,588 | |
2026 | | 2026 | | 22,718 | | | 2,077 | |
Thereafter | Thereafter | | 119,585 | | | 10,978 | | Thereafter | | 124,000 | | | 9,210 | |
Total | Total | | $ | 302,294 | | | $ | 34,909 | | Total | | $ | 506,734 | | | $ | 27,736 | |
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 March 31, 2021,2022, 3 Seniors Housing Operating, 6111 Triple-net, and 1 Outpatient Medical properties with an aggregate real estate balance of $564,062,000$199,490,000 were classified as held for sale. In addition to the real property balances held for sale, lease liabilities of $66,893,000 and net other assets and (liabilities) of $37,389,000$2,462,000 are included in the Consolidated Balance SheetSheets related to the held for sale properties. Expected gross sales proceeds related to the held for sale properties is approximately $716,835,000.$273,165,000.
During the three months ended March 31, 2021, we recorded $12,098,000 of impairment charges related to 1 Triple-net property which was classified as held for sale for which the carrying value exceeded the estimated fair value less cost to sell. Additionally, during the three months ended March 31, 2021, we recorded $11,470,000 of impairment charges related to 1 Seniors Housing Operating property and 2 Triple-net properties that were held for use in which the carrying value exceeded the estimated fair value. During the three months ended March 31, 2020, we recorded $3,495,000 of impairment charges related to 1 Seniors Housing Operating property which was classified as held for sale for which the carrying value exceeded the estimated fair value less cost to sell. Additionally, during the three months ended March 31, 2020, we recorded $24,332,000 of impairment charges related to 2 Triple-net properties that were held for use in which the carrying value exceeded the estimated fair value.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of our real property disposition activity for the periods presented (in thousands):
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
Real estate dispositions: | Real estate dispositions: | | | | | Real estate dispositions: | | | | |
Seniors Housing Operating | Seniors Housing Operating | | $ | 74,326 | | | $ | 0 | | Seniors Housing Operating | | $ | — | | | $ | 74,326 | |
Triple-net | Triple-net | | 0 | | | 33,445 | | Triple-net | | 52,661 | | | — | |
Outpatient Medical | Outpatient Medical | | 137,890 | | | 495,003 | | Outpatient Medical | | — | | | 137,890 | |
Total dispositions | Total dispositions | | 212,216 | | | 528,448 | | Total dispositions | | 52,661 | | | 212,216 | |
Gain (loss) on real estate dispositions, net | Gain (loss) on real estate dispositions, net | | 59,080 | | | 262,824 | | Gain (loss) on real estate dispositions, net | | 22,934 | | | 59,080 | |
Net other assets/liabilities disposed | | 2,912 | | | 10,120 | | |
Net other assets/(liabilities) disposed | | Net other assets/(liabilities) disposed | | (2,027) | | | 2,912 | |
Proceeds from real estate dispositions | Proceeds from real estate dispositions | | $ | 274,208 | | | $ | 801,392 | | Proceeds from real estate dispositions | | $ | 73,568 | | | $ | 274,208 | |
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. The following represents the activity related to these properties for the periods presented (in thousands):
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | | |
| | | 2021 | | 2020 | | | | 2022 | | 2021 | | |
Revenues: | Revenues: | | | | | | Revenues: | | | | | | |
Total revenues | Total revenues | | $ | 21,024 | | | $ | 136,452 | | | Total revenues | | $ | 4,958 | | | $ | 30,414 | | | |
Expenses: | Expenses: | | | Expenses: | | |
Interest expense | Interest expense | | 17 | | | 3,806 | | | Interest expense | | 871 | | | 1,115 | | | |
Property operating expenses | Property operating expenses | | (1,102) | | | 61,315 | | | Property operating expenses | | 1,971 | | | 3,576 | | | |
Provision for depreciation | Provision for depreciation | | 4,567 | | | 23,708 | | | Provision for depreciation | | 13 | | | 6,368 | | | |
Total expenses | Total expenses | | 3,482 | | | 88,829 | | | Total expenses | | 2,855 | | | 11,059 | | | |
Income (loss) from real estate dispositions, net | Income (loss) from real estate dispositions, net | | $ | 17,542 | | | $ | 47,623 | | | Income (loss) from real estate dispositions, net | | $ | 2,103 | | | $ | 19,355 | | | |
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.
The components of lease expense were as follows for the periodperiods presented (in thousands):
| | | Three Months Ended | | Three Months Ended |
| | | Classification | | March 31, 2021 | | March 31, 2020 | | | Classification | | March 31, 2022 | | March 31, 2021 |
Operating lease cost: (1) | Operating lease cost: (1) | | | | | | | Operating lease cost: (1) | | | | | | |
Real estate lease expense | Real estate lease expense | | Property operating expenses | | $ | 5,358 | | | $ | 6,492 | | Real estate lease expense | | Property operating expenses | | $ | 5,816 | | | $ | 5,358 | |
Non-real estate investment lease expense | Non-real estate investment lease expense | | General and administrative expenses | | 1,185 | | | 1,267 | | Non-real estate investment lease expense | | General and administrative expenses | | 978 | | | 1,185 | |
Finance lease cost: | Finance lease cost: | | Finance lease cost: | | | | |
Amortization of leased assets | Amortization of leased assets | | Property operating expenses | | 2,035 | | | 2,243 | | Amortization of leased assets | | Property operating expenses | | 1,156 | | | 2,035 | |
Interest on lease liabilities | Interest on lease liabilities | | Interest expense | | 1,663 | | | 1,379 | | Interest on lease liabilities | | Interest expense | | 1,618 | | | 1,663 | |
Sublease income | Sublease income | | Rental income | | (1,043) | | | (1,043) | | Sublease income | | Rental income | | (2,715) | | | (1,043) | |
Total | Total | | | | $ | 9,198 | | | $ | 10,338 | | Total | | | | $ | 6,853 | | | $ | 9,198 | |
(1) Includes short-term leases, which are immaterial.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental balance sheet information related to leases is as follows (in thousands):
| | | Classification | | March 31, 2021 | | December 31, 2020 | | Classification | | March 31, 2022 | | December 31, 2021 |
Right of use assets: | Right of use assets: | | | | | | Right of use assets: | | | | | |
Operating leases - real estate | Operating leases - real estate | Right of use assets, net | | $ | 301,505 | | | $ | 310,017 | | Operating leases - real estate | Right of use assets, net | | $ | 370,740 | | | $ | 367,068 | |
Finance leases - real estate | Finance leases - real estate | Right of use assets, net | | 153,282 | | | 155,849 | | Finance leases - real estate | Right of use assets, net | | 33,949 | | | 155,728 | |
Real estate right of use assets, net | Real estate right of use assets, net | | 454,787 | | | 465,866 | | Real estate right of use assets, net | | 404,689 | | | 522,796 | |
Operating leases - non-real estate investments | Operating leases - non-real estate investments | Receivables and other assets | | 7,886 | | | 9,624 | | Operating leases - non-real estate investments | Receivables and other assets | | 9,430 | | | 9,627 | |
Finance leases - held for sale (1) | | Finance leases - held for sale (1) | Real property held for sale, net of accumulated depreciation | | 119,733 | | | — | |
Total right of use assets, net | Total right of use assets, net | | $ | 462,673 | | | $ | 475,490 | | Total right of use assets, net | | $ | 533,852 | | | $ | 532,423 | |
| Lease liabilities: | Lease liabilities: | | Lease liabilities: | | |
Operating leases | Operating leases | | $ | 303,387 | | | $ | 311,164 | | Operating leases | | | $ | 438,175 | | | $ | 434,261 | |
Financing leases | Financing leases | | 105,529 | | | 107,102 | | Financing leases | | | 110,824 | | | 111,683 | |
Total | Total | | $ | 408,916 | | | $ | 418,266 | | Total | | $ | 548,999 | | | $ | 545,944 | |
| (1) At March 31, 2022 finance leases at 7 properties were classified as held for sale. | | (1) At March 31, 2022 finance leases at 7 properties were classified as held for sale. |
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. During the three months ended March 31, 2021, and 2020, we reserved for previously recognized straight-line rent receivable balances of $49,241,000 and $32,268,000 through rental income relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable.
Leases in our Triple-net and Outpatient Medical portfolios typically include some form of operating expense reimbursement by the tenant. For the three months ended March 31, 2021,2022, we recognized $302,843,000$356,390,000 of rental income related to operating leases, of which $46,026,000 waswhich $48,074,000 was for variable lease payments whichthat primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the three months ended March 31, 2020,2021, we recognized $389,960,000$302,843,000 of rental income related to operating leases, of which $55,754,000$46,026,000 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 ASU 2014-09, "Revenue from Contracts with Customers" (ASC 606). Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842, "Leases." The amount of revenue related to these leases was $94,827,000 and $15,771,000 for the three months ended March 31, 2022 and March 31, 2021, respectively.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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, net of allowance for credit losses.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, 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 $15,981,000$26,215,000 and $15,615,000 $26,659,000 as of March 31, 20212022 and December 31, 2020,2021, 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):
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
Mortgage loans | Mortgage loans | | $ | 338,291 | | | $ | 299,430 | | Mortgage loans | | $ | 833,070 | | | $ | 889,556 | |
Other real estate loans | Other real estate loans | | 158,066 | | | 152,739 | | Other real estate loans | | 184,223 | | | 194,477 | |
Allowance for credit losses on real estate loans receivable | Allowance for credit losses on real estate loans receivable | | (8,683) | | | (8,797) | | Allowance for credit losses on real estate loans receivable | | (14,157) | | | (15,352) | |
Real estate loans receivable, net of credit allowance | Real estate loans receivable, net of credit allowance | | 487,674 | | | 443,372 | | Real estate loans receivable, net of credit allowance | | 1,003,136 | | | 1,068,681 | |
Non-real estate loans | Non-real estate loans | | 458,391 | | | 455,508 | | Non-real estate loans | | 390,559 | | | 375,060 | |
Allowance for credit losses on non-real estate loans receivable | Allowance for credit losses on non-real estate loans receivable | | (215,463) | | | (215,239) | | Allowance for credit losses on non-real estate loans receivable | | (151,536) | | | (151,433) | |
Non-real estate loans receivable, net of credit allowance | Non-real estate loans receivable, net of credit allowance | | 242,928 | | | 240,269 | | Non-real estate loans receivable, net of credit allowance | | 239,023 | | | 223,627 | |
Total loans receivable, net of credit allowance | Total loans receivable, net of credit allowance | | $ | 730,602 | | | $ | 683,641 | | Total loans receivable, net of credit allowance | | $ | 1,242,159 | | | $ | 1,292,308 | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of our loan activity for the periods presented (in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
Advances on loans receivable: | | | | |
Investments in new loans | | $ | 30,999 | | | $ | 0 | |
Draws on existing loans | | 12,149 | | | 10,441 | |
Net cash advances on loans receivable | | 43,148 | | | 10,441 | |
| | | | |
Receipts on loans receivable: | | | | |
Loan payoffs | | 1,620 | | | 0 | |
Principal payments on loans | | 1,232 | | | 10,045 | |
Net cash receipts on loans receivable | | 2,852 | | | 10,045 | |
Net cash advances (receipts) on loans receivable | | $ | 40,296 | | | $ | 396 | |
Subsequent to quarter end, we provided £540 million of senior loan financing and a £30 million delayed facility to affiliates of Safanad, a global real estate and private equity firm, as part of the recapitalization of its investment in HC-One Group. The loan has a 5-year term and is fully collateralized by the shares and assets of the HC-One Group, including its underlying property portfolio of owned assets across the U.K. Additionally, we will have the ability to participate in the recovery in the U.K. seniors housing sector through both warrants and a £55 million equity investment. | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 |
Advances on loans receivable | | $ | 39,201 | | | $ | 43,148 | |
Receipts on loans receivable | | (89,207) | | | (2,852) | |
Net cash advances (receipts) on loans receivable | | $ | (50,006) | | | $ | 40,296 | |
The allowance for credit losslosses 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):
WELLTOWER INC. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
Loan category | | Years of Origination | | Loan Carrying Value | | Allowance for Credit Loss | | Net Loan Balance | | No. of Loans |
Deteriorated loans | | 2007 - 2018 | | $ | 174,841 | | | $ | (148,438) | | | $ | 26,403 | | | 3 | |
Collective loan pool | | 2007-2017 | | 209,774 | | | (2,982) | | | 206,792 | | | 15 | |
Collective loan pool | | 2018 | | 22,800 | | | (325) | | | 22,475 | | | 2 | |
Collective loan pool | | 2019 | | 22,084 | | | (315) | | | 21,769 | | | 4 | |
Collective loan pool | | 2020 | | 50,563 | | | (721) | | | 49,842 | | | 6 | |
Collective loan pool | | 2021 | | 894,186 | | | (12,433) | | | 881,753 | | | 20 | |
Collective loan pool | | 2022 | | 33,604 | | | (479) | | | 33,125 | | | 5 | |
Total loans | | | | $ | 1,407,852 | | | $ | (165,693) | | | $ | 1,242,159 | | | 55 | |
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | |
| March 31, 2021 |
Loan category | Years of Origination | Loan Carrying Value | Allowance for Credit Loss | Net Loan Balance | No. of Loans |
Deteriorated loans | 2007 - 2018 | $ | 241,012 | | $ | (211,191) | | $ | 29,821 | | 6 | |
Collective loan pool | 2007-2016 | 259,913 | | (5,061) | | 254,852 | | 18 | |
Collective loan pool | 2017 | 126,746 | | (1,488) | | 125,258 | | 7 | |
Collective loan pool | 2018 | 20,620 | | (404) | | 20,216 | | 1 | |
Collective loan pool | 2019 | 47,045 | | (923) | | 46,122 | | 7 | |
Collective loan pool | 2020 | 229,219 | | (4,488) | | 224,731 | | 11 | |
Collective loan pool | 2021 | 30,193 | | (591) | | 29,602 | | 2 | |
Total loans | | $ | 954,748 | | $ | (224,146) | | $ | 730,602 | | 52 | |
|
In March 2020, we recognized a provisionThe total allowance for credit losses balance is deemed sufficient to absorb expected losses relating to our loan losses of $6,898,000 to fully reserve for 1 Triple-net non-real estate loan receivable that was no longer deemed collectible.portfolio. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 | | March 31, 2022 | | March 31, 2021 |
Balance at beginning of period | Balance at beginning of period | $ | 224,036 | | | $ | 68,372 | | Balance at beginning of period | $ | 166,785 | | | $ | 224,036 | |
Adoption of ASU 2016-13 | — | | | 5,212 | | |
Provision for loan losses | Provision for loan losses | 1,383 | | | 7,072 | | Provision for loan losses | (804) | | | 1,383 | |
Loan write-offs | Loan write-offs | (1,322) | | | 0 | | Loan write-offs | — | | | (1,322) | |
Foreign currency translation | Foreign currency translation | 49 | | | (85) | | Foreign currency translation | (288) | | | 49 | |
Balance at end of period | Balance at end of period | $ | 224,146 | | | $ | 80,571 | | Balance at end of period | $ | 165,693 | | | $ | 224,146 | |
The following is a summary of our deteriorated loans (in thousands):
| | | | Three Months Ended | | | Three Months Ended |
| | | March 31, 2021 | | March 31, 2020 | | | March 31, 2022 | | March 31, 2021 |
Balance of deteriorated loans at end of period (1) | Balance of deteriorated loans at end of period (1) | | $ | 241,012 | | | $ | 185,982 | | Balance of deteriorated loans at end of period (1) | | $ | 174,841 | | | $ | 241,012 | |
Allowance for credit losses | Allowance for credit losses | | (211,191) | | | (75,372) | | Allowance for credit losses | | (148,438) | | | (211,191) | |
Balance of deteriorated loans not reserved | Balance of deteriorated loans not reserved | | $ | 29,821 | | | $ | 110,610 | | Balance of deteriorated loans not reserved | | $ | 26,403 | | | $ | 29,821 | |
Interest recognized on deteriorated loans (2) | Interest recognized on deteriorated loans (2) | | $ | 3,079 | | | $ | 4,046 | | Interest recognized on deteriorated loans (2) | | $ | — | | | $ | 3,079 | |
(1)(1) Current year amounts include $2,250,000$2,157,000 and $3,623,000$2,157,000 of loans on non-accrual as of March 31, 20212022 and December 31, 2020,2021, respectively. Prior year amounts include $9,534,000$2,250,000 and $2,534,000$3,623,000 as of March 31, 20202021 and December 31, 2019,2020, respectively.
(2) Represents cash interest recognized in the period.
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. TheOur share of the results of operations for these properties havehas 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) | | March 31, 2021 | | December 31, 2020 | | | Percentage Ownership (1) | | March 31, 2022 | | December 31, 2021 |
Seniors Housing Operating | Seniors Housing Operating | | 10% to 65% | | $ | 709,727 | | | $ | 653,057 | | Seniors Housing Operating | | 10% to 65% | | $ | 897,769 | | | $ | 830,647 | |
Triple-net | Triple-net | | 10% to 25% | | 5,575 | | | 5,629 | | Triple-net | | 10% to 88% | | 68,643 | | | 44,814 | |
Outpatient Medical | Outpatient Medical | | 15% to 50% | | 304,708 | | | 287,548 | | Outpatient Medical | | 15% to 50% | | 172,114 | | | 163,582 | |
Total | Total | | | | $ | 1,020,010 | | | $ | 946,234 | | Total | | | | $ | 1,138,526 | | | $ | 1,039,043 | |
(1) Includes ownership of investments classified as liabilities and excludes ownership of in substance real estate.
At March 31, 2021,2022, the aggregate unamortized basis difference of our joint venture investments of $119,392,000$147,598,000 is primarily attributable to the difference between the amount for which we purchasepurchased our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture. This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
We have made loans totaling $365,488,000 related to 8 properties16 properties as of March 31, 20212022 for the development and construction of certain properties which are classified as in substance real estate investments.investments and have a carrying value of $371,061,000. We believe that such borrowers typically represent variable interest entities ("VIE" or "VIEs") in accordance with ASC 810 Consolidation. VIEs are required to be consolidated by their primary beneficiary ("PB") which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the PBprimary beneficiary of such borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower's equity in the project. Based on these assessments, the arrangements have been classified as in substance real estate investments. We expect to fund an additional $36,059,000 during 2021 related$184,926,000 related to these investments.
9. Credit Concentration
We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the three months ended March 31, 2021,2022, excluding our share of NOI in unconsolidated entities (dollars in thousands):
| Concentration by relationship: (1) | Concentration by relationship: (1) | | Number of Properties | | Total NOI | | Percent of NOI (2) | Concentration by relationship: (1) | | Number of Properties | | Total NOI | | Percent of NOI (2) |
Sunrise Senior Living (3) | | 165 | | | $ | 60,933 | | | 14% | |
ProMedica | | 216 | | | 53,031 | | | 13% | |
Genesis Healthcare | | 52 | | | 26,871 | | | 7% | |
Revera (3) | | 92 | | | 20,865 | | | 5% | |
ProMedica (3) | | ProMedica (3) | | 205 | | | $ | 61,084 | | | 11% |
Sunrise Senior Living | | Sunrise Senior Living | | 110 | | | 30,467 | | | 6% |
Atria Senior Living | | Atria Senior Living | | 96 | | | 28,745 | | | 5% |
HC-One Group (4) | | HC-One Group (4) | | 1 | | | 23,872 | | | 4% |
Avery Healthcare | Avery Healthcare | | 61 | | | 20,623 | | | 5% | Avery Healthcare | | 61 | | | 19,901 | | | 4% |
Remaining portfolio | Remaining portfolio | | 912 | | | 252,413 | | | 56% | Remaining portfolio | | 1,190 | | | 377,966 | | | 70% |
Totals | Totals | | 1,498 | | | $ | 434,736 | | | 100% | Totals | | 1,663 | | | $ | 542,035 | | | 100% |
(1) ProMedica and HC-One Group are in our Triple-net segment. Sunrise Senior Living and ReveraAtria Senior Living are in our Seniors Housing Operating segment. Genesis Healthcare and ProMedica are in our Triple-net segment. Avery Healthcare is in both the Triple-net and Seniors Housing Operating segments.
(2) NOI with our top five relationships comprised 36%34% of total NOI for the year ended December 31, 2020.2021.
(3) Revera owns a controlling interest in Sunrise Senior Living.
During the quarter ended March 31, 2021,2022, we entered into definitive agreements to substantially exit our operating relationship with Genesis Healthcare ("Genesis").purchased an additional 5% ownership interest in the consolidated ProMedica joint ventures for $137,437,000.
(4) In April 2021, we contributed 9 Triple-net properties operated by Genesis into an 80/20 joint venture with ProMedica and such properties were addedaddition to the existing master lease with ProMedica. Additionally, we have entered into definitive agreements to sell 35 Genesis properties for $496 million to1 property, HC-One Group is the borrower on a joint venture with Aurora Health Network and Peace Capital. These property dispositions and the transfer of operations of these properties is expected to occur in the second and third quarters. Additionally, we currently lease 7 properties which we sublease to Genesis. We have entered into an agreement to transition the operations of these properties into a new lease agreement with a regional operator. To effectuate the transition of all 51 properties, we agreed to provide Genesis a lease termination fee of $86 million upon successful transition of all properties, which will be used to immediately repay indebtedness to Welltower. Additionally, upon achievement of certain restructuring milestones, we will reduce Genesis' indebtedness by an additional $170 million in exchange for an equity interest in Genesis. Upon conclusion of the aforementioned loan transactions, Genesis will have $167 million of indebtedness to Welltower, exclusive of additional PIK interest, which will carry a maturity date of January 1, 2024. As of March 31, 2021, our total carrying value of Genesis loans receivable was $139,332,000.£540,000,000 loan.
10. Borrowings Under Credit Facilities and Commercial Paper Program
At March 31, 2021,2022, we had a primary unsecured credit facility with a consortium of 3134 banks that includesincluded a $3,000,000,000$4,000,000,000 unsecured revolving credit facility, (NaN outstanding at March 31, 2021), a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. The unsecured revolving credit facility is comprised of a $1,000,000,000 tranche that matures on June 4, 2023 (none outstanding at March 31, 2022) and a $3,000,000,000 tranche that matures on June 4, 2025 ($110,000,000 outstanding at March 31, 2022). Both tranches may be extended for 2 successive terms of six months at our option. The term credit facilities mature on July 19, 2023. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000,$1,250,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (NaN(none outstanding at March 31, 2021)2022). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate.rate (1.23% at March 31, 2022). The applicable margin is based on our debt ratings and was 0.825%0.775% at March 31, 2021.2022. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on our debt ratings and was 0.15% at March 31, 2021. The term credit facilities mature2022. Effective with the Merger on July 19, 2023. The revolvingApril 1, 2022, Old Welltower remains the borrower under the credit facility is scheduled to mature on July 19, 2022 and can be extended for 2 successive terms of six months each at our option.New Welltower will guarantee Old Welltower's obligations under the agreement.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In January 2019, we established an unsecured commercial paper program. Under the terms of theour commercial paper program, we may issue unsecured commercial paper notes with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate face or principal amount outstanding at any time of $1,000,000,000 (NaN outstanding at$1,000,000,000. As of March 31, 2021).2022, there was a balance of $189,968,000 outstanding on the commercial paper program ($190,000,000 in principal outstanding, net of an unamortized discount of $32,000), which reduces the borrowing capacity of the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 0.94% as of March 31, 2022 and a weighted average maturity of seven days as of March 31, 2022.
The following information relates to aggregate borrowings under the unsecured revolving credit facility and commercial paper program for the periods presented (dollars in thousands):
| | | Three Months Ended March 31, | | | | Three Months Ended March 31, | | |
| | 2021 | | 2020 | | | | 2022 | | 2021 | | |
Balance outstanding at quarter end | Balance outstanding at quarter end | | $ | 0 | | | $ | 845,000 | | | Balance outstanding at quarter end | | $ | 300,000 | | $ | — | | | |
Maximum amount outstanding at any month end | Maximum amount outstanding at any month end | | $ | 0 | | | $ | 2,100,000 | | | Maximum amount outstanding at any month end | | $ | 995,660 | | $ | — | | | |
Average amount outstanding (total of daily | Average amount outstanding (total of daily | | | Average amount outstanding (total of daily | | | | |
principal balances divided by days in period) | principal balances divided by days in period) | | $ | 0 | | | $ | 1,593,816 | | | principal balances divided by days in period) | | $ | 961,463 | | $ | — | | | |
Weighted average interest rate (actual interest | Weighted average interest rate (actual interest | | | Weighted average interest rate (actual interest | | | | |
expense divided by average borrowings outstanding) | expense divided by average borrowings outstanding) | | 0 | % | | 2.21 | % | | expense divided by average borrowings outstanding) | | 0.53 | % | | — | % | | |
11. Senior Unsecured Notes and Secured Debt
We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of: (i) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (ii) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At March 31, 2021,2022, the annual principal payments due on these debt obligations were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Senior Unsecured Notes (1,2) | | Secured Debt (1,3) | | Totals |
2021 | | $ | 0 | | | $ | 438,772 | | | $ | 438,772 | |
2022 (4) | | 870,000 | | | 463,891 | | | 1,333,891 | |
2023 (5,6) | | 1,372,602 | | | 373,613 | | | 1,746,215 | |
2024 | | 1,350,000 | | | 183,982 | | | 1,533,982 | |
2025 | | 1,250,000 | | | 180,595 | | | 1,430,595 | |
Thereafter (7,8,9) | | 7,436,990 | | | 695,319 | | | 8,132,309 | |
Totals | | $ | 12,279,592 | | | $ | 2,336,172 | | | $ | 14,615,764 | |
| | | | | | | | | | | | | | | | | | | | |
| | Senior Unsecured Notes (1,2) | | Secured Debt (1,3) | | Totals |
2022 | | $ | — | | | $ | 575,737 | | | $ | 575,737 | |
2023 (4, 5) | | 700,288 | | | 448,580 | | | 1,148,868 | |
2024 | | 1,350,000 | | | 184,770 | | | 1,534,770 | |
2025 | | 1,260,000 | | | 167,506 | | | 1,427,506 | |
2026 | | 700,000 | | | 109,782 | | | 809,782 | |
Thereafter (6, 7, 8) | | 8,221,307 | | | 629,266 | | | 8,850,573 | |
Totals | | $ | 12,231,595 | | | $ | 2,115,641 | | | $ | 14,347,236 | |
(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the Consolidated Balance Sheet.Sheets.
(2) Annual interest rates range from 0.81%0.93% to 6.50%.
