EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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| |
| Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2018 | |
| | |
| Unaudited Pro Forma Condensed Consolidated Statement of Income for the six months ended June 30, 2018 | |
| | |
| Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2017 | |
| | |
| Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements | |
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On July 26, 2018 (the "Closing Date"), Welltower Inc. ("Welltower" or the "Company") completed the previously announced Mergers (as defined below) involving Potomac Acquisition LLC ("Potomac"), a subsidiary of the Company, Quality Care Properties, Inc. ("QCP") and certain of QCP's subsidiaries, pursuant to the Agreement and Plan of Merger (the "Merger Agreement") dated April 25, 2018, among the Company, Potomac, QCP, and certain subsidiaries of QCP. In accordance with the Merger Agreement, the Company acquired all of the outstanding shares of QCP common stock ("QCP Shares") in an all-cash merger via a series of transactions in which QCP stockholders received $20.75 in cash for each QCP Share ("Merger Consideration"). The transaction occurred through a series of successive mergers of certain QCP subsidiaries with and into Potomac, followed by the merger of QCP with and into Potomac, with Potomac surviving as a wholly owned subsidiary of the Company (the "Mergers"). At the effective time of the merger of QCP with and into Potomac, each issued and outstanding share of QCP common stock converted into the right to receive the Merger Consideration.
The following unaudited pro forma condensed consolidated balance sheet gives effect to the Mergers and related transactions described below as if they had occurred on June 30, 2018, and the unaudited pro forma condensed consolidated statements of income for the six months ended June 30, 2018 and the year ended December 31, 2017 give effect to the Mergers and related transactions described below as if they had occurred on January 1, 2017. The unaudited pro forma condensed consolidated financial statements were based on and should be read in conjunction with (i) the consolidated financial statements of Welltower included in its Annual Report on Form 10-K for the year ended December 31, 2017; (ii) the consolidated financial statements of QCP included in its Annual Report on Form 10-K for the year ended December 31, 2017, incorporated by reference herein; (iii) the unaudited consolidated financial statements of Welltower included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018; (iv) the unaudited consolidated financial statements of QCP as of and for the six months ended June 30, 2018, which are included in Exhibit 99.3 to the Company's Current Report on Form 8-K filed on July 27, 2018, as amended by Amendment No. 1 to Current Report on Form 8-K filed on September 28, 2018; and (v) the notes to the unaudited pro forma condensed consolidated financial statements.
The accompanying unaudited pro forma condensed consolidated financial statements give effect to (i) the Mergers described above resulting in the acquisition by the Company of 100% of the equity interests in QCP, which indirectly owned 305 properties as of the Closing Date, for approximately $3.5 billion; (ii) completion of the acquisition of the operations of HCR ManorCare, Inc. ("ManorCare") by ProMedica Health System, Inc. ("ProMedica"), which occurred immediately preceding the Mergers; (iii) the formation of a joint venture owned 80% by the Company and 20% by ProMedica ("Joint Venture") to own the real estate associated with 218 properties, which occurred immediately following the Mergers; (iv) the execution of a 15-year absolute triple-net master lease between the Joint Venture and ProMedica with respect to the 218 properties ("Master Lease"); and (v) a $2.0 billion draw on the Company's unsecured credit facility and a $1.0 billion draw on a term loan with Barclays Bank, PLC dated May 25, 2018 ("Term Loan").
The Company has concluded that the Mergers meet the definition of an asset acquisition under Accounting Standards Update No. 2017-01, "Clarifying the Definition of a Business" ("ASU 2017-01"). The allocation of the purchase price in these unaudited pro forma condensed consolidated financial statements has been based upon preliminary estimates of the fair value of assets ultimately acquired and liabilities ultimately assumed. The Company is in the process of making a final determination of the fair values of assets and liabilities based on the actual valuation of the tangible and intangible assets and liabilities that existed as of the Closing Date. Amounts ultimately allocated to identifiable tangible and intangible assets and liabilities could change significantly from the preliminary estimates used in the pro forma condensed consolidated financial statements presented below and could result in a material change in the depreciation or amortization of tangible and intangible assets and liabilities. The Company intends to finalize the allocation of the purchase price in conjunction with the filing of its Quarterly Report on Form 10-Q for the quarter ending September 30, 2018.
In the opinion of the Company’s management, the pro forma condensed consolidated financial statements include all significant necessary adjustments that can be factually supported to reflect the effects of the Mergers and related transactions described above. The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the Mergers and related transactions described above been completed as of the dates indicated or that may be achieved in the future. The completion of the valuation, the allocation of the purchase price, and the impact of ongoing integration activities could cause material differences in the information presented. Furthermore, the Company expects to apply its own methodologies and judgments in accounting for the assets and liabilities acquired in the Mergers, which may differ from those reflected in QCP's historical consolidated financial statements and the pro forma condensed consolidated financial statements.
Welltower Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2018
(in thousands)
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| | | | | | | | | | | | | | | | | |
| | | Company Historical | | QCP Historical | | Pro Forma Adjustments | | | Company Pro Forma |
Assets: | | | | | | | | | |
| Net real property owned | | $ | 25,357,869 |
| | $ | 3,975,921 |
| | $ | (874,027 | ) | A | | $ | 28,459,763 |
|
| Net real estate loans receivable | | 381,095 |
| | — |
| | — |
| | | 381,095 |
|
| Net real estate investments | | 25,738,964 |
| | 3,975,921 |
| | (874,027 | ) | | | 28,840,858 |
|
| | | | | | | | | | |
| Investments in unconsolidated entities | | 450,027 |
| | — |
| | — |
| | | 450,027 |
|
| Goodwill | | 68,321 |
| | — |
| | — |
| | | 68,321 |
|
| Cash and cash equivalents | | 215,120 |
| | 263,058 |
| | 156,085 |
| B | | 634,263 |
|
| Straight-line rent receivable | | 367,358 |
| | 1,881 |
| | (1,881 | ) | C | | 367,358 |
|
| Receivables and other assets | | 779,192 |
| | 20,159 |
| | (27,914 | ) | D | | 771,437 |
|
| | | | | | | | | | |
Total assets | | $ | 27,618,982 |
| | $ | 4,261,019 |
| | $ | (747,737 | ) | | | $ | 31,132,264 |
|
| | | | | | | | | | |
Liabilities and equity | | | | | | | | | |
Liabilities: | | | | | | | | | |
| Borrowings under primary unsecured credit facility | | $ | 540,000 |
| | $ | 75,000 |
| | $ | 1,922,000 |
| E | | $ | 2,537,000 |
|
| Senior unsecured notes | | 8,373,774 |
| | 855,393 |
| | 140,483 |
| F | | 9,369,650 |
|
| Secured debt | | 2,450,483 |
| | 734,833 |
| | (734,833 | ) | G | | 2,450,483 |
|
| Capital lease obligations | | 71,302 |
| | — |
| | — |
| | | 71,302 |
|
| Accrued expenses and other liabilities | | 984,779 |
| | 26,388 |
| | (11,898 | ) | H | | 999,269 |
|
Total liabilities | | 12,420,338 |
| | 1,691,614 |
| | 1,315,752 |
| | | 15,427,704 |
|
| | | | | | | | | | |
Redeemable noncontrolling interests | | 398,157 |
| | 1,930 |
| | (1,930 | ) | I | | 398,157 |
|
| | | | | | | | | | |
Equity: | | | | | | | | | |
| Preferred stock | | 718,498 |
| | — |
| | — |
| | | 718,498 |
|
| Common stock | | 372,801 |
| | 942 |
| | (942 | ) | I | | 372,801 |
|
| Capital in excess of par value | | 17,661,384 |
| | 3,176,154 |
| | (3,176,154 | ) | I | | 17,661,384 |
|
| Accumulated deficit and other equity | | (4,410,760 | ) | | (610,118 | ) | | 603,293 |
| I | | (4,417,585 | ) |
| Total stockholders’ equity | | 14,341,923 |
| | 2,566,978 |
| | (2,573,803 | ) | | | 14,335,098 |
|
| | | | | | | | | | |
| Noncontrolling interests | | 458,564 |
| | 497 |
| | 512,244 |