(3) Annual interest rates range from 0.04%0.32% to 7.93%6.67%. Carrying value of the properties securing the debt totaled $5,330,000,000 $4,882,090,000 at March 31, 2021.2022.
(4) Includes a $860,000,000 unsecured term credit facility. The loan matures on April 1, 2022 and bears interest at LIBOR plus 1.20% (1.31% at March 31, 2021).
(5) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $198,850,000$200,288,000 based on the Canadian/U.S. Dollar exchange rate on March 31, 2021)2022). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9% (1.31%0.90% (1.83% at March 31, 2021)2022).
(6)(5) Includes a $500,000,000 unsecured term credit facility. The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9% (1.01%0.90% (1.36% at March 31, 2021)2022).
(7)(6) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $238,620,000$240,347,000 based on the Canadian/U.S. Dollar exchange rate on March 31, 2021)2022).
(8)(7) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $758,670,000$723,360,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on March 31, 2021)2022).
(9)(8) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $689,700,000$657,600,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on March 31, 2021)2022).
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of our senior unsecured notes principal activity during the periods presented (dollars in thousands):
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | Three Months Ended | | | Three Months Ended |
| | | March 31, 2021 | | March 31, 2020 | | | March 31, 2022 | | March 31, 2021 |
| | | | Weighted Avg. | | | Weighted Avg. | | | | Weighted Avg. | | | Weighted Avg. |
| | | Amount | | Interest Rate | | Amount | | Interest Rate | | | Amount | | Interest Rate | | Amount | | Interest Rate |
Beginning balance | Beginning balance | | $ | 11,509,533 | | | 3.67% | | $ | 10,427,562 | | | 4.03% | Beginning balance | | $ | 11,707,961 | | | 3.67% | | $ | 11,509,533 | | | 3.67% |
Debt issued | Debt issued | | 750,000 | | | 2.80% | | 0 | | | 0% | Debt issued | | 550,000 | | | 3.85% | | 750,000 | | | 2.80% |
| Foreign currency | Foreign currency | | 20,059 | | | 3.90% | | (120,689) | | | 4.15% | Foreign currency | | (26,366) | | | 4.14% | | 20,059 | | | 3.90% |
Ending balance | Ending balance | | $ | 12,279,592 | | | 3.62% | | $ | 10,306,873 | | | 3.97% | Ending balance | | $ | 12,231,595 | | | 3.69% | | $ | 12,279,592 | | | 3.62% |
The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):
| | | | Three Months Ended | | | Three Months Ended |
| | | March 31, 2021 | | March 31, 2020 | | | March 31, 2022 | | March 31, 2021 |
| | | | Weighted Avg. | | | Weighted Avg. | | | | Weighted Avg. | | | Weighted Avg. |
| | | Amount | | Interest Rate | | Amount | | Interest Rate | | | Amount | | Interest Rate | | Amount | | Interest Rate |
Beginning balance | Beginning balance | | $ | 2,378,073 | | | 3.27% | | $ | 2,993,342 | | | 3.63% | Beginning balance | | $ | 2,202,312 | | | 3.03% | | $ | 2,378,073 | | | 3.27% |
| Debt issued | Debt issued | | 0 | | | 0% | | 44,921 | | | 2.58% | Debt issued | | 5,385 | | | 3.08% | | — | | | —% |
| Debt extinguished | Debt extinguished | | (41,933) | | | 7.60% | | (16,040) | | | 4.51% | Debt extinguished | | (100,821) | | | 4.21% | | (41,933) | | | 7.60% |
| Principal payments | Principal payments | | (15,955) | | | 3.59% | | (15,526) | | | 3.78% | Principal payments | | (15,968) | | | 3.19% | | (15,955) | | | 3.59% |
Foreign currency | Foreign currency | | 15,987 | | | 2.92% | | (102,059) | | | 3.27% | Foreign currency | | 24,733 | | | 2.73% | | 15,987 | | | 2.92% |
Ending balance | Ending balance | | $ | 2,336,172 | | | 3.14% | | $ | 2,904,638 | | | 3.63% | Ending balance | | $ | 2,115,641 | | | 3.02% | | $ | 2,336,172 | | | 3.14% |
On March 25, 2021, we completed the issuance of $750,000,000 senior unsecured notes bearing interest at 2.80% with a maturity date of June 2031. On April 15, 2021 net proceeds were used to redeem $339,128,000 of our 3.75% senior unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured notes due September 2023. We expect to recognize a loss on extinguishment of approximately $51 million in April in conjunction with the transaction.
Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of March 31, 2021,2022, we were in compliance within all ofmaterial respects with the covenants under our debt agreements.
In connection with the Merger on April 1, 2022, senior unsecured notes will continue to be obligations of Old Welltower and New Welltower has fully and unconditionally guaranteed all existing and future senior unsecured notes.
12. Derivative Instruments
We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments and interest rate risk related to our capital structure. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, cross currency swap contracts, interest rate swaps, interest rate locks and debt issued in foreign currencies to offset a portion of these risks.
Foreign Currency Forward Contracts Designated as Cash Flow Hedges
For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings.
Cash Flow Hedges and Fair Value Hedges of Interest Rate Risk
We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements wereare used to hedge the variable cash flows associated with variable-rate debt.
Interest rate swaps designated as fair value hedges involve the receipt of fixed amounts from a counterparty in exchange for our variable-rate payments. These interest rate swap agreements hedge the exposure to changes in the fair value of fixed-rate debt attributable to changes in the designated benchmark interest rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in earnings. We record the gain or loss on the hedged items in interest expense, the same line item as the offsetting loss or gain on the related interest rate swaps. During the quarter ended March 31, 2022, we entered into a $550,000,000 fixed to floating swap in connection with our March senior note issuance. The carrying amount of
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
the notes, exclusive of the hedge, is $545,082,000. The fair value of the swap as of March 31, 2022 was $1,413,000 and was recorded as a derivative asset with an offset to senior unsecured notes on our Consolidated Balance Sheet.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into incomeearnings over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified torecognized in the Consolidated Statements of Comprehensive Income. Approximately $2,562,000 of losses, which are included in OCI, are expected to be reclassified into earnings in the next 12 months.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Forward Contracts and Cross Currency Swap Contracts Designated as Net Investment Hedges
We use foreign currency forward and cross currency forward swap contracts to hedge a portion of the net investment in foreign subsidiaries against fluctuations in foreign exchange rates. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI.
During the three months ended March 31, 2022, we settled certain net investment hedges generating cash proceeds of $10,169,000. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.
Derivative Contracts Undesignated
We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the Consolidated Statements of Comprehensive Income and are substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures. In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense.
Equity Warrants
We received equity warrants through our lending activities, which were accounted for as loan origination fees. The warrants provide us the right to participate in the capital appreciation of the underlying HC-One Group real estate portfolio above a designated price upon liquidation and contain net settlement terms qualifying as derivatives under ASC Topic 815. The warrants are classified within receivables and other assets on our Consolidated Balance Sheets. These warrants are measured at fair value with changes in fair value being recognized within gain (loss) on derivatives and financial instruments in our Consolidated Statements of Comprehensive Income.
The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
Derivatives designated as net investment hedges: | Derivatives designated as net investment hedges: | | | | | Derivatives designated as net investment hedges: | | | | |
Denominated in Canadian Dollars | Denominated in Canadian Dollars | | $ | 625,000 | | | $ | 625,000 | | Denominated in Canadian Dollars | | $ | 1,075,000 | | | $ | 675,000 | |
Denominated in Pound Sterling | Denominated in Pound Sterling | | £ | 1,340,708 | | | £ | 1,340,708 | | Denominated in Pound Sterling | | £ | 1,890,708 | | | £ | 1,904,708 | |
| Financial instruments designated as net investment hedges: | Financial instruments designated as net investment hedges: | | Financial instruments designated as net investment hedges: | | |
Denominated in Canadian Dollars | Denominated in Canadian Dollars | | $ | 250,000 | | | $ | 250,000 | | Denominated in Canadian Dollars | | $ | 250,000 | | | $ | 250,000 | |
Denominated in Pound Sterling | Denominated in Pound Sterling | | £ | 1,050,000 | | | £ | 1,050,000 | | Denominated in Pound Sterling | | £ | 1,050,000 | | | £ | 1,050,000 | |
| Interest rate swaps designated as cash flow hedges: | Interest rate swaps designated as cash flow hedges: | | Interest rate swaps designated as cash flow hedges: | | |
Denominated in U.S Dollars (1) | Denominated in U.S Dollars (1) | | $ | 25,000 | | | $ | 450,000 | | Denominated in U.S Dollars (1) | | $ | 25,000 | | | $ | 25,000 | |
| Interest rate swaps designated as fair value hedges: | | Interest rate swaps designated as fair value hedges: | | |
Denominated in U.S Dollars | | Denominated in U.S Dollars | | $ | 550,000 | | | $ | — | |
| Derivative instruments not designated: | Derivative instruments not designated: | | Derivative instruments not designated: | | |
Interest rate caps denominated in U.S. Dollars | Interest rate caps denominated in U.S. Dollars | | $ | 26,137 | | | $ | 26,137 | | Interest rate caps denominated in U.S. Dollars | | $ | 26,137 | | | $ | 26,137 | |
| Forward sales contracts denominated in Canadian Dollars | Forward sales contracts denominated in Canadian Dollars | | $ | 80,000 | | | $ | 80,000 | | Forward sales contracts denominated in Canadian Dollars | | $ | 80,000 | | | $ | 80,000 | |
Forward purchase contracts denominated in Pound Sterling | | £ | (32,157) | | | £ | 0 | | |
| |
(1) At March 31, 20212022 the maximum maturity date was November 1, 2023.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | | |
Description | Description | | Location | | 2021 | | 2020 | | Description | | Location | | 2022 | | 2021 | | |
Gain (loss) on derivative instruments designated as hedges recognized in income | Gain (loss) on derivative instruments designated as hedges recognized in income | | Interest expense | | $ | 6,024 | | | $ | 6,644 | | | Gain (loss) on derivative instruments designated as hedges recognized in income | | Interest expense | | $ | 5,984 | | | $ | 6,024 | | | |
Gain (loss) on derivative instruments not designated as hedges recognized in income | Gain (loss) on derivative instruments not designated as hedges recognized in income | | Interest expense | | $ | (719) | | | $ | (95) | | | Gain (loss) on derivative instruments not designated as hedges recognized in income | | Interest expense | | $ | (693) | | | $ | (719) | | | |
Gain (loss) on equity warrants recognized in income | | Gain (loss) on equity warrants recognized in income | | Gain (loss) on derivatives and financial instruments | | $ | (2,423) | | | $ | — | | | |
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI | Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI | | OCI | | $ | (20,037) | | | $ | 259,112 | | | Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI | | OCI | | $ | 51,940 | | | $ | (20,037) | | | |
13. Commitments and Contingencies
At March 31, 2021,2022, we had 1017 outstanding letter of credit obligations totaling $20,288,000$39,594,000 and expiring between 20212022 and 2024.2023. At March 31, 2021,2022, we had outstanding construction in progress of $542,302,000$717,657,000 and were committed to providing additional funds of approximately $715,955,000$1,573,677,000 to complete construction. Additionally, at March 31, 2021,2022, we had outstanding investments classified as in substance real estate of $365,488,000$371,061,000 and were committed to provide additional funds of $36,059,000$184,926,000 (see Note 8 for additional information). Purchase obligations at March 31, 2021 also include $40,815,000$86,601,000 of contingent purchase obligations to fund capital improvements. Rents due from the tenant are increased to reflect the additional investment in the property.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
14. Stockholders’ Equity
The following is a summary of our stockholders’ equity capital accounts as of the dates indicated:
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
Preferred Stock: | | | | | |
Preferred Stock, $1.00 par value: | | Preferred Stock, $1.00 par value: | | | | |
Authorized shares | Authorized shares | | 50,000,000 | | | 50,000,000 | | Authorized shares | | 50,000,000 | | | 50,000,000 | |
Issued shares | Issued shares | | 0 | | | 0 | | Issued shares | | — | | | — | |
Outstanding shares | Outstanding shares | | 0 | | | 0 | | Outstanding shares | | — | | | — | |
| Common Stock, $1.00 par value: | Common Stock, $1.00 par value: | | | | Common Stock, $1.00 par value: | | | | |
Authorized shares | Authorized shares | | 700,000,000 | | | 700,000,000 | | Authorized shares | | 700,000,000 | | | 700,000,000 | |
Issued shares | Issued shares | | 419,306,453 | | | 419,124,469 | | Issued shares | | 455,763,781 | | | 448,998,438 | |
Outstanding shares | Outstanding shares | | 417,520,420 | | | 417,400,602 | | Outstanding shares | | 453,948,046 | | | 447,239,477 | |
Common Stock
In February 2019,July 2021, we entered into an amended and restated equity distribution agreement whereby we can offer and sell up to $1,500,000,000 $2,500,000,000 aggregate amount of our common stock ("Equity ShelfATM Program"). The Equity ShelfATM Program also allows us to enter into forward sale agreements. As of March 31, 2021,2022, we had $499,341,000$1,317,295,000 of remainingremaining capacity under the Equity ShelfATM Program, which excludes forward sales agreements outstanding for the sale of 2,214,760 14,297,958 shares with maturity dates in 2022. We2023, which we expect to physically settle the forward sales for cash proceeds.
On May 1, 2020, our Boardproceeds of Directors authorized a share repurchase program whereby we may repurchase up to $1 billion of common stock through December 31, 2021 (the "Repurchase Program"). Under this authorization, we are not required to purchase shares but may choose to do so in the open market or through private transactions at times and amounts based on our evaluation of market conditions and other factors. We expect to finance any share repurchases under the Repurchase Program using available cash and may use proceeds from borrowings or debt offerings. We did not repurchase any shares of our common stock during the three months ended March 31, 2021.
$1,253,955,000.
The following is a summary of our common stock issuances during the three months ended March 31, 20212022 and 20202021 (dollars in thousands, except shares and average price amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Issued | | Average Price | | Gross Proceeds | | Net Proceeds |
2020 Dividend reinvestment plan issuances | | 175,129 | | | $ | 84.54 | | | $ | 14,805 | | | $ | 14,805 | |
| | | | | | | | |
2020 Equity shelf program issuances | | 6,799,978 | | | 86.48 | | | 588,072 | | | 576,196 | |
| | | | | | | | |
2020 Stock incentive plans, net of forfeitures | | 158,818 | | | | | — | | | — | |
2020 Totals | | 7,133,925 | | | | | $ | 602,877 | | | $ | 591,001 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
2021 Stock incentive plans, net of forfeitures | | 119,818 | | | | | — | | | — | |
2021 Totals | | 119,818 | | | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Issued | | Average Price | | Gross Proceeds | | Net Proceeds |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
2021 Stock incentive plans, net of forfeitures | | 119,818 | | | | | $ | — | | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
2022 ATM Program issuances | | 6,605,191 | | | $ | 84.60 | | | $ | 558,790 | | | $ | 549,326 | |
2022 Option exercises | | 299 | | | 66.89 | | | 20 | | | 20 | |
| | | | | | | | |
2022 Stock incentive plans, net of forfeitures | | 103,079 | | | | | — | | | — | |
2022 Totals | | 6,708,569 | | | | | $ | 558,810 | | | $ | 549,346 | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dividends The decrease in dividends is attributable to the declaration of a reduced cash dividend beginning with the quarter ending March 31, 2020.
The following is a summary of our dividend payments (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
| | Per Share | | Amount | | Per Share | | Amount |
Common stock | | $ | 0.61 | | | $ | 254,952 | | | $ | 0.87 | | | $ | 356,001 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| March 31, 2022 | | March 31, 2021 |
| Per Share | | Amount | | Per Share | | Amount |
Common stock | $ | 0.61 | | | $ | 273,668 | | | $ | 0.61 | | | $ | 254,952 | |
| | | | | | | |
Accumulated Other Comprehensive Income
The following is a summary of accumulated other comprehensive income (loss) for the periods presented (in thousands):
| | | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Foreign currency translation | Foreign currency translation | $ | (581,387) | | | $ | (621,792) | | Foreign currency translation | $ | (743,402) | | | $ | (674,306) | |
Derivative and financial instruments designated as hedges | Derivative and financial instruments designated as hedges | 453,251 | | | 473,288 | | Derivative and financial instruments designated as hedges | 604,930 | | | 552,990 | |
| Total accumulated other comprehensive income (loss) | Total accumulated other comprehensive income (loss) | $ | (128,136) | | | $ | (148,504) | | Total accumulated other comprehensive income (loss) | $ | (138,472) | | | $ | (121,316) | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. Stock Incentive Plans
Our 2016In March 2022, our Board of Directors approved the 2022 Long-Term Incentive Plan (“20162022 Plan”), which authorizes up to 10,000,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Awards granted after March 28, 2022 will be issued out of the 2022 Plan. The awards granted under the 2016 Long-Term Incentive Plan continue to vest and options expire ten years from the date of grant. Our non-employee directors, officers and key employees are eligible to participate in the 20162022 Plan. The 20162022 Plan allows for the issuance of, among other things, stock options, stock appreciation rights, restricted stock, deferred stock units, performance units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to fivefour years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $7,445,000 and $5,576,000 and $7,083,000 for the three months ended March 31, 20212022 and 2020,2021, respectfully.
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | | |
| | | 2021 | | 2020 | | | | 2022 | | 2021 | | |
Numerator for basic earnings per share - net income (loss) attributable to common stockholders | Numerator for basic earnings per share - net income (loss) attributable to common stockholders | | $ | 71,546 | | | $ | 310,284 | | | Numerator for basic earnings per share - net income (loss) attributable to common stockholders | | $ | 61,925 | | | $ | 71,546 | | | |
| Adjustment for net income (loss) attributable to OP units | Adjustment for net income (loss) attributable to OP units | | (1,353) | | | (1,388) | | | Adjustment for net income (loss) attributable to OP units | | (145) | | | (1,353) | | | |
Numerator for diluted earnings per share | Numerator for diluted earnings per share | | $ | 70,193 | | | $ | 308,896 | | | Numerator for diluted earnings per share | | $ | 61,780 | | | $ | 70,193 | | | |
| Denominator for basic earnings per share - weighted average shares | Denominator for basic earnings per share - weighted average shares | | 417,241 | | | 410,306 | | | Denominator for basic earnings per share - weighted average shares | | 447,379 | | | 417,241 | | | |
Effect of dilutive securities: | Effect of dilutive securities: | | | | Effect of dilutive securities: | | | | | | |
| Employee stock options | | Employee stock options | | 31 | | | — | | | |
Non-vested restricted shares | Non-vested restricted shares | | 421 | | | 702 | | | Non-vested restricted shares | | 974 | | | 421 | | | |
Redeemable OP units | Redeemable OP units | | 1,396 | | | 1,396 | | | Redeemable OP units | | 1,396 | | | 1,396 | | | |
Employee stock purchase program | Employee stock purchase program | | 21 | | | 16 | | | Employee stock purchase program | | 22 | | | 21 | | | |
Dilutive potential common shares | Dilutive potential common shares | | 1,838 | | | 2,114 | | | Dilutive potential common shares | | 2,423 | | | 1,838 | | | |
Denominator for diluted earnings per share - adjusted weighted average shares | Denominator for diluted earnings per share - adjusted weighted average shares | | 419,079 | | | 412,420 | | | Denominator for diluted earnings per share - adjusted weighted average shares | | 449,802 | | | 419,079 | | | |
| Basic earnings per share | Basic earnings per share | | $ | 0.17 | | | $ | 0.76 | | | Basic earnings per share | | $ | 0.14 | | | $ | 0.17 | | | |
Diluted earnings per share | Diluted earnings per share | | $ | 0.17 | | | $ | 0.75 | | | Diluted earnings per share | | $ | 0.14 | | | $ | 0.17 | | | |
As of March 31, 2022, and March 31, 2021, outstanding forward sales agreements outstanding for the sale of 14,297,958 shares and 2,214,760 shares of common stockshares, respectively, were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the period.periods.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
17. Disclosure about Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20202021 for additional information. The three levels are defined below:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Mortgage Loans, Other Real Estate Loans and Non-real Estate Loans Receivable — The fair value of mortgage loans, other real estate loans and non-real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents and Restricted Cash — The carrying amount approximates fair value.
Equity Securities — Equity securities are recorded at their fair value based on Level 1 publicly available trading prices.
Equity Warrants —The fair value of equity warrants is estimated using Level 3 inputs and includes data points such as enterprise value of the underlying HC-One Group real estate portfolio, marketability discount for private company warrants, dividend yield, volatility and risk-free rate. The enterprise value is driven by projected cash flows, weighted average cost of capital and a terminal capitalization rate.
Borrowings Under Primary Unsecured Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured credit facility and commercial paper program approximates fair value because the borrowings are interest rate adjustable.
Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable.
Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable.
Foreign Currency Forward Contracts, Interest Rate Swaps and Cross Currency Swaps — Foreign currency forward contracts, interest rate swaps and cross currency swaps are recorded in other assets or other liabilities on the balance sheet at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2).rates.
Redeemable OP Unitholder Interests — Our redeemable OP unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs unless the fair value is below the initial amount in which case the redeemable OP unitholder interests are recorded at the initial amount adjusted for distributions to the unitholders and income or loss attributable to the unitholders. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances.
The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2021 | | December 31, 2020 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | | |
Mortgage loans receivable | | $ | 331,648 | | | $ | 331,710 | | | $ | 293,752 | | | $ | 297,207 | |
Other real estate loans receivable | | 156,026 | | | 157,310 | | | 149,620 | | | 152,211 | |
Equity securities | | 2,702 | | | 2,702 | | | 4,636 | | | 4,636 | |
Cash and cash equivalents | | 2,131,846 | | | 2,131,846 | | | 1,545,046 | | | 1,545,046 | |
Restricted cash | | 426,976 | | | 426,976 | | | 475,997 | | | 475,997 | |
Non-real estate loans receivable | | 242,928 | | 260,351 | | | 240,269 | | | 255,724 | |
Foreign currency forward contracts, interest rate swaps and cross currency swaps | | 753 | | | 753 | | | 4,668 | | | 4,668 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
| | | | | | | | |
Senior unsecured notes | | $ | 12,183,710 | | | $ | 13,377,367 | | | $ | 11,420,790 | | | $ | 13,093,926 | |
Secured debt | | 2,329,474 | | | 2,410,790 | | | 2,377,930 | | | 2,451,782 | |
Foreign currency forward contracts, interest rate swaps and cross currency swaps | | 84,985 | | | 84,985 | | | 118,054 | | | 118,054 | |
| | | | | | | | |
Redeemable OP unitholder interests | | $ | 127,859 | | | $ | 127,859 | | | $ | 116,240 | | | $ | 115,346 | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets: | | | | | | | | |
Mortgage loans receivable | | $ | 821,509 | | | $ | 909,533 | | | $ | 877,102 | | | $ | 932,552 | |
Other real estate loans receivable | | 181,627 | | | 183,784 | | | 191,579 | | | 193,999 | |
Equity securities | | 1,455 | | | 1,455 | | | 1,608 | | | 1,608 | |
Cash and cash equivalents | | 301,089 | | | 301,089 | | | 269,265 | | | 269,265 | |
Restricted cash | | 65,954 | | | 65,954 | | | 77,490 | | | 77,490 | |
Non-real estate loans receivable | | 239,023 | | | 245,928 | | | 223,627 | | | 241,544 | |
Foreign currency forward contracts, interest rate swaps and cross currency swaps | | 9,179 | | | 9,179 | | | 7,205 | | | 7,205 | |
Equity warrants | | 38,416 | | | 38,416 | | | 41,909 | | | 41,909 | |
| | | | | | | | |
Financial liabilities: | | | | | | | | |
Borrowings under unsecured credit facility and commercial paper program | | $ | 299,968 | | | $ | 299,968 | | | $ | 324,935 | | | $ | 324,935 | |
Senior unsecured notes | | 12,136,760 | | | 12,458,423 | | | 11,613,758 | | | 13,139,748 | |
Secured debt | | 2,104,945 | | | 2,108,622 | | | 2,192,261 | | | 2,252,107 | |
Foreign currency forward contracts, interest rate swaps and cross currency swaps | | 30,580 | | | 30,580 | | | 39,296 | | | 39,296 | |
| | | | | | | | |
Redeemable OP unitholder interests | | $ | 171,609 | | | $ | 171,609 | | | $ | 153,098 | | | $ | 153,098 | |
Items Measured at Fair Value on a Recurring Basis
The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):
| | | | Fair Value Measurements as of March 31, 2021 | | | Fair Value Measurements as of March 31, 2022 |
| | | Total | | Level 1 | | Level 2 | | Level 3 | | | Total | | Level 1 | | Level 2 | | Level 3 |
Equity securities | Equity securities | | $ | 2,702 | | | $ | 2,702 | | | $ | 0 | | | $ | 0 | | Equity securities | | $ | 1,455 | | | $ | 1,455 | | | $ | — | | | $ | — | |
Equity warrants | | Equity warrants | | 38,416 | | | — | | | — | | | 38,416 | |
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1) | Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1) | | (84,232) | | | 0 | | | (84,232) | | | 0 | | Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1) | | (21,401) | | | — | | | (21,401) | | | — | |
Totals | Totals | | $ | (81,530) | | | $ | 2,702 | | | $ | (84,232) | | | $ | 0 | | Totals | | $ | 18,470 | | | $ | 1,455 | | | $ | (21,401) | | | $ | 38,416 | |
(1) Please see Note 12 for additional information.
WELLTOWER INC.The following table summarizes the change in fair value for equity warrants using unobservable Level 3 inputs for the periods presented (in thousands):
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, 2022 | | March 31, 2021 |
Beginning balance | | $ | 41,909 | | | $ | — | |
| | | | |
Mark-to-market adjustment | | (2,425) | | | — | |
Foreign currency | | (1,068) | | | — | |
Ending balance | | $ | 38,416 | | | $ | — | |
The most significant assumptions utilized in the valuation of the equity warrants are the cash flows of the underlying HC-One Group enterprise, as well as the terminal capitalization rate of 9.5%.
Items Measured at Fair Value on a Nonrecurring Basis
In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.
18. Segment Reporting
We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our 3 operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our Seniors Housing Operating properties include seniors apartments, assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are owned and/or operated through RIDEA structures (see Note 19). Our Triple-net properties include the property types described above as well as long-term/post-acute care facilities. Under the Triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our Outpatient Medical properties are typically leased to multiple tenants and generally require a certain level of property management by us.