| J | | 971,305 |
|
| | | | | | | | | | |
Total equity | | 14,800,487 |
| | 2,567,475 |
| | (2,061,559 | ) | | | 15,306,403 |
|
| | | | | | | | | | |
Total liabilities and equity | | $ | 27,618,982 |
| | $ | 4,261,019 |
| | $ | (747,737 | ) | | | $ | 31,132,264 |
|
Welltower Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Six Months Ended June 30, 2018
(in thousands except per share amounts)
|
| | | | | | | | | | | | | | | | | |
| | | Company Historical | | QCP Historical | | Pro Forma Adjustments | | | Company Pro Forma |
| Revenues: | | | | | | | | | |
| Rental income | | $ | 676,970 |
| | $ | 162,040 |
| | $ | (39,431 | ) | K | | $ | 799,579 |
|
| Resident fees and services | | 1,499,279 |
| | — |
| | — |
| | | 1,499,279 |
|
| Interest income | | 28,110 |
| | — |
| | — |
| | | 28,110 |
|
| Other income | | 18,518 |
| | 3,493 |
| | — |
| | | 22,011 |
|
| Total revenues | | 2,222,877 |
| | 165,533 |
| | (39,431 | ) | | | 2,348,979 |
|
| | | | | | | | | | |
| Expenses: | | | | | | | | | |
| Interest expense | | 244,191 |
| | 77,341 |
| | (27,333 | ) | L | | 294,199 |
|
| Property operating expenses | | 1,125,216 |
| | 22,251 |
| | (21,465 | ) | M | | 1,126,002 |
|
| Depreciation and amortization | | 464,476 |
| | 58,349 |
| | (18,407 | ) | N | | 504,418 |
|
| General and administrative | | 66,536 |
| | 15,276 |
| | — |
| | | 81,812 |
|
| Gain on derivatives and financial instruments, net | | (14,633 | ) | | — |
| | — |
| | | (14,633 | ) |
| Loss on extinguishment of debt, net | | 12,006 |
| | — |
| | — |
| | | 12,006 |
|
| Impairment of assets | | 32,817 |
| | 2,898 |
| | (2,898 | ) | O | | 32,817 |
|
| Other expenses | | 13,770 |
| | 25,601 |
| | (5,931 | ) | O | | 33,440 |
|
| Total expenses | | 1,944,379 |
| | 201,716 |
| | (76,034 | ) | | | 2,070,061 |
|
| | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | | | | | | | | | |
| and income from unconsolidated entities | | 278,498 |
| | (36,183 | ) | | 36,603 |
| | | 278,918 |
|
| Income tax expense | | (5,429 | ) | | (694 | ) | | — |
| | | (6,123 | ) |
| Loss from unconsolidated entities | | (1,180 | ) | | — |
| | — |
| | | (1,180 | ) |
| Income (loss) from continuing operations | | 271,889 |
| | (36,877 | ) | | 36,603 |
| | | 271,615 |
|
| Gain on real estate dispositions, net | | 348,939 |
| | 433 |
| | (433 | ) | O | | 348,939 |
|
| Net income (loss) | | 620,828 |
| | (36,444 | ) | | 36,170 |
| | | 620,554 |
|
| Less: Preferred stock dividends | | 23,352 |
| | 120 |
| | (120 | ) | P | | 23,352 |
|
| Less: Net income attributable to noncontrolling interests | | 5,373 |
| | 39 |
| | 14,182 |
| Q | | 19,594 |
|
| Net income (loss) attributable to common stockholders | | $ | 592,103 |
| | $ | (36,603 | ) | | $ | 22,108 |
| | | $ | 577,608 |
|
| | | | | | | | | | |
| Average number of common shares outstanding: | | | | | | | | | |
| Basic | | 371,552 |
| | | | | | | 371,552 |
|
| Diluted | | 373,186 |
| | | | | | | 373,186 |
|
| | | | | | | | | | |
| Net income attributable to common stockholders per share: | | | | | | | | | |
| Basic | | $ | 1.59 |
| | | |
|
| | | $ | 1.55 |
|
| Diluted | | $ | 1.59 |
| | | |
|
| | | $ | 1.55 |
|
| | | | | | | | | | |
| Dividends declared and paid per common share | | $ | 1.74 |
| | | | | | | $ | 1.74 |
|
Welltower Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 2017
(in thousands except per share amounts)
|
| | | | | | | | | | | | | | | | | |
| | | Company Historical | | QCP Historical | | Pro Forma Adjustments | | | Company Pro Forma |