We evaluate performance based upon consolidated NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.
Non-segment revenue consists mainly of interest income on certain non-real estatecash investments andrecorded in other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020)2021). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. All inter-segment transactions are eliminated.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Summary information for the reportable segments (which excludes unconsolidated entities) is as follows (in thousands):
| Three Months Ended March 31, 2021: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Non-segment / Corporate | | Total | |
Three Months Ended March 31, 2022: | | Three Months Ended March 31, 2022: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Non-segment / Corporate | | Total |
Resident fees and services | Resident fees and services | | $ | 723,464 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 723,464 | | Resident fees and services | | $ | 994,335 | | | $ | — | | | $ | — | | | $ | — | | | $ | 994,335 | |
Rental income | Rental income | | 0 | | | 152,463 | | | 150,380 | | | 0 | | | 302,843 | | Rental income | | — | | | 196,001 | | | 160,389 | | | — | | | 356,390 | |
Interest income | Interest income | | 1,119 | | | 14,922 | | | 3,538 | | | 0 | | | 19,579 | | Interest income | | 1,417 | | | 37,506 | | | 71 | | | — | | | 38,994 | |
Other income | Other income | | 1,819 | | | 1,097 | | | 2,305 | | | 955 | | | 6,176 | | Other income | | 860 | | | 1,656 | | | 2,863 | | | 606 | | | 5,985 | |
Total revenues | Total revenues | | 726,402 | | | 168,482 | | | 156,223 | | | 955 | | | 1,052,062 | | Total revenues | | 996,612 | | | 235,163 | | | 163,323 | | | 606 | | | 1,395,704 | |
| Property operating expenses | Property operating expenses | | 555,968 | | | 12,841 | | | 46,863 | | | 1,654 | | | 617,326 | | Property operating expenses | | 789,928 | | | 11,211 | | | 49,915 | | | 2,615 | | | 853,669 | |
Consolidated net operating income | | 170,434 | | | 155,641 | | | 109,360 | | | (699) | | | 434,736 | | |
Consolidated net operating income (loss) | | Consolidated net operating income (loss) | | 206,684 | | | 223,952 | | | 113,408 | | | (2,009) | | | 542,035 | |
| Depreciation and amortization | Depreciation and amortization | | 132,586 | | | 56,667 | | | 55,173 | | | 0 | | | 244,426 | | Depreciation and amortization | | 192,793 | | | 53,504 | | | 57,791 | | | — | | | 304,088 | |
Interest expense | Interest expense | | 11,418 | | | 1,882 | | | 4,015 | | | 105,827 | | | 123,142 | | Interest expense | | 7,650 | | | 314 | | | 4,567 | | | 109,165 | | | 121,696 | |
General and administrative expenses | General and administrative expenses | | 0 | | | 0 | | | 0 | | | 29,926 | | | 29,926 | | General and administrative expenses | | — | | | — | | | — | | | 37,706 | | | 37,706 | |
Loss (gain) on derivatives and financial instruments, net | Loss (gain) on derivatives and financial instruments, net | | 0 | | | 1,934 | | | 0 | | | 0 | | | 1,934 | | Loss (gain) on derivatives and financial instruments, net | | — | | | 2,578 | | | — | | | — | | | 2,578 | |
Loss (gain) on extinguishment of debt, net | Loss (gain) on extinguishment of debt, net | | (4,643) | | | 0 | | | 0 | | | 0 | | | (4,643) | | Loss (gain) on extinguishment of debt, net | | (15) | | | — | | | 3 | | | — | | | (12) | |
Provision for loan losses | | 251 | | | 853 | | | 279 | | | 0 | | | 1,383 | | |
Impairment of assets | | 4,604 | | | 18,964 | | | 0 | | | 0 | | | 23,568 | | |
Provision for loan losses, net | | Provision for loan losses, net | | 267 | | | (1,065) | | | (6) | | | — | | | (804) | |
| Other expenses | Other expenses | | 3,459 | | | 4,983 | | | 712 | | | 1,840 | | | 10,994 | | Other expenses | | 8,191 | | | 11,044 | | | 789 | | | 6,045 | | | 26,069 | |
Income (loss) from continuing operations before income taxes and other items | Income (loss) from continuing operations before income taxes and other items | | 22,759 | | | 70,358 | | | 49,181 | | | (138,292) | | | 4,006 | | Income (loss) from continuing operations before income taxes and other items | | (2,202) | | | 157,577 | | | 50,264 | | | (154,925) | | | 50,714 | |
Income tax (expense) benefit | Income tax (expense) benefit | | 0 | | | 0 | | | 0 | | | (3,943) | | | (3,943) | | Income tax (expense) benefit | | — | | | — | | | — | | | (5,013) | | | (5,013) | |
Income (loss) from unconsolidated entities | Income (loss) from unconsolidated entities | | 5,234 | | | 4,907 | | | 2,908 | | | 0 | | | 13,049 | | Income (loss) from unconsolidated entities | | (17,782) | | | 15,543 | | | (645) | | | — | | | (2,884) | |
Gain (loss) on real estate dispositions, net | Gain (loss) on real estate dispositions, net | | 5,195 | | | 2,042 | | | 51,843 | | | 0 | | | 59,080 | | Gain (loss) on real estate dispositions, net | | 2,701 | | | 20,449 | | | (216) | | | — | | | 22,934 | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | 33,188 | | | 77,307 | | | 103,932 | | | (142,235) | | | 72,192 | | Income (loss) from continuing operations | | (17,283) | | | 193,569 | | | 49,403 | | | (159,938) | | | 65,751 | |
Net income (loss) | Net income (loss) | | $ | 33,188 | | | $ | 77,307 | | | $ | 103,932 | | | $ | (142,235) | | | $ | 72,192 | | Net income (loss) | | $ | (17,283) | | | $ | 193,569 | | | $ | 49,403 | | | $ | (159,938) | | | $ | 65,751 | |
| Total assets | Total assets | | $ | 16,032,225 | | | $ | 8,660,043 | | | $ | 6,380,835 | | | $ | 1,919,148 | | | $ | 32,992,251 | | Total assets | | $ | 19,986,904 | | | $ | 8,986,422 | | | $ | 6,333,821 | | | $ | 165,306 | | | $ | 35,472,453 | |
| Three Months Ended March 31, 2020: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Non-segment / Corporate | | Total | |
Three Months Ended March 31, 2021: | | Three Months Ended March 31, 2021: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Non-segment / Corporate | | Total |
Resident fees and services | Resident fees and services | | $ | 849,972 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 849,972 | | Resident fees and services | | $ | 723,464 | | | $ | — | | | $ | — | | | $ | — | | | $ | 723,464 | |
Rental income | Rental income | | 0 | | | 191,385 | | | 198,575 | | | 0 | | | 389,960 | | Rental income | | — | | | 152,463 | | | 150,380 | | | — | | | 302,843 | |
Interest income | Interest income | | 104 | | | 14,671 | | | 466 | | | 0 | | | 15,241 | | Interest income | | 1,119 | | | 14,922 | | | 3,538 | | | — | | | 19,579 | |
Other income | Other income | | 1,052 | | | 1,673 | | | 288 | | | 416 | | | 3,429 | | Other income | | 1,819 | | | 1,097 | | | 2,305 | | | 955 | | | 6,176 | |
Total revenues | Total revenues | | 851,128 | | | 207,729 | | | 199,329 | | | 416 | | | 1,258,602 | | Total revenues | | 726,402 | | | 168,482 | | | 156,223 | | | 955 | | | 1,052,062 | |
| Property operating expenses | Property operating expenses | | 607,871 | | | 13,302 | | | 60,608 | | | 0 | | | 681,781 | | Property operating expenses | | 555,968 | | | 12,841 | | | 46,863 | | | 1,654 | | | 617,326 | |
Consolidated net operating income | | 243,257 | | | 194,427 | | | 138,721 | | | 416 | | | 576,821 | | |
Consolidated net operating income (loss) | | Consolidated net operating income (loss) | | 170,434 | | | 155,641 | | | 109,360 | | | (699) | | | 434,736 | |
| Depreciation and amortization | Depreciation and amortization | | 146,774 | | | 57,694 | | | 70,333 | | | 0 | | | 274,801 | | Depreciation and amortization | | 132,586 | | | 56,667 | | | 55,173 | | | — | | | 244,426 | |
Interest expense | Interest expense | | 16,434 | | | 2,852 | | | 4,808 | | | 117,913 | | | 142,007 | | Interest expense | | 11,418 | | | 1,882 | | | 4,015 | | | 105,827 | | | 123,142 | |
General and administrative expenses | General and administrative expenses | | 0 | | | 0 | | | 0 | | | 35,481 | | | 35,481 | | General and administrative expenses | | — | | | — | | | — | | | 29,926 | | | 29,926 | |
Loss (gain) on derivatives and financial instruments, net | Loss (gain) on derivatives and financial instruments, net | | 0 | | | 7,651 | | | 0 | | | 0 | | | 7,651 | | Loss (gain) on derivatives and financial instruments, net | | — | | | 1,934 | | | — | | | — | | | 1,934 | |
| Provision for loan losses | | 0 | | | 7,072 | | | 0 | | | 0 | | | 7,072 | | |
Loss (gain) on extinguishment of debt, net | | Loss (gain) on extinguishment of debt, net | | (4,643) | | | — | | | — | | | — | | | (4,643) | |
Provision for loan losses, net | | Provision for loan losses, net | | 251 | | | 853 | | | 279 | | | — | | | 1,383 | |
Impairment of assets | Impairment of assets | | 3,495 | | | 24,332 | | | 0 | | | 0 | | | 27,827 | | Impairment of assets | | 4,604 | | | 18,964 | | | — | | | — | | | 23,568 | |
Other expenses | Other expenses | | 2,989 | | | 513 | |
| 1,007 | | | 1,783 | | | 6,292 | | Other expenses | | 3,459 | | | 4,983 | |
| 712 | | | 1,840 | | | 10,994 | |
Income (loss) from continuing operations before income taxes and other items | Income (loss) from continuing operations before income taxes and other items | | 73,565 | | | 94,313 | | | 62,573 | | | (154,761) | | | 75,690 | | Income (loss) from continuing operations before income taxes and other items | | 22,759 | | | 70,358 | | | 49,181 | | | (138,292) | | | 4,006 | |
Income tax (expense) benefit | Income tax (expense) benefit | | 0 | | | 0 | | | 0 | | | (5,442) | | | (5,442) | | Income tax (expense) benefit | | — | | | — | | | — | | | (3,943) | | | (3,943) | |
Income (loss) from unconsolidated entities | Income (loss) from unconsolidated entities | | (11,024) | | | 5,796 | | | 1,536 | | | 0 | | | (3,692) | | Income (loss) from unconsolidated entities | | 5,234 | | | 4,907 | | | 2,908 | | | — | | | 13,049 | |
Gain (loss) on real estate dispositions, net | Gain (loss) on real estate dispositions, net | | (149) | | | 49,637 | | | 213,336 | | | 0 | | | 262,824 | | Gain (loss) on real estate dispositions, net | | 5,195 | | | 2,042 | | | 51,843 | | | — | | | 59,080 | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | 62,392 | | | 149,746 | | | 277,445 | | | (160,203) | | | 329,380 | | Income (loss) from continuing operations | | 33,188 | | | 77,307 | | | 103,932 | | | (142,235) | | | 72,192 | |
Net income (loss) | Net income (loss) | | $ | 62,392 | | | $ | 149,746 | | | $ | 277,445 | | | $ | (160,203) | | | $ | 329,380 | | Net income (loss) | | $ | 33,188 | | | $ | 77,307 | | | $ | 103,932 | | | $ | (142,235) | | | $ | 72,192 | |
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for the periods presented (dollars in thousands):
| | | | Three Months Ended | | | | | Three Months Ended | | |
| | | March 31, 2021 | | March 31, 2020 | | | | | March 31, 2022 | | March 31, 2021 | | |
Revenues: | Revenues: | | Amount(1) | | % | | Amount | | % | | | Revenues: | | Amount(1) | | % | | Amount | | % | | |
United States | United States | | $ | 825,648 | | | 78.5 | % | | $ | 1,027,781 | | | 81.6 | % | | | United States | | $ | 1,139,016 | | | 81.6 | % | | $ | 825,648 | | | 78.5 | % | | |
United Kingdom | United Kingdom | | 118,874 | | | 11.3 | % | | 117,882 | | | 9.4 | % | | | United Kingdom | | 144,491 | | | 10.4 | % | | 118,874 | | | 11.3 | % | | |
Canada | Canada | | 107,540 | | | 10.2 | % | | 112,939 | | | 9.0 | % | | | Canada | | 112,197 | | | 8.0 | % | | 107,540 | | | 10.2 | % | | |
Total | Total | | $ | 1,052,062 | | | 100.0 | % | | $ | 1,258,602 | | | 100.0 | % | | | Total | | $ | 1,395,704 | | | 100.0 | % | | $ | 1,052,062 | | | 100.0 | % | | |
| | | | As of | | | | | As of | | |
| | | March 31, 2021 | | December 31, 2020 | | | | | March 31, 2022 | | December 31, 2021 | | |
Assets: | Assets: | | Amount | | % | | Amount | | % | | | Assets: | | Amount | | % | | Amount | | % | | |
United States | United States | | $ | 27,112,760 | | | 82.1 | % | | $ | 26,658,659 | | | 82.1 | % | | | United States | | $ | 28,821,624 | | | 81.2 | % | | $ | 28,595,703 | | | 81.9 | % | | |
United Kingdom | United Kingdom | | 3,415,851 | | | 10.4 | % | | 3,352,549 | | | 10.3 | % | | | United Kingdom | | 3,822,998 | | | 10.8 | % | | 3,938,258 | | | 11.3 | % | | |
Canada | Canada | | 2,463,640 | | | 7.5 | % | | 2,472,434 | | | 7.6 | % | | | Canada | | 2,827,831 | | | 8.0 | % | | 2,376,364 | | | 6.8 | % | | |
Total | Total | | $ | 32,992,251 | | | 100.0 | % | | $ | 32,483,642 | | | 100.0 | % | | | Total | | $ | 35,472,453 | | | 100.0 | % | | $ | 34,910,325 | | | 100.0 | % | | |
(1) The United States, United Kingdom and Canada represent 72%79%, 14%10% and 14%, respectively,11% of our resident fees and services revenue stream for the three monthsmonth period ended March 31, 2021.2022.
19. Income Taxes and Distributions
We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.
Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, a REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such TRS by a person who qualifies as an “eligible independent contractor”.contractor.” Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property”.property.” A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA. Resident level rents and related operating expenses for these facilities are reported in the unaudited consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in TRS entities. Certain net operating loss carryforwards could be utilized to offset taxable income in future years.
Income taxes reflected in the financial statements primarily represents U.S. federal, state and local income taxes as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The provision for income taxes for the three months ended March 31, 20212022 and 2020,2021, was primarily due to operating income or losses, offset by certain discrete items at our TRS entities. In 2014, we established certain wholly-owned direct and indirect subsidiaries in Luxembourg and Jersey and transferred interests in certain foreign investments into this holding company structure. The structure includes a property holding company that is tax resident in the United Kingdom. No material adverse current tax consequences in Luxembourg, Jersey or the United Kingdom resulted from the creation of this holding company structure and most of the subsidiary entities in the structure are treated as disregarded entities of the company for U.S. federal income tax purposes. Subsequent to 2014 we transferred certain subsidiaries to the United Kingdom, while some wholly-owned direct and indirect subsidiaries remain in Luxembourg and Jersey. The company reflects current and deferred tax liabilities for any such withholding taxes incurred from this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the foreign, federal, state and local taxing authorities under applicable local laws.
WELLTOWER INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The CARES Act, among its economic stimulus provisions, includes a number of tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Certain of these provisions may impact the provision for taxes in our consolidated financial statements, including in particular the provision allowing for the carryback of net operating losses which would be applicable to our TRSs. We have made a reasonable estimate of the tax impact to us of the CARES Act in our consolidated financial statements, and while we do not believe that there will be further material impacts to the consolidated financial statements related to the CARES Act tax provisions, we will continue to evaluate the impact of the CARES Act and any guidance provided by the U.S. Treasury and the IRS on our consolidated financial statements. It is possible our estimates could differ materially from the actual tax impact to us of the CARES Act.
20. Variable Interest Entities
We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be VIEs. We have concluded that we are the primary beneficiary of these VIEs based on a combination of operational control of the joint venture and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Except for capital contributions associated with the initial joint venture formations, the joint ventures have been and are expected to be funded from the ongoing operations of the underlying properties. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands):
| | | March 31, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | | Assets: | | | | |
Net real estate investments | Net real estate investments | | $ | 451,975 | | | $ | 454,333 | | Net real estate investments | | $ | 445,561 | | | $ | 445,776 | |
Cash and cash equivalents | Cash and cash equivalents | | 13,760 | | | 15,547 | | Cash and cash equivalents | | 11,489 | | | 9,964 | |
Receivables and other assets | Receivables and other assets | | 12,669 | | | 11,171 | | Receivables and other assets | | 8,100 | | | 7,617 | |
Total assets (1) | Total assets (1) | | $ | 478,404 | | | $ | 481,051 | | Total assets (1) | | $ | 465,150 | | | $ | 463,357 | |
| Liabilities and equity: | Liabilities and equity: | | | | Liabilities and equity: | | |
Secured debt | Secured debt | | $ | 165,225 | | | $ | 165,671 | | Secured debt | | $ | 163,021 | | | $ | 163,519 | |
Lease liabilities | Lease liabilities | | 1,325 | | | 1,325 | | Lease liabilities | | 1,324 | | | 1,324 | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | | 16,860 | | | 14,997 | | Accrued expenses and other liabilities | | 13,067 | | | 12,394 | |
Total equity | Total equity | | 294,994 | | | 299,058 | | Total equity | | 287,738 | | | 286,120 | |
Total liabilities and equity | Total liabilities and equity | | $ | 478,404 | | | $ | 481,051 | | Total liabilities and equity | | $ | 465,150 | | | $ | 463,357 | |
(1) Note that assets of the consolidated VIEs can only be used to settle obligations relating to such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | | | | | |
| EXECUTIVE SUMMARY |
| | |
| Company Overview | |
| Business Strategy | |
| Key Transactions | |
| Key Performance Indicators, Trends and Uncertainties | |
| Corporate Governance | |
| | |
| LIQUIDITY AND CAPITAL RESOURCES |
| | |
| Sources and Uses of Cash | |
| Off-Balance Sheet Arrangements | |
| Contractual Obligations | |
| Capital Structure | |
| | |
| RESULTS OF OPERATIONS |
| | |
| Summary | |
| Seniors Housing Operating | |
| Triple-net | |
| Outpatient Medical | |
| Non-Segment/Corporate | |
| | |
| OTHER |
| | |
| Non-GAAP Financial Measures | |
| Critical Accounting Policies | |
| Cautionary Statement Regarding Forward-Looking Statements | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based primarily on the unaudited consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations."
On March 7, 2022, we announced our intent to complete an UPREIT reorganization. In February 2022, the company formerly known as Welltower Inc. ("Old Welltower") formed WELL Merger Holdco Inc. ("New Welltower") as a wholly owned subsidiary, and New Welltower formed WELL Merger Holdco Sub Inc. ("Merger Sub") as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation and a wholly owned subsidiary of New Welltower (the "Merger"). ReferencesIn connection with the Merger, Old Welltower's name was changed to "Welltower OP Inc.", and New Welltower inherited the name "Welltower Inc." This Quarterly Report on Form 10-Q pertains to the business and results of Old Welltower for its quarter ended March 31, 2022. We have elected to co-file this report to ensure continuity of information to investors.
Unless the context requires otherwise, references herein to “we,” “us,” “our,” or the “Company”"the Company", "we", "us" and "our" refer to Welltower OP Inc. (Old Welltower) through March 31, 2022. Forward-looking references to dates and its subsidiaries unless specifically noted otherwise.periods occurring after April 1, 2022 are references to Welltower Inc. (New Welltower).
Executive Summary
Company Overview
Welltower Inc. (NYSE:WELL), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. As noted above, effective April 1, 2022, Welltower OP Inc. became a wholly owned subsidiary of Welltower Inc. 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 (U.S.), Canada and the United Kingdom (U.K.), consisting of seniors housing and post-acute communities and outpatient medical properties.
The following table summarizes our consolidated portfolio for the three months ended March 31, 20212022 (dollars in thousands):
| | | | | | Percentage of | | Number of | | | | | Percentage of | | Number of |
Type of Property | Type of Property | | NOI (1) | | NOI | | Properties | Type of Property | | NOI (1) | | NOI | | Properties |
Seniors Housing Operating | Seniors Housing Operating | | $ | 170,434 | | | 39.2 | % | | 559 | | Seniors Housing Operating | | $ | 206,684 | | | 38.0 | % | | 774 | |
Triple-net | Triple-net | | 155,641 | | | 35.7 | % | | 649 | | Triple-net | | 223,952 | | | 41.2 | % | | 578 | |
Outpatient Medical | Outpatient Medical | | 109,360 | | | 25.1 | % | | 290 | | Outpatient Medical | | 113,408 | | | 20.8 | % | | 311 | |
Totals | Totals | | $ | 435,435 | | | 100.0 | % | | 1,498 | | Totals | | $ | 544,044 | | | 100.0 | % | | 1,663 | |
| (1) Represents consolidated NOI and excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. See Non-GAAP Financial Measures for additional information and reconciliation. | (1) Represents consolidated NOI and excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. See Non-GAAP Financial Measures for additional information and reconciliation. | (1) Represents consolidated NOI and excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. See Non-GAAP Financial Measures for additional information and reconciliation. |
The COVID-19 pandemic has had and may continue to have material and adverse effects on our financial condition, results of operations and cash flows in the future. The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the effectiveness of vaccines, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the overall pace of recovery, among others.
Our Seniors Housing Operating revenues are dependent on occupancy. Spot occupancy, which has continued to decline since the beginning of the pandemic, dropping to 73.6% assteadily increased in recent months. As of March 31, 2021 compared to 75.9% as of December 31, 2020. Approximately 99% of2022, nearly all communities are currently acceptingopen for new residents, resulting in an acceleration in move-in activity admissions and an increase in occupancy of approximately 60 basis points from a pandemic-low on March 12, 2021 to 73.8% on April 23, 2021. Additionally, rapid distributionallowing visitors, in-person tours and a high acceptance rate of COVID-19 vaccinations by residents within assisted livingcommunal dining and memory care facilities in the U.S. and U.K. has resulted in a significant decrease in total resident case counts since mid-January 2021 across the portfolio.activities.
We have incurred increased operational costs as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor, personal protective equipment and sanitation. We expect total Seniors Housing Operating expenses to remain elevated during the pandemic and potentially beyond as these additional health and safety measures become standard practice.
Our Triple-net operators are experiencing similar trends related to occupancy declines and operating costs as described above with respect to our Seniors Housing Operating properties. However, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of the Provider Relief FundProgram and operators of assisted living facilities have generally received funds from Phase 2 and Phase 3 of the Provider Relief Fund.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
During the early stages of the pandemic in 2020, our Outpatient Medical tenants experienced temporary medical practice closures or decreases in revenue due to government-imposed restrictions on elective medical procedures, stay at home orders or decisions by patients to delay treatments. These factors caused operators or tenants, in certain circumstances, to seek modifications of rent obligations. We evaluated each request on a case-by-case basis to determine if a form of rent relief was warranted following an examination of the tenant’s financial health, rent coverage, current operating situation and other factors. Virtually all deferred rent has been repaid as of March 31, 2021.
During the first quarter, we collected approximately 96% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made. In the Outpatient Medical segment we collected 99% of rent due in the first quarter, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. For both our Triple-net operators and Outpatient Medical tenants, we evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. To the extent the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables.
Business Strategy
Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in NOI and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location.
Substantially all of our revenues are derived from operating lease rentals, resident fees and services and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our obligors/partners experience operating difficulties and become unable to generate sufficient cash to make payments or operating distributions to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division manages and monitors the outpatient medical portfolio with a comprehensive process including review of tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs and market conditions among other things. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we generally aim to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.
In addition to our asset management and research efforts, we also aim to structure our relevant investments to mitigate payment risk. Operating leases and loans are normally credit enhanced by guarantees and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.
For the three months ended March 31, 2021,2022, resident fees and services and rental income represented 69%71% and 29%26%, respectively, of total revenues. Substantially all of our operating leases are designed with 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. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.
Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses and other expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our unsecured revolving credit facility and commercial paper program, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from NOI and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving credit facility and commercial paper program, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.
Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our availableavailable cash on-hand, we expect to borrow under our unsecured revolving credit facilityfacility and commercial paper program. At March 31, 2021,2022, we had $2,131,846,000$301,089,000 of cash and cash equivalents, $426,976,000$65,954,000 of restricted cash and $3,000,000,000$3,700,000,000 of available borrowing capacity under our unsecured revolving credit facility.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Key Transactions
Capital The following summarizes key capital transactiontransactions that occurred during the three months ended March 31, 2022:
•In March 2022, we completed the issuance of $550,000,000 senior unsecured notes bearing interest at 3.85% with a maturity date of June 2032.
•In July 2021, we entered into an amended and subsequent events:restated ATM Program (as defined below) pursuant to which we may offer and sell up to $2,500,000,000 of common stock from time to time. During the three months ended March 31, 2022, we settled 6,605,191 shares of common stock that were sold under our ATM Program via forward sale agreements resulting in $558,790,000 of gross proceeds.
•During the three months ended March 31, 2021,2022, we extinguished $41,933,000$100,821,000 of secured debt at a blended average interest rate of 7.60%4.21%.
•During the three months ended March 31, 2021, we sold 2,214,760 shares of common stock under our ATM program via forward sale agreements, generating future expected gross proceeds of approximately $160,375,000.
•On March 25, 2021, we completed the issuance of $750,000,000 senior unsecured notes bearing interest at 2.80% with a maturity date of June 2031. On April 15, 2021, net proceeds were used to redeem $339,128,000 of our 3.75% senior unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured notes due September 2023. We expect to recognize a loss on extinguishment of approximately $51 million in April in conjunction with the transaction.
Investments The following summarizes our property acquisitions and joint venture investments completed during the three months ended March 31, 20212022 (dollars in thousands):
| | | | Properties | | Investment Amount (1) | | Capitalization Rates (2) | | Book Amount (3) | | | Properties | | Book Amount (1) | | Capitalization Rates (2) |
Seniors Housing Operating | Seniors Housing Operating | | 1 | | | $ | 5,000 | | | 9.6 | % | | $ | 5,070 | | Seniors Housing Operating | | 10 | | $ | 477,605 | | | 3.8 | % |
Triple-net | Triple-net | | 11 | | | 190,416 | | | 6.1 | % | | 194,516 | | Triple-net | | — | | | 171 | | | — | % |
Outpatient Medical | Outpatient Medical | | 1 | | | 13,997 | | | 5.9 | % | | 14,282 | | Outpatient Medical | | 4 | | | 152,482 | | | 5.5 | % |
Totals | Totals | | 13 | | | $ | 209,413 | | | 6.2 | % | | $ | 213,868 | | Totals | | 14 | | | $ | 630,258 | | | 4.2 | % |
| (1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP. | |
(1) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our unaudited consolidated financial statements for additional information. | | (1) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our unaudited consolidated financial statements for additional information. |
(2) Represents annualized contractual or projected net operating income to be received in cash divided by investment amounts. | (2) Represents annualized contractual or projected net operating income to be received in cash divided by investment amounts. | (2) Represents annualized contractual or projected net operating income to be received in cash divided by investment amounts. |
(3) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our unaudited consolidated financial statements for additional information. | |
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Dispositions The following summarizes property dispositions completed during the three months ended March 31, 20212022 (dollars in thousands):
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| | Properties | | Proceeds (1) | | Capitalization Rates (2) | | Book Amount (3) |
Seniors Housing Operating | | 4 | | $ | 57,501 | | | 6.1 | % | | $ | 74,326 | |
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Outpatient Medical | | 8 | | 158,878 | | | 5.2 | % | | 137,890 | |
Totals | | 12 | | | $ | 216,379 | | | 5.5 | % | | $ | 212,216 | |
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(1) Represents pro rata proceeds received upon disposition including any seller financing. |
(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds. |
(3) Represents carrying value of net real estate assets at time of disposition. See Note 5 to our unaudited consolidated financial statements for additional information. |
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| | Properties | | Proceeds (1) | | Book Amount (2) | | Capitalization Rates (3) |
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Triple-net | | 7 | | $ | 73,568 | | | $ | 52,661 | | | 7.4 | % |
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(1) Represents net proceeds received upon disposition, including any seller financing. | | |
(2) Represents carrying value of net real estate assets at time of disposition. See Note 5 to our unaudited consolidated financial statements for additional information. |
(3) Represents annualized contractual income that was being received in cash at date of disposition divided by stated purchase price. |
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Dividends Our Board of Directors declared a cash dividend for thethe quarter ended March 31, 20212022 of $0.61 per share. On May 20, 2021,31, 2022, we will pay our 200204th consecutive quarterly cash dividend to stockholders of record on May 11, 2021.24, 2022.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to operating performance, credit strength and concentration risk. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results, in making operating decisions and for budget planning purposes.
Operating Performance We believe that net income and net income attributable to common stockholders (“NICS”) per the Consolidated Statements of Comprehensive Income are the most appropriate earnings measures. Other useful supplemental measures of our operating performance include funds from operations attributable to common stockholders (“FFO”) and consolidated net operating income (“NOI”); however, these supplemental measures are not defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations. These earnings measures are widely used by investors and analysts in the valuation, comparison and investment recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands):
| | | | | Three Months Ended | | | | Three Months Ended |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Net income (loss) | Net income (loss) | | | $ | 72,192 | | | $ | 155,278 | | | $ | 394,978 | | | $ | 159,216 | | | $ | 329,380 | | Net income (loss) | | | $ | 65,751 | | | $ | 66,194 | | | $ | 190,336 | | | $ | 45,757 | | | $ | 72,192 | |
NICS | NICS | | | 71,546 | | | 163,729 | | | 325,585 | | | 179,246 | | | 310,284 | | NICS | | | 61,925 | | | 58,672 | | | 179,663 | | | 26,257 | | | 71,546 | |
FFO | FFO | | | 287,167 | | | 225,827 | | | 185,014 | | | 335,597 | | | 356,124 | | FFO | | | 347,635 | | | 338,976 | | | 345,739 | | | 248,840 | | | 287,167 | |
NOI | NOI | | | 434,736 | | | 501,455 | | | 402,157 | | | 527,711 | | | 576,821 | | NOI | | | 542,035 | | | 524,085 | | | 510,397 | | | 498,335 | | | 434,736 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Credit Strength We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt, net of cash and Internal Revenue Code Section 1031 deposits.restricted cash. The coverage ratios indicate our ability to service interest and fixed charges (interest and secured debt principal amortization). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain a capital structure consistent with our current profile. The coverage ratios are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliation of these measures. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:
| | | | | Three Months Ended | | | | Three Months Ended |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
| Net debt to book capitalization ratio | Net debt to book capitalization ratio | | | 42% | | 41% | | 41% | | 43% | | 44% | Net debt to book capitalization ratio | | | 43% | | 42% | | 42% | | 43% | | 41% |
Net debt to undepreciated book capitalization ratio | Net debt to undepreciated book capitalization ratio | | | 34% | | 34% | | 34% | | 35% | | 37% | Net debt to undepreciated book capitalization ratio | | | 35% | | 35% | | 35% | | 35% | | 34% |
Net debt to market capitalization ratio | Net debt to market capitalization ratio | | | 28% | | 30% | | 33% | | 36% | | 40% | Net debt to market capitalization ratio | | | 24% | | 26% | | 27% | | 26% | | 28% |
| Interest coverage ratio | Interest coverage ratio | | | 3.56x | | 4.20x | | 6.23x | | 4.29x | | 5.42x | Interest coverage ratio | | | 4.03x | | 3.89x | | 4.81x | | 3.30x | | 3.56x |
Fixed charge coverage ratio | Fixed charge coverage ratio | | | 3.16x | | 3.72x | | 5.52x | | 3.84x | | 4.88x | Fixed charge coverage ratio | | | 3.57x | | 3.42x | | 4.22x | | 2.93x | | 3.16x |
Concentration Risk We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to experience downturns. Property mix measures the portion of our NOI that relates to our various property types. Relationship mix measures the portion of our NOI that relates to our current top five relationships. Geographic mix measures the portion of our NOI that relates to our current top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by NOI for the periods indicated below:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | | Three Months Ended | | | | Three Months Ended |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Property mix:(1) | Property mix:(1) | | | | | | | | | | | | Property mix:(1) | | | | | | | | | | | |
Seniors Housing Operating | Seniors Housing Operating | | | 39% | | 32% | | 43% | | 34% | | 42% | Seniors Housing Operating | | | 38% | | 34% | | 34% | | 32% | | 39% |
Triple-net | Triple-net | | | 36% | | 45% | | 27% | | 42% | | 34% | Triple-net | | | 41% | | 44% | | 45% | | 45% | | 36% |
Outpatient Medical | Outpatient Medical | | | 25% | | 23% | | 30% | | 24% | | 24% | Outpatient Medical | | | 21% | | 22% | | 21% | | 23% | | 25% |
| Relationship mix: (1) | Relationship mix: (1) | | | | | | Relationship mix: (1) | | | |
Sunrise Senior Living (2) | | | 14% | | 12% | | 15% | | 10% | | 14% | |
ProMedica | ProMedica | | | 12% | | 11% | | 13% | | 10% | | 9% | ProMedica | | | 11% | | 11% | | 11% | | 12% | | 12% |
Genesis Healthcare (3) | | | 6% | | 6% | | (16)% | | 6% | | 5% | |
Revera (2) | | | 5% | | 4% | | 6% | | 5% | | 6% | |
Sunrise Senior Living | | Sunrise Senior Living | | | 6% | | 7% | | 9% | | 10% | | 14% |
Atria Senior Living | | Atria Senior Living | | | 5% | | 4% | | 3% | | —% | | —% |
HC-One Group | | HC-One Group | | | 4% | | 5% | | 5% | | 3% | | —% |
Avery Healthcare | Avery Healthcare | | | 5% | | 4% | | 5% | | 3% | | 3% | Avery Healthcare | | | 4% | | 4% | | 4% | | 4% | | 5% |
Remaining relationships | Remaining relationships | | | 58% | | 63% | | 77% | | 66% | | 63% | Remaining relationships | | | 70% | | 69% | | 68% | | 71% | | 69% |
| Geographic mix:(1) | Geographic mix:(1) | | | | | Geographic mix:(1) | | | | | |
California | California | | | 15% | | 12% | | 17% | | 14% | | 15% | California | | | 13% | | 13% | | 12% | | 12% | | 15% |
United Kingdom | United Kingdom | | | 10% | | 11% | | 12% | | 8% | | 9% | United Kingdom | | | 11% | | 13% | | 14% | | 13% | | 10% |
New Jersey(3) | | | 7% | | 7% | | (5)% | | 7% | | 8% | |
Texas | Texas | | | 7% | | 10% | | 12% | | 10% | | 7% | Texas | | | 8% | | 9% | | 9% | | 9% | | 7% |
New Jersey | | New Jersey | | | 5% | | 5% | | 5% | | 5% | | 7% |
Canada | Canada | | | 7% | | 5% | | 8% | | 6% | | 7% | Canada | | | 5% | | 5% | | 6% | | 7% | | 7% |
Remaining geographic areas | Remaining geographic areas | | | 54% | | 55% | | 56% | | 55% | | 54% | Remaining geographic areas | | | 58% | | 55% | | 54% | | 54% | | 54% |
| (1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. | (1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. | (1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. |
(2) Revera owns a controlling interest in Sunrise Senior Living. | |
(3) During the three months ended September 30, 2020, we reserved for straight-line rent receivable balances of $91,025,000 relating to Genesis Healthcare. | |
Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of March 31, 20212022 (dollars in thousands):
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| | Expiration Year (1) |
| | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | Thereafter |
Triple-net: | | | | | | | | | | | | | | | | | | | | | | |
Properties | | 67 | | | 8 | | | 10 | | | 4 | | | 28 | | | 66 | | | 18 | | | 15 | | | 14 | | | 23 | | | 385 | |
Base rent (2) | | $ | — | | | $ | 2,913 | | | $ | 2,482 | | | $ | 11,431 | | | $ | 6,147 | | | $ | 75,872 | | | $ | 32,044 | | | $ | 16,797 | | | $ | 31,393 | | | $ | 42,135 | | | $ | 342,413 | |
% of base rent | | — | % | | 0.5 | % | | 0.4 | % | | 2.0 | % | | 1.1 | % | | 13.5 | % | | 5.7 | % | | 3.0 | % | | 5.6 | % | | 7.5 | % | | 60.7 | % |
Units/beds | | 8,858 | | | 862 | | | 1,419 | | | 777 | | | 1,759 | | | 5,032 | | | 2,350 | | | 1,633 | | | 1,214 | | | 2,439 | | | 38,128 | |
% of Units/beds | | 13.7 | % | | 1.3 | % | | 2.2 | % | | 1.2 | % | | 2.7 | % | | 7.8 | % | | 3.6 | % | | 2.5 | % | | 1.9 | % | | 3.8 | % | | 59.3 | % |
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Outpatient Medical: | | | | | | | | | | | | | | | | | | | | |
Square feet | | 1,099,300 | | | 1,588,578 | | | 1,749,388 | | | 1,944,154 | | | 1,025,052 | | | 1,212,424 | | | 993,193 | | | 897,601 | | | 718,767 | | | 1,391,512 | | | 3,848,566 | |
Base rent (2) | | $ | 33,421 | | | $ | 47,751 | | | $ | 49,075 | | | $ | 59,119 | | | $ | 28,696 | | | $ | 32,311 | | | $ | 25,537 | | | $ | 23,587 | | | $ | 20,824 | | | $ | 34,873 | | | $ | 83,241 | |
% of base rent | | 7.6 | % | | 10.9 | % | | 11.2 | % | | 13.5 | % | | 6.5 | % | | 7.4 | % | | 5.8 | % | | 5.4 | % | | 4.7 | % | | 8.0 | % | | 19.0 | % |
Leases | | 280 | | | 335 | | | 362 | | | 308 | | | 213 | | | 203 | | | 129 | | | 113 | | | 71 | | | 90 | | | 144 | |
% of Leases | | 12.5 | % | | 14.9 | % | | 16.1 | % | | 13.7 | % | | 9.5 | % | | 9.0 | % | | 5.7 | % | | 5.0 | % | | 3.2 | % | | 4.0 | % | | 6.4 | % |
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(1) Excludes investments in unconsolidated entities, developments, land parcels, loans receivable and sub-leases. Investments classified as held for sale are included in the current year. |
(2) The most recent monthly cash base rent annualized. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles or other non-cash income. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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| | Expiration Year (1) |
| | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | Thereafter |
Triple-net: | | | | | | | | | | | | | | | | | | | | | | |
Properties | | 22 | | | 2 | | | 4 | | | 27 | | | 66 | | | 4 | | | 14 | | | 4 | | | 21 | | | 9 | | | 390 | |
Base rent (2) | | $ | 4,194 | | | $ | 840 | | | $ | 12,110 | | | $ | 6,612 | | | $ | 68,008 | | | $ | 15,191 | | | $ | 19,383 | | | $ | 3,972 | | | $ | 43,322 | | | $ | 21,203 | | | $ | 430,445 | |
% of base rent | | 0.7 | % | | 0.1 | % | | 1.9 | % | | 1.1 | % | | 10.9 | % | | 2.4 | % | | 3.1 | % | | 0.6 | % | | 6.9 | % | | 3.4 | % | | 68.9 | % |
Units/beds | | 3,285 | | | 222 | | | 692 | | | 1,725 | | | 5,016 | | | 633 | | | 1,474 | | | 219 | | | 2,279 | | | 896 | | | 39,542 | |
% of Units/beds | | 5.9 | % | | 0.4 | % | | 1.2 | % | | 3.1 | % | | 9.0 | % | | 1.1 | % | | 2.6 | % | | 0.4 | % | | 4.1 | % | | 1.6 | % | | 70.6 | % |
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Outpatient Medical: | | | | | | | | | | | | | | | | | | | | |
Square feet | | 1,376,952 | | | 1,709,614 | | | 1,922,175 | | | 1,070,893 | | | 1,390,852 | | | 1,252,589 | | | 949,513 | | | 790,651 | | | 1,492,484 | | | 1,399,206 | | | 4,358,806 | |
Base rent (2) | | $ | 41,025 | | | $ | 48,971 | | | $ | 59,039 | | | $ | 30,385 | | | $ | 38,274 | | | $ | 33,066 | | | $ | 25,750 | | | $ | 22,763 | | | $ | 38,835 | | | $ | 38,270 | | | $ | 94,228 | |
% of base rent | | 8.7 | % | | 10.4 | % | | 12.5 | % | | 6.5 | % | | 8.1 | % | | 7.0 | % | | 5.5 | % | | 4.8 | % | | 8.3 | % | | 8.1 | % | | 20.1 | % |
Leases | | 312 | | | 363 | | | 355 | | | 233 | | | 258 | | | 204 | | | 133 | | | 90 | | | 104 | | | 79 | | | 185 | |
% of Leases | | 13.5 | % | | 15.7 | % | | 15.3 | % | | 10.1 | % | | 11.1 | % | | 8.8 | % | | 5.7 | % | | 3.9 | % | | 4.5 | % | | 3.4 | % | | 8.0 | % |
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(1) Excludes our share of investments in unconsolidated entities, developments, land parcels, loans receivable and sub-leases. Investments classified as held for sale are included in the current year. |
(2) The most recent monthly cash base rent annualized. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles or other non-cash income. |
We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved, and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Cautionary Statement Regarding Forward-Looking Statements” and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020,2021, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.Operations.”
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Corporate Governance
Maintaining investor confidence and trust is important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at www.welltower.com/investors/governance. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only.
Liquidity and Capital Resources
Sources and Uses of Cash
Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses and other expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):
| | | | Three Months Ended | | Change | | | Three Months Ended | | Change |
| | March 31, 2021 | | March 31, 2020 | | $ | | % | | March 31, 2022 | | March 31, 2021 | | $ | | % |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | $ | 2,021,043 | | | $ | 385,766 | | | $ | 1,635,277 | | | 424 | % | Cash, cash equivalents and restricted cash at beginning of period | | $ | 346,755 | | | $ | 2,021,043 | | | $ | (1,674,288) | | | (83) | % |
Cash provided from (used in) operating activities | Cash provided from (used in) operating activities | | 303,658 | | | 411,857 | | | (108,199) | | | (26) | % | Cash provided from (used in) operating activities | | 324,520 | | | 303,658 | | | 20,862 | | | 7 | % |
Cash provided from (used in) investing activities | Cash provided from (used in) investing activities | | (139,140) | | | 149,748 | | | (288,888) | | | (193) | % | Cash provided from (used in) investing activities | | (808,547) | | | (139,140) | | | (669,407) | | | (481) | % |
Cash provided from (used in) financing activities | Cash provided from (used in) financing activities | | 371,903 | | | (544,295) | | | 916,198 | | | 168 | % | Cash provided from (used in) financing activities | | 505,105 | | | 371,903 | | | 133,202 | | | 36 | % |
Effect of foreign currency translation | Effect of foreign currency translation | | 1,358 | | | (10,010) | | | 11,368 | | | 114 | % | Effect of foreign currency translation | | (790) | | | 1,358 | | | (2,148) | | | (158) | % |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 2,558,822 | | | $ | 393,066 | | | $ | 2,165,756 | | | 551 | % | Cash, cash equivalents and restricted cash at end of period | | $ | 367,043 | | | $ | 2,558,822 | | | $ | (2,191,779) | | | (86) | % |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Operating Activities The changes in net cash provided from operating activities are primarily attributable to declines in revenue as a result of decreased occupancy at our Seniors Housing Operating properties, straight-line receivable reserves related to Triple-net leases during the three months ended March 31, 2021 and dispositions.was immaterial. Please see “Results of Operations” for discussion of net income fluctuations. For the three months ended March 31, 20212022 and 2020,2021, cash flows provided from operations exceeded cash distributions to stockholders.
Investing Activities The changes in net cash provided from/used in investing activities are primarily attributable to net changes in real property investments and dispositions, loans receivable and investments in unconsolidated entities, which are summarized above in “Key Transactions” and"Key Transactions." Please refer to Notes 3 and 5 of our unaudited consolidated financial statements. Thestatements for additional information. The following is a summary of cash used in non-acquisition capital improvement activities for the periods presented (dollars in thousands):
| | | | Three Months Ended | | Change | | | | Three Months Ended | | Change | |
| | | March 31, 2021 | | March 31, 2020 | | $ | | | | March 31, 2022 | | March 31, 2021 | | $ | |
New development | New development | | $ | 73,605 | | | $ | 48,775 | | | $ | 24,830 | | | New development | | $ | 138,141 | | | $ | 73,605 | | | $ | 64,536 | | |
Recurring capital expenditures, tenant improvements and lease commissions | Recurring capital expenditures, tenant improvements and lease commissions | | 10,754 | | | 22,566 | | | (11,812) | | | Recurring capital expenditures, tenant improvements and lease commissions | | 32,835 | | | 10,754 | | | 22,081 | | |
Renovations, redevelopments and other capital improvements | Renovations, redevelopments and other capital improvements | | 18,026 | | | 46,816 | | | (28,790) | | | Renovations, redevelopments and other capital improvements | | 57,394 | | | 18,026 | | | 39,368 | | |
Total | Total | | $ | 102,385 | | | $ | 118,157 | | | $ | (15,772) | | | Total | | $ | 228,370 | | | $ | 102,385 | | | $ | 125,985 | | |
The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods. Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization.
Financing Activities The changes in net cash provided from/used in financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuances of common stock and dividend payments which are summarized above in "Key Transactions".Transactions." Please refer to Notes 10, 11 and 14 of our unaudited consolidated financial statements for additional information.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OnIn March 25, 2021,2022, we completed the issuance of $750,000,000$550,000,000 senior unsecured notes with a maturity date of June 2031. On April 15, 2021, net proceeds were used to redeem the remaining $339,128,000 of our 3.75% senior unsecured notes due 2023 and $334,624,000 of our 3.95% senior unsecured notes due 2023.2032. As of March 31, 2021,2022, we have total near-term available liquidity of approximately $5.1$4.1 billion. However, we are unable to accurately predict the full impact that the pandemic will have on our results from operations, financial condition, liquidity and cash flows due to numerous factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, including factors identified under the heading “Risk Factors".
Off-Balance Sheet Arrangements
At March 31, 2021,2022, we had investments in unconsolidated entities with our ownership generally ranging from 10% to 65%88%. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. At March 31, 2021,2022, we had 1017 outstanding letter of credit obligations. Please see Notes 8, 12 and 13 to our unaudited consolidated financial statements for additional information.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Contractual Obligations
The following table summarizes our payment requirements under contractual obligations as of March 31, 20212022 (in thousands):
| | | | Payments Due by Period | | | Payments Due by Period |
Contractual Obligations | Contractual Obligations | | Total | | 2021 | | 2022-2023 | | 2024-2025 | | Thereafter | Contractual Obligations | | Total | | 2022 | | 2023-2024 | | 2025-2026 | | Thereafter |
| Unsecured credit facility and commercial paper (1,3) | | Unsecured credit facility and commercial paper (1,3) | | $ | 300,000 | | | $ | — | | | $ | — | | | $ | 300,000 | | | $ | — | |
Senior unsecured notes and term credit facilities: (1) | Senior unsecured notes and term credit facilities: (1) | | | | | | | | | | | Senior unsecured notes and term credit facilities: (1) | |
U.S. Dollar senior unsecured notes | U.S. Dollar senior unsecured notes | | $ | 9,023,752 | | | $ | — | | | $ | 673,752 | | | $ | 2,600,000 | | | $ | 5,750,000 | | U.S. Dollar senior unsecured notes | | 9,900,000 | | | — | | | 1,350,000 | | | 1,950,000 | | | 6,600,000 | |
Canadian Dollar senior unsecured notes (2) | Canadian Dollar senior unsecured notes (2) | | 238,620 | | | — | | | — | | | — | | | 238,620 | | Canadian Dollar senior unsecured notes (2) | | 240,347 | | | — | | | — | | | — | | | 240,347 | |
Pounds Sterling senior unsecured notes (2) | Pounds Sterling senior unsecured notes (2) | | 1,448,370 | | | — | | | — | | | — | | | 1,448,370 | | Pounds Sterling senior unsecured notes (2) | | 1,380,960 | | | — | | | — | | | — | | | 1,380,960 | |
U.S. Dollar term credit facility | U.S. Dollar term credit facility | | 1,370,000 | | | — | | | 1,370,000 | | | — | | | — | | U.S. Dollar term credit facility | | 510,000 | | | — | | | 500,000 | | | 10,000 | | | — | |
Canadian Dollar term credit facility (2) | Canadian Dollar term credit facility (2) | | 198,850 | | | — | | | 198,850 | | | — | | | — | | Canadian Dollar term credit facility (2) | | 200,288 | | | — | | | 200,288 | | | — | | | — | |
Secured debt: (1,2) | Secured debt: (1,2) | | Secured debt: (1,2) | |
Consolidated | Consolidated | | 2,336,172 | | | 438,772 | | | 837,504 | | | 364,577 | | | 695,319 | | Consolidated | | 2,115,641 | | | 575,737 | | | 633,350 | | | 277,288 | | | 629,266 | |
Unconsolidated | Unconsolidated | | 1,139,839 | | | 16,407 | | | 238,886 | | | 608,952 | | | 275,594 | | Unconsolidated | | 1,266,905 | | | 146,558 | | | 302,886 | | | 552,529 | | | 264,932 | |
Contractual interest obligations: (3) | Contractual interest obligations: (3) | | Contractual interest obligations: (3) | |
| Unsecured credit facility and commercial paper | | Unsecured credit facility and commercial paper | | 12,821 | | | 2,263 | | | 6,033 | | | 4,525 | | | — | |
Senior unsecured notes and term loans (2) | Senior unsecured notes and term loans (2) | | 3,977,707 | | | 320,376 | | | 862,041 | | | 694,592 | | | 2,100,698 | | Senior unsecured notes and term loans (2) | | 3,797,590 | | | 326,226 | | | 841,203 | | | 666,489 | | | 1,963,672 | |
Consolidated secured debt (2) | Consolidated secured debt (2) | | 296,984 | | | 52,586 | | | 97,575 | | | 58,678 | | | 88,145 | | Consolidated secured debt (2) | | 212,912 | | | 45,628 | | | 75,365 | | | 43,926 | | | 47,993 | |
Unconsolidated secured debt (2) | Unconsolidated secured debt (2) | | 204,961 | | | 28,292 | | | 70,570 | | | 45,104 | | | 60,995 | | Unconsolidated secured debt (2) | | 176,900 | | | 31,013 | | | 66,623 | | | 26,522 | | | 52,742 | |
Financing lease liabilities (4) | Financing lease liabilities (4) | | 193,288 | | | 6,551 | | | 77,850 | | | 2,864 | | | 106,023 | | Financing lease liabilities (4) | | 208,588 | | | 6,429 | | | 71,634 | | | 3,354 | | | 127,171 | |
Operating lease liabilities (4) | Operating lease liabilities (4) | | 981,936 | | | 14,985 | | | 37,538 | | | 33,341 | | | 896,072 | | Operating lease liabilities (4) | | 1,375,702 | | | 30,777 | | | 87,980 | | | 87,324 | | | 1,169,621 | |
Purchase obligations (5) | Purchase obligations (5) | | 792,829 | | | 363,539 | | | 372,211 | | | 49,804 | | | 7,275 | | Purchase obligations (5) | | 1,845,205 | | | 914,297 | | | 883,699 | | | 47,202 | | | 7 | |
| Total contractual obligations | Total contractual obligations | | $ | 22,203,308 | | | $ | 1,241,508 | | | $ | 4,836,777 | | | $ | 4,457,912 | | | $ | 11,667,111 | | Total contractual obligations | | $ | 23,543,859 | | | $ | 2,078,928 | | | $ | 5,019,061 | | | $ | 3,969,159 | | | $ | 12,476,711 | |
| | (1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. | (1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. | (1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. |
(2) Based on foreign currency exchange rates in effect as of balance sheet date. | (2) Based on foreign currency exchange rates in effect as of balance sheet date. | (2) Based on foreign currency exchange rates in effect as of balance sheet date. |
(3) Based on variable interest rates in effect as of balance sheet date. | |
(3) Based on variable interest rates in effect as of the balance sheet date. | | (3) Based on variable interest rates in effect as of the balance sheet date. |
(4) See Note 6 to our unaudited consolidated financial statements for additional information. | (4) See Note 6 to our unaudited consolidated financial statements for additional information. | (4) See Note 6 to our unaudited consolidated financial statements for additional information. |
(5) See Note 13 to our unaudited consolidated financial statements for additional information. | (5) See Note 13 to our unaudited consolidated financial statements for additional information. | (5) See Note 13 to our unaudited consolidated financial statements for additional information. |
Capital Structure
Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of March 31, 2021,2022, we were in compliance in all material respects with allthe covenants under our primary unsecured credit facilities and senior notedebt agreements. NoneNone of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. We plan to manage the company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.