| Revenues: | | | | | | | | | |
| Rental income | | $ | 1,445,871 |
| | $ | 318,498 |
| | $ | (73,174 | ) | K | | $ | 1,691,195 |
|
| Resident fees and services | | 2,779,423 |
| | — |
| | — |
| | | 2,779,423 |
|
| Interest income | | 73,811 |
| | — |
| | — |
| | | 73,811 |
|
| Other income | | 17,536 |
| | 2,807 |
| | — |
| | | 20,343 |
|
| Total revenues | | 4,316,641 |
| | 321,305 |
| | (73,174 | ) | | | 4,564,772 |
|
| | | | | | | | | | |
| Expenses: | | | | | | | | | |
| Interest expense | | 484,622 |
| | 140,549 |
| | (40,533 | ) | L | | 584,638 |
|
| Property operating expenses | | 2,083,925 |
| | 2,434 |
| | (867 | ) | M | | 2,085,492 |
|
| Depreciation and amortization | | 921,720 |
| | 131,623 |
| | (51,740 | ) | N | | 1,001,603 |
|
| General and administrative | | 122,008 |
| | 27,172 |
| | — |
| | | 149,180 |
|
| Loss on derivatives and financial instruments, net | | 2,284 |
| | — |
| | — |
| | | 2,284 |
|
| Loss on extinguishment of debt, net | | 37,241 |
| | — |
| | — |
| | | 37,241 |
|
| Provision for loan losses | | 62,966 |
| | — |
| | — |
| | | 62,966 |
|
| Impairment of assets | | 124,483 |
| | 445,697 |
| | (445,697 | ) | O | | 124,483 |
|
| Other expenses | | 177,776 |
| | 18,487 |
| | — |
| | | 196,263 |
|
| Total expenses | | 4,017,025 |
| | 765,962 |
| | (538,837 | ) | | | 4,244,150 |
|
| | | | | | | | | | |
| Income (loss) from continuing operations before income taxes | | | | | | | | | |
| and income from unconsolidated entities | | 299,616 |
| | (444,657 | ) | | 465,663 |
| | | 320,622 |
|
| Income tax expense | | (20,128 | ) | | (2,087 | ) | | — |
| | | (22,215 | ) |
| Loss from unconsolidated entities | | (83,125 | ) | | — |
| | — |
| | | (83,125 | ) |
| Income (loss) from continuing operations | | 196,363 |
| | (446,744 | ) | | 465,663 |
| | | 215,282 |
|
| Gain on real estate dispositions, net | | 344,250 |
| | 3,283 |
| | (3,283 | ) | O | | 344,250 |
|
| Net income (loss) | | 540,613 |
| | (443,461 | ) | | 462,380 |
| | | 559,532 |
|
| Less: Preferred stock dividends | | 49,410 |
| | 292 |
| | (292 | ) | P | | 49,410 |
|
| Less: Preferred stock redemption charge | | 9,769 |
| | — |
| | — |
| | | 9,769 |
|
| Less: Net income attributable to noncontrolling interests | | 17,839 |
| | 80 |
| | 28,363 |
| Q | | 46,282 |
|
| Net income (loss) attributable to common stockholders | | $ | 463,595 |
| | $ | (443,833 | ) | | $ | 434,309 |
| | | $ | 454,071 |
|
| | | | | | | | | | |
| Average number of common shares outstanding: | | | | | | | | | |
| Basic | | 367,237 |
| | | | | | | 367,237 |
|
| Diluted | | 369,001 |
| | | | | | | 369,001 |
|
| | | | | | | | | | |
| Net income attributable to common stockholders per share: | | | | | | | | | |
| Basic | | $ | 1.26 |
| |
|
| |
|
| | | $ | 1.24 |
|
| Diluted | | $ | 1.26 |
| |
|
| |
|
| | | $ | 1.23 |
|
| | | | | | | | | | |
| Dividends declared and paid per common share | | $ | 3.48 |
| | | | | | | $ | 3.48 |
|
WELLTOWER INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements are based on and should be read in conjunction with (i) the consolidated financial statements of Welltower included in its Annual Report on Form 10-K for the year ended December 31, 2017; (ii) the consolidated financial statements of QCP included in its Annual Report on Form 10-K for the year ended December 31, 2017, incorporated by reference herein; (iii) the unaudited consolidated financial statements of Welltower included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2018; (iv) the unaudited consolidated financial statements of QCP as of and for the six months ended June 30, 2018, which are included in Exhibit 99.3 to the Company's Current Report on Form 8-K filed on July 27, 2018, as amended by Amendment No. 1 to Current Report on Form 8-K filed on September 28, 2018; and (v) the notes to the unaudited pro forma condensed consolidated financial statements presented below.