On April 1, 2022, Welltower Inc. and Welltower OP Inc. jointly filed with the Securities and Exchange Commission (the “SEC”) an open-ended automatic or “universal” shelf registration statement on Form S-3 covering an indeterminate amount of future offerings of Welltower Inc.’s debt securities, common stock, preferred stock, depositary shares, guarantees of debt securities issued by Welltower OP Inc., warrants and units and Welltower OP Inc.’s debt securities and guarantees of debt securities issued by Welltower Inc. to replace Old Welltower’s existing “universal” shelf registration statement filed with the SEC on May 4, 2021. On April 1, 2022, Welltower Inc. also filed with the SEC a registration statement in connection with its enhanced dividend reinvestment plan (“DRIP”) under which it may issue up to 15,000,000 shares of common stock to replace Old Welltower’s existing DRIP registration statement on Form S-3 filed with the SEC on May 4, 2021. As of April 29, 2022, 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement. On April 4, 2022, Welltower Inc. and Welltower OP Inc. entered into (i) a second amended and restated equity distribution agreement (the “EDA”) with (i) Robert W. Baird & Co. Incorporated, Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BNY Mellon Capital Markets, LLC, BofA Securities, Inc., BOK Financial Securities, Inc., Capital One Securities Inc., Citigroup Global Markets Inc., Comerica Securities, Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Fifth Third Securities, Inc., Goldman Sachs & Co. LLC, Jefferies LLC, JMP Securities LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc., Loop Capital Markets LLC, Mizuho Securities USA LLC, Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., RBC Capital Markets, LLC, Regions Securities LLC, Scotia Capital (USA) Inc.,
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
On May 17, 2018, we filed with theSMBC Nikko Securities and Exchange Commission (1) an open-ended automatic or “universal” shelf registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan (“DRIP”) under which we may issue up to 15,000,000 shares of common stock. As of April 23, 2021, 2,541,750 shares of common stock remained available for issuance under the DRIP registration statement. On February 25, 2019, we entered into separate amended and restated equity distribution agreements with each of Barclays CapitalAmerica, Inc., Citigroup Global MarketsSynovus Securities, Inc., Credit AgricoleTD Securities (USA) Inc., Deutsche BankLLC, Truist Securities, Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC as sales agents and forward sellers and (ii) the forward purchasers named therein relating to the offerissuances, offers and salesales from time to time of up to $1,500,000,000$3,000,000,000 aggregate amount of our common stock (“Equity Shelfof Welltower Inc. (together with the existing master forward sale confirmations relating thereto, the “ATM Program”)., amending and restating the ATM Program entered into on July 30, 2021 to, among other amendments, increase the total amount of shares of common stock that may be offered and sold under the ATM Program from $2,500,000,000 to $3,000,000,000, which amount excludes shares Old Welltower had previously sold pursuant to the prior program. The Equity ShelfATM Program also allows usWelltower Inc. to enter into forward sale agreements. As of April 23, 2021,29, 2022, we had $499,341,000 $3,000,000,000 of remaining capacity under the Equity ShelfATM Program, which excludes forward sales agreements outstanding for the sale of 3,704,787 shares4,662,141 shares or approximately $272,059,000$450,291,000 with maturity dates in 2022.2023. In addition, we have forward sale agreements for the sale of 14,847,242 shares or approximately $1,307,384,000 with maturity dates in 2023 under the July 30, 2021 ATM Program. We expect to physically settle the forward sales for cash proceeds. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured revolving credit facility and commercial paper program.
In connection with the filing of the new “universal” shelf registration statement, Welltower Inc. also filed with the SEC two prospectus supplements that will continue offerings that were previously covered by Old Welltower’s prospectus supplements and the accompanying prospectus to the prior registration statement relating to: (i) the registration and possible issuance of up to 620,731 shares of common stock of Welltower Inc. (the “DownREIT Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT Units”) of HCN G&L DownREIT, LLC, a Delaware limited liability company (the “DownREIT”), tender such DownREIT Units for redemption by the DownREIT, and HCN DownREIT Member, LLC, a majority-owned indirect subsidiary of Welltower Inc. (including its permitted successors and assigns, the “Managing Member”), or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT and to satisfy all or a portion of the redemption consideration by issuing DownREIT Shares to the holders instead of or in addition to paying a cash amount; and (ii) the registration and possible issuance of up to 475,327 shares common stock of Welltower Inc. (the “DownREIT II Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT II Units,” and collectively with the DownREIT Units, the “Units”) of HCN G&L DownREIT II LLC, a Delaware limited liability company (the “DownREIT II”), tender such DownREIT II Units for redemption by the DownREIT II, and the Managing Member, or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT II and to satisfy all or a portion of the redemption consideration by issuing DownREIT II Shares to the holders instead of or in addition to paying a cash amount.
Results of Operations
Summary
Our primary sources of revenue include resident fees and services, rent and interest income. Our primary expenses include property operating expenses, depreciation and amortization, interest expense, general and administrative expenses and other expenses. We evaluate our business and make resource allocations on our three business segments: Seniors Housing Operating, Triple-net and Outpatient Medical. The primary performance measures for our properties are NOI and same store NOI ("SSNOI"), and other supplemental measures include FFOFunds From Operations ("FFO") and EBITDA, which are further discussed below. Please see Non-GAAP Financial Measures for additional information and reconciliations. The following is a summary of our results of operations (dollars in thousands, except per share amounts):
| | | | Three Months Ended | | Change | | | | | Three Months Ended | | Change | | |
| | | March 31, | | March 31, | | | | | | | | | March 31, | | March 31, | | | | | | |
| | | 2021 | | 2020 | | Amount | | % | | | | | 2022 | | 2021 | | Amount | | % | | |
Net income | Net income | | $ | 72,192 | | | $ | 329,380 | | | $ | (257,188) | | | (78) | % | | | Net income | | $ | 65,751 | | | $ | 72,192 | | | $ | (6,441) | | | (9) | % | | |
NICS | NICS | | 71,546 | | | 310,284 | | | (238,738) | | | (77) | % | | | NICS | | 61,925 | | | 71,546 | | | (9,621) | | | (13) | % | | |
FFO | FFO | | 287,167 | | | 356,124 | | | (68,957) | | | (19) | % | | | FFO | | 347,635 | | | 287,167 | | | 60,468 | | | 21 | % | | |
EBITDA | EBITDA | | 443,703 | | | 751,630 | | | (307,927) | | | (41) | % | | | EBITDA | | 496,548 | | | 443,703 | | | 52,845 | | | 12 | % | | |
NOI | NOI | | 434,736 | | | 576,821 | | | (142,085) | | | (25) | % | | | NOI | | 542,035 | | | 434,736 | | | 107,299 | | | 25 | % | | |
SSNOI | SSNOI | | 395,076 | | | 461,491 | | | (66,415) | | | (14) | % | | | SSNOI | | 391,228 | | | 388,964 | | | 2,264 | | | 1 | % | | |
Per share data (fully diluted): | Per share data (fully diluted): | | | | | | | | | | | Per share data (fully diluted): | | | | | | | | | | |
NICS | NICS | | $ | 0.17 | | | $ | 0.75 | | | $ | (0.58) | | | (77) | % | | | NICS | | $ | 0.14 | | | $ | 0.17 | | | $ | (0.03) | | | (18) | % | | |
FFO | FFO | | $ | 0.69 | | | $ | 0.86 | | | $ | (0.17) | | | (20) | % | | | FFO | | $ | 0.77 | | | $ | 0.69 | | | $ | 0.08 | | | 12 | % | | |
| Interest coverage ratio | Interest coverage ratio | | 3.56 | x | | 5.42 | x | | (1.86) | x | | (34) | % | | | Interest coverage ratio | | 4.03 | x | | 3.56 | x | | 0.47 | x | | 13 | % | | |
Fixed charge coverage ratio | Fixed charge coverage ratio | | 3.16 | x | | 4.88 | x | | (1.72) | x | | (35) | % | | | Fixed charge coverage ratio | | 3.57 | x | | 3.16 | x | | 0.41 | x | | 13 | % | | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Seniors Housing Operating
The following is a summary of our SSNOI at Welltower's Shareshare for the Seniors Housing Operating segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2021 | | March 31, 2020 | | $ | | % | | | | | | | | |
SSNOI (1) | | $ | 156,791 | | | $ | 219,756 | | | $ | (62,965) | | | (28.7) | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2022 | | March 31, 2021 | | $ | | % | | | | | | | | |
SSNOI (1) | | $ | 143,572 | | | $ | 151,610 | | | $ | (8,038) | | | (5.3) | % | | | | | | | | |
(1) For the three months ended March 31, 2021 and 2020,QTD Pool, amounts relate tto o 526532 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.
The following is a summary of our results of operations for the Seniors Housing Operating segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | | | |
| | March 31, | | March 31, | | | | | | | | | | | | |
| | 2022 | | 2021 | | $ | | % | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | |
Resident fees and services | | $ | 994,335 | | | $ | 723,464 | | | $ | 270,871 | | | 37 | % | | | | | | | | |
Interest income | | 1,417 | | | 1,119 | | | 298 | | | 27 | % | | | | | | | | |
Other income | | 860 | | | 1,819 | | | (959) | | | (53) | % | | | | | | | | |
Total revenues | | 996,612 | | | 726,402 | | | 270,210 | | | 37 | % | | | | | | | | |
Property operating expenses | | 789,928 | | | 555,968 | | | 233,960 | | | 42 | % | | | | | | | | |
NOI (1) | | 206,684 | | | 170,434 | | | 36,250 | | | 21 | % | | | | | | | | |
Other expenses: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 192,793 | | | 132,586 | | | 60,207 | | | 45 | % | | | | | | | | |
Interest expense | | 7,650 | | | 11,418 | | | (3,768) | | | (33) | % | | | | | | | | |
Loss (gain) on extinguishment of debt, net | | (15) | | | (4,643) | | | 4,628 | | | 100 | % | | | | | | | | |
Provision for loan losses, net | | 267 | | | 251 | | | 16 | | | 6 | % | | | | | | | | |
Impairment of assets | | — | | | 4,604 | | | (4,604) | | | (100) | % | | | | | | | | |
Other expenses | | 8,191 | | | 3,459 | | | 4,732 | | | 137 | % | | | | | | | | |
| | 208,886 | | | 147,675 | | | 61,211 | | | 41 | % | | | | | | | | |
Income (loss) from continuing operations before income taxes and other items | | (2,202) | | | 22,759 | | | (24,961) | | | (110) | % | | | | | | | | |
Income (loss) from unconsolidated entities | | (17,782) | | | 5,234 | | | (23,016) | | | (440) | % | | | | | | | | |
Gain (loss) on real estate dispositions, net | | 2,701 | | | 5,195 | | | (2,494) | | | (48) | % | | | | | | | | |
Income from continuing operations | | (17,283) | | | 33,188 | | | (50,471) | | | (152) | % | | | | | | | | |
Net income (loss) | | (17,283) | | | 33,188 | | | (50,471) | | | (152) | % | | | | | | | | |
Less: Net income (loss) attributable to noncontrolling interests | | (5,381) | | | (4,924) | | | (457) | | | (9) | % | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (11,902) | | | $ | 38,112 | | | $ | (50,014) | | | (131) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) See Non-GAAP Financial Measures below. | | | | | | | | |
Resident fees and services and property operating expenses increased for the three month period ended March 31, 2022 compared to the same period in the prior year primarily due to acquisitions, including the acquisition of the Holiday Retirement portfolio on July 30, 2021 for a total purchase price of $1.6 billion. The increases were partially offset by decreases due to property dispositions.
Our Seniors Housing Operating revenues are dependent on occupancy, which has steadily increased in recent months. As of March 31, 2022, nearly all communities are open for new admissions and allowing visitors, in-person tours and communal dining and activities. Average occupancy increased from 73.0% to 77.5% for the three months ended March 31, 2022 and 2021, respectively. Occupancy metrics represent occupancy at our share for 543 properties in operation as of December 31, 2020, including unconsolidated properties but excluding acquisitions, executed dispositions, development conversions and four closed properties.
Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio totaled $11,003,000 and $27,976,000 for the three months ended March 31, 2022 and 2021, respectively. These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure personal protective equipment and supplies, net of reimbursements. Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | | | |
| | March 31, | | March 31, | | | | | | | | | | | | |
| | 2021 | | 2020 | | $ | | % | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | |
Resident fees and services | | $ | 723,464 | | | $ | 849,972 | | | $ | (126,508) | | | (15) | % | | | | | | | | |
Interest income | | 1,119 | | | 104 | | | 1,015 | | | 976 | % | | | | | | | | |
Other income | | 1,819 | | | 1,052 | | | 767 | | | 73 | % | | | | | | | | |
Total revenues | | 726,402 | | | 851,128 | | | (124,726) | | | (15) | % | | | | | | | | |
Property operating expenses | | 555,968 | | | 607,871 | | | (51,903) | | | (9) | % | | | | | | | | |
NOI (1) | | 170,434 | | | 243,257 | | | (72,823) | | | (30) | % | | | | | | | | |
Other expenses: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 132,586 | | | 146,774 | | | (14,188) | | | (10) | % | | | | | | | | |
Interest expense | | 11,418 | | | 16,434 | | | (5,016) | | | (31) | % | | | | | | | | |
Loss (gain) on extinguishment of debt, net | | (4,643) | | | — | | | (4,643) | | | n/a | | | | | | | | |
Provision for loan losses | | 251 | | | — | | | 251 | | | n/a | | | | | | | | |
Impairment of assets | | 4,604 | | | 3,495 | | | 1,109 | | | 32 | % | | | | | | | | |
Other expenses | | 3,459 | | | 2,989 | | | 470 | | | 16 | % | | | | | | | | |
| | 147,675 | | | 169,692 | | | (22,017) | | | (13) | % | | | | | | | | |
Income (loss) from continuing operations before income taxes and other items | | 22,759 | | | 73,565 | | | (50,806) | | | (69) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
Income (loss) from unconsolidated entities | | 5,234 | | | (11,024) | | | 16,258 | | | 147 | % | | | | | | | | |
Gain (loss) on real estate dispositions, net | | 5,195 | | | (149) | | | 5,344 | | | n/a | | | | | | | | |
Income from continuing operations | | 33,188 | | | 62,392 | | | (29,204) | | | (47) | % | | | | | | | | |
Net income (loss) | | 33,188 | | | 62,392 | | | (29,204) | | | (47) | % | | | | | | | | |
Less: Net income (loss) attributable to noncontrolling interests | | (4,924) | | | (1,932) | | | (2,992) | | | n/a | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 38,112 | | | $ | 64,324 | | | $ | (26,212) | | | (41) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) See Non-GAAP Financial Measures below. | | | | | | | | |
Decreases in resident feesIn 2021 and services2022, we received government grants under the CARES Act primarily to cover increased expenses and property operating expenses are primarily a result of decreases in occupancy across the portfolio due tolost revenue during the COVID-19 pandemic, and property dispositions. Spot occupancy has continued to decline since the beginning of the pandemic, dropping to 73.6% as of March 31, 2021 compared to 75.9%well as of December 31, 2020. Spot occupancy rates from the start of the pandemic through March 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | February 2020 | | December 2020 | | January 2021 | | February 2021 | | March 2021 | | | | | | |
Spot occupancy (1) | | 85.4 | % | | 75.9 | % | | 74.4 | % | | 73.6 | % | | 73.6 | % | | | | | | |
Sequential occupancy change | | | | | | (1.5) | % | | (0.8) | % | | — | % | | | | | | |
(1) Spot occupancy represents approximate month end occupancy at our share for properties in operation as of February 29, 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since this date.
Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio, net of reimbursements including Provider Relief Funds andunder similar programs in the U.K. and Canada, resulted in a benefit of approximately $21,204,000 forCanada. For the three months ended March 31, 2022 and 2021, as compared to an expensewe recognized $5,760,000 and $49,180,000, respectively, of $7,294,000 during the three months ended March 31, 2020. These costs included higher labor expenses, coupled with expenditures related to procurement of personal protective equipment and other supplies, net of any reimbursements.
In 2020 applications were made for amounts under Phase 2 and Phase 3 of the Provider Relief Fund related to our Seniors Housing Operating portfolio. During the first quarter, we received Provider Relief Funds of approximately $35,682,000, which was recognizedgovernment grant income as a reduction to COVID-19 costs within property operating expenses.expenses in our Consolidated Statements of Comprehensive Income.
The fluctuations in depreciation and amortization are due to acquisitions, dispositions and transitions. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.
During the three months ended March 31, 2021, and 2020, we recorded impairment charges of $4,604,000 and $3,495,000, respectively, related to one held for use propertiesproperty in which the carrying values exceedvalue exceeded the estimated fair value. Transaction costs related to asset acquisitions are capitalized as a component of the purchase price. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. During the three months ended March 31, 2021, we recognized a gain on real estate disposition of $5,195,000 related to four properties. The fluctuation in other expenses is primarily due to the timing of noncapitalizable transaction costs associated with acquisitions and operator transitions. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
During the three months ended March 31, 2021, there were no2022, we completed one Seniors Housing Operating construction projects completed. project representing $73,458,000 or $720,176 per unit. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of March 31, 20212022 (dollars in thousands):
| Location | Location | | Units | | Commitment | | Balance | | Est. Completion | | Location | | Units/Beds | | Commitment | | Balance | | Est. Completion |
Potomac, MD | | 120 | | $ | 56,720 | | | $ | 55,657 | | | 2Q21 | | |
Beckenham, UK | | 100 | | 64,970 | | 50,660 | | 4Q21 | | |
Barnet, UK | Barnet, UK | | 100 | | 71,453 | | 45,194 | | 4Q21 | | Barnet, UK | | 100 | | $ | 68,127 | | | $ | 61,496 | | | 2Q22 |
Hendon, UK | | 102 | | 76,557 | | 54,698 | | 4Q21 | | |
Georgetown, TX | | 188 | | 36,215 | | 5,308 | | 4Q21 | | |
Sachse, TX | | Sachse, TX | | 193 | | 38,054 | | 18,639 | | 3Q22 |
Princeton, NJ | Princeton, NJ | | 80 | | 29,780 | | 18,559 | | 3Q22 | | Princeton, NJ | | 80 | | 29,780 | | 27,932 | | 3Q22 |
Berea, OH | Berea, OH | | 120 | | 14,934 | | 2,344 | | 4Q22 | | Berea, OH | | 120 | | 14,934 | | 12,483 | | 3Q22 |
Painesville, OH | Painesville, OH | | 119 | | 14,462 | | 1,857 | | 4Q22 | | Painesville, OH | | 119 | | 14,462 | | 10,702 | | 3Q22 |
Beaver, PA | Beaver, PA | | 116 | | 14,184 | | 2,390 | | 4Q22 | | Beaver, PA | | 116 | | 14,184 | | 9,813 | | 3Q22 |
New Rochelle, NY | | New Rochelle, NY | | 72 | | 42,669 | | 18,184 | | 4Q22 |
Pflugerville, TX | | Pflugerville, TX | | 196 | | 39,500 | | 15,542 | | 4Q22 |
Georgetown, TX | | Georgetown, TX | | 188 | | 36,215 | | 18,897 | | 4Q22 |
Denton, TX | | Denton, TX | | 65 | | 20,194 | | 7,293 | | 4Q22 |
Brookline, MA | | Brookline, MA | | 159 | | 145,990 | | 38,683 | | 2Q23 |
Lake Jackson, TX | | Lake Jackson, TX | | 130 | | 32,020 | | 4,378 | | 2Q23 |
Charlotte, NC | | Charlotte, NC | | 328 | | 96,416 | | 37,707 | | 3Q23 |
White Marsh, MD | | White Marsh, MD | | 188 | | 78,610 | | 8,535 | | 3Q23 |
Weymouth, MA | | Weymouth, MA | | 165 | | 77,545 | | 15,999 | | 3Q23 |
Glendale, AZ | | Glendale, AZ | | 204 | | | 54,250 | | 8,518 | | | 3Q23 |
Miami Twp, OH | | Miami Twp, OH | | 122 | | | 18,206 | | 2,179 | | | 4Q23 |
Gaithersburg, MD | | Gaithersburg, MD | | 302 | | | 173,548 | | 32,770 | | | 2Q24 |
Leander, TX | | Leander, TX | | 72 | | | 26,761 | | 3,705 | | | 2Q24 |
Temple, TX | | Temple, TX | | 245 | | | 65,569 | | 5,574 | | | 4Q24 |
Kyle, TX | | Kyle, TX | | 225 | | | 62,700 | | 4,616 | | | 1Q25 |
| | | 1,045 | | | $ | 379,275 | | | 236,667 | | | | | | | 3,389 | | | $ | 1,149,734 | | | 363,645 | | | |
Toronto, ON | | Project in planning stage | | 47,970 | | | |
Brookline, MA | | Project in planning stage | | 24,632 | | | |
Washington, DC | | Project in planning stage | | 24,467 | | | |
Columbus, OH | | Project in planning stage | | 11,634 | | | |
Brookhaven, GA | | Project in planning stage | | 6,804 | | | |
Raleigh, NC | | Project in planning stage | | 3,407 | | | |
Boise, ID(1) | | Boise, ID(1) | | | | 33,639 | | |
Boise, ID(1) | | Boise, ID(1) | | | | 12,326 | | |
Brookhaven, GA(1) | | Brookhaven, GA(1) | | | | 10,943 | | |
Columbus, OH(1) | | Columbus, OH(1) | | | | 14,067 | | |
Kansas City, MO(1) | | Kansas City, MO(1) | | | | 12,404 | | |
Raleigh, NC(1) | | Raleigh, NC(1) | | | | 3,544 | | |
Toronto, ON(1) | | Toronto, ON(1) | | | | 51,600 | | |
Washington, DC(1) | | Washington, DC(1) | | | | 32,554 | | |
Wellesley, MA(1) | | Wellesley, MA(1) | | | | 9,500 | | |
| | $ | 355,581 | | | | | $ | 544,222 | | |
| (1) Final units/beds, commitment amount and expected conversion date not yet known. | | (1) Final units/beds, commitment amount and expected conversion date not yet known. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Interest expense represents secured debt interest expense which fluctuates based on the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt. The following is a summary of our Seniors Housing Operating segment property secured debt principal activity (dollars in thousands):
| | | | Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | March 31, 2020 | | | | | Three Months Ended | | |
| | | | | Wtd. Avg. | | | | Wtd. Avg. | | | | | March 31, 2022 | | March 31, 2021 | | |
| | | Amount | | Interest Rate | | Amount | | Interest Rate | | | | | Amount | | Weighted Average Interest Rate | | Amount | | Weighted Average Interest Rate | | |
Beginning balance | Beginning balance | | $ | 1,706,189 | | | 3.05 | % | | $ | 2,115,037 | | | 3.54 | % | | | Beginning balance | | $ | 1,599,522 | | | 2.81 | % | | $ | 1,706,189 | | | 3.05 | % | | |
| Debt transferred | | Debt transferred | | 32,478 | | | 4.79 | % | | — | | | — | % | | |
Debt issued | Debt issued | | — | | | — | % | | 44,921 | | | 2.58 | % | | | Debt issued | | 5,385 | | | 3.08 | % | | — | | | — | % | | |
| Debt extinguished | Debt extinguished | | (41,933) | | | 7.60 | % | | (16,040) | | | 4.51 | % | | | Debt extinguished | | (94,647) | | | 4.21 | % | | (41,933) | | | 7.60 | % | | |
| Principal payments | Principal payments | | (12,261) | | | 3.26 | % | | (12,174) | | | 3.49 | % | | | Principal payments | | (12,998) | | | 2.92 | % | | (12,261) | | | 3.26 | % | | |
Foreign currency | Foreign currency | | 15,283 | | | 2.81 | % | | (86,818) | | | 3.25 | % | | | Foreign currency | | 24,733 | | | 2.73 | % | | 15,283 | | | 2.81 | % | | |
Ending balance | Ending balance | | $ | 1,667,278 | | | 2.89 | % | | $ | 2,044,926 | | | 3.56 | % | | | Ending balance | | $ | 1,554,473 | | | 2.83 | % | | $ | 1,667,278 | | | 2.89 | % | | |
| Monthly averages | Monthly averages | | $ | 1,688,213 | | | 2.99 | % | | $ | 2,080,448 | | | 3.54 | % | | | Monthly averages | | $ | 1,606,723 | | | 2.84 | % | | $ | 1,688,213 | | | 2.99 | % | | |
The majority of our Seniors Housing Operating properties are formed through partnership interests. IncomeThe fluctuation in income from unconsolidated entities recognized during the three months ended March 31, 2021 is primarily due to a gain on sale recognized from the sale of a home health business owned by one of our unconsolidated entities offset by losses from unconsolidated entities largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures.during the three months ended March 31, 2021. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures.
Triple-net
The following is a summary of our SSNOI at Welltower's Shareshare for the Triple-net segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2021 | | March 31, 2020 | | $ | | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SSNOI (1) | | $ | 141,089 | | | $ | 147,527 | | | $ | (6,438) | | | (4.4) | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2022 | | March 31, 2021 | | $ | | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SSNOI (1) | | $ | 144,488 | | | $ | 137,314 | | | $ | 7,174 | | | 5.2 | % | | | | | | | | |
(1) For the three months ended March 31, 2021 and 2020,QTD Pool, amounts relate to 533 sa 553 sameme store properties, respectively.properties. Please see Non-GAAP Financial Measures for additional information and reconciliations.
The following is a summary of our results of operations for the Triple-net segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | | | |
| | March 31, | | March 31, | | | | | | | | | | | | |
| | 2022 | | 2021 | | $ | | % | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | |
Rental income | | $ | 196,001 | | | $ | 152,463 | | | $ | 43,538 | | | 29 | % | | | | | | | | |
Interest income | | 37,506 | | | 14,922 | | | 22,584 | | | 151 | % | | | | | | | | |
Other income | | 1,656 | | | 1,097 | | | 559 | | | 51 | % | | | | | | | | |
Total revenues | | 235,163 | | | 168,482 | | | 66,681 | | | 40 | % | | | | | | | | |
Property operating expenses | | 11,211 | | | 12,841 | | | (1,630) | | | (13) | % | | | | | | | | |
NOI (1) | | 223,952 | | | 155,641 | | | 68,311 | | | 44 | % | | | | | | | | |
Other expenses: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 53,504 | | | 56,667 | | | (3,163) | | | (6) | % | | | | | | | | |
Interest expense | | 314 | | | 1,882 | | | (1,568) | | | (83) | % | | | | | | | | |
Loss (gain) on derivatives and financial instruments, net | | 2,578 | | | 1,934 | | | 644 | | | 33 | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
Provision for loan losses, net | | (1,065) | | | 853 | | | (1,918) | | | (225) | % | | | | | | | | |
Impairment of assets | | — | | | 18,964 | | | (18,964) | | | (100) | % | | | | | | | | |
Other expenses | | 11,044 | | | 4,983 | | | 6,061 | | | 122 | % | | | | | | | | |
| | 66,375 | | | 85,283 | | | (18,908) | | | (22) | % | | | | | | | | |
Income (loss) from continuing operations before income taxes and other items | | 157,577 | | | 70,358 | | | 87,219 | | | 124 | % | | | | | | | | |
Income (loss) from unconsolidated entities | | 15,543 | | | 4,907 | | | 10,636 | | | 217 | % | | | | | | | | |
Gain (loss) on real estate dispositions, net | | 20,449 | | | 2,042 | | | 18,407 | | | 901 | % | | | | | | | | |
Income from continuing operations | | 193,569 | | | 77,307 | | | 116,262 | | | 150 | % | | | | | | | | |
Net income | | 193,569 | | | 77,307 | | | 116,262 | | | 150 | % | | | | | | | | |
Less: Net income (loss) attributable to noncontrolling interests | | 7,065 | | | 3,400 | | | 3,665 | | | 108 | % | | | | | | | | |
Net income attributable to common stockholders | | $ | 186,504 | | | $ | 73,907 | | | $ | 112,597 | | | 152 | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) See Non-GAAP Financial Measures below. | | | | | | | | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a summary of our results of operations for the Triple-net segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Change | | | | |
| | March 31, | | March 31, | | | | | | | | | | | | |
| | 2021 | | 2020 | | $ | | % | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | |
Rental income | | $ | 152,463 | | | $ | 191,385 | | | $ | (38,922) | | | (20) | % | | | | | | | | |
Interest income | | 14,922 | | | 14,671 | | | 251 | | | 2 | % | | | | | | | | |
Other income | | 1,097 | | | 1,673 | | | (576) | | | (34) | % | | | | | | | | |
Total revenues | | 168,482 | | | 207,729 | | | (39,247) | | | (19) | % | | | | | | | | |
Property operating expenses | | 12,841 | | | 13,302 | | | (461) | | | (3) | % | | | | | | | | |
NOI (1) | | 155,641 | | | 194,427 | | | (38,786) | | | (20) | % | | | | | | | | |
Other expenses: | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 56,667 | | | 57,694 | | | (1,027) | | | (2) | % | | | | | | | | |
Interest expense | | 1,882 | | | 2,852 | | | (970) | | | (34) | % | | | | | | | | |
Loss (gain) on derivatives and financial instruments, net | | 1,934 | | | 7,651 | | | (5,717) | | | (75) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
Provision for loan losses | | 853 | | | 7,072 | | | (6,219) | | | (88) | % | | | | | | | | |
Impairment of assets | | 18,964 | | | 24,332 | | | (5,368) | | | (22) | % | | | | | | | | |
Other expenses | | 4,983 | | | 513 | | | 4,470 | | | 871 | % | | | | | | | | |
| | 85,283 | | | 100,114 | | | (14,831) | | | (15) | % | | | | | | | | |
Income (loss) from continuing operations before income taxes and other items | | 70,358 | | | 94,313 | | | (23,955) | | | (25) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
Income (loss) from unconsolidated entities | | 4,907 | | | 5,796 | | | (889) | | | (15) | % | | | | | | | | |
Gain (loss) on real estate dispositions, net | | 2,042 | | | 49,637 | | | (47,595) | | | (96) | % | | | | | | | | |
Income from continuing operations | | 77,307 | | | 149,746 | | | (72,439) | | | (48) | % | | | | | | | | |
Net income | | 77,307 | | | 149,746 | | | (72,439) | | | (48) | % | | | | | | | | |
Less: Net income (loss) attributable to noncontrolling interests | | 3,400 | | | 18,575 | | | (15,175) | | | (82) | % | | | | | | | | |
Net income attributable to common stockholders | | $ | 73,907 | | | $ | 131,171 | | | $ | (57,264) | | | (44) | % | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) See Non-GAAP Financial Measures below. | | | | | | | | |
Continued decreases in rentalRental income arehas increased primarily attributabledue to the reservetiming of the establishment of reserves for straight-line rent receivablesreceivable balances of $49,241,000 and $32,268,000 during the three month periods ended March 31, 2021 and 2020, respectively, relating to leases for which collection of substantially all contractual lease payments wasis no longer deemed probable. During the three months ended March 31, 2021, we recorded reserves for previously recognized straight-line receivables of $49,241,000.
Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. For the three months ended March 31, 2021,2022, we had 16eight leases with rental rate increases ranging from 0.25%0.26% to 10.00%57.76% in our Triple-net portfolio. Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic as described above with respect to our Seniors Housing Operating properties. However, long-term/Long-term/post-acute facilities arehave generally experiencingexperienced a higher degree of occupancy declines, which may impactin some cases impacted the ability of our Triple-net operators to make contractual rent payments to us in the future. Manyus. However, many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program. In addition, operators of long-term/post-acute facilities have generally received funds from Phase 1 ofProgram and the Provider Relief Fund and operators of assisted living facilities have received funds from Phase 2 and Phase 3 of the Provider Relief Fund. During the first quarter, we collected approximately 96% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made. We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable.
Depreciation and amortization fluctuatesfluctuate as a result of the acquisitions, dispositions and segment transitions of triple-netTriple-net properties. To the extent we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.
In March 2020, weThe increase to interest income is primarily driven by the interest recognized a provision foron senior loan lossesfinancings of $6,898,000£540,000,000 to fully reserve for a non-real estate loans receivable that was no longer deemed collectible. affiliates of Safanad as part of the recapitalization of its investment in HC-One Group during the second quarter 2021.
During the three months ended March 31, 2021, we recorded impairment charges of $18,964,000 related to one held for sale property and two held for use properties. During the three months ended March 31, 2020, we recorded impairment charges of $24,332,000 related to two held for use properties. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions.
Item 2. Management's Discussion Changes in the gain on sales of properties are related to the volume and Analysistiming of Financial Conditionproperty sales and Results of Operations
the sales prices.During the three months ended March 31, 2021, we completed one2022, there were no Triple-net construction project representing $22,990,000 or $280,366 per unit.projects completed. The following is a summary of our consolidated Triple-net construction projects, excluding expansions, pending as of March 31, 20212022 (dollars in thousands):
| Location | Location | | Units/Beds | | Commitment | | Balance | | Est. Completion | Location | | Units/Beds | | Commitment | | Balance | | Est. Completion |
Redhill, UK | Redhill, UK | | 76 | | $ | 21,932 | | | $ | 12,097 | | | 2Q21 | Redhill, UK | | 76 | | $ | 20,912 | | | $ | 18,471 | | | 2Q22 |
Leicester, UK | | 60 | | 15,449 | | 6,495 | | 1Q22 | |
London, UK | London, UK | | 82 | | 44,508 | | 22,738 | | 2Q22 | London, UK | | 82 | | 42,436 | | 22,650 | | 3Q22 |
Wombourne, UK | Wombourne, UK | | 66 | | 16,553 | | 6,434 | | 2Q22 | Wombourne, UK | | 66 | | 15,782 | | 11,891 | | 4Q22 |
Leicester, UK | | Leicester, UK | | 60 | | 14,730 | | 10,186 | | 4Q22 |
Rugby, UK | Rugby, UK | | 76 | | 21,123 | | 3,782 | | 4Q22 | Rugby, UK | | 76 | | 20,140 | | 10,460 | | 1Q23 |
Raleigh, NC | Raleigh, NC | | 191 | | 154,256 | | 20,185 | | 2Q23 | Raleigh, NC | | 191 | | 154,256 | | 62,694 | | 2Q23 |
| | | 551 | | | $ | 273,821 | | | $ | 71,731 | | | | | | 551 | | | $ | 268,256 | | | $ | 136,352 | | | |
LossDuring the three months ended March 31, 2022, loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market of the equity warrants received as part of the Safanad/HC-One transaction that closed in the second quarter of 2021. In addition, the mark-to-market adjustment recorded on our Genesis Healthcare available-for-sale investment. investment is reflected in all periods.
Interest expense represents secured debt interest expense and related fees. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The following is a summary of our Triple-net secured debt principal activity for the periods presented (dollars in thousands):
| | | | Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | March 31, 2020 | | | | Three Months Ended | | |
| | | | | Wtd. Avg. | | | | Wtd. Avg. | | | | March 31, 2022 | | March 31, 2021 | | |
| | | Amount | | Interest Rate | | Amount | | Interest Rate | | | | Amount | | Weighted Average Interest Rate | | Amount | | Weighted Average Interest Rate | | |
Beginning balance | Beginning balance | | $ | 123,652 | | | 4.91 | % | | $ | 306,038 | | | 3.60 | % | | Beginning balance | | $ | 72,536 | | | 4.57 | % | | $ | 123,652 | | | 4.91 | % | | |
| Debt transferred | | Debt transferred | | (32,478) | | | 4.79 | % | | — | | | — | % | | |
| Principal payments | Principal payments | | (1,220) | | | 5.15 | % | | (1,059) | | | 5.17 | % | | Principal payments | | (221) | | | 4.37 | % | | (1,220) | | | 5.15 | % | | |
Foreign currency | Foreign currency | | 707 | | | 5.43 | % | | (15,240) | | | 3.40 | % | | Foreign currency | | — | | | — | % | | 707 | | | 5.43 | % | | |
Ending balance | Ending balance | | $ | 123,139 | | | 4.91 | % | | $ | 289,739 | | | 3.55 | % | | Ending balance | | $ | 39,837 | | | 4.39 | % | | $ | 123,139 | | | 4.91 | % | | |
| Monthly averages | Monthly averages | | $ | 123,126 | | | 4.96 | % | | $ | 299,111 | | | 3.59 | % | | Monthly averages | | $ | 39,914 | | | 4.39 | % | | $ | 123,126 | | | 4.96 | % | | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
A portion of our Triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. The increase in income from unconsolidated entities during the three months ended March 31, 2022 is primarily related to the write off of straight-line rent payable balances on an unconsolidated joint venture that was restructured during the quarter. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner. The decrease duringincrease for the three months ended March 31, 2021, relates primarily2022 compared to our partner's share of a gain on sale of certain propertiesthe same period in the prior year.year, is primarily due to a restructure and segment transition related to one of our partners.
Outpatient Medical
The following is a summary of our SSNOI at Welltower ShareWelltower's share for the Outpatient Medical segment (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2021 | | March 31, 2020 | | $ | | % | | | | | | | | |
SSNOI (1) | | $ | 97,196 | | | $ | 94,208 | | | $ | 2,988 | | | 3.2 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | Change | | | | |
| | March 31, 2022 | | March 31, 2021 | | $ | | % | | | | | | | | |
SSNOI (1) | | $ | 103,168 | | | $ | 100,040 | | | $ | 3,128 | | | 3.1 | % | | | | | | | | |
(1) For the three months ended March 31, 2021 and 2020,QTD Pool, amounts relate to 334 351 same store properties, respectively.properties. Please see Non-GAAP Financial Measures for additional information and reconciliations.
The following is a summary of our results of operations for the Outpatient Medical segment for the periods presented (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | Three Months Ended | | Change | | | | Three Months Ended | | Change | | |
| | | March 31, | | March 31, | | | | | | | | March 31, | | March 31, | | | | | | |
| | | 2021 | | 2020 | | $ | | % | | | | 2022 | | 2021 | | $ | | % | | |
Revenues: | Revenues: | | | | | | | | | | Revenues: | | | | | | | | | | |
Rental income | Rental income | | $ | 150,380 | | | $ | 198,575 | | | $ | (48,195) | | | (24) | % | | Rental income | | $ | 160,389 | | | $ | 150,380 | | | $ | 10,009 | | | 7 | % | | |
Interest income | Interest income | | 3,538 | | | 466 | | | 3,072 | | | 659 | % | | Interest income | | 71 | | | 3,538 | | | (3,467) | | | (98) | % | | |
Other income | Other income | | 2,305 | | | 288 | | | 2,017 | | | 700 | % | | Other income | | 2,863 | | | 2,305 | | | 558 | | | 24 | % | | |
Total revenues | Total revenues | | 156,223 | | | 199,329 | | | (43,106) | | | (22) | % | | Total revenues | | 163,323 | | | 156,223 | | | 7,100 | | | 5 | % | | |
Property operating expenses | Property operating expenses | | 46,863 | | | 60,608 | | | (13,745) | | | (23) | % | | Property operating expenses | | 49,915 | | | 46,863 | | | 3,052 | | | 7 | % | | |
NOI (1) | NOI (1) | | 109,360 | | | 138,721 | | | (29,361) | | | (21) | % | | NOI (1) | | 113,408 | | | 109,360 | | | 4,048 | | | 4 | % | | |
Other expenses: | Other expenses: | | | | | | | | | | Other expenses: | | | | | | | | | |
Depreciation and amortization | Depreciation and amortization | | 55,173 | | | 70,333 | | | (15,160) | | | (22) | % | | Depreciation and amortization | | 57,791 | | | 55,173 | | | 2,618 | | | 5 | % | | |
Interest expense | Interest expense | | 4,015 | | | 4,808 | | | (793) | | | (16) | % | | Interest expense | | 4,567 | | | 4,015 | | | 552 | | | 14 | % | | |
| Provision for loan losses | | 279 | | | — | | | 279 | | | n/a | | |
Loss (gain) on extinguishment of debt, net | | Loss (gain) on extinguishment of debt, net | | 3 | | | — | | | 3 | | | n/a | | |
Provision for loan losses, net | | Provision for loan losses, net | | (6) | | | 279 | | | (285) | | | (102) | % | | |
| Other expenses | Other expenses | | 712 | | | 1,007 | | | (295) | | | (29) | % | | Other expenses | | 789 | | | 712 | | | 77 | | | 11 | % | | |
| | 60,179 | | | 76,148 | | | (15,969) | | | (21) | % | | | 63,144 | | | 60,179 | | | 2,965 | | | 5 | % | | |
Income (loss) from continuing operations before income taxes and other items
| Income (loss) from continuing operations before income taxes and other items
| | 49,181 | | | 62,573 | | | (13,392) | | | (21) | % | | Income (loss) from continuing operations before income taxes and other items | | 50,264 | | | 49,181 | | | 1,083 | | | 2 | % | | |
| Income (loss) from unconsolidated entities | Income (loss) from unconsolidated entities | | 2,908 | | | 1,536 | | | 1,372 | | | 89 | % | | Income (loss) from unconsolidated entities | | (645) | | | 2,908 | | | (3,553) | | | (122) | % | | |
Gain (loss) on real estate dispositions, net | Gain (loss) on real estate dispositions, net | | 51,843 | | | 213,336 | | | (161,493) | | | n/a | | Gain (loss) on real estate dispositions, net | | (216) | | | 51,843 | | | (52,059) | | | (100) | % | | |
Income from continuing operations | Income from continuing operations | | 103,932 | | | 277,445 | | | (173,513) | | | (63) | % | | Income from continuing operations | | 49,403 | | | 103,932 | | | (54,529) | | | (52) | % | | |
Net income (loss) | Net income (loss) | | 103,932 | | | 277,445 | | | (173,513) | | | (63) | % | | Net income (loss) | | 49,403 | | | 103,932 | | | (54,529) | | | (52) | % | | |
Less: Net income (loss) attributable to noncontrolling interests | Less: Net income (loss) attributable to noncontrolling interests | | 2,170 | | | 2,453 | | | (283) | | | (12) | % | | Less: Net income (loss) attributable to noncontrolling interests | | 2,142 | | | 2,170 | | | (28) | | | (1) | % | | |
Net income (loss) attributable to common stockholders | Net income (loss) attributable to common stockholders | | $ | 101,762 | | | $ | 274,992 | | | $ | (173,230) | | | (63) | % | | Net income (loss) attributable to common stockholders | | $ | 47,261 | | | $ | 101,762 | | | $ | (54,501) | | | (54) | % | | |
| (1) See Non-GAAP Financial Measures. | (1) See Non-GAAP Financial Measures. | | (1) See Non-GAAP Financial Measures. | | |
Rental income has decreased for the three month period ending March 31, 2021increased due primarily to significant dispositionsacquisitions and construction conversions that have closed subsequent to March 31, 2020.occurred during 2021. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months ended March 31, 2021,2022, our consolidated outpatient medical portfolio signed 89,86388,145 square feet of new leases and 541,434418,329 square feet of renewals. The weighted-average term of these leases was sixeight years, with a rate of $36.84$44.19 per square foot and tenant improvement and lease commission costs of $12.57$37.73 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0%1.5% to 3.5%5.0%.
We have collected 99%The decrease in interest income for the three months ended March 31, 2022 is due primarily to a $178,207,000 first mortgage loan which was repaid in full in June of rent due in the first quarter, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. We evaluate leases individually2021.
Item 2. Management's Discussion and recognize rent on a cash basis if collectibilityAnalysis of substantially all contractual rent payments is not probable.Financial Condition and Results of Operations
The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to the significant dispositionsacquisitions and construction conversions that occurred in 2020.during 2021. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitionscosts. Changes in gains/losses on sales of properties are related to volume of property sales and segment transitions.the sales prices.
During the three months ended March 31, 2021,2022, there were no Outpatient Medical construction projects completed. TheThe following is a summary of the consolidated Outpatient Medical construction projects, excluding expansions, pending as of March 31, 20212022 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Location | | Square Feet | | Commitment | | Balance | | Est. Completion |
Brooklyn, NY | | 140,955 | | $ | 110,306 | | | $ | 106,692 | | | 2Q21 |
Kalamazoo, MI | | 40,607 | | 14,267 | | 5,917 | | 3Q21 |
College Station, TX | | 25,200 | | 9,025 | | 1,111 | | 1Q22 |
| | 206,762 | | | $ | 133,598 | | | $ | 113,720 | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Location | | Square Feet | | Commitment | | Balance | | Est. Completion |
Tyler, TX | | 85,214 | | $ | 35,369 | | | $ | 21,071 | | | 4Q22 |
Stafford, TX | | 36,788 | | 18,031 | | 6,172 | | 4Q22 |
| | | | | | | | |
| | 122,002 | | | $ | 53,400 | | | 27,243 | | | |
Beaumont, TX(1) | | | | 29 | | |
| | | | | | | | |
Total | | | | | | $ | 27,272 | | | |
| | | | | | | | |
(1) Final units/beds, commitment amount and expected conversion date not yet known. |
Total interest expense represents secured debt interest expense. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | Three Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | March 31, 2021 | | March 31, 2020 | | | | Three Months Ended | | |
| | | | | Wtd. Ave | | | | Wtd. Ave | | | | March 31, 2022 | | March 31, 2021 | | |
| | | Amount | | Interest Rate | | Amount | | Interest Rate | | | | Amount | | Weighted Average Interest Rate | | Amount | | Weighted Average Interest Rate | | |
Beginning balance | Beginning balance | | $ | 548,229 | | | 3.55 | % | | $ | 572,267 | | | 3.97 | % | | Beginning balance | | $ | 530,254 | | | 3.49 | % | | $ | 548,229 | | | 3.55 | % | | |
| Debt extinguished | | Debt extinguished | | (6,174) | | | 4.17 | % | | — | | | — | % | | |
| Principal payments | Principal payments | | (2,474) | | | 4.46 | % | | (2,293) | | | 4.65 | % | | Principal payments | | (2,749) | | | 4.38 | % | | (2,474) | | | 4.46 | % | | |
| Ending balance | Ending balance | | $ | 545,755 | | | 3.54 | % | | $ | 569,974 | | | 3.94 | % | | Ending balance | | $ | 521,331 | | | 3.51 | % | | $ | 545,755 | | | 3.54 | % | | |
| Monthly averages | Monthly averages | | $ | 546,613 | | | 3.54 | % | | $ | 571,200 | | | 3.97 | % | | Monthly averages | | $ | 526,392 | | | 3.49 | % | | $ | 546,613 | | | 3.54 | % | | |
A portion of our Outpatient Medical properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. During the three months ended March 31, 2021, the loss from unconsolidated entities is largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss relating to those partnerships where we are the controlling partner.
Non-Segment/Corporate
The following is a summary of our results of operations for the Non-Segment/Corporate activities for the periods presented (dollars in thousands):
| | | | Three Months Ended | | Change | | | | Three Months Ended | | Change | | |
| | | March 31, | | March 31, | | | | | | | | March 31, | | March 31, | | | | | | |
| | | 2021 | | 2020 | | $ | | % | | | | 2022 | | 2021 | | $ | | % | | |
Revenues: | Revenues: | | | | | | | | | | Revenues: | | | | | | | | | | |
| Other income | Other income | | $ | 955 | | | $ | 416 | | | $ | 539 | | | 130 | % | | Other income | | $ | 606 | | | $ | 955 | | | $ | (349) | | | (37) | % | | |
Total revenue | | 955 | | | 416 | | | 539 | | | 130 | % | | |
Total revenues | | Total revenues | | 606 | | | 955 | | | (349) | | | (37) | % | | |
Property operating expenses | Property operating expenses | | 1,654 | | | — | | | 1,654 | | | n/a | | Property operating expenses | | 2,615 | | | 1,654 | | | 961 | | | 58 | % | | |
NOI (1) | NOI (1) | | (699) | | | 416 | | | (1,115) | | | (268) | % | | NOI (1) | | (2,009) | | | (699) | | | (1,310) | | | (187) | % | | |
Expenses: | Expenses: | | | | | | | | | | Expenses: | | | | | | | | | |
Interest expense | Interest expense | | 105,827 | | | 117,913 | | | (12,086) | | | (10) | % | | Interest expense | | 109,165 | | | 105,827 | | | 3,338 | | | 3 | % | | |
General and administrative expenses | General and administrative expenses | | 29,926 | | | 35,481 | | | (5,555) | | | (16) | % | | General and administrative expenses | | 37,706 | | | 29,926 | | | 7,780 | | | 26 | % | | |
| Other expenses | Other expenses | | 1,840 | | | 1,783 | | | 57 | | | 3 | % | | Other expenses | | 6,045 | | | 1,840 | | | 4,205 | | | 229 | % | | |
| | 137,593 | | | 155,177 | | | (17,584) | | | (11) | % | | | 152,916 | | | 137,593 | | | 15,323 | | | 11 | % | | |
Loss from continuing operations before income taxes and other items | Loss from continuing operations before income taxes and other items | | (138,292) | | | (154,761) | | | 16,469 | | | 11 | % | | Loss from continuing operations before income taxes and other items | | (154,925) | | | (138,292) | | | (16,633) | | | (12) | % | | |
Income tax (expense) benefit | | (3,943) | | | (5,442) | | | 1,499 | | | 28 | % | | |
Income tax benefit (expense) | | Income tax benefit (expense) | | (5,013) | | | (3,943) | | | (1,070) | | | (27) | % | | |
| Loss from continuing operations | Loss from continuing operations | | (142,235) | | | (160,203) | | | 17,968 | | | 11 | % | | Loss from continuing operations | | (159,938) | | | (142,235) | | | (17,703) | | | (12) | % | | |
| Net loss attributable to common stockholders | Net loss attributable to common stockholders | | $ | (142,235) | | | $ | (160,203) | | | $ | 17,968 | | | 11 | % | | Net loss attributable to common stockholders | | $ | (159,938) | | | $ | (142,235) | | | $ | (17,703) | | | (12) | % | | |
| (1) See Non-GAAP Financial Measures. | (1) See Non-GAAP Financial Measures. | | | | | (1) See Non-GAAP Financial Measures. | | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Property operating expenses represent insurance costs related to our captive insurance company, formed as of July 1, 2020 which acts as a direct insurer of property level insurance coverage for our portfolio.
The following is a summary of our Non-Segment/Corporate interest expense for the periods presented (dollars in thousands):
| | | | Three Months Ended | | Change | | | | Three Months Ended | | Change | | |
| | | March 31, | | March 31, | | | | | | | | March 31, | | March 31, | | | | | | |
| | | 2021 | | 2020 | | $ | | % | | | | 2022 | | 2021 | | $ | | % | | |
Senior unsecured notes | Senior unsecured notes | | $ | 100,213 | | | $ | 103,533 | | | $ | (3,320) | | | (3) | % | | Senior unsecured notes | | $ | 101,239 | | | $ | 100,213 | | | $ | 1,026 | | | 1 | % | | |
| Unsecured credit facility and commercial paper program | Unsecured credit facility and commercial paper program | | 1,180 | | | 10,169 | | | (8,989) | | | (88) | % | | Unsecured credit facility and commercial paper program | | 2,779 | | | 1,180 | | | 1,599 | | | 136 | % | | |
Loan expense | Loan expense | | 4,434 | | | 4,211 | | | 223 | | | 5 | % | | Loan expense | | 5,147 | | | 4,434 | | | 713 | | | 16 | % | | |
Totals | Totals | | $ | 105,827 | | | $ | 117,913 | | | $ | (12,086) | | | (10) | % | | Totals | | $ | 109,165 | | | $ | 105,827 | | | $ | 3,338 | | | 3 | % | | |
The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement in foreign exchange rates and related hedge activity. Please refer to Note 11 for additional information. The change in interest expense on our unsecured revolving credit facility and commercial paper program is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 10 for additional information regarding our unsecured revolving credit facility and commercial paper program. Loan expenses represent the amortization of costs incurred in connection with senior unsecured notes issuances.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
General and administrative expenses as a percentage of consolidated revenues for the three months ended March 31, 2022 and 2021 were 2.70% and 2020 were 2.84% and 2.82%, respectively. Other expenses includes legal expenses related to the planned UPREIT merger and reorganization. The provision for income taxes primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs.