On July 26, 2018, the Company completed the Mergers and related transactions described in the introduction above. The following represents the preliminary allocation to assets acquired and liabilities assumed (in thousands):
|
| | |
| Land and land improvements | 418,453 |
|
| Buildings and improvements | 2,253,086 |
|
| Acquired lease intangibles | 15,652 |
|
| Real property held for sale | 414,703 |
|
| Gross real property owned | 3,101,894 |
|
| | |
| Cash and cash equivalents | 381,913 |
|
| Receivables and other assets | 6,303 |
|
| Total assets acquired | 3,490,110 |
|
| | |
| Accrued expenses and other liabilities | (14,490 | ) |
| Noncontrolling interests | (512,741 | ) |
| Net assets acquired | 2,962,879 |
|
In conjunction with the Mergers, the Company acquired QCP's interests in 305 properties, which consist of the following: (i) 218 seniors housing properties owned by the Joint Venture and leased under the Master Lease to ProMedica; (ii) 59 seniors housing properties owned by the Company which are classified as held for sale and leased to ProMedica under a non-yielding lease; (iii) 12 seniors housing properties and one surgery center owned by the Company which are classified as held for sale and leased to operators under existing triple-net leases; (iv) 14 seniors housing properties owned by the Company leased to operators under existing triple-net leases; and (v) one multi-tenant medical office building owned by the Company and leased to various existing tenants.
A) The adjustment to net real property owned is comprised of the following: (i) adjusting from historical cost to accumulated acquisition cost under ASU 2017-01 allocated on a relative fair value basis based upon the preliminary allocation noted above; (ii) eliminating historical accumulated amortization and depreciation; (iii) converting the historical QCP balances to be reflective of ASC 840, "Leases" ("ASC 840"), as QCP had early adopted ASU No. 2016-02, "Leases (Topic 842)" ("ASC 842"); and (iv) reflecting the Master Lease as an operating lease under ASC 840 as it replaced the lease between QCP and ManorCare in effect as of the Closing Date, which had been accounted for as a direct financing lease under ASC 840 prior to QCP's adoption of ASC 842.
B) Adjustment represents incremental cash and cash equivalents acquired in the Mergers as the actual cash and cash equivalents balance on July 26, 2018 was higher than the balance as of June 30, 2018 reflected in QCP's historical unaudited balance sheet.
C) Adjustment to eliminate the historical QCP straight-line rent receivable balance as of June 30, 2018, as such balance reset to zero at the Closing Date.
D) Primarily relates to an adjustment to eliminate the historical QCP right-of-use asset balances recorded in conjunction with ASC 842, given that the Company has not yet adopted ASC 842. In addition, the adjustment includes capitalization into real property owned of certain acquisition costs incurred by the Company prior to June 30, 2018 in accordance with asset acquisition accounting under ASU 2017-01.