Other
Non-GAAP Financial Measures
We believe that net income and net income attributable to common stockholders (“NICS”), as defined by U.S. GAAP, are the most appropriate earnings measurements. However, we consider FFO, NOI, SSNOI, EBITDA and Adjusted EBITDA to be useful supplemental measures of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (“NAREIT”) created funds from operations attributable to common stockholders (“FFO”) as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means NICS, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests.
Consolidated net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees paid to operators, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store NOI (“SSNOI”) is used to evaluate the operating performance of our properties using a consistent population, which controls for changes in the composition of our portfolio. We believe the drivers of property level NOI for both consolidated properties and unconsolidated properties are generally the same and therefore, we evaluate SSNOI based on our ownership interest in each property ("Welltower Share"). To arrive at Welltower's Share, NOI is adjusted by adding our minority ownership share related to unconsolidated properties and by subtracting the minority partners' noncontrolling ownership interests for consolidated properties. We do not control investments in unconsolidated properties, and while we consider disclosures at Welltower Share to be useful, they may not accurately depict the legal and economic implications of our joint venture arrangements and should be used with caution. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods. Acquisitions and development conversions are included in SSNOI five full quarters after acquisition or being placed into service for the QTD Pool. Land parcels, loans and sub-leases, as well as any properties sold or classified as held for sale during the respective periods, are excluded from SSNOI. Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters post completion of the redevelopment for the QTD Pool. Properties undergoing operator transitions and/or segment transitions are also excluded from
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
SSNOI until five full quarters post completion of the transition for the QTD Pool. In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters after the properties are placed back into service for the QTD Pool. SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and UKU.K. properties using a consistent exchange rate. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties.
EBITDA is defined as earnings (net income) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding unconsolidated entities and including adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt, gains/loss/impairments on properties, gains/losses on derivatives and financial instruments, other expense, additionalexpenses, other incomeimpairment charges and other impairment charges.adjustments deemed appropriate. We believe that EBITDA and Adjusted EBITDA, along with net income, are important supplemental measures because they provide additional information to assess and evaluate the performance of our operations. We primarily use these measures to determine our interest coverage ratio, which represents EBITDA and Adjusted EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA and Adjusted EBITDA divided by fixed charges. Fixed charges include total interest and secured debt principal amortization. Covenants in our unsecured senior notes and primary credit facility contain financial ratios based on a definition of EBITDA and Adjusted EBITDA that is specific to those agreements. Our leverage ratios are defined as the proportion of net debt to total capitalization and include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
liabilities, less cash and cash equivalents and any IRC Section 1031 deposits)restricted cash), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock.
Our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The table below reflects the reconciliation of FFO to NICS, the most directly comparable U.S. GAAP measure, for the periods presented. Noncontrolling interest and unconsolidated entity amounts represent adjustments to reflect our share of depreciation and amortization, gains/loss on real estate dispositions and impairment of assets. Amounts are in thousands except for per share data.
| | | | | | | | | Three Months Ended |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
FFO Reconciliation: | FFO Reconciliation: | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | FFO Reconciliation: | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Net income attributable to common stockholders | Net income attributable to common stockholders | | | $ | 71,546 | | | $ | 163,729 | | | $ | 325,585 | | | $ | 179,246 | | | $ | 310,284 | | Net income attributable to common stockholders | | | $ | 61,925 | | | $ | 58,672 | | | $ | 179,663 | | | $ | 26,257 | | | $ | 71,546 | |
Depreciation and amortization | Depreciation and amortization | | | 244,426 | | | 242,733 | | | 255,532 | | | 265,371 | | | 274,801 | | Depreciation and amortization | | | 304,088 | | | 284,501 | | | 267,754 | | | 240,885 | | | 244,426 | |
Impairment of assets | Impairment of assets | | | 23,568 | | | 9,317 | | | 23,313 | | | 75,151 | | | 27,827 | | Impairment of assets | | | — | | | 2,357 | | | 1,490 | | | 23,692 | | | 23,568 | |
Loss (gain) on real estate dispositions, net | Loss (gain) on real estate dispositions, net | | | (59,080) | | | (185,464) | | | (484,304) | | | (155,863) | | | (262,824) | | Loss (gain) on real estate dispositions, net | | | (22,934) | | | (11,673) | | | (119,954) | | | (44,668) | | | (59,080) | |
Noncontrolling interests | Noncontrolling interests | | | (12,516) | | | (20,579) | | | 48,559 | | | (42,539) | | | (9,409) | | Noncontrolling interests | | | (14,753) | | | (13,988) | | | (11,095) | | | (16,591) | | | (12,516) | |
Unconsolidated entities | Unconsolidated entities | | | 19,223 | | | 16,091 | | | 16,329 | | | 14,231 | | | 15,445 | | Unconsolidated entities | | | 19,309 | | | 19,107 | | | 27,881 | | | 19,265 | | | 19,223 | |
FFO | FFO | | | $ | 287,167 | | | $ | 225,827 | | | $ | 185,014 | | | $ | 335,597 | | | $ | 356,124 | | FFO | | | $ | 347,635 | | | $ | 338,976 | | | $ | 345,739 | | | $ | 248,840 | | | $ | 287,167 | |
| Average diluted shares outstanding | Average diluted shares outstanding | | | 419,079 | | | 418,753 | | | 418,987 | | | 419,121 | | | 412,420 | | Average diluted shares outstanding | | | 449,802 | | | 438,719 | | | 429,983 | | | 419,305 | | | 419,079 | |
| Per diluted share data: | Per diluted share data: | | | | | | | | | Per diluted share data: | | | | | | | | |
Net income attributable to common stockholders(1) | Net income attributable to common stockholders(1) | | | $ | 0.17 | | | $ | 0.39 | | | $ | 0.77 | | | $ | 0.42 | | | $ | 0.75 | | Net income attributable to common stockholders(1) | | | $ | 0.14 | | | $ | 0.13 | | | $ | 0.42 | | | $ | 0.06 | | | $ | 0.17 | |
FFO | FFO | | | $ | 0.69 | | | $ | 0.54 | | | $ | 0.44 | | | $ | 0.80 | | | $ | 0.86 | | FFO | | | $ | 0.77 | | | $ | 0.77 | | | $ | 0.80 | | | $ | 0.59 | | | $ | 0.69 | |
| (1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders. | (1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders. | (1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders. |
The table below reflects the reconciliation of consolidated NOI to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Dollar amounts are in thousands.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended |
| | | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
NOI Reconciliations: | | | | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Net income (loss) | | | | | | $ | 65,751 | | | $ | 66,194 | | | $ | 190,336 | | | $ | 45,757 | | | $ | 72,192 | |
Loss (gain) on real estate dispositions, net | | | | | | (22,934) | | | (11,673) | | | (119,954) | | | (44,668) | | | (59,080) | |
Loss (income) from unconsolidated entities | | | | | | 2,884 | | | 12,174 | | | 15,832 | | | 7,976 | | | (13,049) | |
Income tax expense (benefit) | | | | | | 5,013 | | | 2,051 | | | 4,940 | | | (2,221) | | | 3,943 | |
Other expenses | | | | | | 26,069 | | | 15,483 | | | 3,575 | | | 11,687 | | | 10,994 | |
Impairment of assets | | | | | | — | | | 2,357 | | | 1,490 | | | 23,692 | | | 23,568 | |
Provision for loan losses, net | | | | | | (804) | | | (39) | | | (271) | | | 6,197 | | | 1,383 | |
Loss (gain) on extinguishment of debt, net | | | | | | (12) | | | (1,090) | | | (5) | | | 55,612 | | | (4,643) | |
Loss (gain) on derivatives and financial instruments, net | | | | | | 2,578 | | | (830) | | | (8,078) | | | (359) | | | 1,934 | |
General and administrative expenses | | | | | | 37,706 | | | 33,109 | | | 32,256 | | | 31,436 | | | 29,926 | |
Depreciation and amortization | | | | | | 304,088 | | | 284,501 | | | 267,754 | | | 240,885 | | | 244,426 | |
Interest expense | | | | | | 121,696 | | | 121,848 | | | 122,522 | | | 122,341 | | | 123,142 | |
Consolidated net operating income (NOI) | | | | | | $ | 542,035 | | | $ | 524,085 | | | $ | 510,397 | | | $ | 498,335 | | | $ | 434,736 | |
| | | | | | | | | | | | | | |
NOI by segment: | | | | | | | | | | | | | | |
Seniors Housing Operating | | | | | | $ | 206,684 | | | $ | 180,375 | | | $ | 172,909 | | | $ | 160,188 | | | $ | 170,434 | |
Triple-net | | | | | | 223,952 | | | 230,846 | | | 228,321 | | | 226,314 | | | 155,641 | |
Outpatient Medical | | | | | | 113,408 | | | 113,982 | | | 111,431 | | | 113,577 | | | 109,360 | |
Non-segment/corporate | | | | | | (2,009) | | | (1,118) | | | (2,264) | | | (1,744) | | | (699) | |
Total NOI | | | | | | $ | 542,035 | | | $ | 524,085 | | | $ | 510,397 | | | $ | 498,335 | | | $ | 434,736 | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended |
| | | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
NOI Reconciliations: | | | | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 |
Net income (loss) | | | | | | $ | 72,192 | | | $ | 155,278 | | | $ | 394,978 | | | $ | 159,216 | | | $ | 329,380 | |
Loss (gain) on real estate dispositions, net | | | | | | (59,080) | | | (185,464) | | | (484,304) | | | (155,863) | | | (262,824) | |
Loss (income) from unconsolidated entities | | | | | | (13,049) | | | (258) | | | 5,981 | | | (1,332) | | | 3,692 | |
Income tax expense (benefit) | | | | | | 3,943 | | | 290 | | | 2,003 | | | 2,233 | | | 5,442 | |
Other expenses | | | | | | 10,994 | | | 33,088 | | | 11,544 | | | 19,411 | | | 6,292 | |
Impairment of assets | | | | | | 23,568 | | | 9,317 | | | 23,313 | | | 75,151 | | | 27,827 | |
Provision for loan losses | | | | | | 1,383 | | | 83,085 | | | 2,857 | | | 1,422 | | | 7,072 | |
Loss (gain) on extinguishment of debt, net | | | | | | (4,643) | | | 13,796 | | | 33,004 | | | 249 | | | — | |
Loss (gain) on derivatives and financial instruments, net | | | | | | 1,934 | | | 569 | | | 1,395 | | | 1,434 | | | 7,651 | |
General and administrative expenses | | | | | | 29,926 | | | 27,848 | | | 31,003 | | | 34,062 | | | 35,481 | |
Depreciation and amortization | | | | | | 244,426 | | | 242,733 | | | 255,532 | | | 265,371 | | | 274,801 | |
Interest expense | | | | | | 123,142 | | | 121,173 | | | 124,851 | | | 126,357 | | | 142,007 | |
Consolidated net operating income (NOI) | | | | | | $ | 434,736 | | | $ | 501,455 | | | $ | 402,157 | | | $ | 527,711 | | | $ | 576,821 | |
| | | | | | | | | | | | | | |
NOI by segment: | | | | | | | | | | | | | | |
Seniors Housing Operating | | | | | | $ | 170,434 | | | $ | 159,797 | | | $ | 174,361 | | | $ | 178,137 | | | $ | 243,257 | |
Triple-net | | | | | | 155,641 | | | 225,277 | | | 108,361 | | | 220,056 | | | 194,427 | |
Outpatient Medical | | | | | | 109,360 | | | 117,231 | | | 119,976 | | | 129,143 | | | 138,721 | |
Non-segment/corporate | | | | | | (699) | | | (850) | | | (541) | | | 375 | | | 416 | |
Total NOI | | | | | | $ | 434,736 | | | $ | 501,455 | | | $ | 402,157 | | | $ | 527,711 | | | $ | 576,821 | |
The following is a reconciliation of the properties included in our QTD Pool for SSNOI:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
SSNOI Property Reconciliations: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Total | | | | | | | | |
Consolidated properties | | 774 | | | 578 | | | 311 | | | 1,663 | | | | | | | | | |
Unconsolidated properties | | 95 | | | 39 | | | 79 | | | 213 | | | | | | | | | |
Total properties | | 869 | | | 617 | | | 390 | | | 1,876 | | | | | | | | | |
Recent acquisitions/development conversions(1) | | (172) | | | (30) | | | (26) | | | (228) | | | | | | | | | |
Under development | | (36) | | | (5) | | | (4) | | | (45) | | | | | | | | | |
Under redevelopment(2) | | (4) | | | (3) | | | (2) | | | (9) | | | | | | | | | |
Current held for sale | | (3) | | | (13) | | | (1) | | | (17) | | | | | | | | | |
Land parcels, loans and subleases | | (23) | | | (11) | | | (6) | | | (40) | | | | | | | | | |
Transitions(3) | | (97) | | | (19) | | | — | | | (116) | | | | | | | | | |
Other(4) | | (2) | | | (3) | | | — | | | (5) | | | | | | | | | |
Same store properties | | 532 | | | 533 | | | 351 | | | 1,416 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) Acquisition and development conversions will enter the QTD Pool five full quarters after acquisition or certificate of occupancy. |
(2) Redevelopment properties will enter the QTD Pool five full quarters of operations post redevelopment completion. |
(3) Transitioned properties will enter the QTD Pool five full quarters of operations with the new operator in place or under the new structure. |
(4) Represents properties that are either closed or being closed. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
SSNOI Property Reconciliations: | | Seniors Housing Operating | | Triple-net | | Outpatient Medical | | Total | | | | | | | | |
Consolidated properties | | 559 | | | 649 | | | 290 | | | 1,498 | | | | | | | | | |
Unconsolidated properties | | 90 | | | 39 | | | 79 | | | 208 | | | | | | | | | |
Total properties | | 649 | | | 688 | | | 369 | | | 1,706 | | | | | | | | | |
Recent acquisitions/development conversions(1) | | (34) | | | (26) | | | (21) | | | (81) | | | | | | | | | |
Under development | | (28) | | | (5) | | | (3) | | | (36) | | | | | | | | | |
Under redevelopment(2) | | (11) | | | (1) | | | (2) | | | (14) | | | | | | | | | |
Current held for sale | | (9) | | | (61) | | | (1) | | | (71) | | | | | | | | | |
Land parcels, loans and subleases | | (12) | | | (17) | | | (8) | | | (37) | | | | | | | | | |
Transitions(3) | | (27) | | | (23) | | | — | | | (50) | | | | | | | | | |
Other(4) | | (2) | | | (2) | | | — | | | (4) | | | | | | | | | |
Same store properties | | 526 | | | 553 | | | 334 | | | 1,413 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(1) Acquisitions and development conversions will enter the QTD Pool five full quarters after acquisition or certificate of occupancy, respectively. |
|
(2) Redevelopment properties will enter the QTD Pool five full quarters of operations post redevelopment completion, respectively. |
(3) Transitioned properties will enter the QTD Pool five full quarters of operations with the new operator in place or under the new structure, respectively. |
(4) Represents properties that are either closed or being closed. |
The following is a reconciliation of our consolidated NOI to same store NOI for the periods presented for the respective pools. Dollar amounts are in thousands.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | |
SSNOI Reconciliations: | | March 31, 2021 | | March 31, 2020 | | | | |
| | | | | | | | |
Seniors Housing Operating: | | | | | | | | |
Consolidated NOI | | $ | 170,434 | | | $ | 243,257 | | | | | |
NOI attributable to unconsolidated investments | | 11,904 | | | 14,954 | | | | | |
NOI attributable to noncontrolling interests | | (10,278) | | | (18,754) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (14,428) | | | (22,515) | | | | | |
Non-cash NOI attributable to same store properties | | (822) | | | (879) | | | | | |
Currency and ownership adjustments (1) | | (19) | | | 3,693 | | | | | |
SSNOI at Welltower Share | | 156,791 | | | 219,756 | | | | | |
| | | | | | | | |
Triple-net: | | | | | | | | |
Consolidated NOI | | 155,641 | | | 194,427 | | | | | |
NOI attributable to unconsolidated investments | | 4,888 | | | 5,133 | | | | | |
NOI attributable to noncontrolling interests | | (8,037) | | | (14,783) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (48,126) | | | (26,394) | | | | | |
Non-cash NOI attributable to same store properties | | 36,711 | | | (12,257) | | | | | |
Currency and ownership adjustments (1) | | 12 | | | 1,401 | | | | | |
SSNOI at Welltower Share | | 141,089 | | | 147,527 | | | | | |
| | | | | | | | |
Outpatient Medical: | | | | | | | | |
Consolidated NOI | | 109,360 | | | 138,721 | | | | | |
NOI attributable to unconsolidated investments | | 4,724 | | | 1,063 | | | | | |
NOI attributable to noncontrolling interests | | (4,686) | | | (4,358) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (8,604) | | | (20,235) | | | | | |
Non-cash NOI attributable to same store properties | | (2,447) | | | (3,762) | | | | | |
Currency and ownership adjustments (1) | | (1,151) | | | (17,221) | | | | | |
SSNOI at Welltower Share | | 97,196 | | | 94,208 | | | | | |
| | | | | | | | |
SSNOI at Welltower Share: | | | | | | | | |
Seniors Housing Operating | | 156,791 | | | 219,756 | | | | | |
Triple-net | | 141,089 | | | 147,527 | | | | | |
Outpatient Medical | | 97,196 | | | 94,208 | | | | | |
Total | | $ | 395,076 | | | $ | 461,491 | | | | | |
| | | | | | | | |
(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2658 and to translate UK properties at a GBP/USD rate of 1.38. |
| | | | | | | | | | | | | | | | | | | | |
| | QTD Pool | | |
| | Three Months Ended | | |
SSNOI Reconciliations: | | March 31, 2022 | | March 31, 2021 | | | | |
| | | | | | | | |
Seniors Housing Operating: | | | | | | | | |
Consolidated NOI | | $ | 206,684 | | | $ | 170,434 | | | | | |
NOI attributable to unconsolidated investments | | 12,751 | | | 17,324 | | | | | |
NOI attributable to noncontrolling interests | | (24,392) | | | (15,698) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (51,575) | | | (19,399) | | | | | |
Non-cash NOI attributable to same store properties | | (74) | | | (865) | | | | | |
Currency and ownership adjustments (1) | | 178 | | | (186) | | | | | |
SSNOI at Welltower Share | | 143,572 | | | 151,610 | | | | | |
| | | | | | | | |
Triple-net: | | | | | | | | |
Consolidated NOI | | 223,952 | | | 155,641 | | | | | |
NOI attributable to unconsolidated investments | | 9,955 | | | 8,382 | | | | | |
NOI attributable to noncontrolling interests | | (15,338) | | | (11,531) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (63,557) | | | (7,031) | | | | | |
Non-cash NOI attributable to same store properties | | (11,356) | | | (10,141) | | | | | |
Currency and ownership adjustments (1) | | 832 | | | 1,994 | | | | | |
SSNOI at Welltower Share | | 144,488 | | | 137,314 | | | | | |
| | | | | | | | |
Outpatient Medical: | | | | | | | | |
Consolidated NOI | | 113,408 | | | 109,360 | | | | | |
NOI attributable to unconsolidated investments | | 4,830 | | | 4,724 | | | | | |
NOI attributable to noncontrolling interests | | (5,240) | | | (4,686) | | | | | |
| | | | | | | | |
NOI attributable to non-same store properties | | (7,798) | | | (5,562) | | | | | |
Non-cash NOI attributable to same store properties | | (2,096) | | | (2,656) | | | | | |
Currency and ownership adjustments (1) | | 64 | | | (1,140) | | | | | |
SSNOI at Welltower Share | | 103,168 | | | 100,040 | | | | | |
| | | | | | | | |
SSNOI at Welltower Share: | | | | | | | | |
Seniors Housing Operating | | 143,572 | | | 151,610 | | | | | |
Triple-net | | 144,488 | | | 137,314 | | | | | |
Outpatient Medical | | 103,168 | | | 100,040 | | | | | |
Total | | $ | 391,228 | | | $ | 388,964 | | | | | |
| | | | | | | | |
(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2739 and to translate U.K. properties at a GBP/USD rate of 1.35. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The tables below reflects the reconciliation of EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Dollars are in thousands.
| | | | | Three Months Ended | | | | | Three Months Ended | |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | |
EBITDA Reconciliations: | EBITDA Reconciliations: | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | EBITDA Reconciliations: | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 | |
Net income (loss) | Net income (loss) | | | $ | 72,192 | | | $ | 155,278 | | | $ | 394,978 | | | $ | 159,216 | | | $ | 329,380 | | | Net income (loss) | | | $ | 65,751 | | | $ | 66,194 | | | $ | 190,336 | | | $ | 45,757 | | | $ | 72,192 | | |
Interest expense | Interest expense | | | 123,142 | | | 121,173 | | | 124,851 | | | 126,357 | | | 142,007 | | | Interest expense | | | 121,696 | | | 121,848 | | | 122,522 | | | 122,341 | | | 123,142 | | |
Income tax expense (benefit) | Income tax expense (benefit) | | | 3,943 | | | 290 | | | 2,003 | | | 2,233 | | | 5,442 | | | Income tax expense (benefit) | | | 5,013 | | | 2,051 | | | 4,940 | | | (2,221) | | | 3,943 | | |
Depreciation and amortization | Depreciation and amortization | | | 244,426 | | | 242,733 | | | 255,532 | | | 265,371 | | | 274,801 | | | Depreciation and amortization | | | 304,088 | | | 284,501 | | | 267,754 | | | 240,885 | | | 244,426 | | |
EBITDA | EBITDA | | | $ | 443,703 | | | $ | 519,474 | | | $ | 777,364 | | | $ | 553,177 | | | $ | 751,630 | | | EBITDA | | | $ | 496,548 | | | $ | 474,594 | | | $ | 585,552 | | | $ | 406,762 | | | $ | 443,703 | | |
| Interest Coverage Ratio: | Interest Coverage Ratio: | | | | | | | | | | Interest Coverage Ratio: | | | | | | | | | |
Interest expense | Interest expense | | | $ | 123,142 | | | $ | 121,173 | | | $ | 124,851 | | | $ | 126,357 | | | $ | 142,007 | | | Interest expense | | | $ | 121,696 | | | $ | 121,848 | | | $ | 122,522 | | | $ | 122,341 | | | $ | 123,142 | | |
Non-cash interest expense | Non-cash interest expense | | | (2,991) | | | (1,739) | | | (3,973) | | | (1,914) | | | (8,125) | | | Non-cash interest expense | | | (4,109) | | | (5,082) | | | (5,461) | | | (3,972) | | | (2,991) | | |
Capitalized interest | Capitalized interest | | | 4,496 | | | 4,238 | | | 3,947 | | | 4,541 | | | 4,746 | | | Capitalized interest | | | 5,479 | | | 5,325 | | | 4,669 | | | 4,862 | | | 4,496 | | |
Total interest | Total interest | | | 124,647 | | | 123,672 | | | 124,825 | | | 128,984 | | | 138,628 | | | Total interest | | | 123,066 | | | 122,091 | | | 121,730 | | | 123,231 | | | 124,647 | | |
EBITDA | EBITDA | | | $ | 443,703 | | | $ | 519,474 | | | $ | 777,364 | | | $ | 553,177 | | | $ | 751,630 | | | EBITDA | | | $ | 496,548 | | | $ | 474,594 | | | $ | 585,552 | | | $ | 406,762 | | | $ | 443,703 | | |
Interest coverage ratio | Interest coverage ratio | | | 3.56 | x | | 4.20 | x | | 6.23 | x | | 4.29 | x | | 5.42 | x | | Interest coverage ratio | | | 4.03 | x | | 3.89 | x | | 4.81 | x | | 3.30 | x | | 3.56 | x | |
| Fixed Charge Coverage Ratio: | Fixed Charge Coverage Ratio: | | | | | | | | | | Fixed Charge Coverage Ratio: | | | | | | | | | |
Total interest | Total interest | | | $ | 124,647 | | | $ | 123,672 | | | $ | 124,825 | | | $ | 128,984 | | | $ | 138,628 | | | Total interest | | | $ | 123,066 | | | $ | 122,091 | | | $ | 121,730 | | | $ | 123,231 | | | $ | 124,647 | | |
Secured debt principal payments | Secured debt principal payments | | | 15,955 | | | 16,122 | | | 15,876 | | | 15,183 | | | 15,526 | | | Secured debt principal payments | | | 15,968 | | | 16,877 | | | 17,040 | | | 15,715 | | | 15,955 | | |
| Total fixed charges | Total fixed charges | | | 140,602 | | | 139,794 | | | 140,701 | | | 144,167 | | | 154,154 | | | Total fixed charges | | | 139,034 | | | 138,968 | | | 138,770 | | | 138,946 | | | 140,602 | | |
EBITDA | EBITDA | | | $ | 443,703 | | | $ | 519,474 | | | $ | 777,364 | | | $ | 553,177 | | | $ | 751,630 | | | EBITDA | | | $ | 496,548 | | | $ | 474,594 | | | $ | 585,552 | | | $ | 406,762 | | | $ | 443,703 | | |
Fixed charge coverage ratio | Fixed charge coverage ratio | | | 3.16 | x | | 3.72 | x | | 5.52 | x | | 3.84 | x | | 4.88 | x | | Fixed charge coverage ratio | | | 3.57 | x | | 3.42 | x | | 4.22 | x | | 2.93 | x | | 3.16 | x | |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The table below reflects the reconciliation of Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Dollars are in thousands.
| | | | | Twelve Months Ended | | | | Twelve Months Ended |
| | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
Adjusted EBITDA Reconciliations: | Adjusted EBITDA Reconciliations: | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | Adjusted EBITDA Reconciliations: | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Net income | Net income | | | $ | 781,664 | | | $ | 1,038,852 | | | $ | 1,123,710 | | | $ | 1,376,664 | | | $ | 1,367,488 | | Net income | | | $ | 368,038 | | | $ | 374,479 | | | $ | 463,563 | | | $ | 668,205 | | | $ | 781,664 | |
Interest expense | Interest expense | | | 495,523 | | | 514,388 | | | 524,863 | | | 537,355 | | | 552,334 | | Interest expense | | | 488,407 | | | 489,853 | | | 489,178 | | | 491,507 | | | 495,523 | |
Income tax expense (benefit) | Income tax expense (benefit) | | | 8,469 | | | 9,968 | | | 4,846 | | | 6,811 | | | 6,177 | | Income tax expense (benefit) | | | 9,783 | | | 8,713 | | | 6,952 | | | 4,015 | | | 8,469 | |
Depreciation and amortization | Depreciation and amortization | | | 1,008,062 | | | 1,038,437 | | | 1,058,348 | | | 1,075,261 | | | 1,057,942 | | Depreciation and amortization | | | 1,097,228 | | | 1,037,566 | | | 995,798 | | | 983,576 | | | 1,008,062 | |
EBITDA | EBITDA | | | 2,293,718 | | | 2,601,645 | | | 2,711,767 | | | 2,996,091 | | | 2,983,941 | | EBITDA | | | 1,963,456 | | | 1,910,611 | | | 1,955,491 | | | 2,147,303 | | | 2,293,718 | |
Loss (income) from unconsolidated entities | Loss (income) from unconsolidated entities | | | (8,658) | | | 8,083 | | | (49,079) | | | (58,322) | | | (47,941) | | Loss (income) from unconsolidated entities | | | 38,866 | | | 22,933 | | | 10,501 | | | 650 | | | (8,658) | |
Stock-based compensation expense (1) | Stock-based compensation expense (1) | | | 26,811 | | | 28,318 | | | 25,485 | | | 24,229 | | | 24,601 | | Stock-based compensation expense (1) | | | 19,681 | | | 17,812 | | | 22,248 | | | 24,278 | | | 26,811 | |
Loss (gain) on extinguishment of debt, net | Loss (gain) on extinguishment of debt, net | | | 42,406 | | | 47,049 | | | 35,865 | | | 68,685 | | | 68,436 | | Loss (gain) on extinguishment of debt, net | | | 54,505 | | | 49,874 | | | 64,760 | | | 97,769 | | | 42,406 | |
Loss (gain) on real estate dispositions, net | Loss (gain) on real estate dispositions, net | | | (884,711) | | | (1,088,455) | | | (915,055) | | | (1,001,001) | | | (843,456) | | Loss (gain) on real estate dispositions, net | | | (199,229) | | | (235,375) | | | (409,166) | | | (773,516) | | | (884,711) | |
Impairment of assets | Impairment of assets | | | 131,349 | | | 135,608 | | | 126,389 | | | 121,172 | | | 55,960 | | Impairment of assets | | | 27,539 | | | 51,107 | | | 58,067 | | | 79,890 | | | 131,349 | |
Provision for loan losses | | | 88,747 | | | 94,436 | | | 11,351 | | | 8,494 | | | 7,072 | | |
Provision for loan losses, net | | Provision for loan losses, net | | | 5,083 | | | 7,270 | | | 90,394 | | | 93,522 | | | 88,747 | |
Loss (gain) on derivatives and financial instruments, net | Loss (gain) on derivatives and financial instruments, net | | | 5,332 | | | 11,049 | | | 5,411 | | | 5,260 | | | 5,739 | | Loss (gain) on derivatives and financial instruments, net | | | (6,689) | | | (7,333) | | | (5,934) | | | 3,539 | | | 5,332 | |
Other expenses (1) | Other expenses (1) | | | 68,939 | | | 64,171 | | | 52,630 | | | 46,971 | | | 48,327 | | Other expenses (1) | | | 56,127 | | | 40,860 | | | 52,960 | | | 60,985 | | | 68,939 | |
Other impairment (2) | | | 163,481 | | | 146,508 | | | 146,508 | | | 34,110 | | | 32,268 | | |
| Leasehold interest adjustment (2) | | Leasehold interest adjustment (2) | | | (7,697) | | | 760 | | | (640) | | | — | | | — | |
Casualty losses, net of recoveries (3) | | Casualty losses, net of recoveries (3) | | | 5,799 | | | 5,786 | | | 998 | | | — | | | — | |
Other impairment (4) | | Other impairment (4) | | | — | | | 49,241 | | | 49,241 | | | 161,639 | | | 163,481 | |
Adjusted EBITDA | Adjusted EBITDA | | | $ | 1,927,414 | | | $ | 2,048,412 | | | $ | 2,151,272 | | | $ | 2,245,689 | | | $ | 2,334,947 | | Adjusted EBITDA | | | $ | 1,957,441 | | | $ | 1,913,546 | | | $ | 1,888,920 | | | $ | 1,896,059 | | | $ | 1,927,414 | |
| Adjusted Interest Coverage Ratio: | Adjusted Interest Coverage Ratio: | | | | | | | | | Adjusted Interest Coverage Ratio: | | | | | | | | |
Interest expense | Interest expense | | | $ | 495,523 | | | $ | 514,388 | | | $ | 524,863 | | | $ | 537,355 | | | $ | 552,334 | | Interest expense | | | $ | 488,407 | | | $ | 489,853 | | | $ | 489,178 | | | $ | 491,507 | | | $ | 495,523 | |
Capitalized interest | Capitalized interest | | | 17,222 | | | 17,472 | | | 18,102 | | | 18,303 | | | 17,691 | | Capitalized interest | | | 20,335 | | | 19,352 | | | 18,265 | | | 17,543 | | | 17,222 | |
Non-cash interest expense | Non-cash interest expense | | | (10,617) | | | (15,751) | | | (14,746) | | | (12,761) | | | (11,599) | | Non-cash interest expense | | | (18,624) | | | (17,506) | | | (14,163) | | | (12,675) | | | (10,617) | |
Total interest | Total interest | | | 502,128 | | | 516,109 | | | 528,219 | | | 542,897 | | | 558,426 | | Total interest | | | 490,118 | | | 491,699 | | | 493,280 | | | 496,375 | | | 502,128 | |
Adjusted EBITDA | Adjusted EBITDA | | | $ | 1,927,414 | | | $ | 2,048,412 | | | $ | 2,151,272 | | | $ | 2,245,689 | | | $ | 2,334,947 | | Adjusted EBITDA | | | $ | 1,957,441 | | | $ | 1,913,546 | | | $ | 1,888,920 | | | $ | 1,896,059 | | | $ | 1,927,414 | |
Adjusted interest coverage ratio | Adjusted interest coverage ratio | | | 3.84 | x | | 3.97 | x | | 4.07 | x | | 4.14 | x | | 4.18 | x | Adjusted interest coverage ratio | | | 3.99 | x | | 3.89 | x | | 3.83 | x | | 3.82 | x | | 3.84 | x |
| Adjusted Fixed Charge Coverage Ratio: | Adjusted Fixed Charge Coverage Ratio: | | | | | Adjusted Fixed Charge Coverage Ratio: | | | | | | |
Total interest | Total interest | | | $ | 502,128 | | | $ | 516,109 | | | $ | 528,219 | | | $ | 542,897 | | | $ | 558,426 | | Total interest | | | $ | 490,118 | | | $ | 491,699 | | | $ | 493,280 | | | $ | 496,375 | | | $ | 502,128 | |
Secured debt principal payments | Secured debt principal payments | | | 63,136 | | | 62,707 | | | 60,562 | | | 57,807 | | | 56,308 | | Secured debt principal payments | | | 65,600 | | | 65,587 | | | 64,832 | | | 63,668 | | | 63,136 | |
| Total fixed charges | Total fixed charges | | | 565,264 | | | 578,816 | | | 588,781 | | | 600,704 | | | 614,734 | | Total fixed charges | | | 555,718 | | | 557,286 | | | 558,112 | | | 560,043 | | | 565,264 | |
Adjusted EBITDA | Adjusted EBITDA | | | $ | 1,927,414 | | | $ | 2,048,412 | | | $ | 2,151,272 | | | $ | 2,245,689 | | | $ | 2,334,947 | | Adjusted EBITDA | | | $ | 1,957,441 | | | $ | 1,913,546 | | | $ | 1,888,920 | | | $ | 1,896,059 | | | $ | 1,927,414 | |
Adjusted fixed charge coverage ratio | Adjusted fixed charge coverage ratio | | | 3.41 | x | | 3.54 | x | | 3.65 | x | | 3.74 | x | | 3.80 | x | Adjusted fixed charge coverage ratio | | | 3.52 | x | | 3.43 | x | | 3.38 | x | | 3.39 | x | | 3.41 | x |
| (1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses. | (1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses. | (1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses. |
(2) Represents reserve for straight-line rent receivable balances relating to leases placed on cash recognition. | |
(2) Represents revenues and property operating expenses associated with a leasehold portfolio interest relating to 26 properties assumed by a wholly-owned affiliate in conjunction with the Holiday Retirement transaction. Subsequent to the initial transaction, we purchased eight of the leased properties and one of the properties was sold by the landlord and removed from the lease. No rent will be paid in excess of net cash flow relating to the leasehold properties and therefore, the net impact has been excluded from Adjusted EBITDA. | | (2) Represents revenues and property operating expenses associated with a leasehold portfolio interest relating to 26 properties assumed by a wholly-owned affiliate in conjunction with the Holiday Retirement transaction. Subsequent to the initial transaction, we purchased eight of the leased properties and one of the properties was sold by the landlord and removed from the lease. No rent will be paid in excess of net cash flow relating to the leasehold properties and therefore, the net impact has been excluded from Adjusted EBITDA. |
(3) Represents casualty losses net of any insurance recoveries. | | (3) Represents casualty losses net of any insurance recoveries. |
(4) Represents reserve for straight-line rent receivable balances relating to leases placed on cash recognition. | | (4) Represents reserve for straight-line rent receivable balances relating to leases placed on cash recognition. |
Our leverage ratios include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt less cash and cash equivalents and any IRC Section 1031 deposits)restricted cash), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock. Our leverage ratios are defined as the proportion of net debt to total capitalization. The table below reflects the reconciliation of our leverage ratios to our balance sheets for the periods presented. Amounts are in thousands, except share price.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
| | | | As of | | | As of |
| | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| | | | 2021 | | 2020 | | 2020 | | 2020 | | 2020 | | | | 2022 | | 2021 | | 2021 | | 2021 | | 2021 |
Book capitalization: | Book capitalization: | | | | | | | | | | | | Book capitalization: | | | | | | | | | | | |
Unsecured credit facility and commercial paper | Unsecured credit facility and commercial paper | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 844,985 | | Unsecured credit facility and commercial paper | | | $ | 299,968 | | $ | 324,935 | | $ | 290,996 | | $ | — | | $ | — |
Long-term debt obligations (1) | Long-term debt obligations (1) | | | 14,618,713 | | | 13,905,822 | | | 13,889,030 | | | 14,543,485 | | | 13,228,433 | | Long-term debt obligations (1) | | | 14,352,529 | | 13,917,702 | | 13,488,656 | | 13,572,816 | | 14,618,713 |
Cash and cash equivalents (2) | | | (2,513,156) | | | (1,968,765) | | | (2,096,571) | | | (1,766,819) | | | (303,423) | | |
Cash and cash equivalents and restricted cash | | Cash and cash equivalents and restricted cash | | | (367,043) | | (346,755) | | (362,645) | | (808,705) | | (2,558,822) |
Total net debt | Total net debt | | | 12,105,557 | | | 11,937,057 | | | 11,792,459 | | | 12,776,666 | | | 13,769,995 | | Total net debt | | | 14,285,454 | | 13,895,882 | | 13,417,007 | | 12,764,111 | | 12,059,891 |
Total equity and noncontrolling interests(3) | | | 17,046,932 | | | 17,225,062 | | | 17,291,155 | | | 17,263,672 | | | 17,495,696 | | |
Total equity and noncontrolling interests(2) | | Total equity and noncontrolling interests(2) | | | 19,178,026 | | 18,997,873 | | 18,172,111 | | 17,243,208 | | 17,046,932 |
Book capitalization | Book capitalization | | | $ | 29,152,489 | | | $ | 29,162,119 | | | $ | 29,083,614 | | | $ | 30,040,338 | | | $ | 31,265,691 | | Book capitalization | | | $ | 33,463,480 | | $ | 32,893,755 | | $ | 31,589,118 | | $ | 30,007,319 | | $ | 29,106,823 |
Net debt to book capitalization ratio | Net debt to book capitalization ratio | | | 42 | % | | 41 | % | | 41 | % | | 43 | % | | 44 | % | Net debt to book capitalization ratio | | | 43% | | 42% | | 42% | | 43% | | 41% |
| Undepreciated book capitalization: | Undepreciated book capitalization: | | | | | | | | | Undepreciated book capitalization: | | | | | | | | |
Total net debt | Total net debt | | | $ | 12,105,557 | | | $ | 11,937,057 | | | $ | 11,792,459 | | | $ | 12,776,666 | | | $ | 13,769,995 | | Total net debt | | | $ | 14,285,454 | | $ | 13,895,882 | | $ | 13,417,007 | | $ | 12,764,111 | | $ | 12,059,891 |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | | 6,212,432 | | | 6,104,297 | | | 6,002,775 | | | 6,001,177 | | | 5,910,979 | | Accumulated depreciation and amortization | | | 7,215,622 | | 6,910,114 | | 6,634,061 | | 6,415,676 | | 6,212,432 |
Total equity and noncontrolling interests(3) | | | 17,046,932 | | | 17,225,062 | | | 17,291,155 | | | 17,263,672 | | | 17,495,696 | | |
Total equity and noncontrolling interests(2) | | Total equity and noncontrolling interests(2) | | | 19,178,026 | | 18,997,873 | | 18,172,111 | | 17,243,208 | | 17,046,932 |
Undepreciated book capitalization | Undepreciated book capitalization | | | $ | 35,364,921 | | | $ | 35,266,416 | | | $ | 35,086,389 | | | $ | 36,041,515 | | | $ | 37,176,670 | | Undepreciated book capitalization | | | $ | 40,679,102 | | $ | 39,803,869 | | $ | 38,223,179 | | $ | 36,422,995 | | $ | 35,319,255 |
Net debt to undepreciated book capitalization ratio | Net debt to undepreciated book capitalization ratio | | | 34 | % | | 34 | % | | 34 | % | | 35 | % | | 37 | % | Net debt to undepreciated book capitalization ratio | | | 35% | | 35% | | 35% | | 35% | | 34% |
| Market capitalization: | Market capitalization: | | | | | | | | | Market capitalization: | | | | | | | | |
Common shares outstanding | Common shares outstanding | | | 417,520 | | | 417,401 | | | 417,305 | | | 417,302 | | | 417,391 | | Common shares outstanding | | | 453,948 | | 447,239 | | 435,274 | | 422,562 | | 417,520 |
Period end share price | Period end share price | | | $ | 71.63 | | | $ | 64.62 | | | $ | 55.09 | | | $ | 51.75 | | | $ | 45.78 | | Period end share price | | | $ | 96.14 | | $ | 85.77 | | $ | 82.40 | | $ | 83.10 | | $ | 71.63 |
Common equity market capitalization | Common equity market capitalization | | | $ | 29,906,958 | | | $ | 26,972,453 | | | $ | 22,989,332 | | | $ | 21,595,379 | | | $ | 19,108,160 | | Common equity market capitalization | | | $ | 43,642,561 | | $ | 38,359,689 | | $ | 35,866,578 | | $ | 35,114,902 | | $ | 29,906,958 |
Total net debt | Total net debt | | | 12,105,557 | | | 11,937,057 | | | 11,792,459 | | | 12,776,666 | | | 13,769,995 | | Total net debt | | | 14,285,454 | | 13,895,882 | | 13,417,007 | | 12,764,111 | | 12,059,891 |
Noncontrolling interests(3) | Noncontrolling interests(3) | | | 1,248,054 | | | 1,252,343 | | | 1,183,281 | | | 1,215,532 | | | 1,362,913 | | Noncontrolling interests(3) | | | 1,282,450 | | 1,361,872 | | 1,308,908 | | 1,322,762 | | 1,248,054 |
Market capitalization | Market capitalization | | | $ | 43,260,569 | | | $ | 40,161,853 | | | $ | 35,965,072 | | | $ | 35,587,577 | | | $ | 34,241,068 | | Market capitalization | | | $ | 59,210,465 | | $ | 53,617,443 | | $ | 50,592,493 | | $ | 49,201,775 | | $ | 43,214,903 |
Net debt to market capitalization ratio | Net debt to market capitalization ratio | | | 28 | % | | 30 | % | | 33 | % | | 36 | % | | 40 | % | Net debt to market capitalization ratio | | | 24% | | 26% | | 27% | | 26% | | 28% |
| (1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded. | (1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded. | (1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded. |
(2) Inclusive of IRC Section 1031 deposits, if any. | |
(3) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets. | |
(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets. | | (2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets. |
Critical Accounting Policies and Estimates
Our unaudited consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions. Management considers an accounting estimate or assumption critical if:
•the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
•the impact of the estimates and assumptions on financial condition or operating performance is material.
Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to theour financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20202021 for further information regardingon significant accounting policies that impact us. There have been no material changes to these policies in 2021.2022.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. When Welltower uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “pro forma,” “estimate” or similar expressions that do not relate solely to historical matters, Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower’s actual results to differ materially from Welltower’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the duration and scope of the COVID-19 pandemic; uncertainty regarding the implementation and impact of the CARES Act and future stimulus or other COVID-19 relief legislation; the impact of the COVID-19 pandemic on occupancy rates and on the operations of Welltower and its operators/tenants; actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting Welltower’s properties and the operations of Welltower and its operators/tenants; the effects of health and safety measures adopted by Welltower and its operators/tenants related to the COVID-19 pandemic; increased operational costs as a result of health and safety measures related to COVID-19; the impact of the COVID-19 pandemic on the business and financial condition of operators/tenants and their ability to make payments to Welltower; disruptions to Welltower's property acquisition and disposition activity due to economic uncertainty caused by COVID-19; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; Welltower’s ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting Welltower’s properties; Welltower’s ability to re-lease space at similar rates as vacancies occur; Welltower’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting Welltower’s properties; changes in rules or practices governing Welltower’s financial reporting; the movement of U.S. and foreign currency exchange rates; Welltower’s ability to maintain Welltower’s qualification as a REIT; key management personnel recruitment and retention; and other risks described in Welltower’s reports filed from time to time with the SEC. Other important factors are identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates.
We historically borrow on our unsecured revolving credit facility and commercial paper program to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our unsecured revolving credit facility and commercial paper program. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments after considering the effects of interest rate swaps, whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands):
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| | | Principal | | Change in | | Principal | | Change in | | | Principal | | Change in | | Principal | | Change in |
| | | balance | | fair value | | balance | | fair value | | | balance | | fair value | | balance | | fair value |
Senior unsecured notes | Senior unsecured notes | | $ | 10,710,742 | | | $ | (760,313) | | | $ | 9,943,501 | | | $ | (761,581) | | Senior unsecured notes | | $ | 10,971,306 | | | $ | (676,613) | | | $ | 11,002,297 | | | $ | (1,059,031) | |
Secured debt | Secured debt | | 1,600,119 | | | (53,176) | | | 1,702,196 | | | (57,756) | | Secured debt | | 1,414,612 | | | (39,742) | | | 1,490,708 | | | (44,222) | |
Totals | Totals | | $ | 12,310,861 | | | $ | (813,489) | | | $ | 11,645,697 | | | $ | (819,337) | | Totals | | $ | 12,385,918 | | | $ | (716,355) | | | $ | 12,493,005 | | | $ | (1,103,253) | |
Our variable rate debt, including our unsecured revolving credit facility and commercial paper program, is reflected at fair value. At March 31, 2021,2022, we had$2,304,903,000 $2,261,318,000 outstanding related to our variable rate debt.debt after considering the effects of interest rate swaps. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $23,050,000.$22,613,000. At December 31, 2020,2021, we had $2,241,909,000$1,742,268,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $22,420,000.$17,423,000.
We are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of the Canadian Dollar or British Pounds Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in Canada and the United Kingdom. Based solely on our results for the three months ended March 31, 2021,2022, including the impact of existing hedging arrangements, if these exchange rates were to increase or decrease by 10%, our net income from these investments would increase or decrease, as applicable, by less than $2,000,000.$7,000,000. We will continue to mitigate these underlying foreign currency exposures with non-U.S. denominated borrowings and gains and losses on derivative contracts. If we increase our international presence through investments in, or acquisitions or development of, seniors housing and health care properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. Dollars, Canadian Dollars or British Pounds Sterling. To illustrate the impact of changes in foreign currency markets, we performed a sensitivity analysis on our derivative portfolio whereby we modeled the change in net present values arising from a hypothetical 1% increase in foreign currency exchange rates to determine the instruments’ change in fair value. The following table summarizes the results of the analysis performed (dollars in thousands):
| | | | March 31, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| | | Carrying | | Change in | | Carrying | | Change in | | | Carrying | | Change in | | Carrying | | Change in |
| | | Value | | fair value | | Value | | fair value | | | Value | | fair value | | Value | | fair value |
Foreign currency exchange contracts | Foreign currency exchange contracts | | $ | 84,219 | | | $ | 12,367 | | | $ | 61,851 | | | $ | 12,731 | | Foreign currency exchange contracts | | $ | 23,548 | | | $ | 15,511 | | | $ | 32,280 | | | $ | 19,740 | |
Debt designated as hedges | Debt designated as hedges | | 1,647,220 | | | 16,472 | | | 1,630,542 | | | 16,305 | | Debt designated as hedges | | 1,581,248 | | | 15,812 | | | 1,613,164 | | | 16,132 | |
Totals | Totals | | $ | 1,731,439 | | | $ | 28,839 | | | $ | 1,692,393 | | | $ | 29,036 | | Totals | | $ | 1,604,796 | | | $ | 31,323 | | | $ | 1,645,444 | | | $ | 35,872 | |
For additional information regarding fair values of financial instruments, see “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Notes 12 and 17 to our unaudited consolidated financial statements.
Item 4. Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. No changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, there are various legal proceedings pending against us that arise in the ordinary course of our business. Management does not believe that the resolution of any of these legal proceedings either individually or in the aggregate will have a material adverse effect on our business, results of operations or financial condition. Further, from time to time, we are party to certain legal proceedings for which third parties, such as tenants, operators and/or managers are contractually obligated to indemnify, defend and hold us harmless. In some of these matters, the indemnitors have insurance for the potential damages. In other matters, we are being defended by tenants and other obligated third parties and these indemnitors may not have sufficient insurance, assets, income or resources to satisfy their defense and indemnification obligations to us. The unfavorable resolution of such legal proceedings could, individually or in the aggregate, materially adversely affect the indemnitors’ ability to satisfy their respective obligations to us, which, in turn, could have a material adverse effect on our business, results of operations or financial condition. It is management’s opinion that there are currently no such legal proceedings pending that will, individually or in the aggregate, have such a material adverse effect. Despite management’s view of the ultimate resolution of these legal proceedings, we may have significant legal expenses and costs associated with the defense of such matters. Further, management cannot predict the outcome of these legal proceedings and if management’s expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, results of operations or financial condition.
Item 1A. Risk Factors
There have been no material changes from the risk factors identified under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2021,2022, we acquired shares of our common stock held by employees who tendered shares to satisfy tax withholding obligations upon the vesting of previously issued restricted stock awards. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the first quarter ended March 31, 20212022 are as shown in the table below.
On May 1, 2020, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $1 billion of common stock through December 31, 2021 (the "Repurchase Program"). Under this authorization, we are not required to purchase shares but may choose to do so in the open market or through private transactions at times and amounts based on our evaluation of market conditions and other factors. We expect to finance any share repurchases under the Repurchase Program using available cash and may use proceeds from borrowings or debt offerings. We did not repurchase any shares of our common stock during the three months ended March 31, 2021.
| Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | Issuer Purchases of Equity Securities | |
Period | Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Program | Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Program | |
January 1, 2021 through January 31, 2021 | | 29,778 | | | $ | 64.31 | | | — | | | $ | — | | |
February 1, 2021 through February 28, 2021 | | 24,080 | | | 67.30 | | | — | | | — | | |
March 1, 2021 through March 31, 2021 | | 8,308 | | | 66.32 | | | — | | | — | | |
January 1, 2022 through January 31, 2022 | | January 1, 2022 through January 31, 2022 | | 25,081 | | | $ | 87.51 | | | — | | | $ | — | | |
February 1, 2022 through February 28, 2022 | | February 1, 2022 through February 28, 2022 | | 29,613 | | | 81.17 | | | — | | | — | | |
March 1, 2022 through March 31, 2022 | | March 1, 2022 through March 31, 2022 | | 2,080 | | | 81.49 | | | — | | | — | | |
Totals | Totals | | 62,166 | | | $ | 65.74 | | | — | | | $ | 992,348,000 | | Totals | | 56,774 | | | $ | 83.98 | | | — | | | $ | — | | |
Item 5. Other Information
None.
Item 6. Exhibits
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2.1 | | |
3.1 | | |
3.2 | | |
3.3 | | |
4.1 | | Supplemental Indenture No. 19,22, dated asas of March 25, 2021,31, 2022, between Welltower Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (filed with the Company and the Trustee (incorporated by reference toSEC as Exhibit 4.2 to Form 8-K filed on March 25, 2021)31, 2022 and incorporated by reference herein). |
4.2 | | Supplemental Indenture No. 23, dated as of April 1, 2022, among Welltower OP Inc., as issuer, Welltower Inc., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee (filed with the SEC as Exhibit 4.1 to Form 8-K12B filed April 1, 2022 and incorporated by reference herein). |
10.1 | | |
10.2 | | |
10.3 | | |
31.1 | | |
31.2 | | |
31.3 | | |
31.4 | | |
32.1 | | |
32.2 | | |
32.3 | | |
32.4 | | |
101.INS | | XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | XBRL Taxonomy Extension Schema Document | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | |
104 | | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021,2022, formatted in Inline XBRL |
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* | | Management contract or Compensatory Plan or Arrangement. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersignedunder signed thereunto duly authorized.
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| | WELLTOWER INC. | |
Date: | April 29, 2021May 10, 2022 | By: | /s/ SHANKH MITRA | |
| | Shankh Mitra, | |
| | Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) | |
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Date: | April 29, 2021May 10, 2022 | By: | /s/ TIMOTHY G. MCHUGH | |
| | Timothy G. McHugh, | |
| | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
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Date: | April 29, 2021May 10, 2022 | By: | /s/ JOSHUA T. FIEWEGER | |
| | Joshua T. Fieweger, | |
| | Chief Accounting Officer (Principal Accounting Officer) | |
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| | WELLTOWER OP INC. | |
Date: | May 10, 2022 | By: | /s/ SHANKH MITRA | |
| | Shankh Mitra, | |
| | Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) | |
|
| | | |
Date: | May 10, 2022 | By: | /s/ TIMOTHY G. MCHUGH | |
| | Timothy G. McHugh, | |
| | Executive Vice President - Chief Financial Officer (Principal Financial Officer) | |
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| | | | | |
Date: | May 10, 2022 | By: | /s/ JOSHUA T. FIEWEGER | |
| | Joshua T. Fieweger, | |
| | Chief Accounting Officer (Principal Accounting Officer) | |
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