E) The pro forma adjustment to borrowings under the primary unsecured credit facility is comprised of the following (in thousands):
|
| |
| Draw on Welltower primary unsecured credit facility | $ 1,997,000 |
| Repayment of QCP bank line of credit | (75,000) |
| Total adjustment, net | $ 1,922,000 |
F) The pro forma adjustment to senior unsecured notes is comprised of the following (in thousands):
|
| |
| Draw on Welltower Term Loan | $ 1,000,000 |
| Deferred loan costs on Welltower Term Loan | (4,124) |
| Repayment of QCP term loan | (855,393) |
| Total adjustment, net | $ 140,483 |
G) Adjustment represents the reversal of the QCP senior secured notes as all existing QCP indebtedness was repaid in conjunction with the Mergers.
H) The adjustment to accrued expenses and other liabilities primarily represents the elimination of QCP lease liabilities recorded in conjunction with QCP's early adoption of ASC 842 and QCP accrued interest given that all existing QCP indebtedness was repaid in conjunction with the Mergers.
I) Adjustments to redeemable noncontrolling interests and the components of stockholders' equity represent the reversal of historical QCP amounts, all of which were redeemed in connection with the Mergers, as well as a $6.8 million adjustment to other equity for transaction costs not capitalizable under ASU 2017-01.
J) The adjustment to noncontrolling interests represents the $512.7 million contribution made by ProMedica in exchange for their 20% interest in the Joint Venture, partially offset by the elimination of the historical QCP amount which was redeemed in connection with the Mergers.
K) The adjustment to rental income includes the following: (i) adjusting rental income on the Master Lease properties to present straight-line rent under the new Master Lease as if it had commenced on January 1, 2017; (ii) reducing rental income on the 59 non-yielding properties to zero; (iii) reflecting revised straight-line rental income for all assumed leases from January 1, 2017 through lease maturity; and (iv) eliminating QCP's reporting of expense reimbursement recovery revenue under triple-net leases on a gross basis (effective January 1, 2018) to conform to the Company's presentation.
L) Adjustment to interest expense represents the elimination of historical QCP interest expense as a result of all QCP indebtedness being repaid in conjunction with the Mergers, partially offset by interest incurred on the $2.0 billion draw on Company's unsecured credit facility (2.897% interest rate as of July 31, 2018) and the $1.0 billion draw on the Company's Term Loan (4.011% interest rate as of July 31, 2018), which were made to fund the Mergers.
M) Adjustment primarily represents the elimination of historical QCP property operating expenses reimbursed under triple-net leases, which were reported by QCP on a gross basis (effective January 1, 2018), to conform with the Company's presentation of such expenses. See Note K) for the adjustment to eliminate the offsetting expense reimbursement recovery revenue.
N) The adjustment to depreciation and amortization represents the elimination of historical QCP amounts, partially offset by depreciation and amortization expense as a result of recording the acquisition of the 305 QCP properties at fair value and the preliminary allocation to the tangible and intangible assets acquired. Estimated useful lives for land improvements, equipment, and buildings were 10 years, 15 years and 40 years, respectively. Lease-related intangible assets are amortized over the remaining term of the underlying lease. The Company intends to finalize the allocation of the purchase price in conjunction with the filing of its Quarterly Report on Form 10-Q for the quarter ending September 30, 2018.
O) Adjustments to eliminate historical QCP expenses and gains which are not expected to recur in the future as a result of the Mergers. The elimination of $5.9 million of other expenses for the six months ended June 30, 2018 represents restructuring costs incurred by QCP directly attributable to the Mergers. Additional restructuring costs incurred by QCP in the amounts of $19.7
million and $18.5 million for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively, were not adjusted as they do not relate directly to the Mergers, though they are not expected to recur.
P) Adjustment to eliminate historical QCP preferred stock dividends as the related preferred stock was redeemed in connection with the Mergers.
Q) The adjustment to noncontrolling interests represents the allocation of 20% of the net income of the Joint Venture, partially offset by the elimination of the historical QCP amount as the related noncontrolling interests were redeemed in connection with the Mergers.
